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Proactive brokers can fill the R34 trillion insurance gap

09 May 2024 Gareth Stokes

South Africa’s oft-celebrated life insurance penetration statistics hide an uncomfortable truth: far too much of the penetration is due to the country’s funeral policy obsession. These policies, usually sold to the poorest of the poor, are among the costliest available domestically measured on the cover obtained per rand in premium. This is why a growing cohort of insurance professionals view a gradual shift from retail funeral cover to group risk cover as a viable method for reducing South Africa’s life insurance gap.

A group risk ‘filler’ for the insurance gap

Anthony Miller, CEO of Simply, an Insurtech focused on disrupting the life insurance space, is one such expert. In a recent presentation to Insure Talk 41 he suggested group risk as a viable way to tackle the country’s well-documented insurance gap. 

The gap, according to a 2022 study by the Association for Savings Investments (ASISA), in partnership with True South Actuaries and Consultants, now exceeds R34.3 trillion. “My sense is that the way to solve [this cover gap] is by making group risk more broadly available, and to make it more flexible,” he said. All else being equal, “individuals can access better-value cover through their employers than they can on their own”. 

This was not the first time your writer had listened to Miller talk up the benefits of group risk solutions, nor the first time the solution had been offered up as an “interesting opportunity for intermediaries”. The challenge, if only more of the country’s financial and risk advisers would embrace it, is to redirect as much as possible of the approximately R40 billion in annual funeral cover premiums generated by the country’s life insurers towards the group life construct. “We have well north of R100 billion in life premium being collected annually, but around 40% of that [is due to the] extensive penetration of retail funeral cover,” Miller estimated. 

R2 trillion in additional cover ‘up for grabs’

Miller believes the industry could have a material impact on how insureds protect their families by from retail funeral spend to group spend. He opined that a 20% shift from retail funeral to group risk cover could add around R2 trillion in sums insured, potentially halve the insurance gap among lower income earners. Individuals can get “literally 10 times more cover” in a small group risk arrangement  than through retail funeral benefits. 

Expensive distribution; high policy churn; and higher instances of fraud due to the pressure placed on insurers to pay claims quickly as contributing factors to higher costs in the latter product segment. But these concerns are largely dealt with in the group risk space, which explains the premium and sum insured benefits associated with offering individualised benefits through an employer group. It is possible, for example, to offer funeral cover at an 85% discount in employer group versus on a retail basis, and individuals can even access free cover limits if they have HIV. 

The group risk environment also opens the door to occupational disability benefits that are not available in the retail funeral cover space. “Not only can they save significant money; but they can access benefits that they could not otherwise access,” Miller said, illustrating the value in group risk as an employee retention tool. 

Commissions in need of revision?

The uptake of group risk solutions among companies employing 50 or more staff is reasonable; but small, medium and micro enterprises (SMMEs) have been left behind despite providing about two thirds of the country’s formal sector jobs. 

One of the reasons for the poor uptake among SMMEs is the low level of regulated commission paid to intermediaries for introducing group risk business, despite the laborious process of putting this cover in place. Miller explained that the reward paid to intermediaries was disconnect the amount of work that went into onboarding new business in this segment of the market: independent financial advisers (IFAs) and even tied agents were thus reluctant to pursue same. 

The opportunity, according to Miller, is twofold. First, stakeholders must work towards “widening the group risk ‘net’ by making group risk available to a far broader group of employees”. And second, insurers must “make benefits more flexible and more relevant in order to enable employees to access the cover that they need or the financial services that they need via group schemes”. He proposed innovative product design and technology as enablers for wider group risk access, even for firms employing just a handful of people. 

Currently, intermediaries in this segment of the market have to navigate rigid products and time-consuming quoting and onboarding processes; and employers face heaps of admin too. It turns out administering a group risk scheme for a large employer can be difficult too, especially in sectors that are heavily dependent on contract workers. “Can you imagine the admin associated with offering a R20 000 funeral benefit to each of 2 500 employees in a hospitality business where the average annual staff turnover is around 500 employees?” Miller asked. 

Levelling the individual benefits environment

Both employers and their employee benefits consultants have been hankering for fully digital solutions that address constraints such as minimum numbers of employees and can adapt for non-traditional types of employment. “We need an easy sales and support process so that the economics makes sense for intermediaries,” Miller said. He added that enabling individualised benefits on the group risk benefits platform was optimal. This ‘dream’ scenario would see the same kind of product flexibility extended to blue collar employees as those enjoyed by management. 

The desired outcome would be to move away from the current environment where low income earners hold multiple funeral insurance policies, to one where they hold covers that are relevant to them and their families. But to achieve this outcome, intermediaries will have to get on board. “By providing product to employees through their employers, you can [interact with individuals] on a trust basis and give employees a [level of] cover that they cannot get on a retail basis anywhere, let alone at the same price,” Miller said. 

The acceleration of enabling technologies; increased consumer demand for personalisation; flexible worker categories; progressive regulatory shifts; and concerns over cover affordability were singled out as drivers and enablers for change over the next few years. Under technology, Miller commented on the proliferation of connected smartphones and growing acceptance among consumers’ for e-commerce. Nowadays, Insurtech starts-ups can build and deploy solutions at a fraction of the cost of their predecessors. 

Demonstrable success

Tech adoption can drive a successful business. Case in point, Simply has already put in place around 3 000 policies with an average of 15 members per scheme. According to Miller, around 95% of these were new schemes, proving the ‘untapped market’ thesis. 

His presentation made it clear that a move from retail funeral cover to group risk cover offers a win-win-win for employer, employee and intermediary. Brokers will, no doubt, find various solutions out there; but a digital, guided start-to-finish group risk advice process that can put all employees on cover in a single meeting seems an excellent starting point. 

Writer’s thoughts:

The premium-to-sum-insured argument is so clear-cut that it left this writer wondering how the continued marketing or selling funeral policies satisfies the treating customers fairly (TCF) principles. Then again, the same argument holds for countless legacy insurance products. Your thoughts? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.

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