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Brokers be warned… Group risk premiums set for take-off

06 April 2021 Gareth Stokes

The latest statistics from the South African Medical Research Council (SAMRC) show a clear surge in South Africa’s mortality experience through COVID-19. Analysts are now suggesting that actual deaths due to the disease are some 2.5 to 3 times higher than government’s official numbers. “Our death experience very closely tracked the national statistics and the national pattern reported to date,” says Reinier Van Gijsen, Head of Pricing at Sanlam Corporate. He was presenting on the impact of COVID-19 on group insurance at an In conversation with Sanlam Corporate event.

The pandemic experience

Sanlam’s mortality claims experience is highly correlated with the peaks seen in SA’s national statistics, with a slight delay for claims lodgement. “We have never seen claims volumes as high as they were during the peak of the second wave in mid-January 2021,” says Van Gijsen, who adds that the group recorded its highest claims value in December 2020. This record month was ascribed to a spike in average claim values in part due to the pandemic affecting older, more senior and higher income members of the working population. The disease’s impact on older citizens was illustrated by the average age of death claimants increasing by three years, to almost 54 years of age. 

Sanlam Group Risk shared various insights into the impact of pandemic on different sectors of the economy. They observed that although admin personnel tended to have higher claims, the overall claims impact was driven by older insureds, regardless of the sector. It was interesting to note that the claims experience among municipal workers was higher than the long term average, both in terms of number of claims and claims values. And although it seems counterintuitive, the claims experience in the hospitality and tourism sector improved. This was due to the insulating effect of level five and level four lockdown and the ongoing effect of activity and staffing levels in the sector subsequently. 

Largest mortality provider in group insurance

Sanlam is the largest mortality provider in the domestic market for group insurance. The insurer expects two more infection waves in 2021 and warns that the 2021 claims and mortality experience could exceed that of last year. The 2020 experience and 2021 forecast is echoed by other insurers. Liberty Corporate reported receiving up to three times their average claims on certain days while Momentum has called on government to fast track its vaccination efforts to offset the third and fourth waves of infection. But a faster vaccine roll out seems unlikely given the slow pace of the existing process and the apparent absence of the private / public partnerships that insurers have been calling for. By way of example, Rwanda surpassed South Africa’s three week vaccination total in its first two days. 

There is growing concern among financial advisers that the rising mortality experience will push group risk benefits to unaffordable levels. “You can expect increases to come through due to the significant excess mortality experience,” says Van Gijsen. “We still expect the disability claims impact to come through; but the impact on mortality has been more severe than anyone could have foreseen”. Insurers will have to reprice mortality products and increase the base rates that apply to smaller schemes that are part of general risk pools. Larger group schemes will be impacted too; but credit will be given where due. Sanlam Group Risk says it will consider the impact on pricing alongside benefit structures and scheme design. Pricing will also have to reflect growing numbers of group risk policy terminations and the likely impact of company liquidations. There is already evidence that smaller participants in the group’s umbrella funds are under pressure. 

Advice to financial advisers on re-broking group schemes

How should the country’s financial advisers communicate the coming premium shocks to their group scheme clients? The starting point is to explain that insurers have to play a long game when setting premium and that prices are not simply being pushed higher to compensate insurers for last year’s shocking claims experience. “The point is not to recover 2020 losses; but to price sustainably for the coming year,” admits Van Gijsen. In the event this year’s premium hikes overshoot, they will be brought back into line at future renewals. 

Higher premiums create extra work for both financial advisers and insurers. “Rate increase require re-brokering and amendments which result in more work for advisers, consultants and intermediaries operating in the group scheme space,” explains Van Gijsen. He says that product providers and their intermediaries will have to consider the economic realities introduced by COVID-19 and lockdown when engaging with employers. One issue is that 2021 is unlikely to see meaningful salary increases in many industries. Another is that the amount of an employee’s remuneration set aside for group risks will rise excessively in proportion to retirement contributions. 

Having the important conversations

Financial advisers, consultants and intermediaries should partner with reliable insurance providers that have employees’ interests at heart. “Everything that we do revolves around the members we insure; [member outcomes] are supported by regulation and our compliance and adherence to that as well as our strong balance sheet,” says Van Gijsen. He adds that Sanlam, with its R134 billion market capitalisation, is in a strong position to honour claims during difficult economic times. His claim is supported by the latest Association for Savings and Investment South Africa update on the life industry. The association noted that the industry exceeded its minimum solvency capital requirements by two times at the end of 2020. 

It is important for stakeholders in the group risk environment to keep the human face of pandemic in mind. “There are families affected by what is happening here; individuals who are experience loss of income, loss of life or the loss of the ability to work due to disability and disease,” concludes Van Gijsen. “We must play our part as advisers, consultants, intermediaries and insurers by ensuring that all valid claims are honoured”. 

Writer’s thoughts:
It is increasingly clear that product providers’ 2020/21 claims experiences could chase insurance premiums much higher. And it would not come as a surprise if these hikes threaten the sustainability of smaller groups schemes or schemes with overall poorer ‘health’. We would love to hear from stakeholders in the group schemes environment about their recent experiences. Are you concerned about the impact of premium increases in the group risk space? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].


Added by Gareth Stokes, 07 Apr 2021
An 'on point' observation, Simon. There are some concerning studies into the impact of so-called long C19 on mental and physical health. And there could be significant claims on the back of this experience.
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Added by cynical simon, 06 Apr 2021
I am not in the group schemes space, but as a player of long standing I am deeply concerned about the long tail effect the pandemic is having on our entire industry.
We have not seen the worst of it yet.

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