Urge clients to hold on, Liberty tells advisers

Give a word of comfort to policyholders and urge them to hold on to their policies because the worst may soon be over.

This is the ‘advice to the advisers’ from Liberty.

Liberty’s insurance economist, Tendani Mantshimuli said economic indicators did not yet support the view that a dramatic improvement in the new business challenge was imminent, but business retention prospects were looking better.

It was therefore important that advisers encourage policyholders to hold out a little longer and retain their policies.

“New business pick-up won’t be very substantial until consumer incomes improve, and that may not occur for some time yet,” said Ms Mantshimuli. “For the immediate future, one suggested strategy for intermediaries is therefore to encourage clients by sharing some of the more positive economic data that is coming through.”

Liberty said praise was in order for prudent policyholders for maintaining their life and risk cover, other investments and retirement provision.

Consumers have been under pressure since interest rates began to rise in June 2006, and an increase in policy lapses had been noted across the entire industry.

“After all these months of mounting pressure, don’t falter now. That’s our plea to policyholders,” said Mantshimuli. “There could soon be light at the end of the tunnel. Advisers should assure clients that kept their policies up to date that they have made a wise decision.

“A lapse can represent a significant destruction of potential wealth. Policy retention keeps value and wealth intact while enabling the adviser to maintain a solid book of business.”

Liberty’s assessment is based on recent inflation figures and the leeway this creates for an interest rate cut.

Ms Mantshimuli, a former senior economist at the South African Reserve Bank, acknowledged that uncertainty in local and international financial markets put a brake on the economy; real GDP growth has slowed sharply from Q2 2008 to Q3.However, spending on infrastructure projects should still support some growth going forward.

Relief may be on the horizon even though an economic slowdown would hit household incomes and inhibit savings.

She explained: “While the consumer undoubtedly remains under pressure, there are no immediate signs these pressures will increase. Indications are that these might be stabilising before declining next year.

“CPIX inflation, which hopefully peaked at 13.6% in August, declined to 12.4% in October. The main reason was the drop in petrol prices. High petrol prices were one reason the consumer’s discretionary spend was constrained. The fan chart of the SARB published in their latest Monetary Policy Review also suggests that inflation might have peaked in the third quarter and thereafter there will be a steep deceleration – which is good news for consumers and augers well for a relaxation of monetary policy”

In recent months, decreases in fuel prices have helped the consumer.

“International food prices have eased, which should start feeding through to the food component of CPIX although the depreciated rand might neutralise the full impact.” added Ms Mantshimuli. “The inflation outlook will improve further when the rebased and re-weighted measure is released in February, which will take a few percentage points off the current inflation rate.

“This should strengthen the case for an interest cut soon.”

economist said recent statistics suggested that consumers were knuckling down and living within their means.

“Private sector credit extension eased from 18.52% year on year in August to16.17% in October,” she said. “This was evident in all categories; mortgage advances, instalment sales, leasing and ‘other loans and advances’ which includes credit card usage.

“Households are not taking up new credit at the same pace as last year.

“Consumers who have kept their policies thus far should not lapse them now. Things should ease when the SARB starts cutting interest rates, hopefully sooner rather than later.”