South Africans are dreadfully underinsured. The Association for Savings and Investment South Africa (ASISA) has estimated that 14 million families face a combined insurance shortfall of almost R29 trillion should the main breadwinner become unable to generate an income.
Simply put, the South African insurance industry is in dire need of a reality check, says Brad Toerien, CEO of life insurance provider, FMI. To give the industry the wakeup call it desperately needs, FMI conducted the #RealityCheck consumer survey, a first of its kind for South Africa.
“We wanted to understand the perceptions of our industry and introduce the realities that affect advisers and clients, with the aim of improving the industry, and help protect the income of South Africans when illness, injury or death occur,” explains Toerien.
The survey also aims to gain insights into why so many South Africans are uninsured, including:
- Products being overly complex, inefficient and expensive.
- Processes being slow and messy.
- The lack of trust in the industry.
- The perception that life insurance is death cover, therefore individuals without dependents aren’t covered for injury or illnesses.
Toerien further explains that the industry finds itself at a precarious moment in history.
“Advisers say their role is now harder than ever before, due to advances in technology. Customers now have far more access to information and expect more from providers. It is therefore imperative that both insurance providers and advisers change with the times, to ensure that customers understand the products that are available and help to change their mind-set regarding the benefits of income cover for illness, injury and death,” he says.
There is still a general misunderstanding regarding the difference between life insurance and death cover. The survey showed that 48% of respondents believe that life insurance is death cover.
“This is a problem for the industry and one of the reasons why there are so many South Africans uninsured. It effectively means people don’t have cover because they simply don’t see the need for it. This could also mean that many have life cover, when they actually don’t need it, and may have an incorrect mix of cover,” stresses Toerien.
In the past, insurance providers have offered mainly lump sum benefits – especially for Disability, Critical Illness and Life Cover. Toerien warns that while this is a great way to settle debts or once-off expenses, they’re usually insufficient to cover unexpected monthly expenses.
“Income benefits are far more easier to understand, as you don’t need to calculate the lump sum required to provide an entire future income. They’re also typically far more affordable than lump sum benefits and make servicing the policy simpler in the long-term as all you would need to do is update salary amounts or monthly income with the insurer in order to ensure your client has the correct cover,” concludes Toerien.