At a time when South African consumers are under sustained financial pressure, the insurance sector is facing closer scrutiny on whether products deliver when they are needed most.
This was the focus of a panel discussion at the FSCA Industry Conference last week. Regulators and industry participants examined how financial institutions are responding to deteriorating consumer conditions.
The discussion highlighted a growing disconnect between access and outcomes. Financial inclusion levels remain high, yet only 16% of South Africans are financially healthy. Many households rely on credit to absorb shocks, and a significant number borrow to meet basic needs.
For insurers, this affects policy persistency, claims experience, and the perceived value of products.
As FSCA Deputy Commissioner Katherine Gibson put it: “We are very mindful as the financial sector to do no harm, but should we be doing more to do more good?”
A stressed consumer base, with direct impact on insurance
Consumers are operating under sustained pressure, with limited capacity to absorb financial shocks. Gibson described households as “living under extreme stress and shocks”, framing a reality where financial strain is no longer episodic but structural.
Data presented by Brendan Pearce, the chief executive of FinMark Trust, reinforced this. Only 16% of South Africans meet the criteria for financial health, while 28% are financially vulnerable despite widespread inclusion.
Financial health, in this context, is defined by the ability to meet daily expenses, save, and withstand shocks – measures on which most households fall short.
Spending patterns based on FinMark data illustrate the constraint. About 83% of income is absorbed by essentials, leaving “just around 4% for savings, insurance, and debt”. Financial stress is widespread, with 41% of adults reporting severe strain and more than half experiencing a financial shock in the past year, often linked to funerals, income loss, or health events.
The use of credit as a coping mechanism is particularly pronounced. More than 14 million adults borrowed money in the past year to buy food, with credit acting as “the primary shock absorber” in many households. In this context, insurance is often not the first line of defence.
For insurers, this environment raises practical challenges. Affordability pressures increase the likelihood of policy lapses, while constrained customers are less able to engage with complex products or absorb unexpected costs.
Supervisory data reflects this shift. Vanessa Padayachee, manager: insurers supervision at the FSCA, noted an increase in cancellations and terminations, driven largely by affordability.
“What we are seeing is a lot of policy terminations, a lot of cancellations… relating to customer affordability,” she said.
Economic pressure is exposing product weaknesses
The current environment is testing product design in ways that were less visible in more stable conditions. Under financial strain, weaknesses that might previously have gone unnoticed are becoming more pronounced.
Padayachee pointed to a recurring pattern in supervisory work: where products are complex or poorly structured, financially constrained customers are more likely to experience poor outcomes.
“Economic pressures expose weaknesses in product design,” she said, noting that “even a small friction… can have a big impact on a customer”.
These friction points take familiar forms – unclear exclusions, conditional benefits, and complex activation requirements – but their impact is amplified when customers are under pressure. The result is confusion, disputes, and, ultimately, failed expectations.
This places greater emphasis on the purpose of product design. Gibson highlighted the need for firms to be clear about what problem a product is solving and for whom, particularly in a context where affordability constraints are already driving disengagement.
At the same time, the macro-economic outlook suggests further pressure. Pearce cautioned that current conditions are likely to deteriorate, with “more pain coming for our consumers in South Africa”. Products designed for more stable conditions are now being tested in a constrained environment.
Measuring financial resilience: beyond access
The discussion shifted from access to measurement, with a focus on how financial resilience and well-being should be defined and applied.
Eloise Duncan, chief executive of the Financial Resilience Institute in Canada, distinguished between the two concepts. Financial resilience refers to “a household’s ability to get through financial hardship, stresses, and shocks… while pursuing your goals”, while financial well-being reflects a broader ability to manage finances, meet obligations, and maintain confidence.
This distinction moves the focus beyond product uptake to outcomes. It also highlights that vulnerability is not confined to specific income groups but reflects both financial position and behaviour.
However, measurement remains a challenge. Jermy Prenio, principal adviser at the Financial Stability Institute in Switzerland, noted that there is “no common framework” for measuring financial health internationally, limiting comparability across jurisdictions.
Pearce raised a further concern: measurement that excludes macro-economic realities risks missing the point. Without a stable income, financial resilience is difficult to achieve. In his view, approaches that ignore income and inflation risk becoming disconnected from experience.
Within this context, financial health is increasingly being used as a unifying concept. Gibson pointed to its role in aligning conduct regulation, financial education, and inclusion around improving outcomes, rather than simply expanding access.
From compliance to outcomes
For supervisors, this shift translates into a more outcomes-focused approach.
Padayachee described financial well-being as “a simple way to define what good looks like for a customer”. The focus moves from compliance with rules to whether products deliver in practice – whether they support customers in meeting daily needs, managing shocks, and planning ahead.
This has direct implications for insurers. Products are expected to deliver on their promises “at the time that you said… at the cost that you’ve told [the customer] about”, particularly “when you hit that crunch”.
Suitability and simplicity become central. Products must align with customer needs and circumstances, particularly where financial buffers are limited. This requires a clearer understanding of customer segments and the pressures they face.
There is also a growing focus on vulnerability. Supervisory engagement is increasingly directed at how firms define vulnerability, where it arises in the product lifecycle, and how it is addressed in practice.
Padayachee also highlighted the role of financial education, noting that “if we have an informed consumer, that’s an enabler for better financial well-being”.
Product design and suitability
Product structure is emerging as a key determinant of customer outcomes. As Padayachee noted, “product structures are central to resilience”.
Supervisory work is identifying areas where complexity undermines value, particularly in bundled products and funeral insurance. In these segments, clarity, accessibility and alignment with customer needs are critical.
At the same time, examples of good practice point to how firms can respond. In one instance, a call centre agent provided support beyond strict policy terms and followed up with the customer, reflecting what Padayachee described as “appropriate recognition of vulnerability”.
In another, a funeral insurer combined advanced technology with customer-focused service, ensuring that policies were explained in customers’ home languages and supported with documentation they could retain. This balance of efficiency and understanding was described as “innovation and technology… supported by empathy”.
Duncan noted that firms making progress in this area treat financial resilience as an ongoing process, integrating it into product design, customer engagement, and performance measurement.
Vulnerability and customer understanding
A consistent theme across the discussion was the need for a more nuanced understanding of customers.
Vulnerability is not static or limited to specific groups. As Gibson noted, all consumers are exposed to shocks at different points, requiring firms to monitor and respond to changing circumstances.
For insurers, this raises questions about how well customer needs are understood in practice. Padayachee cautioned that products developed without this understanding are unlikely to deliver value.
“If we go into developing a product… without really understanding what that customer needs, the chances are that we’re not going to meet that need.”
Duncan argued for a “human-centred, but data-driven” approach, using analytics to identify vulnerability and tailor interventions. Prenio added that financial health metrics can support this by helping institutions better understand customer challenges and refine product offerings.
Opportunity and risk: an industry inflection point
The discussion highlighted both opportunity and risk for the insurance sector.
On the one hand, there is an opportunity to strengthen trust and relevance by aligning products more closely with customer needs and delivering consistent outcomes.
Padayachee pointed to existing regulatory frameworks, such as Treating Customers Fairly (TCF), as a basis for this.
On the other hand, poor customer understanding, weak product design, and inaction in the face of worsening conditions all increase the likelihood of poor outcomes.
Digital innovation adds a further layer. As Prenio noted, it presents both opportunity and risk, depending on how it is applied.
He said without meaningful intervention, the gap between access and actual financial resilience is likely to widen.
“The risk is, if we don’t do anything,” he said.
