Still standing after all this time
Love him or hate him, but it seems rock ‘n roll legend Elton John has something in common with South Africa’s non-life insurance sector. The singer weathered some tough times in his topsy-turvy life to declare in an early 1980s hit single: “I’m still standing after all this time”. In much the same way, local insurance brokers, insurers, reinsurers and underwriting managers have persevered through almost 24-months of lockdown and pandemic to share their own stories of innovation, reinvention and survival. The recent trading update from market leader , Santam Insurance, is case in point, confirming an up to three times surge in its 2021 headline earnings.
Knock-out blow for the entertainment and events sectors
Certain niche insurers took a much harder hit from pandemic than the market leader. KEU Underwriting Managers, who celebrate 21 years in business this year, used their recent annual summit to revisit some of the highs and lows of the weeks immediately preceding South Africa’s March 2020 national lockdown up to present day. Who would have thought that we would still be reporting on and talking about pandemic two years after that fateful day?
KEU said that global reinsurers were the first to sound the pandemic alarm. “In mid-February 2020 we received an email from our international reinsurer to instruct us to immediately impose a very specific Covid-19 exclusion across all new business,” said Denise Hattingh, MD of KEU, before making two telling observations. The first was that prior to the pandemic it was common practice for communicable diseases extensions to be included ‘free of charge’ on policy schedules in the events cancellation space. The second was that these extensions were not widely understood until such time as they were called upon to perform.
As the pandemic became more prominent, insurance professionals were left frantically combing through communicable diseases extension wordings to figure out what the cover entailed and what its intension was. Another valuable lesson from these pandemic inflection points, was that things change at breakneck speed, especially in insurance. Overnight, it became impossible to obtain entertainment and events cover for Covid-19. “We could not source this cover anywhere in the world,” said Hattingh.
The complex nature of non-life insurance business is exposed by the myriad admin-intensive activities that KEU had to perform once the South African government decreed a national lockdown. All policies had to be reviewed. Annual policies were postponed by three months; active annual events liability policies were extended for an initial period of three months; and policies for equipment all risk and expedition-based insureds with physical goods had their cover extended, among countless other tasks. Many of the last-mentioned policies were converted to cover fire and other perils only. The UMA also had to ensure that it understood proximate cause and how to note and handle the flood of expected claims.
Summing up the potential exposures
Clients, meanwhile, had troubles of their own. “Film companies had to pack up, wrap up and leave … all hired in vehicles needed to be returned, equipment needed to be sent back, studios needed to be locked down and venues vacated and closed … we had to put all of their policies on our hiatus or extension period and deal with liabilities extensions and so forth,” explained Hattingh. These administrative processes could not deflect from the elephant in the room, being the total exposure that KEU’s insurance partners had to the looming loss event. As Hattingh recalls: “We had to submit our first estimate to our reinsurers towards the end of March; where does one even begin to calculate your total exposure in terms of film and entertainment?”
The exercise required tallying up the exposure on every events liability policy, every active event cancellation policy, film liability policies and then assess the potential claims for all active productions, nominated key costs and total cancellations, to name a few. Forget Nightmare on Elm Street, the number that KEU shared with its underwriter and reinsurers on that fateful Friday 13th in March 2020 was a staggering R9.54 billion. “That figure was based on every liability policy responding and every event and film being cancelled,” said Hattingh.
The eventual claims experience was not as severe, with a total of R83 million paid out, mainly for event cancellations, by the end of 2020. “Our policy triggers were very clear,” commented Iola Edmayr, Executive Director at KEU. “The wordings indicated that should there be an event cancellation due to communicable disease that caused governmental or border lockdown, there would be a pay-out; we were making pay-outs to insureds in the events and film industry from as early as April”. Operationally, the UMA suffered 213 combined policy cancellations or lapses during 2020, issuing over R2 million in refunds and forfeiting more than R37 million in insurance premium.
Unheard of quad-digit loss ratios
Global events cancellation insurers suffered a far bigger hit. Globally, around US$6.5 billion was paid as a result of event cancellation only, with an industry-wide loss ratio of over 1300%... These losses need to be kept in mind when unpacking the global reinsurer response to pandemic. According to KEU, there has been a hardening of markets and reduction of capacity in all entertainment and events cover categories. And the consensus is that it will take quite some time for the international events market to recover fully, if ever. “2020 had a far bigger impact than just claims in the entertainment market,” noted Edmayr, observing that something the world had expected to play out over three or so months had resulted in a two-year or longer ‘freeze’ in many countries.
Events and entertainment businesses are likely to bounce back differently, depending on their geography. According to KEU, local film production companies were able to recover reasonably quickly from mid-May 2021; but international crews filming in South Africa struggled to get going. Those that were able to operate during the softer lockdowns pressed ahead with smaller crews and bigger budgets. Sadly, the uptick in the local film sector was dealt another blow by the emergence of the Omicron variant late 2021, with South Africa back on the red list for international travel. Even before that, July 2021 happened. A little known fact is that this looting and rioting mayhem resulted in higher total claims specific to the domestic film industry than the whole of Covid-19!
Time heals all wounds…
As for writing entertainment and events cover post-pandemic, business is slowly picking up. Around 72% of KEU’s audience said that it would take more than a year for the sector to get back to normal, though it remains unclear what this normal will look like. It is already clear that many of the pre-pandemic ‘real world’ events will continue as scaled-down hybrid events or, in some cases, entirely virtual events. “We are seeing some new exhibitions planned for later in 2022 and hope that the exhibitions industry will regain some of its former lustre, given enough time,” concluded Edmayr. And that leaves KEU, as Elton John would sing: “looking like a true survivor, feeling like a little kid [at just 21 years of age] … and still standing after all this time”.
Writer’s thoughts:
The business of insurance and insurance broking closely follows human behaviour. So, if our assets and liability usage / profile changes in response to Covid-19 we must expect our insurance policies to do the same… Have you seen significant changes to policy wordings and limits consequence the pandemic? And do you expect some of these changes to remain in place forever? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
