SA market has high penetration and strong product innovation
A Swiss Re Institute (SRI) study explored the extent to which life and health insurance in 16 markets is available, affordable, and accessible. It concluded that none of the focus markets are fully inclusive.
Some key take-aways
The key takeaways from the study reveal that accessibility is the biggest factor behind a lack of inclusion in emerging markets, driven partly by lower financial literacy as well as lower usage and trust in the financial services sector.
Advanced market consumers face fewer barriers to obtaining insurance, but higher incomes in advanced economies do not necessarily translate into higher levels of insurance affordability.
While life insurance inclusion levels in the US are the highest among the markets assessed, the availability of insurance helped offset relatively lower scores for accessibility and affordability. In emerging markets, inclusion was highest in South Africa, where a robust showing in the availability and accessibility dimensions offset low marks for affordability.
A focus on South Africa
According to the study, overall, South Africa's inclusion score is the fourth highest among all 16 of the focus markets and is the highest performing of the emerging markets, a result driven by the nation's well-developed insurance market.
There is greater availability and accessibility of insurance in South Africa than in many advanced markets. However, the study shows South Africa is the second-worst performing of all markets on affordability, behind only Colombia. This is largely driven by high unemployment and deep social inequalities. In South Africa, the Life and health insurance market has high penetration and strong product innovation, while consumer awareness and familiarity with insurance and other financial services is also high relative to other emerging markets.
Accessibility scores are supported by diversity within market distribution models. According to the study, there are two types of diversity in distribution models: human and technological. To the extent that the life insurance industry relies on traditional agent/broker distribution models, the study states those who sell insurance may be more successful when demographically similar to prospective buyers. Overall, the emerging markets in the sample score better than the advanced markets with respect to the diversity of sales agents and how they reflect underserved communities and the wider population. With respect to diversity in technology, another driver of distribution in the emerging markets is the high rate of mobile phone usage. In the sample of 11 emerging markets, South Africa has the highest per capita mobile cellular subscriptions (1.61 per person). Mobile technology facilitates distribution of simple insurance products that can be commoditised for scale, and also microinsurance solutions, according to the study.
This, according to the study, indicates that social inequality on its own need not hold back sector growth. The study states that South Africa is an example of an emerging market that exhibits an overall 3A score curve akin to advanced markets. In South Africa, insurance sector professionals benefit from more opportunities to upskill than other emerging markets, while greater use of financial services and the penetration rate of life insurance also buoys accessibility. Availability gets a lift from product innovation such as Critical Illness insurance, invented in South Africa in the early 1980s. Still, in general, beliefs and rituals around death in African cultures may be a strong driver for social acceptance of life insurance as a tool to manage household finances, with the funeral insurance market well established and aided by cover offered via mobile phones.
Identifying inclusion deficits
By identifying inclusion deficits, life and health re/insurers can try to narrow protection gaps that leave underserved groups vulnerable.
When asked what he believes are the inclusion deficits that prevent full inclusivity and what the solutions are, Sipho Mncwabe, Head of Advisor Transformation at Sanlam said that among the contributing factors is high unemployment, limited disposable income, inadequate financial literacy and lack of “financial role models” in most households.
“The uptake of life and health insurance varies significantly across race groups and income segments. The inclusion deficit is most pronounced among the historically disadvantaged. The value of assets that need to be covered is minimal. Additionally, for most benefits the required cover amount is a function of the insured person’s income the total cover amount is limited within this group. And lastly, unemployed people struggle with affordability and the lack of a disposable income. High levels of indebtedness hinder cashflow and exclude many from the insurance market,” he added.
Financial literacy, according to Mncwabe, could help bridge the gap for many who are on the fringes of the market. “Educating people, who historically have had very little exposure to insurance, can help them to learn - it’s when they understand the benefits. Secondly, they learn to prioritise their limited resources better. The more historically disadvantaged individuals begin to value and prioritise life and health insurance, the more role models we will have for future generations,” he concluded.
Inclusion demands a multi-faceted approach
According to the study, improving insurance inclusion demands a multi-faceted approach that starts with a better understanding of consumer needs via market research prioritising underserved communities. Re/insurers must explore novel strategic partnerships to foster distribution diversity and use digital technology to achieve scale.
Writer’s thoughts
The study also stated that continued innovation in product design must accompany more efficient, inclusive underwriting practices. Do you agree with this? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
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