Hollard, SA’s biggest privately owned insurance group, is fretting over the falling number of consumers who have life insurance.
According to the Financial Sector Conduct Authority’s (FSCA) 2022 Financial Sector Outlook Study, only 10% of SA consumers have life insurance now, down from about 12% in 2019. Mark Berrington, head of strategy and insights at Hollard, says while this is likely due to a combination of factors, he believes the rising cost of living is the chief culprit, which is causing consumers to ditch their life insurance in an attempt to bolster their disposable income.
“From where we sit as an organisation that figure worries us a bit,” Berrington told Business Day in an interview. “People have an affordability crunch, especially in the middle-market space that is prompting them to choose not to insure — that’s what worries us from a long-term socioeconomic perspective.”
A recent white paper produced by Hollard on key trends in the SA life insurance sector showed that affordability and cost were the number one barrier to life insurance adoption, followed by clients’ desire to instead prioritise their long-term savings and retirement goals rather than channel disposable income to insurance products. The third-most cited obstacle was economic and job uncertainty, with general mistrust of insurance products emerging as the fourth-biggest barrier to life cover adoption.
“There is a big squeeze going on around affordability, around people’s earnings ... around expenses,” said Berrington. “If something were to happen to people at the moment who now have decided to cancel their insurance they’re in big trouble because all of a sudden they don’t have the safety net they otherwise would’ve had.”
Berrington said the rising cost of living is especially affecting the middle-market life insurance segment, which Hollard broadly defines as people earning between R20,000 and R60,000 per month. What is particularly worrying, argued Berrington, is that this segment has traditionally been underserved in the life insurance sector, which has largely targeted more affluent customers (those earning more than R60,000 per month) through traditional life policies, while lower-income clients earning less than R20,000 a month have historically opted for funeral policies.
Funeral policies are more simplified products with a generic price point sold without clients having to undergo an underwriting process and which typically pay out a small lump sum to cover funeral costs. Fully fledged life insurance policies are more complex as an underwriting process is required to assess clients’ individual risk profiles based on age, family health history and other such factors.
While life policies require a higher premium they are designed to pay out a larger lump sum in the event of a death so as to cover family-related expenses while funeral policies, as their name suggest, typically take care of burial costs only. Berrington said this has left a gap in the market for middle-market customers who often transition from funeral policies as their income grows, but who have not traditionally been well-served by brokers or financial advisers.
“We’re taking a view to say how do we change the approach of life insurance to open up segments of the market that might not necessarily have had access to it before,” said Berrington.
Part of the issue, said Berrington, is that much of this emerging middle-market segment is from previously disadvantaged communities that have historically not enjoyed great service from the independent financial adviser community.
Through its black broker development programme, Hollard is looking to change that trend as it invests in digital sales channels to reduce the time lag between signing on a customer and granting them cover while also lowering the cost of the overall policy premiums.
“It’s about developing brokers that haven’t necessarily had the access nor the funding. In the SA context, we generally find that lower earners tend to have a greater need to be guided through their financial decisions,” said Berrington. “We’re trying to grow that broker or adviser base so that purely by proxy they will have greater access to the people we believe are underserved.
“We’ll continue to support the traditional advisers but ... what we’re trying to do is open up that segment to get more access to financial advisers.”
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