Sound financial advice touted to protect life insurance premium
Advisers and financial planners will have their work cut out to ensure their clients retain their death, disability and severe illness covers through the current period of uncertainty. It will take your steady hand to prevent kneejerk responses to falling household disposable income on the back of higher fuel prices and the inevitable interest rate hikes to follow.
The R50 trillion gap
Your writer attended a recent media roundtable, hosted by the insurance and asset management (IAM) division of Liberty Group, part of the Standard Bank Group, to learn more about how local consumers, aided by intermediaries, can build and retain their risk protection portfolios.
The discussion was centred on the findings of the seventh Insurance Gap Study, produced by the Association for Savings and Investment South Africa (ASISA) in partnership with True South Actuaries. FAnews shared a detailed write-up of the 2025 gap study when it first appeared in October last year. In that piece, we shortlisted “consumer education, distribution and product design” as the frontline in the the ongoing war between the life insurance industry and households’ underinsurance.
“This industry-wide study gives us a greater sense of perspective by digging deep into the realities of the insurance gap in South Africa,” said discussion moderator, Gugulethu Mfuphi. She got the event underway by asking WS Nel, Actuary at True South, to offer some insights into the study, and the R50 trillion ‘gap’ it exposes. He encouraged attendees to look beyond the size of the gap to the impact on breadwinners and households of not having life insurance when a family really needs it.
The massive shortfall that headlines the 2025 Insurance Gap Study is too theoretical to make sense of. According to Nel, families should rather concern themselves with how much they need to continue living their lives in the event something happens to a breadwinner or other family member.
A second important point is that the country’s cover inequality continues to deepen. “Higher income and more educated people tend to have much higher levels of cover, better matching their needs,” Nel said, singling out access to advice and affordability as some of the constraints affecting the uptake of insurance.
Elevating the critical illness solution
Much of the presentation drilled into the emergence of critical illness coverage as a massive weak spot in the South African risk protection landscape.
“The critical illness ‘cover in place’ is up to 20 times lower than life and disability insurance coverage,” Nel said. “We estimate that only between 1.25 and 2 million people have some cover in place, meaning that most South Africans are at risk of facing massive financial burdens if they contract a critical illness.” Once again, access to advice, consumer education and improved product design were pitched as part of the solution.
Mfuphi put Schalk Malan, Head of Insurance, IAM at Liberty Group on the spot, asking for a product provider perspective of the shortfall. “The average South African has provided for 20-50 percent of what they need,” he said, before challenge households to reimagine their financial situation with only a half or a fifth of their current financial means. He said that solving the problem would take a multi-faceted, multi-disciplinary approach from all stakeholders in the insurance value chain. Each stakeholders must solve their part of the broader puzzle.
Insurers have to deliver accessible, affordable products that address policyholders’ needs at the point of loss. In this context, the focus has to be on distribution and product design. “The middle market segment has traditionally not had access to the value of advice; the value of an intermediary coming to sit down with them and determine their needs,” Malan said. He favours a two-pronged approach of selling insurance through the bank division, which has a trusted relationship with 14 million customers, and Liberty’s traditional intermediated channels.
More broadly, the challenge is to reimagine insurance to accommodate affordability, on one front, and consumer behaviour, on another. The moderator suggested that Standard Bank Group’s in-depth customer data might give it an edge in designing future-fit solutions. “There is a lot we can do as a holistic financial services group to help people manage their costs down,” said David Jewell, Head of Retail Life and Savings, IAM at Liberty Group. An important consideration is thus whether consumers have the financial resources to fulfil their needs.
Focusing on the quick fixes
“Based on our analysis, the middle market is the place that has the biggest addressable market need,” he said. The challenge then shifts to how an insurer and its intermediaries can convince this segment of households to take up the recommended level of life insurance cover. According to Jewell, the financial services industry has a key role to play in terms of providing financial literacy education, as do financial advisers.
Shalia Naidoo, Head of Behavioural Science and Innovation at Standard Bank Group was called upon to address behavioural and emotional aspects around life insurance. She commented on the intention-action gap which contributes to otherwise well-intentioned individuals failing to act in their or their loved ones’ best interests.
Naidoo described consumers in lower income segments as being less able to engage in complex financial decisions, citing the legacy of ‘low trust’ in large financial institutions as another obstacle. She called on insurers to find ways to make insurance easier to buy and understand, and more affordable, especially when pushing into that market segment.
“You serve as an interface, an intermediary [that helps consumers to] understand the solutions that are available to meet their risk needs,” said Mfuphi, as she invited Lelané Bezuidenhout, CEO of the Financial Planning Institute of South Africa (FPI) to join the discussion.
Human biases and heuristics
“The psychology of financial planning has become very important,” said Bezuidenhout, commenting on the biases and heuristics that inform an individual’s money beliefs. She called on all individuals to take a stronger interest in their money behaviours, and introduce the necessary self-discipline to elevate their financial postures to the next level. She singled out needs-appropriate advice and suitable product design as non-negotiable to deliver on the six principles of treating customers fairly, already built into South Africa’s financial sector regulation.
A closer alignment between adviser, insurer and policyholder at the point of sale would greatly improve perceptions of the industry by reducing claims repudiations. “It is important to give your financial adviser as much information as possible when taking out life cover, because at the end of the day, full disclosure is for your benefit,” Bezuidenhout said, before talking through some of the facts around disability and critical illness cover. How these covers perform will be familiar to most FAnews readers, but need to be carefully explained to clients.
The FPI CEO dismissed some of the typical excuses used by clients when refusing life cover, including being too young to be affected by cancer, heart attack or stroke, or that they belong to a medical aid. Under the former, she noted countless events among insureds in their late 20s and early 30s, and that even someone in their 70s was still considered ‘young’ these days. And for the latter, she pointed out that medical aid would settle your healthcare expenses, but not the loss of income or adaptation costs resulting from living with a disease.
Human behaviour and risk experts
“The more we understand about human behaviour and risk, the better we can be as financial advisers and planners,” Bezuidenhout said. She encouraged consumers to approach a qualified financial adviser to guide them through the complex life insurance product and regulatory environment. Her words resonated with Malan, who concluded with some pro-advice sentiment of his own. “The role of the adviser is critical … but it is equally important that the adviser has the right tools,” he said.
Writer’s thoughts:
You can argue for hours on the value of advice, education and product design on life insurance penetration, but when all is said and done, affordability is the clincher. What constraint would you remove to ensure wider uptake of life insurance? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
