An unexpected intersection between group risk and cyber cover

An overwhelming eight-in-10 retirement fund members experienced a reduction in annual salary increase, reduction in current pay, took a forced sabbatical or went through a retrenchment process during pandemic, with up to 41% of employers in umbrella funds offering financial respite by suspending employees’ retirement savings contributions. One of the interesting observations from the Sanlam Benchmark 2021 is that participants remained committed to meeting their risk cover premiums throughout the crisis. “The Covid-19 pandemic has highlighted the importance of employers offering risk benefits to their employees,” noted the report. “The average deduction to cover the cost of life cover was reported as 1.51% for stand-alone funds and 1.2% for umbrella funds, which is aligned with previous years”.

The Sanlam Benchmark is one of a handful of employee benefits surveys that gives insight into how employees, employers and retirement funds have responded to the 18-month period under pandemic conditions. More importantly, it boasts a 40-year track record of applying a consistent research methodology to measure the financial impact and outcomes of South Africa’s retirement fund industry. For 2021 the survey conducted 200 face-to-face interviews to poll opinions of stand-alone retirement funds, representing R3.45 billion in assets and 10015 fund members, and participating employers at umbrella funds, representing 594 members and R299 million in assets. 

Employee wellbeing a primary concern

Rigitte van Zyl, Chief Client Officer at Sanlam Corporate, said that concerns about fund members’ wellness and wellbeing had emerged strongly in both the 2020 and 2021 surveys. “Most of the employers and standalone funds believe that having a health and wellness strategy in place is important; but they solve for it differently,” said Van Zyl, during a media launch, held 21 June 2021. Around half of standalone funds and 36% of employers in umbrella funds indicated that a holistic, integrated health and wellness programme delivered high productivity and staff happiness. Another evolving trend highlighted by the research is that fund members are more likely to be working from home, introducing a range of challenges to employers. This trend is set to continue; a recent Garner poll showed that 48% of employees will remain working at home post-Covid, compared to 30% prior to the pandemic. 

While those who work remotely struggle to balance their home and work commitments, employers are wrestling with the changing risk dynamic the trend introduces. “Most standalone funds said they saw an increase in cyber security risks [due to work-from-home] and indicated that they have upgraded security software and / or increased security procedures around logins,” said Van Zyl. Yet despite the increase in risk, only 13% of standalone fund employers purchased cyber insurance in the past 12 months, with an even lower uptake among employers in umbrella fund arrangements… Non-life insurance brokers and risk managers would do well to note the opportunity to sell into this growing gap in the domestic cyber insurance market, with global premium predicted to grow by an annual compounded rate of 21.2% until 2025. 

South Africa’s excess mortality rate climbs steadily

Michele Jennings, Chief Executive Officer: Group Risk at Sanlam Corporate, said that group risk benefit providers were hard-pressed to deliver on the promises made to customers as pandemic-related claims soared. She pointed out that the group’s mortality experience had, for the most part, mirrored the country’s excess mortality experienced published by the South African Medical Research Council (SAMRC). The Council reported 173132 excess deaths between 3 May 2020 and 19 June 2021, with more than 85% of these being attributable to the Covid-19 disease. “Our mortality experience has mirrored that of South Africa, except for the second wave, where the insured population mortality was higher than that of the national trend,” said Jennings. 

This divergence was confirmed by the Association for Savings and Investment South Africa (ASISA) which reported the mortality experience of major insurers at up to 400% of the expected mortality. Sanlam Life paid our R3.8 billion in the first three months of 2021, with  an analysis of the group’s monthly risk experience by number of claims and claims value reflecting the seriousness of the situation. “In July, August and September last year we saw claims volumes at 20-50% higher than expected; but in January 2021 they were up at 250% of expected volumes,” said Jennings, who admitted that the unprecedented volumes had resulted in some slippage in the time taken to finalise claims. 

A flexible approach to group risk

Group risks cover remains popular. Sanlam Benchmark 2021 revealed that 47% of employers offered group life and disability cover via the retirement fund, in so-called approved risk benefit structures, while 16% provided these benefits under a separate scheme, called unapproved benefits. And since 2015, standalone funds have “increasingly offered additional flexible group risk benefits on top of core benefits, allowing members to adjust cover that suits their individual needs and financial situation”. The trend towards flexible group risk benefits aside, much of what happens in coming years will depend on how the pandemic plays out. 

South Africa’s life insurers will have to monitor the short-term mortality claims experience following the unfolding third wave as well as the impact of future disability claims due to so-called long Covid-19. “We are starting to see evidence of long Covid coming through with a lot more disability income benefit (PHI) claims being explicitly stated due to this cause,” said Jennings, who expressed concern that the combination of a slow economic recovery and the anxiety and depression related to pandemic could result in a significant increase in PHI claims over the next two to three years. 

No premium shocks indicated, yet…

It will take time for the pandemic claims experience to filter through to the market. The report offers this useful pricing overview: “Group risk insurance is annually renewable, and market forces and competitors ensure that insurers do not generate excessive profits, and regulators and auditors ensure premiums are adequate for the future sustainability of the insurer”. The conclusion being that future premiums will be closely aligned to the actual claims experiences over time. Employers seem non-plussed at this early stage. Per the latest survey, around 97% of employers “had made no changes to group insurance cover” and 88% said their insurers had kept the group risk rates unchanged! 

Writer’s thoughts:
The Sanlam Benchmark 2021 highlighted an unexpected opportunity for brokers in the non-life sector by reporting big gaps in cyber risk coverage among South Africa’s SMEs. Can you recall any growth ideas that came to light after attending presentations in areas outside of your practice’s core product or service offering? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts editor@fanews.co.za.