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News Article

What Risks Does COVID-19 Bring to Insurers?

By Miriam Bello | Thu, 05/14/2020 - 11:34

Most Mexican insurers have said to be capable and solvent to face the COVID-19 crisis and offer policies to their clients in case of contagion. In the country, having private healthcare insurance is not very common but this new scenario can be a good opportunity for healthcare insurance policies to grow.

The sector’s challenges due to the pandemic are many. Companies offer policies that cover the costs in case of contagion. However, their solvency depends on people buying these policies and not getting infected. According to a report made by Deloitte, it is expected for confinement measures to have a temporary effect on the accident rate of various insurance companies, as well as in the way in which these incidences are reported and paid. “This can impact the reserves that insurance companies have.” Additionally, factors such as exchange rates, medical inflation and unexpected losses in industrial processes can increase accident rates for the sector.

According to Fitch Ratings, this pandemic involves bigger claims of medical insurance and life insurance. Meanwhile, the whole sector finds itself in a situation of uncertainty due to the expected low economic growth, looser payment agreements, greater indebtedness and depreciation on exchange rates.

According to AMIS data, only 10.6 million Mexicans have medical expenses insurance, which represents 15.9 percent of the market premiums. The last recorded data of the Ministry of Health (from around three weeks ago) stated that from the universe of positive COVID-19 cases in Mexico, just 6 percent of them had medical expenses insurance. AMIS says 14 of their company members have registered those cases for a total of around MX$42 million (US$1.7 million) in claims of which the sector has paid more than MX$9 million (US$373,161), around 21 percent. Breaking down the numbers, the highest claim AMIS registered was for MX$5 million (US$207,380) and the lowest of MX$819 (US$34).

Last week, however, the scenario changed as the virus spread in Mexico. AMIS claim numbers grew up to a sum of MX$273 million (US$11.3 million), representing 300 percent growth against the previous data. The highest amount claimed, up to date, has been of MX$14 million (US$580,312).

The insurance sector must react quickly and adapt to changing conditions by reformulating its products. On the subject, Deloitte has recommended the sector to create strategies that allow companies to define or redefine their products, including their cost and coverage, to conduct an analysis of long-term life products to make them attractive based on current and expected market interest rates and to work on creating forms of financing for the acquisition of insurance, as well as mechanisms that support and motivate their sales force that is currently limited due to lockdown instructions.

For the moment, AMIS has issued a statement that is very positive in times of pandemic. But how will that impact the insurance sector? During the president’s morning press conference, Sofia Belmar, President of AMIS, said the association had agreed with the government to offer free life insurance to healthcare workers at the frontline of COVID-19. The agreement called Cobertura Solidaria de Apoyo al Sector Salud Público (Solidary Support Coverage for the Public Health Sector) will provide protection to 1.6 million workers including doctors, residents, nurses, nursing interns, nursing assistants, staff and technicians, stretcher-bearers, medicine students and volunteers. Insurers will also grant a MX$50,000 (US$2,072) compensation that can be claimed by spouses, children or parents of healthcare worker in case of death. This will be effective from April 1 to August 31.

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Miriam Bello Miriam Bello Journalist and Industry Analyst