Breaking the mold with the longevity challenge

Longevity is becoming a big risk and the reality is that living long does not necessarily mean living healthy. The industry is faced with the challenge of clients living longer than what their money last and the industry is at a point where innovation in the longevity space is no longer a nice to have. FAnews interviewed Stephen van Niekerk, Head of Momentum Myriad, who is part of the team that designed a unique risk product range to address longevity.

Momentum created an interesting differentiator called Longevity Protector where longevity is treated as a risk event. The question is now if there is room in the market for a different approach towards life cover. Van Niekerk responds to this and many other burning questions.

Q: How has the life industry changed over the last ten years?

A: New generation risk products were launched in the early 2000s, and during this period the industry mainly focused on the introduction of new improved risk benefits while Momentum initiated a number of product enhancements.

If we fast forward to more recent times, we find ourselves in a space where companies focus much more on change and innovation around distribution models in an attempt to increase market share. This has resulted in a shift towards aligned and tied financial advisers. Recently, these financial advisers have outperformed independent advisers from a market share perspective.

Q: Are there any obvious trends in the current industry dynamics with regards to promoting risk products?

A: We currently see many providers positioning the need for critical illness cover, which is a fantastic product that addresses a real need and is often overlooked by clients, but unfortunately statistics paints a grim picture:

In South Africa, companies offer world class critical illness solutions where cover extends beyond the big four cover types which include cancer, heart attacks, strokes and heart bypass surgery. Most products provide cover against a wide range of conditions, and also enable payment against multiple events. For example, we recently made a 200% payment from one of our benefits when a client suffered from two different cancer events.

With increased awareness of the impact of conditions such as motor neuron disease, paraplegia and Alzheimer’s disease, we expect these products to feature more prominently in future financial planning discussions.

Q: Do you think the South African market has reached a point of saturation in terms of life and other risk cover?

A: A recent insurance gap study by the Association for Savings and Investment South Africa (ASISA) reports that South Africans remain underinsured for death and disability to the amount of R24 trillion with R9.3 trillion for life insurance, and R14.7 trillion for disability cover.

This means that even in the affluent market, there are still many people who are underinsured. This number also does not take critical illness cover into account - something we believe is significantly undersold.

When one considers the growth that direct insurers are experiencing at the moment compared to traditional players, it might be an indication of the fact that numerous South Africans are not adequately covered.

The real challenge of reaching more clients and improving their financial wellness lies in finding new and innovative ways to attract and engage clients.

Q: Do you think the younger generation has a different approach towards life and other risk cover?

A: The profession of financial planning is relatively new in comparison to other crafts like law, accountancy and medicine. During and after the Second World War, the depression made it virtually impossible for most people to make ends meet, let alone have surplus money to invest. Access to financial advisers was the domain of the super-rich.

Over the last couple of decades a lot of young peoples’ responsibilities have increased at an earlier age. Not only do they have to cover their debt much sooner in life, but they also have to support their parents and even extended family at a growing rate.

Also, due to the increased awareness of risk and the various cover options available as a result of amplified consumer education from insurers, the younger generation is more open to discussions about risk events and general financial affairs. The internet and social media have created a global platform where people can exchange ideas and voice their opinions and the insurance industry is not excluded from these discussions.

Q: Could you please indicate how Myriad, and specifically your longevity cover, is positioned in the market and the reasons therefore?

A: We believe in responsible innovation to ensure that our offerings remain transparent and that we are able to deliver on our promises to clients. We do not have a ‘one size-fits-all’ approach and our products enable a financial adviser to construct a comprehensive and unique solution for each client using our product ‘building blocks’.

This, along with our unique ‘Living Product’ philosophy, allowed us to remain relevant over the past decade. We see the proof of this in our high persistency numbers and our claims record. We have one of the lowest claims repudiation rates in the market and we look for reasons to pay claims.

Our Longevity Protector range is a great example of responsible product innovation. We believe that improvements in technology and medicine will significantly extend our lifespan. This requires a different approach to risk benefits where clients are not merely paid-out a lump sum on disability or critical illness events but are also protected against a (longer) lifetime of costs.

We designed a product range that provides five yearly pay-outs in addition to initial lump sum payments to protect clients against this risk. In addition, clients who never claim and are at even higher risk of outliving their capital, receive significant payments at an older age. We provide a real comprehensive longevity protection solution and more than 50% of our solutions now include the Longevity Protection benefit.

Q: Are there any unclaimed niche sectors left in the market that could be infiltrated by Momentum’s risk products?

A: We recently launched a new risk product range called Life Cover Provider specifically aimed at the middle market segment which is one of the fastest growing segments in the South African market. This product range shares the same DNA as Myriad but with simpler choices.

Q: From a futuristic point of view, how will risk products be portrayed and marketed in ten years’ time?

A: I do not expect that risk products will look significantly different from a benefit design point of view. Technological advances will continue to change insurance processes and underwriting models will evolve as medical advances improve our understanding of risk.

I do believe traditional providers will face more competition from non-traditional players like banks, telecommunications providers and other service providers who interact frequently with customers.