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.
Since the announcement of the MTN and Sanlam insurance partnership, some commentators have highlighted this gap again; and specifically, note that Black South Africans are more underinsured than any other demographic.
Three primary causes of this exaggerated gap have been identified as lack of easy access to insurance products, lack of disposable income and lack of insurance culture in South Africa.
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 CEO 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,” notes Castleden.
2. Lack of insurance culture
Castleden says that the cultural argument is much more interesting. “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,” notes 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 that 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 over 100 years ago, products have been distributed predominantly through face-to-face methods – via financial advisors and brokers. And because commissions are tied to the premium size of the products they sell, financial advisors 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.
What can we do about it?
Castleden says that the way to solve this 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. “We have also worked tirelessly to simplify life insurance products, while maintaining their quality,” says Castleden. “This has made choosing and buying cover simpler.” Castleden says that Sanlam Indie has developed what they call a Wealth Bonus – a free investment that matches up to 100% of monthly contributions – which is included in every policy that is sold.
The recently announced MTN partnership with Sanlam is a great example of this. “The partnership gives accessibility to valuable financial services products to millions more people, which we believe can play a part in closing the critical life insurance gap in South Africa.”