The employee benefits (EB) industry is facing a relevancy problem, with traditional “one-size-fits-all” benefits that do not address the needs of the fast-growing gig economy becoming obsolete. This is according to the latest Partnership Connect research by Momentum Corporate, which explores the evolving EB landscape in South Africa.
As part of its research methodology, Momentum conducted three online surveys, one for each of its key stakeholders: business leaders, financial advisers, and employees. The employee survey also explored the financial needs of non-permanent employees, such as contractors, temporary workers, and entrepreneurs. A total of 769 responses were collated in February 2023 and analysed by a team of EB experts from Momentum Corporate.
According to the report, employers foresee advanced data analytics leading to greater personalisation, predictive risk assessments, and needs-based management.
“We now live in an age where financial advisers can use digital technology to identify and address pain points far more swiftly than they ever have before. The trend is to now shift from one-size-fits-all to personalised financial products,” says Momentum Corporate’s chief executive, Dumo Mbethe.
The gig economy
A trend that has a direct impact on the workforce, Momentum states, is the growing gig economy.
The report notes that freelance work, or the gig economy, has grown over the past few years and will continue to do so.
According to Statistics South Africa, the only category of employees that grew in the past three-and-a-half years were those with limited contract durations.
United States technological research and consulting firm Gartner found that 32% of organisations globally are replacing full-time employees with contingent workers as a cost-saving measure.
Gartner defines a contingent workforce as an on-demand staffing strategy using contract workers, agency staffing, independent contractors, and people who will work directly for an enterprise on an on-call basis.
Momentum’s research shows that 38% of businesses in South Africa will continue to recruit a combination of permanent and temporary staff.
According to the report, the design of traditional EB products does not take this type of work structure into account, which means these workers fall outside the EB financial safety net.
“The research finds that their financial needs are consistent with last year’s findings. Healthcare, retirement savings, and investments are the most important needs. Two out of three gig workers bought healthcare but just under half bought retirement products, and even fewer bought long-term insurance and investment products.
“We assume that affordability and lack of access to solutions that accommodate individuals with sporadic income flows play a role here,” the report says.
Meeting individual needs
According to the research findings, more employees are taking responsibility for their own financial well-being. A total of 64% of surveyed permanent employees bought their own financial products. Of these, more than half bought their own retirement annuities (RAs), death, and savings products; and close to half bought disability and critical illness cover. In addition, one in four employees have flexed or are considering flexing their EB benefits to meet their individual needs.
The research also considered differences based on the generation gap. The data reveals that more than one in three Gen Xers and Millennials purchase long-term insurance products compared to just over one in four Boomers. Comparing Gen Xers and Boomers with Millennials, the former group buys more retirement products than the latter.
“Our product range and benefit value need to be relevant to a younger market who is entering the workplace for the first time. Here, the value of longer-term investments and the benefits of compound interest are key,” Momentum notes.
In addition, the report finds that, on average, almost twice as many upper-income earners buy financial products relative to those in the lower- and middle-income segments. But death cover, RAs, and investments and savings are the top three products bought by individuals across all income groups.
A key takeout, states Momentum, is that employee benefits need to meet an individual’s needs at all life stages.
“When circumstances change, it is important for employers, financial advisers, and insurers to offer the right options, with the right advice to help individuals optimise their spend and limit their risk exposure.”
Most comments from the survey participants on flexibility related to allowing them to select EB packages based on their individual needs and risk profiles rather than a single structure but at group-based prices.
“In addition, to allow them to select their preferred provider, as well as for insurers to deliver products and services in a simple, non-technical way that educates employees and empowers them to make smarter choices.”
These trends underline the need for “personalisation, flexibility, and portability (keeping the same product even when employees change employers)”, Momentum states.
“The data shows us that employees are increasingly concerned with personalisation of products, which is greatly aided by new data-led technologies powering the EB industry globally,” Mbethe says.
Future focus
Momentum states that expectations of EB have changed, and with this comes an increase in the need for convenience, personalisation, and efficiency.
“A deeper understanding of clients’ needs and behaviours is required to effectively meet these needs. To achieve this, we predict that the use of powerful data analytics will help give insurers a much-needed individual targeting ability, and employees the convenience of using multiple channels such as WhatsApp, SMS, email, website, and other platforms to engage more easily,” the report states.
Looking into its crystal ball, Momentum says the cellphone will be increasingly adopted for all types of servicing and claim requirements.
“Most clients will prefer to interact with client service representatives through a messaging channel, and the insurance sector has already started to use bots for personalisation.”
This in turn will mean that insurers will have to ensure that their cybersecurity and data protection controls are strong, to ensure that all stakeholders continue to see the benefits associated with sharing their private data.
Looking at the global arena, Momentum forecasts several trends that may emerge in South Africa over the next few years. These include retirement plans that use machine learning to model essential information about everyone’s finances and leverage artificial intelligence to transform these insights into a series of recommended actions.
In South Africa, Momentum expects to see more insurtechs and fintechs in the EB space, either through their own direct competitive offering, via large insurer partnerships, or through large insurer investment into dedicated innovation hubs in their companies.
“As our target market embraces digital, which has been evident over recent years, new entrants, as well as traditional players, aim to deliver solutions digitally that are comprehensive and hassle-free – for example, no blood tests, no paperwork, and available at competitive rates,” the report states.
