The R28 trillion reason why you shouldn’t cut back on your insurance during the recession
Facing the recession, more South Africans are looking to cancel their insurance policies as a means of alleviating financial pressure. However by doing so, they risk further widening the already massive insurance gap, warn some of South Africa’s top insurance experts.
Speaking at a Liberty round-table on Tuesday, the experts indicated that this gap – the amount that South Africans are currently under-insured – stood at just over R28 trillion.
“I have been following the insurance gap trends for 20 years and it is just going up,” said Johan Minnie, Liberty Group Executive for Sales, Distribution and Bancassurance.
Speaking specifically on life insurance, Minnie noted that there was a massive concern in the finance industry about the growing gap, as one of the defining characteristics of a first world country is that the next generation is better off than their parents.
This is not the case in South Africa as parents and spouses have progressively begun to leave less and less for their loved ones.
“R28 trillion is a massive number and I don’t think we will see it closed in our lifetime”, said Minnie.
He highlighted that this is because of the mindset most South Africans currently have towards life insurance. “Most consumers don’t wake up and think they are going to buy life insurance today – it’s considered a ‘grudge purchase’ because its something that you can’t see touch, smell or hear.”
“We wouldn’t have this gap if people saw the need for insurance. However, people don’t want to think about illness or death. It’s not a thought that you want to entertain. In addition, under the current economic conditions, many South Africans will be sacrificing their insurance cover in order to make ends meet in the coming years.”
This was confirmed by Robin Wagner, Senior Vice President of International Insurance at TransUnion who noted that insurance (short and long-term) was often last on the chain of expenses behind credit cards, vehicle assets, and home loans.
“Consumers need to see it as an investment, said Wagner. “Often when people buy a new car, they will insure the car fully but not themselves despite the fact they are the main breadwinner driving the car.”
Sound financial advice
The expert round-table reiterated that instead of immediately cutting out insurance in favour of cost-savings, South Africans should seek out sound financial planning advice to rather cut out other unnecessary costs.
“The true value of a financial planner comes out in a time of crisis,” said the Financial Planning Institute’s David Kop.
“Let’s cut the spending in the right areas, whether that means cutting down on smoking or opting for one handbag instead of three.”
“The most important part of the financial planning process is consumer education through the process. We need to explain to customers why they are doing certain things, and not just making these financial changes because they have been told to do so,” said Kop.
“Financial education is vital, especially in those areas where people are struggling in day-to-day. We all need to start talking about basic financial management. South Africa as a whole needs to get involved in educating the public sound financial management skills, from basic education until earning your first income. We need to use technology to make financial planning smarter and more effective.”
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