Consumers not only bought fewer risk policies in the first six months of this year but also lapsed a higher number of policies, which is in stark contrast to the same period last year, according to the Association for Savings and Investment South Africa (Asisa).
Last year, while the country was still suffering the full impact of the Covid-19 pandemic, the long-term insurance industry recorded a significant increase in new risk policies bought in the first half of the year, and lapses were lower, Asisa said.
This year, consumers have had to absorb unprecedented fuel-price increases, as well as higher food prices and rising interest rates. At the same time, 64% of South Africans between the ages of 25 and 34 are unemployed, according to the Quarterly Labour Force Survey for the first quarter of 2022.
“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,” said Hennie de Villiers, the deputy chairperson of Asisa’s Life and Risk Board Committee.
Many of those who are employed are likely to be reluctant to commit to monthly premium payments while living costs are at an all-time high, he said.
De Villiers said that even credit life policies failed to achieve meaningful growth in the first half of this year, which indicates that consumers were struggling to access credit or were practising greater restraint when buying on credit.
At the start of this year, there were 34.3 million recurring-premium risk policies (life policies, funeral policies, credit life policies, disability policies, severe illness policies and income protection policies) in force.
Although consumers bought 4.4 million new risk policies in the first six months of this year, 4.3 million risk policies were lapsed and claims against 199 023 policies were submitted. This resulted in a marginal drop of 0.1% to 34.2 million in-force recurring-premium risk policies at the end of June 2022.
By contrast, in the first six months of 2021, 5.9 million new risk policies were sold, 3.7 million risk policies were lapsed, and claims were submitted against 277 072 policies. This resulted in an increase of 0.73% to 33.2 million in-force recurring premium risk policies at the end of June 2021.
De Villiers said the number of claims reduced significantly in the first half of this year compared with the same period last year, when the country was in the midst of the pandemic.
De Villiers also reported a further marginal decline in the number of individual recurring-premium savings policies (endowments and retirement annuities), from 5.75 million policies at the start of 2022 to 5.71 million at the end of June 2022. At the end of June last year, there were 5.96 million in-force recurring-premium savings policies.
Of particular concern is the high number of policy surrenders, said De Villiers. Although 293 423 new policies were sold during the six months to the end of June, 319 318 policies were surrendered.
“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,” he said.
De Villiers said policyholders and beneficiaries received claims and benefit payments worth R270.2 billion from life insurers in the first half of this year. Payments to policyholders and beneficiaries included retirement annuity and endowment policy benefits, as well as claims against life, disability, severe illness and income protection policies.
Life industry has healthy reserves
Asisa said the life industry remains in “robust” financial health and is well capitalised to honour the long-term contractual promises made to customers.
Its statistics show that the life insurance industry held assets of R3.51 trillion at the end of June 2022, while liabilities amounted to R3.18 trillion. This left the industry with free assets of R335.8 billion, which is more than double the reserve buffer required by the Solvency Capital Requirements.
De Villiers said is the first time since 2020 that the industry’s collective reserve buffer was more than double the requirement.
He said a healthy reserve buffer is of critical importance, because it enables insurers to pay claims and policy benefits even in times of extreme market turmoil and/or unusually high claims.
