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Category Life Insurance

Advisers, planners should know their worth

24 June 2024 Gareth Stokes

The day-to-day compliance and operational challenges that modern financial advice practices have to overcome can make it difficult for financial advisers and financial planners to appreciate their true worth. Worth is defined by Oxford Languages as ‘the level at which someone or something deserves to be valued or rated’. Many make the mistake of aligning worth with remuneration; but in the financial advice context, it makes more sense to think of your worth in terms of the value you add to society through the activity of financial advising.

Rand value of financial advising outcomes

If you think more broadly in terms of how your clients and their families fit into the community, you can start putting economic numbers to your financial advising outcomes. Case in point, the 2023 Momentum Retail Life Statistics reveals that R6.5 billion in claims were paid out in the 12 months to 31 December 2023, with the seed for most of these pay outs planted during that first adviser-client meeting, an initial financial needs analysis (FNA), or annual portfolio review. Pause for a moment to reflect on this number: you are looking at 6500 piles of R1 million each flowing back into the South African economy, to communities, and to individual households. 

Your writer was privileged to attend a virtual presentation of the life insurer’s 2023 statistics, expertly hosted by global speaker and medical doctor, Dr Michael Mol. These presentations tend to be quite product focused; but that does not detract from the incredible difference a well-structured life insurance portfolio can make to your clients at their time of need. It is also necessary for financial advice professionals to be informed of market-leading product differentiators, a few of which feature later in this piece. 

George Kolbe, Head of Life Insurance Marketing at the insurer, got proceedings underway, stating that the Myriad brand had paid just over R4 billion in mortality claims with the balance of its R5.6 billion total being for so-called living benefit claims. “The line that stands out in the living benefits section is claims paid for critical illness,” Kolbe said, before adding that this seemed to be a neglected segment of the market. The message to intermediaries was clear; there are excellent benefits available from which to structure critical illness solutions for a wide range of potential events; your job is to discuss these possibilities with your clients and encourage them to take up same. 

The mega claim refrain…

The presentation dived in and out of various ‘highest claims paid’ data for the insurer’s South African and Namibian businesses. Returning to our opening paragraph, we are not sure these numbers are the best indicator of the worth offered by insurers and intermediaries to clients; but they certainly draw a few gasps from the middle-income crowd. Mol asked Wesley Paton-Tiffin, a technical marketing actuary at Myriad, about the biggest death claim pay out in 2023, which also happened to be the highest on record. “At R117.2 million, this pay-out illustrates the power of financial planning,” the actuary said. 

The claim was paid to a business owner who suffered an accidental gunshot wound. More specifically, it was an aggregate amount paid from a collection of eight business insurance policies put in place over a period spanning almost two decades. “If you look past the actual monetary value [you find] the skill of the financial planner to quantify the impact of a death event, and to make sure that when tragedy struck, the business could continue and people could still have jobs,” Paton-Tiffin said. An astute financial adviser who understands the life insurance product universe makes all the difference. 

The actuary trotted out the usual suspects under the ‘causes of death claims’ headline. Cardiovascular and cancer events account for more than half of the deaths in 2023 with unnatural deaths, respiratory conditions and nervous system conditions rounding out the top five causes. These five causes were common across the male and female genders, though the insurer paid more than double the number of claims for men than for women. “This was a bit surprising, because we have a roughly equal gender split on our book of in-force policies; though we have a more predominant male book for business assurance policies,” he said. 

Life happens, at any age 

Some quick comments on the youngest and oldest claimants supported the adage that ‘life happens’. The youngest death claim was for a 21-year-old male who suffered a cardiovascular event; and the oldest death claim was for a 91-year-old female for the same cause. Financial advisers might quote from the following actuary-sourced wisdom when they next meet a potential client. A lot of people believe they are healthy and therefore do not need life insurance; but the reality is that life happens, the unforeseen happens … and anything can happen at any time. You must make sure that your client’s cover is always up to date and that they have an appropriate level of cover as soon as possible. 

Nowhere is this ‘anything happens’ construct better illustrated than in the realm of unnatural deaths. For 2023, the insurer reported accidents, mostly motor-related (45%) as the leading contributor with a staggering two-thirds of deaths affecting policyholders aged 30 and under. The insurer also paid R120.9 million in death benefits to 34 living claimants where death was expected, unequivocally, within 12 months. Turning to terminal illness claims, Paton-Tiffin singled out cancer as the leading claim cause, with the youngest being a 36-year-old woman diagnosed with stage four breast cancer and the oldest being an 80-year-old male with stage four prostate cancer. 

The critical illness universe spans disability and income protection claims. Cancer (44%) again emerged as the leading cause of critical illness claims followed by cardiovascular events, musculoskeletal claims and nervous system events … with a fairly equal split between genders. According to Paton-Tiffin, 82% of the critical illness claims paid were for first-time claimants, with 14% being a second claim and 4% being for third or subsequent claims. “There are a few reasons for multiple claims: the first is where the condition being claimed for progresses; the second is for another unrelated condition,” he said, before praising the Myriad ‘breadth of cover’ promise. 

Lump sum disability vs monthly income protection

Finally, Dr Mol focused attention on lump sum disability and income protection statistics. In the former category, the largest claim came in at R28.4 million, also being a record high in the insurer’s history. This claim was paid to a 49-year-old business owner who suffered serious injuries in a motorcycle accident in 2020 and was eventually deemed to be occupationally disabled in 2023. “Again, this is a business assurance benefit that pays out following a catastrophic event to allow business continuation,” said Nafeesa Gaida: Head of Claims at Momentum Life. 

She drew attention to the group’s permanent disability enhancer, which allows a claimant to convert future monthly income protection payments into a lump sum at any stage. It is also possible to arrange for a partial commutation of this benefit, taking a portion as a lump sum. As for the lump sum disability versus monthly income protection debate, that really depends on personal circumstances. It was left to Joretha Botha, Head of Product Development, Underwriting and Claims at Momentum Life, to wrap up. Her biggest concern was with a trend shift that had exhibited post-pandemic. 

Why not go with comprehensive cover?

“Financial advisers have been selling single life cover needs to their clients which means comprehensive benefits like critical illness and disability have not been taken up as much as we would like to have seen,” she said. “We need advisers to consider comprehensive solutions for their clients, and not only life cover”. And that, dear reader, is as good a place as any to wrap things. 

Writer’s thoughts:

The statistical evidence shows the profound impact that effective financial planning and advice has on individuals and society. How can you better communicate the need for comprehensive cover during client interactions? Please comment below, interact with us on X at @fanews_online or email us your thoughts editor@fanews.co.za.

Comments

Added by Gareth Stokes, 24 Jun 2024
Thanks for sharing, @Michael. I like the 'balance sheet' explainer. From the consumer side, I think although the value is evident, it can be difficult to find the sums needed to take up comprehensive cover. Yes, even if the consequences of under insurance are weighted up.
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Added by Michael, 24 Jun 2024
Life assurance in all of its forms and benefits, is rarely bought, almost always sold. I have been involved in the claims process on death claims on numerous occasions, as an advisor assisting a family/ business in the claims process, notwithstanding the grief/ loss felt by those affected, the relief that you bring to a family / business with the delivery of a financial solution is immense, it will never bring back a lost one, what is does do is allow and create a space and time to grieve for the family and those affected.

This aspect of Financial Planning and the role that advisors play is almost forgotten when all and sundry are bashing advisors and the industry. Insurance is not needed until it is. It is up to the Advisor to perform the correct analysis and in many ways educate their clients in why the cover is necessary.

I convey to clients, that for lump sum benefits, one should look at the benefit as an Artificial Balance Sheet Creation device, the cover stands in for the missing value on the Balance Sheet and creates an asset that your family and business can rely on in times of need.
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