Batanai Matsika 
OVER the last decade, there has been an unprecedented crisis in the global financial services industry to which the insurance industry has not been immune.
In addition to the expected incidence of crises across insureds, the market context has been one of extreme volatility, affecting both capital requirements and investment returns.
The global banking crisis of 2007-2009, prompted by rising defaults on subprime mortgages in the United States, also led to extensive collateral damage.
An important point is that it is the assets of credibility and trust, which have been damaged most severely, and confidence in financial institutions has yet to recover.
The following are some of the key observations within the global financial services space;
– The value destroyed in the banking sector over the past years has been mirrored in the insurance sector;
– Insurers appear to struggle more than banks or corporates to recover lost value following reputation events that affect insurers directly;
– Financial institutions experience both greater likelihood and greater value impact from reputation events than do corporates; and
– The reputation impact on an insured corporate following a crisis does not generally transmit to the insurer. The immediate value impact on an insurer from a reputation crisis at an insured corporate is strongly related to the size of loss to which the insurer is exposed.
An interesting discussion topic at the 43rd Organisation of Eastern and Southern Africa Insurers Conference that was held from August 21-25, 2021 in Mombasa, Kenya was titled, “Leadership in times of crisis: Managing key Underwriting and Claims Reputation Risks for Re/insurers.”
The paper was presented by Ezekiel Abiola Ekundayo, group chief executive (CE) of Waica RE.
The key take-away was that managing reputational risk is critical given that the insurance industry is one of the largest investors in the global economy. A good reputation is a significant intangible asset.
For example, the failure to pay claims and the inability to meet minimum capital requirements can negatively impact on perception.
On the other hand, potential returns from a good reputation can materialise as increased sales and the ability to command a premium on market prices.
According to Oxford Metrica Research, the following are key drivers of value recovery following a corporate reputation crisis;
Preparation – Effective loss prevention and control techniques always should be the first port of call to minimise risk and mitigate potential loss;
Leadership – Strong leadership is essential to navigate a crisis well and inspire confidence in stakeholders;
Action – Rapid, decisive and efficient action demonstrates managerial credibility and puts a company on the path to recovery;
Communication – It must be accurate, frequent, well-coordinated and two-way. It should recognise the need to regain trust; and
Sensitivity – An honest, sensitive and compassionate response signals awareness of the severity of the situation and an understanding of the right priorities.
A good study of an insurance business in Zimbabwe that has been strategic in terms of reputational risk management is Nyaradzo Group (Nyaradzo).
In fact, Nyaradzo is a relatively new entrant in the life assurance business, but has taken the market by storm by capitalising on the “last mover advantage”.
The thinking here is that the last entrant to the market benefits from mistakes made by earlier entrants. While first movers may have enough resources and scale to win, their demise comes in when they fail to follow customer trends.
Nyaradzo is a group of companies that provides financial, insurance, risk and event management solutions. Its website shows that it covers over three million lives and the latest IPEC report shows that Nyaradzo continued to dominate the life assurance sector in terms of GPW with a total market share of 60,82 percent while the remaining players shared the remaining 39,18 percent.
The player’s strong dominance in funeral assurance products led to its dominance in market share for the sector.
In terms of market share by assets, Old Mutual and Nyaradzo continued to dominate the sector, with a combined market share of 53,10 percent of total assets, while other players shared the remaining 46,90 percent.
Philip Mataranyika is the co-founder and CE of Nyaradzo, which was formed in March 2001 as Nyaradzo Funeral Services. Since its formation, the company has evolved, resulting in the creation of a combined Nyaradzo Group, which encompasses Nyaradzo Funeral Assurance Company, Nyaradzo Funeral Services and Eureka Insurance Brokers.
In conclusion, strong leadership, credible action and effective communication are key ingredients in managing as well as in the restoration of corporate reputation and value recovery.
Matsika is the head of research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com
