2023 and Emerging Challenges for Insurers

Activities and developments in both local and global business environment made insurers to see 2023 as positive business year with emerging challenges, writes Ebere Nwoji

As the global business community closes its annual transaction books for the year 2022 and opened an entirely new book for 2023, insurance operators said they were marching into the new year with positive thinking that the year would be a vibrant one though with a lot of challenges to contend with.

For Nigerian insurers, this expectation is anchored on the fact that early passage of the year’s budget would accelerate operations because of new contracts that will be awarded and paid for as well as yields from the huge investments they made in technology as a result of COVID-19 outbreak.

Also the approval of N9.24 billion by federal government for payment of group life insurance of its workers will, if timely released, boost the insurers’ operations.

With these, Nigerian insurers see the year as that of upward and forward movement rather than year of stagnation and marking time.

Signs of this belief among the insurers   is glaring at the expressing of the insurance Commissioner, Mr Sunday Olorundare Thomas, when in the last quarter of 2022, he declared that the insurance sector was moving to a new landscape and that the industry would in 2023 be more prepared to achieve insurance inclusiveness in Nigeria.

The commissioner, with this positive thought and belief in the new year, penultimate week approved 200 percent increase in motor insurance premium effect from January 1,2023. There are also indications that more upward review of other policy premium rates was on the pipeline, a situation, which will boost operators’ premium generations during the year.

Challenge as Opportunity

Similarly, the new chairman, Nigeria Insurers Association, Olusegun Omosehin, looking towards the year with optimism said the operators would turn every challenging situation in the industry to opportunity.

Listing out developments that will herald positive business outing for the insurers during the year, Thomas said the commission would  continue its execution of various regulatory and market development initiatives to uplift the insurance sector to a global standard.

“This will be achieved through a 12-point laid down initiatives that will focus on engaging stakeholders, including state governments towards ensuring domestication of the laws to ensure compliance with compulsory insurances and improve the business of insurance in their respective states; driving the Market Development and Restructuring Initiative to promote compulsory insurance products; feasibility assessment for Index Based Risk Transfer Solution in the agricultural sector; financial inclusion drive via focused insurance awareness campaign for the financially excluded,” the commissioner stated.

Insurance Market Development

He highlighted other areas as  “launch of the Insurtech Accelerator platforms under the Insurance Market Development programme i.e Bimalab Programme in conjunction with FSD Africa; ongoing synergy with FSD Africa on developing a Risk Based Capital Model for the Nigerian insurance industry; promoting the development of products and business models that meet the needs of the financially excluded group; automation of the commission’s processes; actuarial capacity development programme; risk based supervision regime; regional integration and setting up of the insurance sector committee on African Continental Free Trade Area among others.”

On their part, global insurers are of the view that  the last few years, most insurance carriers have demonstrated remarkable flexibility and resilience in overcoming a host of obstacles, especially the impact of the pandemic and the economic fallout from the Russia-Ukraine conflict. Systems and capabilities were improved, while agile talent and technology strategies paid off. 

For the New Year, stakeholders have raised the question on whether the industry is ready for emerging challenges heading into 2023 and beyond.

Deloitte in its outlook for insurance industry in 2023 observed that the  road ahead was  dotted with multiple hurdles—rising inflation, interest rates, and loss costs; the looming threats of recession, climate change, and geopolitical upheaval; and competition from InsurTechs and even noninsurance entities such as e-tailers and manufacturers, to name a few. It therefore concluded that year 2023 was not a time for insurance carriers to be satisfied with the adaptations they’ve had to make.

“Insurers should be pivoting to longer-term reinvention, inflation challenging nonlife insurer profitability even while boosting prices, top-line growth, life carrier transformation as  key to sustainable growth, Group insurers getting  innovative amid shifting dynamics . In terms of human capital outlook, it said insurers should reinvent workplace strategies and culture as talent war intensifies in the area of tchnology, recommending a movement from infrastructure investment to value realisation.

Setting sights beyond compliance

Deloitte therefor advised that for sustainability sake, insurers should set sights beyond compliance, make ESG a competitive differentiator. It viewed that activities in the industry will be slowing from uncertain economy adding that financial wise, new accounting rules will put public insurers in the spotlight. 

Deloitte further observed that insurers are most likely going to face   a host of macroeconomic and geopolitical challenges likely to inhibit growth and profitability including the looming threat of global recession, continuing fallout from Russia’s invasion of Ukraine, and lingering COVID-19 concerns.

It however said insurers that effectively transitioned during the pandemic to a remote workforce, as well as virtual customer and distributor engagement, could be better positioned to capitalise on a more agile digital infrastructure in meeting evolving expectations for customised products, channels, and services.

“In setting strategic plans, investment priorities, and budgets, insurers should therefore strive to maintain the momentum of creative adaptation established over the past few years, accelerating upgrades in systems, talent, and culture while becoming increasingly proactive, innovative, and customer-centric.

According to Deloitte, technology and resulting improvements in risk selection and pricing are likely to remain the primary drivers of improved bottom-line performance during the year as it alerted  insurers  to expect being  increasingly judged by stakeholders on their response to broader sustainability priorities such as climate risk, diversity and inclusion, social equity, and transparent governance—all of which could become competitive differentiators.

The Deloitte  report noted that insurers are facing a host of macroeconomic and geopolitical challenges likely to inhibit growth and profitability during the year including the looming threat of global recession, continuing fallout from Russia’s invasion of Ukraine, and lingering COVID-19 concerns.

However, insurers that effectively transitioned during the pandemic to a remote workforce, as well as virtual customer and distributor engagement, could be better positioned to capitalise on a more agile digital infrastructure in meeting evolving expectations for customised products, channels, and services.

It suggested that in setting strategic plans, investment priorities, and budgets, insurers should therefore strive to maintain the momentum of creative adaptation established over the past few years, accelerating upgrades in systems, talent, and culture while becoming increasingly proactive, innovative, and customer-centric.

It noted that technology and resulting improvements in risk selection and pricing are likely to remain the primary drivers of improved bottom-line performance.

PWC outlook

PWC in its outlook for the insurance sector in 2023 said, “We expect economic headwinds to persist into the first quarter of 2023 as companies evaluate the impacts of inflation and interest rates on deal values. 

It noted, as it has been the case historically, there is expectation for   private equity buyer demand for resilient, EBITDA generating business, such as insurance brokerage companies, to remain strong.

“As the cost of borrowing increases, we expect valuations to decline, specifically for insurance brokerage targets where many of the brokerage consolidators are private equity backed and rely heavily on debt financing to fund these acquisitions. Given the recent rise in interest rates, the cost of funds has increased dramatically, which is likely to impact valuations of these targets into 2023,” PWC stated. 

It further remarked that ideal activity in the life and annuity sector has remained strong, as long duration blocks have benefited from a rising rate environment. 

“Acquirers of these in-force/legacy blocks don’t rely on debt financing, which makes these transactions appealing to buyers in a rising rate environment. As a result, we’ve seen increased demand and rising valuations for these assets as private equity seeks to deploy its extensive dry powder”, PWC also stated.