Insurance cover dwindles as budget constraints increase
Johan Minnie, Managing Director, Individual Arrangements at Liberty
It is concerning that many clients are cancelling cover as they can no longer afford it due to budget constraints and the state of the economy. Consumers are in too much debt because of over spending and bad financial planning. As interest rates, inflation, the cost of food and petrol are rising, South Africa is heading towards junk status and a recession, at times, seems inevitable.
Under severe pressure and barely able to make ends meet, consumers are cutting down on unnecessary expenses.
A close reflection
“In times of economic difficulty, such as that experienced in 2008/2009, we tend to see higher policy lapse rates as consumers face increasing budget pressures,” said Edward Gibbens, Executive Head of Commercial and Personal Business at Santam.
This, according to Gibbens, unfortunately reflects the high number of consumers that can no longer afford their insurance premiums.
“As tempting as it may be to reduce short-term insurance premiums or cancel policies altogether, consumers should carefully consider the implications of being caught without insurance,” said Gibbens.
No end in sight
“I sense that consumers will continue to come under pressure over the next few years, not only due to the budget but there is a real threat of rising food prices due to the severe drought, increased fuel prices and labour costs which means an increase in our inflation rate which will force the SARB to raise interest rates. I think we are in for a tough time,” said Johan Minnie, Managing Director, Individual Arrangements at Liberty.
“I do not think consumers wake up in the morning and decide to take out insurance to cover their most valuable asset which is their ability to earn an income. In my opinion, they would rather buy the latest iPhone or newest car, which they will insure in case it gets stolen,” continued Minnie.
“As an industry I believe we should do more to make people aware of the need for insurance and encourage advisers to see more clients and get life cover and ancillary benefits in place. The latest insurance gap study shows us that this gap is Increasing every year, which does not bode well for the financial future of generations to come,” he said.
A logical way out
With markets in turmoil, and the world at large in flux, Minnie believes it adds to the complexity of retirement planning.
“Now more than ever, it is important for financial advisers to guide South Africans towards a healthy retirement and savings culture. Financial advisers will have to adapt the way they deal with consumers in order to ensure that clients see the value they add which becomes more difficult when markets are volatile and uncertainty is higher,” said Minnie.
He said there is a huge burden on financial planners firstly to understand customer needs, wants and aspirations. Educate them around the options they have and finally help them choose the most appropriate solutions for their situation.
“Unfortunately, this process takes time and most clients either do not want to spend the time or money paying advisers for their knowledge and expertise. This, I believe, will change post RDR as clients will be liable for payment to advisers for advice given,” continued Minnie.
In facing the challenges, Minnie says advisers can identify and communicate compelling client value propositions, they can ensure that they charge their clients for services rendered and keep up to date with the numerous and complex client needs.
Editor’s Thoughts:
In tough economic times, one has no option but to embrace change with open arms. Whether armed with combative gear or waiting patiently to brace the storm the ability to adapt to changes as quickly as possible, does create a competitive advantage. As an adviser, how you are going to encourage your client, during these tough economic times, to see the value of your advice? We can see the benefits of sound financial planning but how do you convince your clients of the positive end goal? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
