FMI, an income protection specialist company, retained True South Actuaries and Consultants to investigate the market for disability cover in South Africa and report on such efficiencies and inefficiencies as are found.
Their findings point to a serious shortfall, particularly in so far as temporary disability and income protection is concerned. We publish below an extract from the results, and a link to the full report:
Finding 1: The market offers a sensible product suite, but not enough cover is sold
- Considering the consumer’s financial exposure in the event of disability, we conclude that the market is efficient insofar as it offers a product suite that can sensibly be used to protect against the financial risk of disability.
- However, not enough cover has been sold historically to ensure appropriate levels of cover being in place:
- Permanent disability: The extent of underinsurance for permanent disability has been a known fact since the 2007 Gap Study. Despite the availability of appropriate insurance products, the 2010 update showed that still only 38% of the true need for permanent disability cover in South Africa is actually covered (i.e. with the underinsurance gap accounting for the balance 62% of the real need). The retail insurance industry must increase its current provision of permanent disability cover more than six-fold in order to close this gap.
- Temporary disability: This study for FMI now also quantifies the extent of underinsurance for temporary disability. The results show that temporary disability is even more underinsured, with potentially only between 7% and 25% of the true need for temporary disability cover actually being covered (i.e. with the underinsurance gap accounting for the balance 75% to 93% of the need). The retail insurance industry would have to increase its provision of temporary disability cover by a factor of between twenty nine and seventy nine times in order to close this gap.
- Given the extent of underinsurance of disability cover, we conclude that there must be market inefficiencies and/or constraints, preventing market participants from solving this imbalance. In addition, the proportionally larger degree of underinsurance for temporary disability than for permanent disability, points to the fact that there might well be additional inefficiencies that result in sales being skewed towards permanent disability cover (away from temporary cover).
- In relation to the levels of life cover and disability cover that are sold, the level of critical illness cover is surprisingly high. There is a possibility that this might point to some consumers perhaps incorrectly buying critical illness cover as a proxy for disability cover.
These are just some of the findings. We are of the view that a careful study of these findings could open many new opportunities and reasons for talking to your clients again.
Please click here to download the full document.