Insurance beneficiaries and policyholders received R287.1 billion in claims and benefits from South African life insurers in the first half of this year, the Association for Savings and Investment South Africa (Asisa) said yesterday.
It said the payments would have reached these beneficiaries and policyholders at a time of great need, following a tragic life event like death or disability or a life stage change like retirement.
Policyholders struggling to make ends meet due to a tough economic environment were encouraged to discuss options with financial advisers before letting go of their risk cover, said Gareth Friedlander, a member of the Asisa Life and Risk Board Committee.
He said a financial adviser could help them by taking a holistic view of their financial situation and helping them to find sustainable solutions that were not driven by emotions.
The long-term insurance statistics showed that despite the significant payouts, life insurers remained well-capitalised and in a solid position to honour the long-term contractual promises made to customers.
The life insurance industry held assets of R3.93 trillion at the end of June, while liabilities amounted to R3.6trn. This left the industry with free assets of R364bn, more than double the reserve buffer required by the Solvency Capital Requirements.
Healthy reserves were a critical indicator of the health of the long-term insurance industry, providing policyholders with the peace of mind that claims and policy benefits can be paid even in times of extreme market turmoil and/or unusually high claims.
“Life insurers displayed significant resilience over three years in an unprecedented operating environment marked by the effects of a global pandemic, a struggling economy and consumers under severe financial pressure,” Friedlander said.
He said assets held by South African life insurers have grown steadily over the three years, from R3.10trn at the end of June 2020 to R3.93trn at the end of June this year.
Close to 5 million new recurring premium risk policies (life policies, funeral policies, credit life policies, disability policies, severe illness policies and income protection policies) were sold between January and June this year.
At the same time, however, 4.3 million risk policies were lapsed. A lapse occurs when the policyholder stops paying premiums for a risk policy with no accumulated fund value.
Friedlander said the lapse rate was concerning since 4.3 million policyholders and their beneficiaries were now living either without risk cover or with reduced cover.
Friedlander said surrenders of recurring savings policies (endowments and retirement annuities) exceeded the sales of these policies in the first half of this year.
While 284 647 policies were sold, 313 318 were surrendered. A surrender of a policy occurs when the policyholder stops paying premiums and withdraws the fund value before maturity.
He said this was unsurprising since consumers were more likely to surrender their savings policies during tough times to cope with financial hardship.
Friedlander said without the buffer provided by risk cover, a tragic life event like death or disability could plunge a household already struggling financially into complete ruin.
According to the 2022 Asisa Life and Disability Insurance Gap Study, the average South African income earner had a life insurance shortfall of at least R1 million and a disability cover gap of around R1.4 million at the end of 2021.
The study, conducted every three years, showed that South Africa’s 14.3 million income earners had life and disability insurance to cover only 45% of the total insurance needs of their households.
According to the recent South Africa Insurance Report by BMI, a FitchSolutions Company, the life and non-life insurance sectors in South Africa were forecast to sustain robust growth from this year to 2027.
However, there were potential challenges on the horizon. “The country's economic growth is slowing amidst rising inflation and tightened spending, which may dampen private consumption and have adverse effects on investment. Despite these factors, the insurance market in South Africa exhibits strong capitalisation, particularly when compared to the regional landscape.”
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