Rest assured; your clients’ life policies will pay out
South Africa’s life insurers paid out R599 billion in claims and benefits in 2023, affirming the value of life insurance products in protecting consumers and their families from life-changing death and disability events, and the industry’s role in helping individuals to save for retirement.
Peace of mind for 43.8 million policyholders
The Association for Savings and Investment South Africa (ASISA) recently published statistics on payments made by insurers to policyholders and beneficiaries in the year to 31 December 2023, including for retirement annuity and endowment policy benefits and claims against life, disability, critical illness and income protection policies. The association said that its life insurance members managed 43.8 million risk and savings policies on behalf of policyholders, with the number of in-force policies marginally higher than the prior year.
A snapshot of key life industry numbers illustrates the sheer scale of an industry that has taken South Africa to the top of Africa’s life insurance penetration table. Per Swiss Re Institute Sigma 3 of 2023, the country ranks sixth globally after achieving a penetration of 9.1% of 2022 GDP. The sigma study also cited the institute’s Life and Health Insurance Inclusion Radar, published March 2023, to make a telling statement re financial inclusion in emerging markets. They identified lack of affordability as the main driver of low insurance market inclusivity in countries like Brazil and South Africa.
Even so, total assets held by South Africa’s life industry have grown steadily from around R3 trillion in 2019 to R4.08 trillion in 2023. Claims and benefits paid increased from R491 billion to R599 billion over the same period. The balance between assets and liabilities is tightly managed, as illustrated by the industry holding just over R366 billion in ‘free’ assets.
Free assets at more than two times minimum
The statistics contained positive news for the Prudential Authority (PA) as the industry Solvency Capital Requirement (SCR) ratio climbed to 2.07 times, being more than double the regulated minimum. At a pinch, the industry could get away with free assets of just R176.7 billion. In a media release accompanying the statistics, Gareth Friedlander, a member of the ASISA Life and Risk Board Committee, said the health of the long-term insurance industry was of significant importance to the country’s financial consumers and policyholders.
He noted that strong capital buffers allowed life insurers to pay claims and benefits as they fell due, before commending the industry for recovering from the disruption and upheaval caused by the COVID-19 pandemic. “South African life insurers have shown remarkable resilience in a period marked by unprecedented claims due to the COVID pandemic with only a slight dip in solvency levels in 2021 and 2022,” Friedlander said. For the record, the SCR in those years fell to 1.96 times, still well above the legislated level.
The ASISA Life and Risk Board Committee member was also impressed by the 10.2% growth in long-term insurance industry assets compared to end-December 2022, noting that the change was largely due to the 9.3% improvement in the JSE All Share Index over 2023. Of course, the JSE performance cannot take full credit for the increase, as existing and new endowment and retirement annuity savers will have invested billions of rand over the 12-months too.
Encouraging increase in recurring premium policies
It seems unnecessary to ‘sell’ the value of life insurance to FAnews readers. You are, after all, at the forefront of advising your clients on the best mix of insurance and investment products to secure their and their families’ financial futures. But it is worth reminding your clients that they are not alone in purchasing these types of products. According to Friedlander, the increase in recurring premium risk and savings policies bought in 2023 was encouraging.
“The COVID-19 pandemic years highlighted the importance of protecting your family financially by having sufficient life cover in place, as well as savings that can be accessed in an emergency,” he said. “Hopefully, this motivates consumers to ensure they have enough cover and savings to protect them and their families when life happens”. Your job, dear reader, is to walk your clients through the calculations that reveal how much cover they need to navigate risk events, and how much capital they have to accumulate to ensure a sustainable retirement.
The ASISA statistics offered unique insights into both the risk and savings disciplines. In the former, the association confirmed that 9.97 million new individual recurring premium risk policies were sold to consumers over the latest 12-months, including 5.59 million funeral policies. Unfortunately, lapses remained an issue, with some 8.25 million policyholders stopping paying premiums for risk policies with zero fund values. “With every risk policy lapsed, South Africa’s sizeable insurance gap widens further, leaving more families financially vulnerable should their breadwinner die or become disabled,” Friedlander lamented.
Lapses and surrenders continue apace
There was a small uptick in the number of individual recurring premium savings policies taken out, from 529 930 in 2022 to 536 784 in 2023. But policyholders also surrendered 563 326 such policies, including endowment and retirement annuities, over the period. ASISA defines a surrender as when the policyholder stops paying premiums and withdraws the fund value before maturity. According to Friedlander, the increase in new savings policies against a decrease in surrenders was an unexpected positive development given the economic hardships that faced the majority of consumers in 2023.
Overall, the statistics reveal sensible decision making from consumers who are doing their best to keep their risk and savings policies despite challenging economic conditions. However, lapses and surrenders are inevitable as households’ expenses swell in response to high inflation and interest rates. Friedlander cautioned that giving up a policy should be a last resort, before encouraging policyholders to discuss options with their financial advisers before letting go of their policies. “A financial adviser can help you by taking a holistic view of your financial situation and helping you find sustainable solutions that are not driven by emotions,” he said.
Reflecting on prospects for the country’s life insurers, Friedlander commented on the slow-growth environment in which individual life insurers had to dip into the market share of their competitors to achieve growth. Consumers stand to benefit from competitive market forces as insurers up their ‘games’ on both the product innovation and value fronts.
A picture-perfect, competitive industry
“We have a picture-perfect, competitive industry with an enormous amount of innovation and a lot of digitisation,” said Friedlander, who acknowledged an increasing number of life insurance participants thanks to banks and smaller insurance-only ‘players’ entering the market. He concluded that despite competitive pressures, the South African life industry was responsibly managed and capable of delivering value without undermining its ability to pay claims and benefits.
Writer’s thoughts:
The R4 trillion in assets held by South Africa’s life insurance industry is commendable, but somewhat offset by the industry’s multi-year lapse and surrender track record. How would you suggest improving the alarming lapse and surrender experience? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
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