The South African insurance industry is by-and-large an industry that is on the cutting edge of innovation and is constantly looking to improve itself to add value to the lives of policyholders. The life insurance industry is a great example of this maxim as recent claims statistics show that the industry paid out a whopping R366.8 billion in benefits last year. This reiterates the reports by KPMG earlier in the year which stated that the life industry is currently thriving.
The studious numbers
The amount in terms of benefits the industry paid out is staggering in itself. But there are more examples of how the industry is outperforming itself in other ways. FAnews spoke to Peter Dempsey, Deputy CEO of the Association of Savings and Investments South Africa (ASISA), who said that the industry deserves significant credit.
Consolidated death benefit claims statistics for fully underwritten life policies released by ASISA annually show that life insurers consistently honour the majority of death benefit claims.
“Beneficiaries of fully underwritten life policies received death benefits of more than R10.3 billion in 2014, after life insurers honoured 98.9% of all claims made last year. Only 1.1% of death benefit claims valued at R388.9 million was declined, mainly due to non-disclosure by policyholders,” says Dempsey.
He adds that in 2012, when underwritten claims statistics were collated for the first time, life insurers paid 99% of all claims to a value of R6.8 billion. In 2013 life insurers paid 98.9% of all claims to a value of R8.4 billion. While the percentage of claims paid remained at 98.9% in 2014, the value of claims honoured increased by nearly R2 billion to R10.3 billion.
It must also be mentioned that the cost of risk cover has come down over the years. In addition the life industry is now also able to insure people living with diseases previously deemed uninsurable like HIV.
“The fact that South African life insurers are doing this well and remain well capitalised at the same time means that the industry is indeed healthy,” says Dempsey.
Growing the pool
While this is welcoming news, there are concerns that growth can be a problem at times, especially during the tough economic conditions that South Africa currently face.
But there is growth to be found in the market. It all depends on where insurers and brokers are looking for this growth. In addition to this, Dempsey points out that the industry is placing strong emphasis on the quality of business written, which makes it even more important to target the right income groups with products which meet their needs.
“While the industry has performed well in terms of broadening access, we do agree that more can be done, especially in remote rural areas. However, with the help of innovative technology and improved connectivity this is becoming easier,” says Dempsey.
One of the growing areas of growth is the expanding middle class who are starting to move beyond traditional mindsets and are becoming more responsible by looking for financial protection form an early age.
“The growing middle class is a hotly contested market segment, not just for providers of insurers, but for all retail offerings. The challenge is that everyone is competing for purchasing power of this market segment. Given the culture of conspicuous consumption in South Africa, the importance of protecting yourself against risks such as death and disability is at times ignored by this market segment. Hence the huge gap in risk cover,” says Dempsey.
Can we expect a rush?
Regulatory reform has been a hotly contested topic in the industry over the past two years. Many insurers, and advisers, have voiced their concerns that this will create unnecessary consequences in the market which may make doing business in the industry extremely difficult.
The Retail Distribution Review (RDR) is going to be implemented using a phased approach by the Financial Services Board (FSB). While no definite timeline has been provided by the regulator, indications are that the process may take up to three years to be completed.
Does this mean that we will see a rush of life and disability business being written before this implementation? “Of the 55 proposals set out in the RDR, the proposal with the greatest potential to affect the market is the one on remuneration. The FSB is very mindful of this and is likely to take a phased approach. Therefore, we do not anticipate a sudden sales drive,” says Dempsey.
Judging by the nature of the recent determinations handed down by the Office of the Financial Advisory and Intermediary Services (FAIS) Ombudsman, some advice in the industry can be seen as questionable. If there is a sales drive, will the quality of advice be affected?
“While RDR is being rolled out, consumers will continue to be protected by the FAIS Act against advice activities not in their interest. In addition, the introduction of Twin Peaks next year will introduce a new regulatory structure that will plug any loopholes that may exist where certain products that pose as retail savings but are actually pyramid type schemes, are also subject to regulatory oversight and supervision,” concludes Dempsey.
Editor’s Thoughts:
Growth in the life sector can be found if it is looked for in the right places. Dempsey and the FSB have both been outspoken in offering products for lower income earners. This may be the future of the industry, but is it hard to cater for this sector? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.
Comments
Added by Ayanda, 21 Sep 2015RDR will NOT offer consumers any more or better protection against 'activities not in their interest' than they currently have. FAIS itself provides no real protection. This is why we had to resort to traditional common law principles under which to prosecute J Arthur Brown and numerous others.This is of course, as it should be. It is rule of law that we need and that works, not rule of man - with vast swathes of subjective discretion (euphemistically called "regulation") as under FAIS - and as under the new "standards" of RDR.
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