Insurance in SA: looking back at 2018, and looking ahead to 2019
Johan Ferreira, legal and compliance officer for African Unity Life (AUL)
“2018: Casting the (Insurance) Net Wider”
2018 proved to be a significant year for the insurance industry, not least of all the introduction of the government’s Insurance Act, which seeks to make cover for lower income households or individuals more accessible.
Under the Act, one of the most important regulations for micro-insurers is that micro-insurance and funeral policy claims must be settled within 48 hours after receiving all the necessary documentation from the client.
Johan Ferreira, legal and compliance officer for African Unity Life (AUL) says the legislation was crucial in accepting that risk needed to be covered across all income groups.
“It is exciting times in the industry. We needed something unique for everyone to manage their risk, irrespective of income group,” says Ferreira.
Ferreira says the legislation around funeral pay-outs is significant given the robust nature of the funeral industry in South Africa.
He points out that one of the significant changes to the law is that it now stipulates that caps on the maximum benefit for funeral policies offered by both micro-insurers and traditional insurers will be capped at R 100 000 to ensure that policyholders are afforded the same protection.
Earlier this year, the National Funeral Directors Association of South Africa (NAFDA) was quoted in media saying while funerals can be done for around R9 000, some South Africans spent between R100 000 and R200 000 to send their loved ones off.
The estimated value of the funeral industry in South Africa is between R7.5-billion and R10-billion.
“The Act clearly wants to engage more people and offer protection for policy holders which is fantastic for families who don’t need the extra trauma of uncertainty during a difficult time. It is also an opportunity for the insurance industry to illustrate its value,” says Ferreira.
The insurance industry in South Africa in general over the past 12 months ended June has seen an increase in payments over the corresponding period to June 2017.
The Association for Savings and Investment South Africa (ASISA) reported that life insurers paid R63.7 billion to individuals who had experienced death, disability or a severe illness in their family circle in the 12 months ended June 2018.
This marks an increase of more than R6.3 billion from the previous 12 months to the end of June 2017.
The long-term insurance industry statistics for the 12 months to 30 June 2018, released by ASISA, show that life insurers reported the biggest percentage increase in claims for disability policies. Claims against individual disability policies increased by 14%, while claims against employer disability cover increased by 21%.
“Over the same 12-month period consumers bought 5.7 million long-term insurance policies for financial protection in the event of death, disability and critical illnesses, committing to premiums of R13 billion. This represents a 12% increase in the number of risk policies bought compared to the previous year,” ASISA reported.
Ferreira says the numbers post the Insurance Act will be telling next year, given that the legislation was passed in July and a clearer picture is expected to emerge mid-year.
“On paper, the Act must be lauded, but on the back of a shaky economy, people tend to dump insurance policies as they see it as a grudge purchase instead of a critical financial umbrella or safety net which it is,” he says.
Ferreira expects that in 2019 the industry and especially the micro-insurance sector will continue to engage with a wider cross-section of the South African population.
“The Insurance Act and the micro-insurance product standards under the new Policyholder Protection Rules will make this a possibility. It is exciting times in the insurance industry and it will continue to be so in the new year,” said Ferreira.
“A brighter outlook for 2019”
Enhanced protection for policy holders, increased access to insurance and a greater focus on transformation are some of the significant changes the insurance industry has seen throughout 2018. The big question going forward, however, in an industry that exists to predict and secure the future, what lies in store for 2019?
Overall trends for 2019
According to Bronwyn Williams, Trend Translator and Future Finance Specialist for Flux Trends, there are a number of trends which will impact the financial sector. Blockchain is gaining traction at national and reserve bank level which will provide central banks with more control over monetary policy and make tax avoidance harder, she explains.
The establishment of Bank Zero - a digital only bank backed by former FNB CEO Michael Jordaan, which promises to provide most services free of charge - will see 2019 as the year that shook up the SA banking environment and put pressure on bank profit margins; good news for consumers, she believes.
Big data will, as usual play a role. Williams predicts that consumers can expect more punitive and rewards based ‘behavior modification’ products from insurers and banks. As such, consumers should be aware of the trade-offs related to perks or convenience versus data privacy and control, she cautions.
A glimpse into 2019
The Economy: Stanlib Chief Economist Kevin Lings believes that while the first half of 2019 will remain challenging for consumers, they will start to feel some relief in the second half of the year. He is optimistic that inflation will start to moderate, and that economic growth will pick up. While government is unlikely to provide tax relief, there should be less tax hikes. He also anticipates less downward pressure on employment and more jobs on offer as a result of government’s recent initiatives to promote private sector and domestic investment.
Confidence, adds Lings, should also increase post the elections.
Ultimately, while consumers may not be flush, the deterioration in the economy should abate. He warns consumers to avoid making risky decisions if they are able to hold off for the next few months. This includes maintaining insurance policies and medical aid payments.
Protection: The year ahead will be characterised by greater protection for policy holders, predicts Johan Ferreira, Legal and Compliance Officer at African Unity Life. The introduction of the Conduct of Financial Institutions (CoFi) Act will provide further protection for policy holders by regulating the market conduct of all financial institutions in SA to ensure that consumers are treated fairly, Ferreira informs.
Innovation: Innovation will become the hallmark of new microinsurance entrants, offering a range of fresh new products to the lower income end of the market, added Ferreria, making life easier for a host of South Africans, whom, until now have really only been able to access funeral cover.
Technology: While many expect that the industry will be focusing on building improved online service channels for brokers and policy holders in 2019. Machine learning, artificial intelligence, robotics, telematics and big data analytics are increasingly being deployed to create greater efficiency in business processes which will ultimately reduce the overall cost to serve and improve overall service. The personal lines market is already largely driven by technology although this is still less prevalent in the commercial market.
A word of caution
But the experts are warning consumers not to overextend themselves with regards to debt in the coming year.
“It’s crucial to understand what you are buying when it comes to financial products and to allocate some spend in the budget towards insurance and saving. Moreover, don’t cancel short term insurance policies, even if the first few months of the year are tight,” says Ferreira.
Living within one’s means and saving every month towards retirement will be key for financial stability in the year ahead, he concludes.
