Category Life Insurance

A sobering death claim experience

08 April 2021 Gareth Stokes

The impact of COVID-19 on South Africa’s life insurance industry is becoming clearer as individual life insurers update shareholders on their death claim experiences during pandemic. Statistics from the Association for Savings and Investment South Africa (ASISA) reflected a 36.7% surge in death claims across the sector last year, with members of the association reporting 434216 death claims last year compared to 317442 in 2019. The surge in number of death claims has put many financial services providers (FSPs) under pressure.

A half-trillion rand pay-out

Hennie de Villiers, deputy chair of the ASISA Life and Risk Board Committee, said that more than half a trillion rand was paid to consumers last year to meet claims against life, disability, critical illness and income protection policies as well as retirement annuity and endowment policy benefits. “For most of the recipients the payments would have been triggered either by a tragic life event like death or disability, or retirement,” he said. 

We asked Kobus Kleyn CFP ® for a financial planner’s perspective and interspersed his comments with some of the revelations made by life insurers during presentations and in financial results published in the first quarter of 2021. “The industry experienced a general delay in claim responses; but I would not put this down to the increase in number of claims per se. It was more likely due to the remote office / work environment created by COVID-19 lockdowns and the inability of insurers to immediately pivot their staff into remote operations,” he said. The biggest impact was on pre-pandemic claims during level 5 and 4 of lockdown, with FSPs quickly getting up to speed. 

At the Momentum Science of Success media roundtable, held in March 2021, the insurer revealed it had already paid out R750 million in pandemic-related death claims in the 12-months to end-February 2021. George Kolbe, Head of Retail Life Insurance Marketing at Momentum, said that both the number of claims (+140%) and the rand value of pay-outs (+205%) were dramatically higher during the second wave of infections compared to the first. Of far greater concern is that the statistics relate to a single life insurance product. Death claims at Momentum Corporate were 35% higher, with a 50% spike in deaths in the 40-70 year age group. This statistic, coupled with a 20% increase in the average value of death claims at Momentum Life confirm the worse outcomes among older people following a COVID-19 infection. 

Worst claims experience in over four decades

Hollard Group has confirmed that the value of its recent death benefit claims were the highest in its 41-year history, having paid out just over R3.6 billion between April 2020 and January 2021. “COVID-19 has highlighted the cushioning impact of insurance and its ability to enable families to weather the financial turmoil and meet their financial obligations in challenging times,” said Besa Ruele, CEO of Hollard Life Solutions. “We will undoubtedly face challenges of retention in the short- to medium-term as consumer spending comes under increasing pressure; it is crucial that insurers accelerate financial inclusion and learn to satisfy the rapidly evolving needs of the market”. 

BrightRock published an update on its business performance across its individual life, group life and funeral assistance business in which it confirmed having paid claims totalling more than R882 million in its latest financial year. Old Mutual announced recently that it had received R1.9 billion in COVID-19 related death claims in January and February 2021 alone. Liberty Group reported claims payments totalling R11 billion in support of clients at their most vulnerable moments. 

The financial hardship suffered by consumers during lockdown has had a significant operational impact on life insurers with new business growth affected across the board and increases in lapses and surrenders. Sanlam, in its half-year to 30 June 2020, had hinted at the impact. Its life insurance sales were most severely impacted, with monthly sales volumes lagging targets by between 50% and 90% across many lines of business in the months of April, May and June 2020. 

Poorer persistency and plummeting new business

“New business was dramatically impacted by both the lockdown that initially restricted adviser and client movements and due to market concerns; the FSP year-end financial results offer a clear indication of the depressed trading environment over the COVID-19 financial year,” said Kleyn. He expected a significant recovery in both the investment and risk environment through 2021 and 2022. He also commended FSPs for “going all out” to support advisers and clients, through various relief programs. 

Liberty’s SA Retail division experienced lower than anticipated risk profits in the early months of 2020 and higher risk claims for the second half of 2020 amounting to R624 million, net of tax. The business was afflicted by poorer persistency and an increased client utilisation of risk benefit reduction options. And new business productivity was severely hampered. Value of new business written by SA Retail fell from R290 million in the prior year to just R30 million, due to lower sales volumes. The group remains upbeat: “Notwithstanding these uncertainties, we expect to remain well capitalised and able to provide uninterrupted service to our clients and advisers, continuing to fulfil our purpose”. 

But BrightRock was encouraged by its performance through pandemic. It saw a 10.8% increase in sales in the individual risk broker market, rising to third place with a 14.3% market share based on annual premium income.  “Last year required all of us to quickly adapt and change the way we worked and lived; we had to find ways to help support our financial advisers and continue giving them and our clients good service, said Schalk Malan, CEO of BrightRock. 

Consult with your adviser

There are also growing concerns that South Africa could face a third wave that will be as bad, if not worse, than the second wave. Kolbe encouraged consumers to engage with their financial advisers and ensure that adequate risk covers were in place. “With the threat of a third wave, and possibly even successive waves thereafter, it is strongly advisable to speak to a financial adviser and to have adequate cover in place,” he said. 

The good news for consumers is that new business premiums remain competitive. “We are seeing innovative ideas to make premiums more competitive to support a depressed risk market due to financial hardships and constraints,” concluded Kleyn. “The positive about writing new risk business is that consumers are more risk aware; it has become easier to discuss risk business opportunities and I believe we will see a surge in risk business over the next 18-months. It is our duty to ensure that clients have sufficient risk and estate planning within their financial plans”.

It is also important for your client’s to have a valid Last Will and Testament in place to prevent complications following an untimely passing. Jeffrey Wiseman, CEO of Momentum Trust Limited, said that pandemic served as a urgent wake-up call to your clients to put their affairs in order, starting with a proper financial plan, and including a will. The number of deceased estates reported through the business doubled in 2020, with an estimated one third of theses estates related to Covid-19 deaths. “Not only have we experienced an increase in inquiries regarding wills over the last year; but also regarding trusts,” he said. 

The life insurance emerged from the first year of pandemic adequately capitalised with more than two times its regulated solvency capital requirement; but the industry will have to remain vigilant to ensure that adequate provisions are made for ongoing COVID-19 claims. Many have already increased their provisions for a higher than expected mortality claim experience through the current financial year. Old Mutual said it has increased its initial R1.4 billion by R4 billion while Liberty has set aside R3 billion. 

Writer’s thoughts:
The 2020 life industry claim statistics give an objective overview of the mortality impact of COVID-19. Life insurers have met their social contract by paying out more death claims, of higher average values, without compromising their financial sustainability. We would like to hear about your experience with life insurers during pandemic. Are you satisfied with the level of service given financial product providers to your clients / clients’ beneficiaries through pandemic? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].


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