The life insurance industry in a COVID-19 era: where to now?

The impact of COVID-19 on the life insurance industry was recently highlighted when the Association for Savings and Investment South Africa (ASISA) released their 2020 statistics for the sector.

ASISA reported that South African life insurers paid out claims and benefit payments worth R522.7 billion last year, representing a significant increase of R31.7 billion when compared to 2019.

The number of death claims in the previous year rose by nearly 116,774; over half of the total claims were on funeral policies. As these figures show, the life insurance sector was not left unscathed by the pandemic. The notable increases in claim pay-outs reflect the economic and social realities we face.

Industry challenges

While the hike in numbers is unsettling, they also show that the life insurance industry is financially solid and able to honour its commitment to policyholders. Its assets of R333.5 billion are more than double the capital required by the Solvency Capital Requirements (SCR) legislation.

With claim numbers increasing, as well as a decrease in the number of individual life policies being taken out and rising policy lapses, our industry does face challenges. While 9.6 million new individual recurring premium risk policies were bought in 2019, only 8.9 million new policies were taken out last year.

In addition, 10.2 million policies lapsed in 2020, an increase of 1.4 million when compared to 2019 figures.

With our economy’s recovery predicted to be slow, it is likely that more people will look to cut back on their monthly expenses, either by relinquishing policies or simply not taking out cover.

According to the quarterly unemployment statistics released on 1 June 2021 by Stats SA, unemployment rates rose by 0.6% to 43.2% in the first quarter of 2021. Yet, as the pandemic has illustrated, the life insurance sector has a critical role to play in protecting clients during times of economic hardship.

Ensuring the continued buoyancy of the insurance industry

The responsibility for ensuring the continued buoyancy of the insurance industry in these circumstances lies firmly at the feet of those of us who are within the sector.

Here are three things I believe we should work on:

  • It’s vital that we make long-term insurance more accessible to more people. This means restructuring life policies to help people better understand what their cover is for. It also means cutting out unnecessary waste, to ensure people pay only for what they need. For example, we adopt a needs-matched approach to insurance, meaning that our cover and premiums are designed to meet different people’s specific needs and to change as their circumstances change. A thirty-something business owner with a partner and two children does not need the same type of cover as a single sixty-something manager nearing retirement. By structuring people’s cover to meet their specific needs, we are able to price cover more efficiently, delivering around 40% more cover per premium rand.
  • We also need to work harder at demystifying our products for more South Africans, and clearly communicate the benefits that long-term insurance can bring to families and individuals. One of the lessons from this pandemic should be the importance of long-term policies, as these make provision for times of financial hardship, such as a debilitating illness or the death of a breadwinner. Financial advisers are key in conveying the value of long-term insurance and helping clients understand the link between their cover and their financial needs, without fearmongering.
  • Allowances should also be made for people who are facing financial hardships. According to the ASISA report, life insurers granted more than R1 billion in relief measures to policyholders through three-to-six-month premium holidays and other premium relief options between March and July 2020. However, with the economic recovery expected to remain slow and South Africa now firmly in its third wave of COVID-19 infections, insurers may need to remain responsive and on standby to offer clients further flexibility and relief if needed.

In conclusion

The insurance industry is currently in a solid position, and we need to ensure that it stays that way by maintaining a strong focus on meeting consumers’ needs – particularly, given the ongoing financial strain caused by the pandemic.

Allowing for policies that take into consideration the unique situations of individual policyholders and empowering financial advisers to create efficient, appropriate solutions for their clients will go a long way towards sustaining the sector in the long term.

This article was originally published on BusinessBrief on 30 June 2021 and is attributed to Schalk Malan, BrightRock CEOClick here to read the original online version.

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