Singapore’s P&C players brace for Covid-19 impact

April 27 2020 by Yvonne Lau

Asia’s Lion City is suffering from a double shock of a declining economic outlook, and rising Covid-19 infections.

Singapore’s Ministry of Trade and Industry (MTI)’s preliminary Q1 2020 results showed a 2.2% economic contraction, compared to 1% growth in Q4 2019. The economy shrank by 10.6% when calculated by a quarter-on-quarter, seasonally adjusted annualised basis – an uncomfortable decline.

The MTI has further warned that GDP growth will shrink between 1% and 4% this year due to “the sharp deterioration in the external and domestic environment since February.” Chan Chun Sing, Singapore’s trade and industry minister however, told Bloomberg TV that the city is “very likely” to see a larger drop in GDP than expected.

“New business in most product segments has already slowed down amidst concerns of deeper economic contraction and slow recovery.” Craig Ellis, MSIG

Hailed as an early model of how to combat the Covid-19 spread, Singapore has now seen a recent spate of clustered infections. New ‘circuit breaker’ measures have been implemented until June 1 to combat the virus, further disrupting businesses.

Given this multitude of disruptions and difficulties, what should Singapore’s P&C sector look out for?

An attempt at ‘business as usual’
Market body the General Insurance Association of Singapore (GIA) reaffirmed that P&C insurers will proceed as usual – to continue providing the “full range of services, including insurance policy issuance, premium payment and claims processing services.”

The GIA along with regulator Monetary Authority of Singapore (MAS), and other financial institutions, have also announced measures to support SMEs and individuals – assisting with financial and cashflow difficulties.

Despite continued operations and attempts at business as usual, it could be a challenging year(s) ahead with some uncertainties for the P&C market.

Craig Ellis, chief executive of MSIG Singapore and president of the GIA, told InsuranceAsia News (IAN): “General insurers will face increasingly difficult market conditions from the immediate and long-term effects of the crisis. New business in most product segments has already slowed down amidst concerns of deeper economic contraction and slow recovery.”

Ellis added: “There are also second-order challenges as insurers find themselves devoting more resources than ever for credit control, fraud management and early policy cancellations.”

Looking at fiscal year 2019, Singapore’s general market recorded stable growth at 7.6% in gross written premiums (GWP) totalling S$4.1 billion (US$2.83 billion).

“Coming out of the crisis, the assets of the economy will shift even more quickly from physical assets to intellectual and digital assets.” Brad Mendelson, McKinsey

The top five general market segments representing 70% of the sector – motor, property, health, employer’s liability and travel – recorded a combined S$43.4 million (US$30 million) underwriting loss.

The circuit breaker measures which include majority workplace lockdowns and a system designating days for people to do grocery shopping, will undoubtedly have a short-term impact with potentially unforeseen longer-term consequences.

While general insurers may save in areas like motor and travel claims, it is unclear if the advantages outweigh the uncertainties that will impact new business sales and pricing.

“Across [all] segments, insurers are mastering ways to keep costs low in line with reductions in premiums — although some lines of business will continue to experience deteriorating loss ratios,” said Ellis.

Resilience and creativity
Despite the unpredictable environement, the market agrees that resilience and digital creativity is needed to weather a downturn.

Consulting firm McKinsey noted in a (virtual) roundtable last week that although the global P&C sector has proven itself resilient and well-capitalised, it has been losing relevance and/or slow in gaining traction in certain markets.

Brad Mendelson, Asia insurance practice lead and senior partner at the firm, commented: “Coming out of the crisis, the assets of the economy will shift even more quickly from physical assets to intellectual and digital assets – and the industry needs to take on a greater role in thinking about how we cover these things.”

Bernhard Kotanko, McKinsey’s senior partner, added: “Industry catch-up will be driven by several factors, including business line mix, technical innovation and excellence.”

MSIG’s Ellis concurred, noting that the pandemic has forced market players to review their business operations, which traditionally are reliant on in-person interaction and manual processing – and prioritising a shift to automation and digital engagement.

Further economic data will be released by Singapore’s MTI in May.

Meanwhile, Singapore’s P&C insurers will do their best to support their customers. And those who have “embraced the constraints of Covid-19,” concludes Ellis, have recognised the potential to weather the storm and take advantage of a crisis in generating new products and services for a market in need of creativity and innovation.