Darshan Purmessur examines the broad impacts of COVID-19 on the insurance industry, using the situation in Mauritius as an example
Governments are reacting to COVID-19 in numerous ways: closing borders, imposing lockdowns, social distancing and shutting down schools. Financial markets around the world, meanwhile, are facing a black swan event – an incident that deviates beyond what is normally expected of a situation and is extremely difficult to predict. Events such as these can lead to investors selling their shares at lower prices, resulting in large losses and eventually a downward pressure in equity prices.
The Stock Exchange of Mauritius, SEMDEX, has taken a sharp hit since the beginning of the year. The Mauritian government imposed a national lockdown and travel restriction, which most affected the tourism and aviation sector, while other players saw a drop in share prices. Falling equity markets and interest rates could put pressure on insurers’ balance sheets.
It is natural that the global pandemic will leave many people tentative around international travel for some time, which could result in contraction in tourist arrivals to Mauritius for several years. Sectors that depend on tourism, such as hotels, taxis and so on, will be severely impacted. This seems likely to result in a rise in Mauritius’s current account deficit.
With plenty of other countries also imposing national lockdowns and closing their borders, Mauritius has seen significant erosion in its airline companies’ revenue base, and it is expected that some might not be able to meet their financial obligations in the future. The national airline, Air Mauritius, is now under voluntary administration.
Health insurance is also facing challenges. The key issue in most countries is enabling the rapid testing of people. In Mauritius this is being done free of charge, with the cost borne by the State. However, the cost of treatment for COVID-19 can be substantial. This pandemic may lead to an increase in new business for insurers, as many people who did not have health insurance might feel the need to have it going forward.
Motor insurance claim experience is expected to improve as fewer vehicles were on the road during the national lockdown. Consequently, it is expected that the likelihood of accidents will have decreased.
While property damage resulting from the virus is negligible, commercial property policies do contain coverage for business interruption. Usually, these policies compensate the insured for financial loss if the interruption was due to a covered cause of loss. Perils are likely to be restricted to events such as fire and extreme weather, with pandemics generally excluded.
Travel insurance is another line of business where the pandemic’s impact is tough to ascertain. Anyone who bought travel insurance before the virus was known about may be covered for medical expenses incurred due to testing positive, or for cancellation expenses.
As people are now working from home, an increase in communication and business transactions have been noted. Attacks from cybercriminals, such as specially crafted malware and phishing attacks, would be expected to increase due to the limited security of home internet connections.
Overall, earnings and GDP are expected to be heavily impacted by the pandemic. As a result, it is expected that many people will be looking to downsize their insurance.
The Bank of Mauritius has been supporting economic activities, including investments and consumption, since the beginning of March 2020 – putting in place a scheme to help banks and local businesses.
Readers will be well aware of how the coronavirus has affected their own lives; hopefully this will help to highlight just how far-reaching the consequences of this pandemic are.
Nations have adopted a range of stances to combat COVID-19, but it is important to remember that we are all in this together – and it is together that we will overcome this hurdle.
Darshan Purmessur is a guest student editor