Life insurers pay out R287bn, but there's concern about policy lapses

 

• Life insurers paid out about R287 billion in claims and benefits to policyholders and beneficiaries in the first half of 2023, about a 6% increase year on year.
  
• It is, however, lower than the more than R315 billion paid out in the first half of 2021.
• Of concern is that while the industry sold 5 million new risk policies in the first half of 2023, 4.3 million lapsed.
  
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• South African life insurers paid out about R287 billion in claims and benefits to policyholders and beneficiaries in the first half of 2023 for events such as death, disability or retirement.
  

  That’s according to the Association for Savings and Investment South Africa (Asisa), which released its long-term insurance statistics for the first six months of 2023 on Tuesday.

  While the statistics showed that life insurers remain well-capitalised despite the significant payouts in the first half of the year, Asisa said it was concerned about rising lapse rates in the sector as tough economic times forced consumers to cancel their insurance policies.

  "Life insurers displayed significant resilience over the past three years in an unprecedented operating environment marked by the effects of a global pandemic, a struggling economy and consumers under severe financial pressure," Gareth Friedlander, a member of the Asisa Life and Risk Board Committee, said in a statement.

  South Africa’s life insurance industry held assets of R3.93 trillion at the end of June 2023, up from R3.7 trillion at end-December 2022. That compared to liabilities of R3.6 trillion at end-June, up from R3.4 trillion at end-2022, leaving the life industry with free assets of R364 billion, which is more than double the required reserve buffer as defined by the sector’s legally stipulated solvency requirements.

  A healthy reserve buffer ensures that claims and policy benefits can be paid even in times of extreme market turmoil or periods of unusually high claims. Assets held by South African life insurers have grown steadily over the past three years, from R3.1 trillion at the end of June 2020 to R3.93 trillion at the end of June 2023.

  Business remains flat

• Asisa's long-term insurance statistics revealed that almost 5 million new recurring premium risk policies (life, funeral, credit life, disability, severe illness and income protection policies) were sold between January and June 2023.

  Of concern though was that over that same timeframe 4.3 million risk policies were lapsed. A lapse occurs when a policyholder stops paying premiums for a risk policy with no accumulated fund value.

  Friedlander said the lapses are concerning as it means 4.3 million policyholders and their beneficiaries now either have reduced cover, or no cover at all.Friedlander said the high lapse rate is a reflection of South Africa’s poor economic situation and the resultant financial strain being placed on consumers given continued inflationary pressures and interest rates at a 14-year high.

  The impact of several fuel price increases is also exacerbating the cost-of-living crisis in SA, where about a third of the population is unemployed.

  Asisa said surrenders of recurring savings policies (endowments and retirement annuities) also exceeded sales of such policies in the first half of 2023, with 284 647 policies sold compared to 313 318 that were surrendered. A surrender of a policy occurs when the policyholder stops paying premiums and withdraws the fund value before maturity.

  At the end of June, there were 34.2 million recurring premium risk policies in force and 203 578 single premium risk policies. Recurring premium savings policies amounted to 5.3 million, while there were 2.4 million single premium savings policies.

  "The Covid pandemic highlighted the importance of having risk cover in place like few other events in the history of South Africa," said Friedlander. "Many life insurers paid a record number of claims, and while these payouts cannot replace loved ones, they can prevent further trauma caused by the financial impact of the loss of a breadwinner."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.

  READ | SA households' insurance gap reaches R34.4 trillion – 15 times higher than the national budget 

  The study, conducted every three years, shows that SA’s 14.3 million income earners had life and disability insurance to cover only 45% of the total insurance needs of their households.

  The average South African household supported by at least one income earner would, therefore, be forced to cut living expenses should the main breadwinner die or become disabled, or if no other source of income could be found.

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