Marked declines in Aids mortality rates are shifting the focus to higher disability claims, highlighting the need for corporates to redirect the savings resulting from lower group life premiums.
Old Mutual Corporate said yesterday that, according to its observations of the Aids trend, there had been a 19 percent drop in the mortality rate. This conclusion stemmed from an analysis of about 500 000 people a year across many industries over four years, it said.
“There is much speculation about the future of Aids, but one thing is clear: although its effects may be changing, the disease has had and will continue to have a profound impact,” group assurance actuary Neil Parkin said.
While employers had various options to use the savings from reductions in group life premiums that had resulted from declining Aids deaths, he said disability insurance was arguably the most pressing need. He cited an insurance gap study by the Association for Savings and Investment SA, which showed that South African families were under-insured for disability cover to the tune of R6 trillion.
Parkin said: “The focus on death cover and the rising costs of that cover have diverted focus and money from disability insurance. The result is that many disability arrangements are based on insurance that was available in the market a decade ago. A reduction in group life premiums is an excellent opportunity to re-evaluate a group’s disability needs.”
Disability insurance had evolved considerably over the past decade and there were a number of new generation products, he added.
He said a key factor to consider in disability cover was the replacement ratio, or the income employees received if they became claimants.
“Traditionally, this is set at 75 percent of pre-disability earnings. By increasing this to 100 percent, the employee will have their full salary replaced and will be able to cope with the reduced ability to earn an income and any additional expenses as a result of the disability,” Parkin said.
“In the group market, premiums follow actual experience. Some clients have seen decreases by about 20 percent. However, it varies by industry, region and the group’s profile. For example, higher-earning industries or firms are less affected by Aids and will see a smaller impact on premiums.”
There had been a marked reduction of Aids-related deaths in recent years for a number of large employers and retirement funds insured by Old Mutual.
Old Mutual’s group risk schemes had shown that Aids was changing from a certain death sentence to a chronic, manageable disease, he said.