Underinsured? It’s your funeral
Today’s flippant headline is courtesy of a FinMark Trust press release on their FinScope SA 2008 survey – a report they describe as “an annual study of South African financial habits.” Yet the tone is an appropriate one in light of the rather disappointing attitude displayed by South African citizens to all aspects of insurance cover.
Before we go into the detailed findings in each of the insurance categories it is useful to know what the survey is all about. FinScope SA 2008 is reports the findings of a survey conducted among 3 900 South African residents (aged 16 and older) in August and October last year. The research was conducted by TNS Research Survey, a leading local marketing insights company, and took the form of face-to-face interviews with each respondent. FinScope was launched in 2003 by FinMark Trust with the aim to establish credible benchmarks for the use of, and access to, financial services in South Africa. That makes it of obvious use to the country’s major financial services players – and it will come as no surprise that the 2008 FinMark Trust syndicate members include Absa, First National Bank, Liberty Life, Metropolitan Life, National Treasury, Nedbank, Old Mutual, Sanlam, Standard Bank and Teba Bank.
Fall off in burial societies impacts funeral cover
The overall percentage of South Africans with some form of funeral cover fell from 46% to 43% in 2008. This decline is attributed to the wild swings in the number of individuals belonging to burial societies. In 2006 only 19% of respondents indicated they were members of such schemes, compared with 29% in 2007 and only 25% in 2008.
One of the interesting aspects of the FinScope assessment of the funeral policy marketplace is the variety of distribution channels the product spawned. Funeral policies can be purchased at a wide range of retail outlets (Edgars, Jet or Pep), through undertakers or funeral partners, from insurance companies, through intermediaries or at your local bank. Alternatively cover vests through a trade union, employer, church or burial society. The survey also sheds light on the different practices prevalent by race. For example, 29% of Black respondents, and 24% of Coloured respondents obtain funeral benefits through burial societies, while only 3% of white respondents indicate this option. The most popular category with White (17%) and Asian / Indian (10%) is for a policy through an insurance company.
Insurance companies will be concerned with other news contained in the survey too. Estimates of average expenditure on funeral insurance dropped from R2 940 in 2007 to R2 515 in 2008. And of the 57% who don’t have funeral cover, 41% said “that the reason they did not have cover was because they did not have a job” while 19% cited irregular income as the reason.
Only one in 10 has some form of short-term insurance
It was business as usual in the short-term space. The total number of respondents with some form of short-term cover remained static at 10%. Almost half of those surveyed indicated that a ‘cash back bonus’ would motivate them to take out short-term insurance cover. This type of incentive has grown in popularity in recent years as the so-called direct insurers fight for market share.
Vehicle insurance (7% of all respondents) is the most ‘popular’ category, followed by household contents insurance (6%). Before you choke on your coffee, consider that the survey’s vehicle insurance results are skewed by the number of South Africans who don’t own a vehicle. Once this is factored in, the survey concludes that 78% of vehicle owners are covered, confirming suspicions that the overall penetration of short-term cover for motor vehicles is much too low. It’s worth noting that only 4% of respondents admit to having some form of cell phone insurance, with White respondents topping this category with 18%.
What drives short-term insurance decisions? The survey found that “the most important decision-making criterion when choosing insurance is the affordability of the monthly instalments.” Almost half (43%) of respondents placed this as their top concern, followed by (36%) who wanted assurance that they would be adequately compensated for their loss. People without asset insurance indicated they would simply save money to replace a ‘lost’ item.
A small up-tick for the life insurers
The only category of long-term assurance to show a marked improvement over 2007 was life insurance. FinScope 2008 shows an increase in “the number of people with life assurance/life cover” form 10% to 12%. And despite governments best efforts to reduce medical aid costs the total number of respondents with medical cover fell from 10% in 2007 to 8%. “Medical aid is perceived to be costly and 51% mentioned that the main reason why they did not have medical insurance was that they could not afford it!” Overall, South Africans remain hopelessly underinsured.
In presenting their findings on the insurance category, FinMark Trust encapsulates the situation perfectly: “It seems that people are entering the unstable economic landscape of 2009 with little protection for their assets, health and lives; a worrying scenario for any South African.”
Editor’s thoughts:
FinScope 2008 paints a surprisingly stark picture of insurance cover in South Africa. Regardless of the insurance category, only a fraction of the survey respondents purchase insurance. Do these survey results leave you encouraged (in that there are thousands of underinsured consumers to sell too) or disillusioned (because many South Africans who need cover simply cannot afford it)? Add your comments below, or send them to gareth@fanews.co.za
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