FMI, a division of Bidvest Life that specialises in income protection and disability insurance, says the Covid-19 pandemic has boosted demand for such products as it has reinforced the need for consumers to ensure they have adequate cover to pay for expenses in the unexpected event that they are unable to work due to short-term illness or incapacitation.
The Durban-based insurer says 62% of its in-force insurance book is for disability income insurance, 24% is for life cover and the remaining 14% is for disability lump sum and critical illness cover. FMI favours policies that pay out in the form of income rather than lump sums as it believes providing clients with a continued earnings stream is preferable to a large cash windfall in the event of a claim.
“What we saw from the impact of Covid-19 since last year is that people have a renewed appreciation of what effect a two- or three-month break in income can have on their lives and how devastating it can be for their families,” Leza Wells, FMI’s chief product actuary, said in an interview. “The need we’re seeing right now is the need to protect income.”
Wells says FMI’s claims statistics indicate that consumers are six times more likely to suffer a temporary or permanent break in income due to illness, injury or disability than they are to have their cars stolen or hijacked. That is likely why demand for FMI’s products has increased by 15% over the past 12 months, when compared to the comparable prior 12-month period, based on annual premium income earned over those time frames.
“Even with life cover we suggest having a life income benefit rather than a life lump-sum benefit,” says Wells. “If you can protect your income after you’re gone rather than a big lump-sum payout, you can leave your family in the same position as they would’ve been prior to an incident happening.”
Insurers including Old Mutual and Momentum Metropolitan have been forced to raise provisions for increased mortality and income protection claims since the onset of the pandemic. With SA in the grip of a devastating third wave of Covid-19 infections, worsened by the greater infectiousness of the new Delta variant, it seems inevitable that insurers will have to increase provisions again.
However, Wells says FMI has been less affected by life insurance mortality claims partly due to it only having begun offering life cover in 2013, which means the average age of its client base is younger than most other insurers. Wells says the average age of a typical FMI policyholder is 40 compared to an industry new-business average of between 40 and 45 years. Larger insurers with older and bigger in-force life books also have a higher proportion of older policyholders.
“Our life cover insurance policy book is not as big a component of our business as other insurers,” says Wells. “It’s also a much newer book with younger average lives so we haven’t been hit as heavily by mortality claims. The impact we’re seeing from Covid-19 is very short-term disability income claims. But that’s usually fairly short term in nature, with people being off work for a few weeks.”
Yet that raises the question of so-called long Covid, the effects of the virus that linger for weeks or months after the initial illness and can range from respiratory difficulty to chronic fatigue and cognitive impairment. Investec Life CEO Michael Goemans told Business Day towards the end of June that this could become an issue for insurers with heavy exposure to income protection and disability insurance, particularly if they had older client bases.
“We haven’t seen the impact of long Covid yet,” says Wells. “I can’t not be concerned but we’re not seeing the impacts of it yet.”
Wells says one concern she has will be the difficulty insurers will face in accurately diagnosing the syndrome.
“We’re going to see people who have been exposed to Covid-19 claiming again for short-term claims like fatigue or respiratory issues that limit their ability to work for short periods,” says Wells. “My biggest worry is we might see an increase in longer-term claims, but the ability to manage that risk and assess claims is going to be quite challenging because you won’t necessarily be able to recognise that it is directly linked to Covid-19.”
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