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Category Life Insurance

Who wants to live forever?

25 February 2019 Jonathan Faurie
Schalk Malan

Schalk Malan

In 1986, Highlander was a major cinematic blockbuster. It was about an immortal who lived for centuries. As he grew older, he contemplated the meaning of life and whether it was worth living forever

While this is not possible beyond fiction, the growing reality of life is that longevity is very real. The average life expectancy in Japan (the oldest nation in the world in terms of longevity) is 86 years old, the average life expectancy in South Korea (the second oldest nation in the world in terms of longevity) is 82 years old. Incidentally, the average life expectancy in South Africa is 62 years old. 

Longevity is becoming a real challenge for the life insurance industry. FAnews spoke to Schalk Malan, CEO of Brightrock, to find out more about this challenge. 

Pricing problem

Between 2014 and 2019, South Africa’s average life expectancy grew by two years. Over the same period, Japan’s grew by three years and South Korea’s grew by one year. 

“This increase in lifespan significantly affects the insurance industry. Longevity has an impact on how insurers predict and price risk, how people claim and what people’s long-term financial needs are,” said Malan. 

He added that this means that the life insurance industry not only needs to look at the issue of risk, but also needs to adjust its product structures to be sustainable and better meet people’s changing needs. 

Key lessons

While developing countries are far behind the curve when compared with developed countries, the longevity trend is still pertinent. Increased access to medical treatment and changing diets/lifestyles have contributed to the increase in life expectancy. Some insurers have even begun incentivising healthy living. 

What lessons can South African insurers learn from their Asian counterparts? 

“Japan has responded to their longevity problem through innovation with new post-retirement savings products, annuity insurance products and life insurance products that provide whole of life coverage. South African insurers will need to do the same and create innovative new product structures to meet clients’ long-term risk needs,” said Malan. 

He added that South Africa has always been one of the world’s most innovative insurance markets. Therefore, it should not be difficult for South African insurers to learn from their counterparts in countries where longevity is a issue. 

Malan pointed out that there are a number of concerns when it comes to dealing with longevity within the South African insurance context. Two of the most important concerns are: 

- Claims definitions. Malan points out that many insurers have claims definitions for illnesses like Parkinson’s and Alzheimer’s that have unreasonably long condition-specific waiting periods. This prevents clients claiming from insurers during the early stages of a progressive and incurable disease. “It is at this stage when they could use an additional expense needs pay-out to treat a condition like this aggressively and delay progression of the illness for as long as possible,” said Malan; and 

- Multiple claims. Malan points out that many products, especially those structured as accelerated benefits, don’t reinstate after an initial claim, or have body system limits. “Where we are now expecting clients to live longer, the likelihood of having further claims is higher. More than ever, clients need access to financial resources when living with more than one serious illness,” said Malan. 

Situational awareness

The essential difference between the Japanese insurance industry and the South African insurance industry is that Japanese insurers are engaging with clients about longevity in a more extensive manner than South African insurers. 

“There is not enough consumer education in South Africa. Life insurers and advisers can work together to raise clients’ awareness. There needs to be a stronger focus on a needs-matched financial advice model. Financial advisers are uniquely equipped and qualified to help clients look at both their long-term risk and investment needs and advise accordingly. What are the perils of not focusing on this? For the industry, it could impact on long-term sustainability, the claims experience, and ultimately the relevance of our industry in people’s lives. For clients, the insurance gap will just grow larger as will the gap in how people expect their life insurance to behave and how it actually works for them at claim stage. It is vital that the industry responds to this issue,” said Malan. 

He added that clients need to work with financial advisers to make sure they are planning for their post-retirement risk and investment needs. They need to question advisers and product providers about how these products will perform for them pre-claim, post-claim and after retirement. 

Editor’s Thoughts:
Longevity is where expert advice comes in. While an adviser does not know how long their clients will live, making sure that they have appropriate cover is essential. Another problem associated with longevity is succession planning; keep an eye on the FAnews website for a newsletter discussing this issue. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

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