File photo: Reuters

Johannesburg - Last year was one to forget for insurers that have identified the mass market as their area of growth. With sales in that market segment growing 2 percentage points slower than the retail affluent market, maintaining the high levels of growth of the past few years will require more than tapping a new market because the sector is now widely penetrated.

Global research company UBS, which published the South African insurance sector report for 2013 last week, said despite the fact that growth in mass market sales was 3 percentage points lower than the market’s six-year compounded annual growth rate, high single-digit increases between 8 percent and 10 percent a year could still be achieved.

All the country’s big five insurers analysed in the UBS report reported moderate growth in mass market sales even though the turbulent year did not affect their other business units significantly.

The UBS report showed that there were over 10 million policies in force among mass market customers last year, increasing from 8 million in 2006.

Insurers’ mass market business units provide entry-level life insurance products, such as funeral policies.

Jean Pierre Verster, an analyst at 36One Asset Management, said looking at what African Bank and retailers serving the lower end of the market had been saying and with all the inflationary increases, it was understandable why the mass market was under pressure.

“The mass market is essentially funeral policies. Because of all the pressure, people are thinking more carefully before taking more funeral policies. But also in the past few years mass market sales have been growing at a high rate and it’s only natural that growth is decelerating now,” he said.

Verster said mass market sales were not declining per se, but their growth rates had slowed down because of increased penetration.

But he said with the Treating Customer Fairly regulations coming into effect this year, it would be interesting to see how they would affect insurers in the mass market as the regulations would touch on certain practices that were still prevalent in that market.

“The proposed changes to the tax treatment of life risk policies contained in the 2014 Budget could also have a negative impact.”

MMI, which UBS considered as the company that struggled the most to maintain its market share last year, lost most of its share in this lower-end segment of the market, while Liberty, which grew its share the most, did so in the upper segments.

However, Jean Dommisse, the head of client and market insights at Sanlam Personal Finance, maintained that the trouble was not specifically with the mass market but the recurring premium business across all market segments.

“Recurring premium business is the main business sold in the mass market, so this would explain why this market lagged,” he said.

The affluent market, which demonstrated better growth in the past year, received its boost from the 25 percent increase in single premium new business as investor appetite for new, more innovative savings products improved. - Business Report