Many South Africans are either uninsured or underinsured due to several factors, including cost concerns, a lack of long-term planning, economic uncertainties, and sometimes, mistrust of insurance providers.
Consequently, a significant proportion of South Africans face considerable financial risks.
A 2023 study on this was by the Financial Sector Conduct Authority (FSCA). It indicates that only about 10% of the population has life insurance coverage.
Additionally, the 2022 ASISA Life and Disability Insurance Gap Study also focused on income earners. It revealed that 14.3 million income earners in South Africa have life and disability insurance. However it’s sufficient to meet only 45% of their household insurance needs, said the study.
It is important to note that these statistics primarily reflect data from formal financial institutions. The rise in socially funded benefits and schemes is proof of an entrenched culture of insuring loved ones among South Africans. Albeit in a less formalised manner.
For example, the funeral insurance market is highly competitive and has proven to be profitable. In 2022, the sector comprised 15,000 funeral parlours and generated R10-billion in revenue.
The Funeral Services and Related Activities Industry report confirms this. It highlights that micro-, small-, and medium-sized businesses predominantly serve local communities within this sector.
This underscores the value South Africans place on funeral insurance, supported by formal sector data. In 2023, consumers purchased 9.97 million new individual recurring premium risk policies. These include 5.59 million funeral policies.
There is an optimistic outlook for South Africa’s life insurance market. It is experiencing growing demand for life products. And this is due to increasing awareness of the importance of financial protection. The expansion of the middle class is also a factor in this.
Recent trends show a rise in life insurance claims, reflecting heightened awareness and utilisation of life insurance offerings. In 2023, life insurers paid R599-billion in claims and benefits.
Despite these positive developments, the insurance gap remains substantial. The industry must foster innovative collaborations. This to encourage communities to adopt insurance products. And also to cultivate a culture around life insurance akin to that of funeral cover.
Tapping into the Banked Market
There exists an untapped potential within the banked population. This population could be brought into the more formal insurance sector. According to the Treasury’s financial inclusion policy framework for South Africa (November 2023) confirms this. It said approximately 91% of adults have access to formal financial products and services. This leaves about 3.6 million excluded.
Among those included, 81% possess a bank account. And 78% utilise other formal non-bank financial products and services.
Bancassurance offers a strategic opportunity to raise insurance awareness among banked individuals. Thereby increasing access to life products via bank branches and mobile applications.
Making Life Insurance Affordable
Affordability remains a significant barrier to the uptake of life insurance products. This in the context of a constrained economy, high unemployment rates, and ongoing job losses. Thus consumers are compelled to reduce their monthly expenditures, often placing life insurance low on their priority lists.
To address this challenge, customisation, personalisation, and flexibility in product offerings can play a key role.
Insurance providers can create products tailored to clients’ lifestyles and budgets. This they can do by leveraging existing data and the capabilities of artificial intelligence.Â
Simplifying the Process
There is an urgent need for enhanced consumer insurance education. Research indicates that increased awareness and insurance literacy can substantially promote the uptake of life insurance products.
With the rapid advancement of digital platforms, the life insurance sector can utilise a variety of online tools. These it can use to educate consumers and streamline the purchasing process.
The life insurance industry is on the verge of significant transformation. It is poised for substantial growth through innovation.
This change is not only imminent but essential. It presents an opportunity for life insurance providers to rethink how they engage with customers. And as such, deliver services effectively. As we progress, it is crucial to prioritise innovation and centre our strategies around the needs of our clients.
Elaine Markus is Head of Personal Lines Insurance at Standard Bank Insurance Brokers
