By Madiou SOUMARE, Chartered Accountant – Risk Manager.
Covid 19 is present on our continent with a number of infected people which is around 1,396 cases and 52 deaths in 43 countries of the African continent at the time of writing, according to the World Health Organization (WHO). Several economic sectors are affected by the direct or indirect consequences of the effects of Coronavirus. The countries of the various regional economic zones register cases of contamination and have practically in common, a beginning of the slope of evolution in the cycle of contagion of the Coronavirus.
At this stage of development of the pandemic on the Continent, the contagion does not have the same level of advancement according to the economic spaces existing in Africa. The Southern African Custom Union (SACU) countries record more than 415 detected cases, most of which are located in South Africa. The economies of the Economic Community of African States West (ECOWAS) accumulated at the end of March more than 282 cases including 99 in Burkina Faso, 79 in Senegal, 40 in Nigeria and 25 in Ivory Coast. At the level of the Economic Community of Central African States ( CEAAC), there are more than 156 cases, including 66 in Cameroon, 36 in Rwanda and the Democratic Republic of Congo.
In the 15 states that make up the Inter-African Conference on Insurance Markets (CIMA), the countries most affected in this beginning of contagion are Burkina with 99 cases, followed by Senegal for 79 cases, Cameroon with 66 cases and the Ivory Coast which so far has counted 25 cases. These four countries represent more than FCFA 753 billion in written premiums – life and non-life segments combined – or 66% of premiums in the CIMA space. Claims settled for 2017 in these four countries most affected by the pandemic amount to more than FCfa 181 billion, or 58% of the loss experience in the CIMA space.
An expected drop in written premiums …
Insurance companies in the CIMA space will experience a drop in their turnover in the branches directly impacted by the Covid19. Indeed, the drastic drop in transport activities such as civil aviation, road transport, public transport – the ‘transport’ branch which amounted to 72 billion FCFA Francs – will strongly impact the performance of the sector , with the closure of airports and the reduction or even cessation of certain industrial activities. Vehicle fleet subscribers would be tempted not to renew most of the vehicle fleet whose contracts expired at the end of March 2020, in order to reduce their management costs and counter their downturn in activity. At the end of 2017, the automobile branch recorded a total amount of premiums written in the CIMA space of 245 billion FCFA. By integrating the difficulties that the economic players are going through, this amount is very likely to experience a drop or relative stability.
The fire and civil liability branches may not be significantly impacted if the pandemic does not last until the period of major renewal of insurance contracts scheduled for the last quarter of 2020. In taking into account the closure of airports in the main destinations abroad, travel insurance will drop quite significantly during this Covid period19. The turnover of the Health branch is likely to register an increase, if we take into account the psychological impact of the underwriters of health contracts as a pandemic.
Indeed, subscribers and beneficiaries of health contracts are more vigilant about their sickness contracts and wish to ensure that their health expenses will be correctly reimbursed by their insurers. The same phenomenon of an increase in turnover could be observed on life insurance contracts.
In return for the premiums they collect, insurance companies in the course of their business offer insurance cover to cover the risks incurred by economic players. These covers protect against health, automobile, fire, public liability, transportation, life insurance and various other risks. The pandemic of corana virus affects the health of people with a direct impact on their professional lives and impact on the economic activities of underwriters of insurance contracts. With the exponential increase in the number of cases in the CIMA space, taking charge of the number of patients will have a very significant impact on health contracts, which are barely in balance in most insurance companies in France. CIMA space.
In the hypothesis that health insurance covers patients with coronavirus, space insurance companies risk recording historic peaks in terms of claims, thus creating imbalances in the portfolios of insurance companies. Without taking into account the Covid epidemic19, claims charges for health in space amounted to 135 billion in 2017, for premiums of 191 billion, representing a loss-to-premium ratio of 70%. If we refer to the upward trend of the epidemic in France or Italy, the increase in the number of positive cases in the CIMA space, could result in claims charges which could reach worrying propensities. However, in health insurance contracts taken out with insurance companies, provision is made, in most cases, for annual review clauses to take account of the levels of claims for the current year over the one following the annual closing. With this mechanism for adjusting premiums in health insurance contracts, companies can suffer losses linked to a given data, but the impact could be neutralized over the following year.
The residual impact for the companies would be at the level of their treasuries, which will suffer a sharp drop and with the impact on regulatory balances, in particular the coverage rate and the solvency pool. Can operating losses or significant drops in productivity suffered by contract beneficiaries following the cessation of their activities be covered by insurance contracts?
Indeed, to protect themselves from the risks that could lead to the cessation of their professional activities, companies take out insurance policies for business interruption. This type of guarantee provides compensation from the insurance company in the event of fire, explosion, accidents to electrical appliances, water damage, machine breakdown, storms, hail and snow on roofs, etc. . These types of contracts do not provide for coverage of operating losses caused by administrative restrictions following an outbreak of Covid19. In these cases, how could the insured recover his loss related to the cessation of his activity, without resorting to his insurance contract?
A tension on the treasury to integrate….
The expected drop in insurance companies’ turnover combined with the increase in claims charges will result in cash outflows which may not be sufficiently covered by the collection of written premiums. The Healthcare and Automotive branches consume a lot of cash and require insurance companies to have cash available immediately to meet their commitments. If the cash available in cash is not sufficient to meet claims charges, insurance companies are obliged to anticipate the terms of their term deposit (DAT), to sell part of their shares or to sell material assets such as land and real estate. In fact, the current CIMA regulations require compliance with technical and regulatory equilibrium and solvency rations. To comply with these directives, a restructuring and relocation of the dispersion of assets is more than necessary.
A certain fiscal impact …
The Covid19 pandemic will have tax impacts on insurance companies in the CIMA area. A drop in the premiums written at insurance companies will have a direct impact on their tax base, less premiums written necessarily leads to less insurance taxes to be paid to the State. Insurance companies pay not less than CFAF 20 billion a year to the public treasury of space states. The other fiscal impact would be a significant reduction in corporate tax, if we take into account an expected increase in claims in the health sector combined with a possible drop in turnover levels in the branches concerned. A drop in taxable corporate profits leads to a narrowing of the corporate tax base.
A necessary boost from the regulator and the States …
At the present time, there are still very few CIMA space states to offer support plans for the benefit of economic actors to make their future losses, which will undoubtedly have devastating impacts on our fragile economic fabric.
In light of the negative impacts of the Coravirus pandemic on insurance companies in the CIMA area, it would be difficult and complicated for insurance companies to provide a high-performance service, given the containment measures adopted by certain countries. of space and which risks being generalized throughout the space. In this context, the regulatory obligations of insurance companies will be difficult to meet if adequate measures are not put in place to take into account these contextual difficulties. The closings of quarterly accounts at the end of March, as well as tax obligations will certainly be slowed down with the likely decline in the number of staff working in the companies. In other countries, governments have deferred payment of taxes and provided for exemptions from the legal filing of regulatory documents. It would be a good signal from our States and CIMA if appropriate measures were taken to support the sector in this period of crisis at a time when the insurance industry is already subject to profound changes in terms of recapitalization and sanitation.