Old Mutual says life insurance sales almost came to a standstill in its biggest business unit during the lockdown as brokers were not able to see customers. To make matters worse, some existing customers are seeking premium holidays and discount or lapsing their policies.
Interim CEO, Iain Williamson, said the group has seen "broad requests for support from customers," ranging from customers requesting payment holidays on short-term insurance to restructuring their life cover, but this was to be expected given the current economic environment.
"We've also seen pressure on persistency but it's difficult to give an indication or quantify that. But it's noticeable in terms of the volumes of calls we get from customers requesting some assistance and we are tracking it," said Williamson during a call with analysts on Thursday evening.
In a trading update published on Thursday morning, the insurer indicated that there has been a decline in recurring premium life sales is driven by lower sales in the division that offers employee benefits, while the two biggest businesses in the group, the Mass and Foundation Cluster and Personal Finance, are also taking strain from reduced households' income.
The insurance group, which is the second biggest in the country after Sanlam, said sales in its biggest division, the Mass and Foundation Cluster, were down around 90% in April. Sales in the second-biggest division, Personal Finance, almost halved what they were in April 2019. Combined, the Mass and Foundation Cluster and Personal Finance businesses contributed 58% to Old Mutual's operating profit 2019.
Unable to sell
"Many of our tied advisers have been unable to sell during the lockdown period due to the partial closure of the branch network and lack of access to customer’s homes, worksites and branches," read Old Mutual's update.
Williamson said under lockdown Level 4 in May, its sales force productivity "somewhat" improved, but advisers who predominantly sell face-to-face through branches are still dependent on customer footfall.
"Many of our branches we have opened responsibly, but it is also dependent on which parts of the economy are open and whether worksites are available to advisers. And where they are available, even there, the social distancing issues are still going to have some impact for a while," added Williamson.
Warwick Bam, head of research at Avior Capital Markets, said Old Mutual has been severely affected because its face-to-face selling channels in the low and middle income groups could not carry out their work during the lockdown.
"All insurers distributing through worksites, branches and other face-to-face channels will experience a similar impact over the lockdown period, but Old Mutual has the largest exposure by earnings to these distribution channels," said Bam.
Much of Old Mutual's branch network was closed in April, which slowed down issuing of loans and sales of funeral, savings and credit life products. While SA will ease lockdown restrictions further on 1 June, the company said it expects a slow recovery because of the economic woes that the coronavirus has created.
Lapses likely to ripple through the industry
On Wednesday, the SA Reserve Bank also said that it expects an upshot in insurance policy lapse rates and withdrawals from investment funds over the coming months.
Bam said lapses and investment withdrawals will affect the industry at large but those insurers with a high lower income-earning base will likely be hardest hit.
"Should the SA economy be 10% smaller in 2020/2021, retrenchments will impact sales and persistency of insurance products. While the insurers have reported the market impact of lockdowns as at Mar 2020, the underlying economic impact will ripple through consumers over the next 12 months," said Bam.
The Reserve Bank also warned that insurers are likely to also battle higher levels of claims for business interruption, income protection, death and illness as a result of the virus.
Old Mutual said it has seen an increase in business interruption incidents in April and May. Williamson said Old Mutual will rely on its reinsurers who have promised "to honor all legitimate claims" to fund these costs.