Massive R298 billion life insurance payout in South Africa
In the first half of 2024, South African life insurers paid out R298 billion in claims and benefits for retirement annuity and endowment policy benefits like death, disability, critical illness and income protection.
With this, individuals and families are urged to try to retain policies amid rising financial pressures.
This is according to the long-term insurance statistics released by the Association for Savings and Investment South Africa (Asisa), a body that represents the majority of South Africa’s asset managers, investment scheme management companies, linked investment service providers, multi-managers, and life insurance companies.
Gareth Friedlander, a member of the Asisa Life and Risk Board Committee, said that the R298 billion would have been paid to individuals following a tragic event like death, disability or a significant life stage change like retirement.
Asisa said that despite the sizeable pay-outs, “life insurers remained well-capitalised and in a solid position to honour the long-term contractual promises made to customers.”
Friedlander reports that the life insurance industry held assets of R4.3 trillion at the end of June 2024, while liabilities amounted to R3.9 trillion.
This left the industry with free assets of R377 billion, more than double the reserve buffer required by the Solvency Capital Requirement (SCR), which is regulated by the South African Reserve Bank’s Prudential Authority and is designed to protect policyholders.
“The life industry has maintained resilient capital strength and stable reserves, even during the Covid years,” said Friedlander.
“Strong reserves provide policyholders with the peace of mind that the long-term insurance industry is in good health and that life insurers will be in a position to pay claims and policy benefits, even when extreme events like a pandemic result in unusually high claims,” he added.
Asisa life industry in numbers
June 2021 | Dec 2021 | June 2022 | Dec 2022 | June 2023 | Dec 2023 | June 2024 | |
Assets held | R3.4 trillion | R3.7 trillion | R3.5 trillion | R3.7 trillion | R3.9 trillion | R4.1 trillion | R4.3 trillion |
Liabilities | R3.1 trillion | R3.4 trillion | R3.2 trillion | R3.4 trillion | R3.6 trillion | R3.7 trillion | R3.9 trillion |
Free assets | R335 billion | R351 billion | R336 billion | R347 billion | R364 billion | R366 billion | R377 billion |
SCR ratio | 1.97 | 1.96 | 2.04 | 1.96 | 2.05 | 2.07 | 2.05 |
Claims & benefits paid per half-year | R315 billion | R292 billion | R270 billion | R308 billion | R287 billion | R311 billion | R298 billion |
Risk policies
As of June 2024, South African life insurers held 35.2 million risk policies for policyholders making monthly premium payments.
Of these, around 15 million were funeral policies, just over 7 million were credit life policies, and nearly 13 million were for life, disability, severe illness, and income protection.
According to Asisa statistics, there was a modest growth of 1.7% in recurring premium risk policies in the first half of 2024.
Friedlander noted that while the increase was small, it was a positive sign amid a challenging economic landscape.
“By the second quarter of 2024, the official unemployment rate had climbed to 33.5%.
“In addition, consumers faced high living costs driven by high interest rates and increasing fuel and food prices. Against that backdrop, the increase in risk policy sales was encouraging,” said the Life and Risk Board Committee member.
Friedlander said that any rise in life and disability policies is beneficial, especially since many South African households are significantly underinsured.
The 2022 Asisa Life and Disability Insurance Gap Study revealed that the 14.3 million income earners in South Africa had only enough coverage to meet 45% of their households’ total insurance needs.
As a result, if an income earner dies or becomes disabled, households would face severe financial strain.
However, Friedlander expressed concern over the 4.3 million recurring premium risk policies that lapsed (occurs when a policyholder stops paying premiums for a policy that has no accumulated fund value) in the first half of 2024, which means that 4.3 million policyholders and their beneficiaries are now without risk coverage or have reduced protection.
Savings policies
At the end of June 2024, ~ 5.1 million individual recurring premium savings policies (endowments and retirement annuities) were in force.
In the first half of the year, consumers took out 294,138 new recurring premium savings policies but surrendered 287,707.
Friedlander notes that during tough times, consumers are more likely to surrender these policies to manage financial difficulties.
Message to consumers
Friedlander notes that many families are struggling with job losses, rising living costs, and expensive debt, causing their monthly expenses to match or exceed household income.
However, instead of taking a comprehensive approach to manage their finances, many react in panic, leading to the lapse of valuable risk coverage.
He warns that canceling coverage may result in policyholders becoming ineligible for risk cover due to age or health issues, and any future coverage will likely be more costly.
Despite these challenges, Friedlander expresses cautious optimism, urging policyholders to maintain their insurance if possible.
He points to a strengthening Rand, which could lower fuel prices, and a recent 0.25% interest rate cut as potential relief for indebted consumers.
He also notes a positive shift in sentiment following the peaceful transition to a Government of National Unity and the suspension of load-shedding.
Consumers struggling to make ends meet are encouraged by Asisa to complete the Financial Health Check assessment on the consumer financial education website SmartAboutMoney.co.za and to use the Budget Planner and Debt Repayment Calculator to help with a viable financial plan.
Read: SARS can come after your pension and salary in South Africa