Only 19% of South Africans are insured when funeral cover is excluded

Some 60% of South Africans report having an insurance product, and insurance penetration, measured using premiums as a percentage of GDP, was 13.7% in 2020 – one of the highest in the world, out-ranking the US and the UK, according to the FSCA’s 2022 Financial Sector Outlook Study, which was released last week.

But these impressive statistics are skewed by the fact that most of the take-up of insurance products is accounted for by funeral cover, and when this product category is excluded, the share of South Africans with insurance drops to only 19%, the FSCA said.

Forty-two percent of adult South Africans reported having funeral cover in 2021, down from 53% in 2019.

On the other hand, 10% (2019: 12%) have life insurance, 11% (unchanged) have physical asset insurance, and 8% have health insurance (9%). An individual may have more than one type of each policy, so his or her aggregate coverage is only 19%, not 29%.

South Africans without non-funeral insurance cite affordability as the key barrier to buying an insurance product, the Study said.

The FSCA said despite the impressive headline statistics, the insurance market remains underserved. The life insurance gap was estimated to be R15.4 billion in 2019, and the poorest 20% of the population have only 3% of the insurance cover they need.

Drop in AUM in 2020

The industry’s total assets under management (AUM) increased at an average a compound annual growth rate (CAGR) of 4% between 2015 and 2020. However, in 2020, the industry saw a decline of about R101bn in AUM to R3.36 trillion because of a 3% decrease in AUM by the life industry.

Life insurers hold 93% of the industry’s AUM.

On average, the insurance industry saw a 3% CAGR in gross written premiums (GWP) between 2015 and 2020.

More than R12.3bn is spent on insurance premium payments a month.

Higher claims ratio for life insurers

The claims ratio for primary life insurers increased from 94.4 in December 2019 to 102.2 in December 2020, reflecting the increase in the value of claims paid out, mainly driven by pay-outs for funeral policies, the FSCA said.

Life insurers experienced a 7% decrease in GWP between 2019 and 2020, largely due to the increase in the number and total value of claims paid out in 2020.

Excluding the rise in claims in 2020, the value of life insurance claims has remained relatively steady since 2015, at an industry average of R435 million a year, according to the Study.

Large insurers recorded a 50% to 60% increase in life claims against fully underwritten individual life policies between March 2020 and January 2021, driven by the spike in the number of death claims in 2020.

Although the number of claims increased in 2020, the values paid out were less than the average life policy. The Study said this can be partly attributed to policyholders reducing the value of their cover because of financial pressure.

As at March 2021, the Prudential Authority reported 60 primary life insurers, 10 fewer than the year before. The top five life insurers by assets (Sanlam, Old Mutual, Liberty, Momentum Life and Discovery Life) account for 82% of the market’s total assets.

Increase in short-term insurers’ GWP

The claims ratio for primary non-life insurers increased from 62.5 in 2019 to 74.8 in 2020, resulting from a rise in the number of business interruption claims in 2020, as well as policyholders’ inability to pay premiums because of a loss in income.

However, in 2020, non-life insurers reported a sharp increase in GWP of 32% from 2019, to about R172bn.

Research commissioned by Insurance Claims Africa (ICA) found that, unlike the life insurance sector, the short-term insurance sector performed better than expected in 2020. The non-life insurance industry benefited from a reduction in claims due to lower alcohol consumption, curfews and the decline in road traffic leading to fewer motor vehicle accident claims.

The ICA report found that premiums increased by 2.2% in 2020, and because of the lower claims in certain product lines, short-term insurers’ unappropriated profits increased by 20%.

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