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Life insurers withstood record claims in third wave last year

File picture: Khayelitsha field hospital. Photographer: Ayanda Ndamane, ANA

File picture: Khayelitsha field hospital. Photographer: Ayanda Ndamane, ANA

Published Mar 22, 2022



By Martin Hesse

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The third wave of the Covid-19 pandemic, which occurred from early May to mid-September last year and was driven by the Delta variant, was the worst of the Covid-19 waves for the life insurance industry in South Africa, with the number of death claims more than 50% higher than pre-Covid levels and the rand value of claims more than 120% higher.

In a press briefing last week by the Association for Savings and Investment South Africa (Asisa), which represents the life insurance and collective investment industries, Hennie de Villiers, the deputy chair of the Asisa Life and Risk Board Committee, presented statistics on life claims during the pandemic and their impact on insurers’ finances.

Death claims

In April 2020, soon after the Covid-19 pandemic hit our shores, Asisa started monitoring the pandemic’s impact on the life industry by tracking death claims against individual life, group life (offered by employers), credit life and funeral policies. Last year, it released the data for the 12 months from April 1, 2020 to March 30, 2021. During that period, which covered the first two waves of the pandemic, life insurers reported a total of 1 023 083 death claims to the value of R47.58 billion. This represented a 43% increase in the number of death claims and a 64% increase in the rand value of claims compared with the preceding 12 months.

In the following six months, April 1 to September 30 last year, which covered the virulent Delta wave, insurers processed 565 522 death claims to a value of R44.42 billion. This represented a 53% increase in death claims and a 127% increase in the rand value of claims compared with the six months October 2019 to March 2020.

De Villiers said that although the statistics are not yet in for the fourth, Omicron, wave, anecdotal evidence points to it being less severe in terms of deaths than the Delta wave. He also said that while not every death for which a claim was submitted would have been caused by Covid-19, there is no doubt that the pandemic was responsible for many of the additional deaths, whether directly as a result of a person contracting the virus or because people were reluctant to seek medical attention for other serious conditions.

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Industry capitalisation

De Villiers said that although the life industry made record payouts in 2021, it remained in good financial shape. He said policyholders and beneficiaries received claims and benefit payments worth R608 billion from South African life insurers in 2021, the highest ever paid in a single year. The payments included claims against life, disability, critical illness and income protection policies, as well as retirement annuity and endowment policy benefits. Putting the sum paid out into perspective, De Villiers said the government's social development budget for 2022 was R364 billion.

Despite these historic payouts, the industry remains well capitalised. Life insurers held assets of R3.7 trillion at the end of 2021, while liabilities amounted to R3.4 trillion. This left the industry with free assets of R351 billion, which is almost double the capital required by the solvency capital requirements.

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New and lapsed risk policies

De Villiers noted that the number of lapsed risk policies – policies that become redundant because policyholders stop paying their premiums – slowed in 2021 after rocketing in 2020, the first year of the pandemic. According to Asisa’s statistics, 7.4 million risk policies lapsed last year compared with 10.4 million in 2020 and 8.8 million in 2019.

He said there was also a strong uptake last year in life and disability policies: 10.4 million individual recurring-premium risk policies were bought in the 12 months to the end of December 2021, compared with 8.9 million in 2020.

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De Villiers said the reality was that most of us know at least one person who lost his or her life to Covid-19. He said that witnessing the financial hardship faced by so many families as a result of the pandemic has played a big role in consumers placing greater value on having life cover and income protection cover.

Savings policies

Savings vehicles offered by the life insurance industry comprise mostly retirement annuities and endowment policies. The traditional forms of these products tie you into a contractual term whereby you are penalised if you stop contributing or cash in (surrender) the policy before the end of the term. De Villiers said that unfortunately policyholders continued to surrender their savings policies at an increasing rate to access funds in a time of need. The statistics show that 938 148 savings policies were surrendered in 2021, compared to 825 548 the year before and 901 342 in 2019.