(Ecofin Agency) - The Covid-19 pandemic and the containment measures it called for have strained insurance systems in several African countries. The settlement of business interruption claims remains a financial audit challenge in the industry.
In its FY2022 financial results, South African insurance group Santam revealed that its net exposure to Covid-19 claims settlement risks was reassessed at ZAR1.9 billion ($104 million). The company says it reached this conclusion after taking into account the outcome of various appeals filed by its clients seeking compensation for business interruptions caused by Covid-19, as well as other local and international findings on the issue.
Santam said it paid out ZAR 4.7 billion ($258 million) in compensation in 2022 and has set aside one billion rand to cover claims. It also estimates its reinsurance recovery net of reinstatement premiums to ZAR2.9 billion.
Its net insurance liabilities during the fiscal year were down from its 2021 level of R2.5 billion. In addition, the insurer has achieved an 8% increase in gross written premiums while its net book profit is up slightly to ZAR2.8 billion. The company also claims to have generated an additional ZAR7 billion in net cash with various asset sales operations and a loan, which seems to have played a significant role in the cash generated.
Global and complex incidents are multiplying, raising concerns about financial stability and risk management practices in the insurance industry. The settlement of business interruption claims is an audit challenge as auditors have to assess how insurance companies’ executives handle those claims. Insurance companies are used to settling complex claims as long as they can anticipate them and devise premium payments for them. However, the Covid-19 pandemic and government containment measures have tested insurance systems in several African countries. Insurance companies were not prepared for the coronavirus pandemic but, South African courts ruled out they should cover Covid-19-related business interruptions, following similar decisions in the UK.
According to some industry experts, increased collaboration between insurers, reinsurers, and regulators would help develop stronger risk management frameworks and better coordinate responses to complex claims. This could set data collection and reporting standards, improve transparency in claims handling and promote greater awareness of emerging risks such as pandemics.