SA's uninsured bigger than SA's Budget

Call us legion for, after devastating natural catastrophes and further drops in confidence in the state, we uninsured South Africans are still many.

Last year, the Association for Savings and Investment South Africa (ASISA) released an astonishing figure loose in our national consciousness: South Africans are underinsured to a whopping amount of R28 000 000 000 000 (R28 trillion).

To put this in perspective, the total amount in the 2017/18 budget is R1.24 trillion. Our total foreign debt in South Africa is R2.2 trillion. And our insurance shortfall is more than R25 trillion larger in size.

“The shortfall expressed as a number is a huge amount,” agreed Anna Rosenberg, senior policy advisor at Asisa. “Rather than focus on the number, the purpose of the study is to highlight the severity of the insurance shortfall in South Africa. Our biggest concern is the importance of adequate cover. From the study, we found that people often think that death and disability doesn’t happen to them or their loved ones but it can happen to anyone. Statistics show that every day in South Africa an average of 383 families will lose a loved one while an additional 127 people will suffer a permanent disability. Unfortunately, these tragedies will leave many households financially affected given that the majority of South African earners are underinsured by up to 59 percent.

"The study shows that the average household would need to earn a minimum of R5000 more each month if the family’s breadwinner dies, or nearly R6000 extra per month on average if the breadwinner becomes disabled,” Rosenberg went on to say. “This usually means one of two things: that you have to cut your living expenses drastically, which is especially difficult if you’ve had a traumatic event, or you need to get a second job to cover the extra expenses. And yet very small increases to your insurance premiums can provide the necessary cover – for as little as an additional 4.2% per month for life and 2.4% per month for disability cover, which for the average person works out to couple of hundred rand.”

Weighing up these figures, it makes sense to try and close the gap– especially when considering the alternatives: namely, relying on equally cash-strapped friends and family, who may not be able to help, or relying on the state. “Financial assistance from the state in South Africa is a very small amount and is really designed for people completely reliant on some sort of social safety net. There are basic social grants, but your disability grants are very low. There may be a R380 a month child support grant you could apply for if a breadwinner dies. But there’s no life cover grant, and an average person wouldn’t qualify for anything,” said Rosenberg.

Simply put, those who are uninsured will need to rely on the goodwill of family members or the resources of the state should something happen to them. Family members have not been so financially pressured in some time and trust in the state is at a near all-time low.

And yet the same statistics Asisa research reported an insurance shortfall that has increased by R4.8 trillion since 2012 just five years ago. Why are so many underinsured?

“For the most vulnerable the answer is simple. People first need to meet the most basic needs of food, accommodation, transport, healthcare and possibly even education before they can begin to think about spending money on the protection of livelihood,” said Craig Baker, CEO of insurer MiWayLife. “For those that can afford it, the most likely reason is that they simply underestimate the ripple effect of their untimely passing. The effect of estate duties that consume some of your assets, the cost of winding up your estate and loss of income and annual bonuses (that plugged some of the gaps in your budget) all need to be factored in to see whether your dependants ultimately get what you had assumed. As insurers, we need to ensure that we are constantly educating people on these challenges and that we enhance access to these very important products.”

What is interesting is that insurers’ track records seem to be improving. According to a separate Asisa study released recently, over R57.4 billion was paid to individuals who had experienced death, disability or a severe illness in their family circle in the 12 months up to 30 June 2017. This marks an increase in benefit payments of more than R7.5 billion - a 9 percent increase in benefits paid when compared to the previous 12-month period.

“For many people affordability plays a role and sadly the misconception is that life insurers don’t pay,” said Rosenberg. “Our statistics show that this is not true. Life insurance companies honoured 99.3% of claims against fully underwritten life policies in 2016 to a record value of R13.1 billion, delivering much-needed financial support to beneficiaries following the loss of a loved one.”