Life insurers who are members of the Association for Savings and Investment South Africa (Asisa) paid a whopping R599 billion to policyholders and beneficiaries last year following tragic life events like death and disability or significant life stage changes like retirement.

According to Asisa, payments made to policyholders and beneficiaries included retirement annuity and endowment policy benefits, as well as, claims against life, disability, critical illness, and income protection policies.

The long-term insurance statistics released on Tuesday by Asisa also show that members managed 43.8 million risk and savings policies on behalf of policyholders at the end of December last year. In-force policies increased marginally from 43.2 million at the end of December 2022.

Gareth Friedlander, a member of the Asisa Life and Risk Board Committee, said the health of the long-term insurance industry was of significant importance to the policyholders of these 43.8 million policies.

“The key indicator of the industry’s health was said to be the average solvency buffer, which was just more than double (2.07) the Prudential Authority’s Solvency Capital Requirement (SCR) as of the end of December last year,” he said.

According to GlobalData’s South Africa Life Insurance Market Report Overview published last month, the gross written premium of the South African life insurance market was R614.7 billion ($36.7 billion) last year and was expected to achieve a CAGR of more than 5% during 2024-2028.

Friedlander explained that strong capital buffers ensured that life insurers were in a position to pay claims and policy benefits, even in times of extreme market turmoil and unusually high claims.

“The life insurance industry managed assets of R4.08 trillion at the end of December last year, while liabilities amounted to R3.72 trillion. This left the industry with excess assets of R366 billion, while the SCR was R176.7 billion,” he said.

Friedlander noted that the industry had managed to shore up capital last year to levels last seen in the years before the Covid pandemic. “South African life insurers have shown remarkable resilience in a period marked by unprecedented claims due to the Covid pandemic with only a slight dip in solvency levels in 2021 and 2022,” Friedlander said.

He also points out that this was the first time the long-term insurance industry has reported assets above R4 trillion.

“The 10.2% growth in assets from R3.7 trillion at the end of 2022 to R4.1 trillion at the end of last year was largely due to market performance. The JSE All Share Index delivered a return of 9.3% over the 12 months to the end of December last year,” Friedlander said.

Friedlander described the long-term insurance operating environment as slow-growing, with individual life insurers achieving growth by dipping into the market share of competitors by offering better value and product innovation. He said this has created a highly competitive market, which was good news for consumers.

Friedlander said they had a picture-perfect competitive industry with an enormous amount of innovation and a lot of digitisation.

“We have also seen an increasing number of industry participants with smaller players joining and banks coming in, which is representative of a competitive and innovative industry.”

Friedlander said despite the competitive pressures, the South African life industry remained a responsibly managed industry, delivering value without undermining the ability to pay claims and benefits, especially during tough times.

According to Asisa, last year, consumers bought 9.97 million new individual recurring premium risk policies, of which 5.59 million were funeral policies. In 2022, some 9.19 million risk policies were sold, of which 4.39 million were funeral policies.

Friedlander said 8.25 million risk policies lapsed last year, a slight reduction from the 8.33 million policies lapsed in 2022. A lapse occurred when the policyholder stopped paying premiums for a risk policy with no fund value.

“While even a slight reduction in the lapse rate is good news, policy lapses are concerning. With every risk policy lapsed, South Africa’s sizeable insurance gap widens even further, leaving more families financially vulnerable should their breadwinner die or become disabled.”

Meanwhile, the 2022 Asisa Life and Disability Insurance Gap Study, conducted every three years, showed that the average South African income earner had a combined life and disability cover shortfall of at least R2.4 million at the end of 2021. According to the study, South Africa’s 14.3 million income earners had only enough life and disability insurance to cover 45% of the total insurance needs of their households.

Savings policies

Last year, 536 784 individual recurring premium savings policies (endowments and retirement annuities) were taken out, compared to 529 930 in 2022, Asisa said.

“Policyholders also surrendered 563 326 recurring premium savings policies compared to 585 265 in 2022. A surrender occurred when the policyholder stopped paying premiums and withdrew the fund value before maturity,” the study revealed.

Friedlander said that the increase in new savings policies against a decrease in surrenders was an unexpected positive development, given the economic hardships that faced the majority of consumers last year. However, he added, that it was encouraging that consumers recognised the importance of disciplined savings, even under difficult circumstances.

Friedlander said the increase in recurring premium risk and savings policies bought last year was encouraging.

“The Covid-19 pandemic years highlighted the importance of protecting your family financially by having sufficient life cover in place, as well as savings that can be accessed in an emergency. Hopefully, this motivates consumers to ensure they have enough cover and savings to protect them and their families when life happens,” he said.

Friedlander said the cost of living driven by high-interest rates and fuel prices combined with the realities of a stagnant economy would likely drive some policyholders to give up their policies and cash in their savings.

He cautioned that this should always be a last resort and encouraged policyholders struggling to make ends meet to discuss options with their financial advisers before letting go of their policies.

“A financial adviser can help you by taking a holistic view of your financial situation and helping you find sustainable solutions that are not driven by emotions,” he said.

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