Ebola: Emerging risks and effects on the Sierra Leone insurance industry

The Lloyds Emerging Risks Team defines an emerging risk “as an issue that is perceived to be potentially significant but which may not be fully understood or allowed for in insurance terms and conditions, pricing, reserving or capital setting”.

The Ebola pandemic currently facing the West Africa nations of Sierra Leone, Liberia and Guinea, with its projected 1.4 million infections by the US based CDC, falls within this definition and thus requires a response by the insurance industry. A Towers Watson survey of global insurance industry executives in December 2013, ranked the threat of a pandemic as the number one long-term risk for the insurance industry.

With significant economic impacts conservatively pegged at a 30 percent GDP loss, by the Sierra Leone Minister of Agriculture, most industries especially in the mining, agricultural, entertainment and tourism sectors are projected to be adversely impacted in Sierra Leone.

Moreover, the Minister of Finance recently informed newsmen in Freetown that the nation has lost a total of 75 Billion Leones in revenue since the outbreak of the Ebola disease, and further projected a revenue loss of 285 Billion to 300 Billion Leones by the end of the financial year.

Secondary impacts of the pandemic including political risks, social and trade disruptions and supply chain risks must also be accounted for; especially in industries were significant face to face contacts are required.

Is the insurance industry ready?

There are currently many exposures that businesses in Sierra Leone should be considering in the wake of this Ebola pandemic. Though businesses cannot be contractually fully indemnified, through insurance mechanisms for all losses, the insurance industry must prepare itself for significant claims in the life, health, general liability, business interruption, and employers’ liability/workers compensation insurance classes of business. However, many business interests unaware of the adverse impact of the Ebola disease on their businesses do not carry the appropriate coverages.

Even at the best of times, the Sierra Leone insurance industry remains an underdeveloped and inadequately supervised financial sector, characterized by a weak regulatory framework requiring focus and coherence in line with international best practices.

A cursory review of the nation’s premier insurance carrier, the Reliance Insurance Corporation (RITCORP), underscores the state of readiness of the entire industry in the face of this Ebola epidemic.

Since assuming the presidency in 2007, president Koroma’s company Ritcorp, has been catapulted from the nation’s third insurance company by both market share, premium income and profitability into the juggernaut it is today, with close to 70 percent share of the insurance market. This has resulted in a gross premium revenue increase from 1.038 billion Leones in 2007 to 14.124 billion Leones in a space of five years, ending 2011.

With over 10 functional insurance companies, including several locally owned and managed, the capricious nature of the president company’s activities has largely constricted their capacity and market share, with a resultant adverse impact on economic growth in this sector.

The insurance company with the highest potential exposure to damages from the Ebola epidemic in Sierra Leone is Ritcorp. For with its 70 percent market share in all the affected classes of business and with a disproportionate share of business placements from the mining and other transnational companies and NGOs, portfolio diversification may have been sacrificed for political expediency and currying of favors. Business interruption claims for damages by such large conglomerates as African Minerals and London Mining, not to mention the assorted agricultural, gold and construction companies are projected to adversely impact the bottom lines of insurance companies in the country.

Kortor Kamara