Life insurance industry resilient against adverse conditions

Statistics from the Association for Savings and Investment South Africa (Asisa) show that the life insurance industry has retained a strong financial position, with assets held amounting to R3.51 trillion at the end of June.

This is despite severe market volatility and a steep increase in the cost of living over the course of the Covid-19 pandemic.

Asisa says industry liabilities reached R3.18 trillion which left it with R335.8 billion worth of free assets.

It notes that this is the first time since 2020 that the industry’s collective reserve is more than double the solvency capital requirement (SCR) standard.

Hennie de Villiers, deputy chair of the Asisa Life and Risk Board Committee, says policyholders and beneficiaries received claims and benefit payments worth R270.2 billion from South African life insurers in the first half of 2022. This is compared to R315.4 billion paid in the prior comparative period.

However, Asisa notes that the harsh economic realities imposed on South African consumers discouraged them from appreciating the value of long-term risk protection including life and disability cover, during the first half of the year.

Changing priorities

“The Asisa long-term insurance statistics show that in stark contrast to the same period last year, consumers not only bought fewer risk policies in the first six months of this year, but also lapsed a higher number of policies,” it adds.

The association notes that in 2021, the industry recorded a significant increase in new risk policies bought in the first half of the year with lower lapses recorded.

De Villiers says consumers have had to absorb unprecedented fuel and food price hikes, and rising interest rates during the first six months of the year.

Coupled to that, he adds, many South Africans between the ages of 25 and 34 who are unemployed are likely to be reluctant to commit to monthly premium payments while living costs are at an all-time high.

“South Africans in this age group are meant to be economically active and under normal circumstances be concerned with buying risk cover to offer financial protection to their growing families as well as cover credit purchases such as mortgage bonds.”

He says credit life policies failed to achieve meaningful growth in the first half of 2022, which shows that consumers were struggling to access credit or practice greater restraint when buying on credit.

Policy stats

De Villiers says there were 34.4 million actively recurring premium risk policies, which include credit life policies, at the beginning of 2022. However, while consumers bought 4.4 million new risk policies in the first six months, 4.3 million risk policies lapsed. He notes that 199 023 claims against policies were submitted, which resulted in a 0.1% marginal drop at the end of June.

De Villiers indicates that there was another marginal decline in the number of individual recurring premium savings policies from 5.75 million at the beginning of the year to 5.71 million at the end of June.

“Of particular concern is the high number of policy surrenders. While 293 423 new polices were sold during the six-month period to the end of June 2022, 319 318 policies were surrendered,” he adds.

“This is not surprising since consumers are far more likely to surrender their savings policies during tough times to access their savings to cope with financial hardship.”

De Villiers says consumers should consider long-term risk protection as a valuable financial asset.

“If you are struggling to make ends meet the temptation to let go of your life and/or disability cover can be overwhelming. But before you do, weigh up the expense of your monthly premium against the dire financial impact the loss of your income could have on your family,” he adds.

“Rather speak to your financial advisor or insurer first if you are struggling to keep up with premium payments.”

Nondumiso Lehutso is a Moneyweb intern.