Don’t let disability insurance take a back seat
Doing a SWOT analysis is a key component in the success of the growth ambitions of a business. By analysing the company’s Strengths, Weaknesses, Opportunities and Threats, companies can see how they fit into society and how they can grow within their current environment.
Similar studies are regularly undertaken by the insurance industry to identify the sectors of society where there are insurance gaps. Recent studies undertaken by True South Actuaries and Consultants (True South), which was commissioned by FMI, shows that there is a desperate need for disability cover to increase in South Africa as there is a significant gap in the market.
Unpacking some statistics
One of the interesting statistics that can be taken out of the research is that currently, life cover is being sold at the twice the rate of disability cover. However, True South points out that ideally, an individual should have 43% more disability cover then life cover as there is more chance of a person being disabled then dying.
The research also points out that the total need for permanent disability cover is R24.4 trillion while actual cover in the market only comes to R9.7 trillion, leaving a gap of R14.7 trillion in the market.
Income protection is increasingly becoming one of the fastest growing products sold in the insurance industry. Your client’s ability to have insurance in place that ensures they can provide for their families should the unforeseen happen should be seen as just as important as motor insurance and household contents insurance.
This is particularly true for disability. While disability benefits are guaranteed when one takes out disability cover, the types of pay outs possibly needs to be addressed. The research shows that currently, 82% of the industry’s disability cover sold in 2013 was sold on a lump sum benefit basis while only 18% was sold on a replacement income basis. While it may be necessary to opt for a lump sum payment in order to make lifestyle changes, there needs to be more of a balance between lump sum policies and replacement income policies sold in the industry.
Finding the right mix
True South points out that it is a positive sign that there is an increasing balance being found between lump sum pay outs and replacement income pay outs; lump sum disability benefits make sense to consumers for once-off costs at the time of becoming disabled. However, True South points out that consumers should rather buy the bulk of their disability cover in income benefits. Lump sum benefits rarely help the consumer in the long term as most individuals are unable to properly manage the money needed to see them through their time of disability.
In this report, income benefits only account for 18% of new disability sales. In 2011, only 17% of permanent disability sold was made up of income benefits so the figure has increased, albeit marginally.
The research indicates that the financial services industry has a legal responsibility to ensure that when lump sum cover is sold to an individual, they are fully aware of what the quantifiable risk is of a shortfall. The research shows that unfortunately, many insurers do not do this. Clients must be made aware of this risk and the percentages for which they need to cover this in their payments to avoid their lump sum pay-outs falling short.
Addressing the key issues
One of the primary issues pointed out by True South is that not enough consumers are being sold the right cover. To fix this, the company feels that consumers need to educate themselves as to what type of cover they really need. In turn, advisers need to be candid with consumers in helping them to identify their needs properly.
Secondly, there needs to be a shift in thinking when it comes to life cover versus disability cover. Although life cover is essential, it will not help you if you find yourself unable to work for any length of time, due to a disability. With the majority of the population in high amounts of debt, clients could find themselves exposed to deep financial trouble if they are not covered properly.
Thirdly, True South refers to ‘sensible buying behaviour’ which is crucial when it comes to insurance. The South African insurance industry does have quality products, but it is a case of consumers purchasing these products to suit their individual needs.
Editor’s Thoughts:
The gap in terms of underinsurance when it comes to disability is concerning as it points to a number of people who will be reliant on state disability pay outs if they had to become disabled tomorrow. While there is some support from government, it is like the state pension, you can’t rely on it as your only form of income in these situations. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
Comments
To address this one step would be compulsory cover via employer.
Report Abuse