In just six months, South Africa’s life insurance sector, as reported by Gareth Stokes on FAnews, proved its worth with R298 billion in payouts - explore what this means for policyholders and the industry's resilience in tough times.
The R298 billion proof of value for life insurance
The most up-to-date statistics covering South Africa’s life insurance sector show that R298 billion was paid to beneficiaries and policyholders over the first six months of 2024. According to the Association for Savings and Investment South Africa (ASISA), this total is made up of retirement annuity and endowment policy benefits, as well as claims against life, disability, critical illness and income protection policies.
Pay-outs totalling well over R500 billion annually
A table titled ‘the life industry in numbers’ offers the half-yearly industry pay-outs going back four years, with R315 billion paid over the half-year to 30 June 2021. After some basic adding, you will discover pay-outs totalling R607 billion over the full-year 2021; R578 billion in 2022; R598 billion in 2023; and an industry on track to pay a similar amount in the current year. The table also showed an industry in robust health, with life insurance industry assets topping R4.3 trillion against R3.9 trillion in liabilities at the latest assessment date, 30 June 2024.
“Life insurers remained well-capitalised and in a solid position to honour the long-term contractual promises made to customers; the ‘free’ assets of R377 billion are more than double the reserve buffer required by the Solvency Capital Requirement (SCR),” wrote ASISA, in a media release confirming the result. The SCR is determined by the Prudential Authority (PA) and is designed to protect policyholders. “The life industry has maintained resilient capital strength and stable reserves, even during the COVID years,” said Gareth Friedlander, a member of the ASISA Life and Risk Board Committee.
He added that the industry’s reserves provided policyholders with the peace of mind that the long-term insurance industry is in good health, and that life insurers will be in a position to pay claims and policy benefits, even when extreme events result in unusually high claims. The industry should be commended for its prudent capital management given that its reserve buffer dipped only slightly below two-times-SCR in 2020 and 2021, the pandemic years. This is welcome news for the thousands of South Africans who rely on the industry to honour the contractual agreements on savings and risk policies.
Positive growth despite challenging macros
By end-June 2024, South African life insurers held 35.2 million risk policies for policyholders paying monthly premiums. This grand total was split across 15 million funeral policies; just over 7 million credit life policies; and nearly 13 million policies providing cover against death, disability, severe illness and income protection events. ASISA’s statistics showed a modest growth of 1.7% in recurring premium risk policies in the first six months of 2024 compared to the comparable prior half-year. This growth was positively received in light of the challenging economic environment.
FAnews readers will be quite familiar with the significant pressure on household budgets caused by the triple impact of inflation, interest rates and slow economic growth. “By the second quarter of 2024, the official unemployment rate had climbed to 33.5%,” said Friedlander. “In addition, consumers faced high living costs driven by high interest rates and increasing fuel and food prices, [meaning that] the small increase in risk policy sales was encouraging.”
The hope is that recent cuts in the fuel price (motorists saw significant relief in August, September and October) and the long-overdue start of an interest rate cutting cycle could free up some cash, and allow households to reconsider their insurance covers.
Friedlander commented that any increase in the number of life and disability policies was good news in the context of South Africa’s significant risk insurance gap. He referred back to the 2022 ASISA Life and Disability Insurance Gap Study, conducted every three years, to illustrate the shortfall. The study, which considers the insurance coverage enjoyed by the country’s 14.3 million income earners, suggests the current uptake of life and disability insurance only covers 45% of the total insurance needs of these households. Financial advisers and planners have their work cut out to close this gap.
There are a couple of areas where financial advice professionals can make a difference. First and foremost, you need to work on educating your clients on the importance of retaining existing covers. According to Friedlander, 4.3 million recurring premium risk policies lapsed in the first half of 2024. A policy lapse occurs when the policyholder stops paying premiums for a risk policy with no accumulated fund value. “This means that 4.3 million policyholders and their beneficiaries are now either living without risk cover, or with reduced cover,” he said. Second, you might explore ways to push funeral insurance policyholders further up the product value chain.
New sales and surrenders neck-and-neck
Savings policies such endowments were up for discussion too, with some 5.1 million individual recurring premium savings policies in force at the latest review date. Unfortunately, the number of new recurring premium policies issued over the most recent six months only just exceeded the number of policy surrenders: 294 138 issued versus 287 707. ASISA defines a surrender as “when a policyholder stops paying premiums, and withdraws the fund value before maturity.” Not surprisingly, surrenders trend higher during tough financial times.
Two-pots did not receive a mention in this ASISA update; but your writer reckons the billions in cash being pumped into the domestic economy as pension fund members dip into their savings pot will further alleviate households’ financial stress. For an early indication of the cash flows, by 10 September 2024, South African Revenue Services (SARS) reported receiving around 160 000 savings pot withdrawal applications, totalling R4.1 billion. Elsewhere, Alexforbes estimated that total, industry-wide first-year withdrawals might exceed R50 billion.
Savings pot or not, the message to struggling consumers was clear. Do not panic. Friedlander urged breadwinners to take a holistic approach to their finances by carefully considering all options, and devising a realistic plan to reduce expenses rather than lapsing risk cover. This is where a financial adviser can really help, guiding income earners on the dangers in lapsing or surrendering policies. One of the key risks is that policyholders may not be able to reinstate certain covers at a later date due to age, affordability or new medical underwriting requirements. “Even if risk cover is still an option at a later stage, it will almost always be more expensive,” Friedlander warned.
Why Life Cover Matters
The recent R298 billion paid out by life insurers in South Africa shows just how important life insurance is for protecting our loved ones when life gets unpredictable. At EasyEquities, we get that while you’re busy growing your wealth, it’s essential to also think about what happens if the unexpected occurs.
That’s where EasyProtect comes in! It’s designed to fill the gap between your current assets and future needs. EasyProtect allows you to lower your life cover to reflect the growth in your investments over a period of time; and as your cover decreases so will your life insurance premiums. The difference is swept into your EasyEquities account where you can invest it to further accelerate the growth of your portfolio.
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