Policyholders and beneficiaries received claims and benefit payments worth R608 billion from South African life insurers in 2021, the highest paid in a single year, according to statistics released by the Association for Savings and Investment South Africa (Asisa).
Asisa said that despite these historic pay-outs, “the industry remains well capitalised and in a strong position to honour contractual promises made to policyholders and their beneficiaries”.
Life insurers held assets of R3.7 trillion at the end of 2021, while liabilities amounted to R3.4 trillion. This left the industry with free assets of R351bn, which is almost double the capital required by the solvency capital requirements (SCR).
Hennie de Villiers, the deputy chairperson of Asisa’s Life and Risk Board Committee, said the ratio of free assets to the SCR reduced marginally from 2019 to 2021 despite the significant impact of the Covid pandemic on life insurers, “which points to the resilience of the South African long-term insurance industry”.
Supporting the economy
De Villiers said the importance of the R608bn pay-out becomes evident in the context of the government’s R364.4bn social development budget for 2022.
“During 2020 and 2021, the first two years of the pandemic, life insurers paid claims and benefits to beneficiaries and policyholders worth R1.1 trillion, thereby supporting the South African economy in a time when many industries were left largely paralysed by measures taken to curb the spread of Covid-19.”
At the same time, according to De Villiers, the long-term insurance industry also provided critical growth funding to both the government and corporates in the form of bonds.
Life insurers directly held government bonds worth R343bn at the end of 2021 and corporate bonds (including SOE debt) worth R217.6bn.
Life companies also invested directly in viable infrastructure projects, including renewable energy, student accommodation, urban regeneration, agriculture and roads, to a value of R120bn as at the end of December 2021.
Lapses down, recurring-premium policies up
Following several years of an upwards trend in policyholders stopping their risk policy premiums, life insurers have welcomed a drop in lapses for 2021.
The Asisa statistics show that 7.4 million risk policies lapsed last year compared to 10.4 million in 2020 and 8.8 million in 2019.
According to De Villiers, there has also been a strong uptake by consumers of recurring-premium risk policies (life, disability, dread disease and income protection cover).
The statistics show that 10.4 million new individual recurring-premium risk policies were bought in the 12 months to the end of December 2021, compared to 8.9 million in 2020.
De Villiers said the Covid-19 pandemic has highlighted the importance of having risk cover and savings in place like no other event in the history of South Africa.
He believes that witnessing the financial hardship faced by many families as a result of the pandemic has played a big role in consumers placing greater value on having in place life cover and income protection cover.
However, policyholders continued to surrender their savings policies at an increasing rate to access funds in a time of need.
The statistics show that 938 148 savings policies were surrendered in 2021, compared to 825 548 the year before and 901 342 in 2019.
Message to consumers
With an unemployment at a record high and living costs climbing on the back of petrol price increases, consumers may be tempted to let go of their life policies. However, as the Covid-19 pandemic has shown, the true value of having long-term insurance cover in place is generally realised only during a crisis, Asisa said.
De Villiers therefore urged consumers to consider life cover as a valuable financial asset, which can become impossible to replace as you grow older.
“If you are struggling to make ends meet, the temptation to let go of your life cover can be overwhelming. But before you do, weigh up the expense of your monthly premium against the dire financial impact the loss of your income could have on your family. Speak to your financial adviser or insurer if you are struggling to keep up with premium payments.”
