Why South Africans don’t have enough cover
South Africans are under the impression that life insurance is expensive and not easily accessible.
As a result, a large portion of the population is not insured - a gap estimated to be as high as R30 trillion.
The three main reasons for this gap have been identified as:
1. Lack of disposable income. Many South Africans believe that life insurance is not affordable, yet these same people are usually able to purchase funeral cover. “If we're making the argument around affordability, life insurance is often significantly cheaper than funeral cover when comparing how much cover R1 of premium will buy,” says Sanlam Indie chief executive Peter Castleden. “At the extremes, an individual may be able to get as much as 15 times more life cover for the same premium as funeral cover.”
Life insurance is designed for settling debt, expenses and leaving behind financial security for loved ones. Funeral cover is a quick payout to cover immediate expenses and the cost of the funeral, and that is where it stops. “Some insurers offer a baked-in benefit which pays a portion of the life cover as quickly as funeral cover would pay - effectively killing two birds with one stone,” says Castleden.
2. Lack of insurance culture. “Our research suggests that in many cases, extended family and community are expected to (and often do) step in to take care of left-behind children and loved ones when a breadwinner passes away,” adds Castleden.
The need for life insurance to help secure the financial futures of left-behind family may be less compelling in black communities due to this belief. If we could help people to realise that accessible life insurance is available in South Africa, and that leaving money to take care of orphaned children is important, then we can reduce the burden on extended family and communities.
3. Lack of access. Lack of access is seen as the most important reason for the insurance gap and, in particular, for black South Africans. Castleden says there are a number of drivers behind a historical lack of access to life insurance, but one of the most prominent is the nature of the traditional life insurance distribution model itself. Since the dawn of South Africa's life insurance industry more than 100 years ago, products have been distributed predominantly through face-to-face methods - via financial advisers and brokers. And because commissions are tied to the premium size of the products they sell, financial advisers and brokers tend to focus their efforts on older, wealthier clients.
Due to historical factors, we know that the average income of individuals in South Africa is skewed by race, so it's no surprise that black South Africans are generally underserved by traditional distribution channels compared to other demographic groups.
Castleden says the way to solve the insurance gap is to make the primary approach client-focused, as opposed to channel-focused. “This means that rather than forcing clients to interact through a primary distribution channel, we have built a number of channels which we make available to all clients.”
These channels make it far easier for more potential clients to be reached and world-class products to be distributed at a fraction of the cost of traditional channels.
Supplied by Sanlam