Life insurance industry weathers Covid-19 storm
Share this article:
DESPITE the unprecedented claims and benefit payments made to policyholders and beneficiaries as a result of the Covid-19 pandemic in the past financial year, the life industry announced that it remained in robust financial health and was still well capitalised to honour the long-term contractual promises made to customers.
The Association for Savings and Investment South Africa (Asisa) released the half-yearly long-term insurance statistics reported by its members, which showed that the life insurance industry held assets of R3.43 trillion at the end of June. The industry’s liabilities amounted to R3.09trln. This has left the industry with free assets of R334.6 billion, which was almost double the reserve buffer required by the Solvency Capital Requirements (SCR).
Asisa Life and Risk Board Committee deputy chair Hennie de Villiers explained that a healthy reserve buffer was of critical importance because it enabled insurers to pay claims and policy benefits even in times of extreme market turmoil and/or unusually high claims.
“The Covid-19 pandemic is considered a once-in-a-lifetime event, which has resulted in unprecedented death claims for our industry and yet life insurers are able to weather the fallout because of the reserve buffers that are in place,” said De Villiers.
He noted that despite the higher-than-usual death claims recorded by most life insurers over the three half-yearly reporting periods since the start of the pandemic, the SCR ratio had dropped only slightly, indicating the resilience of the South African life insurance industry.
De Villiers reported that policyholders and beneficiaries had received claims and benefit payments worth R315.4bn from South African life insurers in the first half of this year. 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.
“This means that R315.4bn was paid to South Africans in the first six months of this year following either a tragic life event like death or disability or a life stage change like retirement,” said De Villiers.
He said this brought to R839.1bn the total that was injected into the South African economy over 18 months during a period when many industries were left largely paralysed by measures taken to curb the spread of Covid-19.
At the end of June, there were 40.3 million individual recurring premium policies in force, of which 33.2 million were risk policies (life policies, funeral policies, credit life policies, disability policies, severe illness policies and income protection policies).
De Villiers said while 5.9 million new individual recurring premium risk policies were bought in the first six months of this year, some 3.7 million risk policies were lapsed. A lapse occurs when the policyholder stopped paying premiums for a risk policy, which had no accumulated fund value.
Asisa said that compared to the first and second half of 2020, there was a significant increase in new risk policies bought, while at the same time lapses were much lower.
“The increase in the uptake of risk policies and the decrease in lapses is positive and indicates that more than ever South Africans are realising the value of risk cover. While an insurance payout cannot make up for the loss of a loved one, it can ease the financial burden that falls on a family when a tragic life event occurs,” he said.
The annual death claims statistics released by Asisa recently showed that 1 023 083 death claims were submitted between the beginning of April last year and the end of March. The statistics reflected claims made against individual life, group life (offered by employers), credit life and funeral cover policies. Beneficiaries of the policyholders who died in this period received death benefits worth R47.58bn compared to the previous 12-month period when R29.08bn was paid.
De Villiers reported a decline in the number of individual recurring premium savings policies (endowments and retirement annuities) from 6.1 million policies at the end of December 2020 to 6 million at the end of June this year.
While 340 126 new policies were sold during the six-month period, 316 023 policies were surrendered. A surrender occurs when the policyholder stops paying premiums and withdraws the fund value before maturity.
De Villiers said while this was concerning, it was not surprising given the impact of the Covid-19 pandemic on the earning ability of thousands of South Africans.
“When times are tough, consumers are more likely to surrender their savings policies to access their savings due to financial hardship.”
De Villiers pointed out that there was a 3.4 percent increase in the number of single premium policies (annuities) from 2 million at the end of December last year to 2.1 million at the end of June this year. He said unfortunately this might largely be due to people taking early retirement or investing in retrenchment packages.
The statistics clearly showed that the Covid-19 pandemic has had a devastating impact on millions of South Africans and made a case for many to be vaccinated.
BUSINESS REPORT ONLINE