Reframe advice
The South African life insurance industry is steeped in tradition and is seen as a world leader when it comes to product innovation. This is an industry insurers and advisers can be proud to be a part of.
However, there are challenges that need to be overcome if the industry wants to retain this status going forward.
These are the thoughts of FMI CEO Brad Toerien who discussed these challenges in detail at the launch of the findings of the recent FMI #Reality Check Survey.
Simple confusion
While the FMI Survey does point to the fact that there are challenges in the industry, these challenges are far from insurmountable.
“The first challenge that needs to be overcome is that the majority of people who participated in the survey thought that life insurance is death cover. One can only assume that most of the population has a similar view,” said Toerien.
Why is this a problem? If people think that life cover is death cover, then many people will have an incorrect mix when it comes to life vs disability cover. Further, Toerien adds that many people will have life cover when they do not need it.
On the other end of the spectrum, many people will be uninsured because they do not see a need for life insurance.
Toerien added that the reality is that advisers are selling twice as much life cover than they are selling disability cover. When one considers that you will be injured or suffer a severe illness more times than you will die, surely there should be a greater focus on critical illness and disability cover?
Needs vs products
The FMI survey pointed out that when given a choice, 61% of the respondents to the survey said that they would choose a monthly or annuitized pay-out when they suffer a disability or a critical illness over a lumpsum.
“Yet, the reality is that 77% of the cover that is sold in the industry is lumpsum cover and will only pay out in the case of a permanent disability. Using a lumpsum to provide an income is a problem because it is very difficult to know how much cover is needed. This leaves a lot of people either over or under insured,” said Toerien.
In addition, there are a lot of investment risks that are associated with investing a lumpum. These include longevity and inflation.
Know your worth
The next problem that the survey points out is that South Africans generally underestimate what they are worth.
“More than 51% of the respondents to the FMI Survey thought that they would earn no more than R10 million during their lifetime. The survey found that 25 to 39-year olds underestimate their future earnings by 79%. A 25-year-old earning R15 000 a month will earn R28 million over their lifetime. This is assuming a 6% annual salary growth and a retirement age of 65,” said Toerien.
He added that if we understood how much we are worth, and how much we will be worth in the future, we would protect our income first.
Reconsider spending habits
According to the FMI Survey, South Africans feel that they cannot afford life insurance.
However, the reality is that they can afford it, it is just a question of priorities.
“A staggering 57% of South Africans spend more than R500 a month on fast food. Let’s look at an example in detail. A 30-year-old female who earns R30 000 a month can protect 100% of her income for just R24 a day. This is less than the cost of a cappuccino from Starbucks or Seattle Coffee. We don’t think twice about spending money on things like coffee or fast food without realising how quickly these costs add up,” said Toerien.
He added that 90% of life insurance lapse rates are due to affordability; this leaves individuals vulnerable with no cover at all.
Reframing advice
How do we resolve this? Toerien pointed out that advisers play a vital role in the industry and they will continue to do so in the future.
The results from the FMI survey points to the fact that there needs to be an increased focus on the right mix of insurance that is being sold to clients. There needs to be an increased focus on income protection and clients need to be made aware that cover is available at the amount of money that they spend on fast food.
Editor’s Thoughts:
Do you feel that the results of the FMI Survey paints an accurate picture of the current state of the life insurance industry? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected]
