The Association for Savings and Investment South Africa (ASISA) has recently published an update for the first half of 2023. As per the statistics, life insurers paid claims and benefits worth R287.1 billion during this period. ASISA indicated that for the first six months of this year, despite the significant pay-out in claims, life insurers remain well-capitalised and are in a solid position to honour their contractual obligations. At the end of June 2023, life insurers held assets of R 3.93 trillion and liabilities amounted to R3.6 trillion, which resulted in free assets of 364 billion. This is more than twice the reserve buffer required by the Solvency Capital Requirements.
The below table consists of the statistics for the period January 2023 to June 2023:
There were 5 million new recurring premium risk policies (life policies, funeral policies, credit life policies, disability policies, severe illness policies and income protection) between January 2023 and June 2023, however during the same period, 4.3 million risk policies were lapsed.
At the end of June 2023, a total of 34.2 million recurring premium risk policies were in force and 203 578 single premium risk policies. Recurring premium savings policies amounted to 5.3 million and there were 2.4 million single premium savings policies.
The report proposes that the high lapse rate is a reflection of the country’s economic situation and financial strain on clients due to, amongst other factors, the high interest rates, which unfortunately has the effect of leaving several more persons without risk cover, or with insufficient risk cover.
Another concerning finding in the report is that the surrender of recurring savings policies (retirement annuities and endowments) surpassed the number of new policies taken up in the first six months of 2023. This change further indicates the presence of financial pressure on clients, who, in times of strain, are more likely to stop paying premiums and withdraw their funds before maturity.
In terms of the 2022 ASISA Life and Disability Insurance Gap Study, there is a 1 million rand life insurance, and 1.4 million rand disability insurance shortfall for the average South African income earner. Further, for 14.3 million income earners, only 45% of their required household insurance needs were covered by life and disability insurance.
It seems that advisor engagements with clients should refocus on the importance and purpose of risk policies and saving and investment products in a holistic manner, planning for unforeseen events that could cause financial hardship. Financial advisers play a crucial role in ensuring that clients understand and benefit from the discipline of savings and investments and are protected by appropriate risk policies.