Life insurers off-form in dealing with poor

2011-12-17 10:08

The insurance industry has defended its track record in providing services to the low-income market.

This follows a survey by FinScope that shows an increasing number of South Africans were not accessing insurance products.

The findings of the survey, released last week by the FinMark Trust, have raised questions about whether the long-term insurance sector was shirking its responsibility of extending its products to poor consumers.

The survey found that the number of adult South Africans who do not have any form of insurance has risen to 57% this year from 50% last year.

The report also revealed that South African adults making use of formal insurance products also decreased from 40% last year to 34% this year, supporting the sentiment that more and more people were being excluded by the sector.

In contrast, the local banks are extending services to about 21.2 million adult South Africans, roughly 63% of the adult population. The increase in the number of people who are now banked has been achieved through the rolling out of low-income banking accounts such as the Mzansi account, which was introduced in 2005.

In 2008, life insurers such as Old Mutual, Sanlam, Liberty Life and Metropolitan launched their low-income products. These products are known as Zimele, but the awareness in the market about these products is woefully low.

Zimele products include life insurance, investment and funeral policies.

Jabu Khumalo, a research specialist at the FinMark Trust, said: “Zimele never reached the hype reached by the Mzansi bank account. Zimele has not really taken off and there is no knowledge in the market about the Zimele products. There is no appetite to push Zimele products.”

He said FinScope has even stopped tracking developments regarding the Zimele initiative.

An industry insider who declined to be named said: “Zimele products were not profitable, hence there was a reluctance to vigorously sell the products. To make matters worse, these products were unpopular with insurance brokers because they were paid small commissions for selling the product.”

But Peter Dempsey, deputy chief executive of the Association for Savings and Investment South Africa
(Asisa), a mouthpiece for life insurance companies, admitted that life insurers were not doing enough to advertise the Zimele products.

“Life companies generally do not place much focus on advertising long-term insurance products. This is because most consumers will not rush out and buy life cover after having seen advertising,” said Dempsey.

“Life cover and funeral cover is usually bought after an adviser has explained the benefits to a consumer.”

He also cautioned against comparing provision of insurance services to the provision of banking services, arguing that consumers tended to dump insurance products instead of banking products during times of financial hardship.

“Insurance products like life cover or funeral insurance require consumers to spend money on something that will not provide them with immediate benefit. In fact, this type of cover will benefit the policyholder’s family when he or she dies, never the policyholder.

“Therefore, during times of economic hardship, consumers are far more likely to cancel their life cover or funeral insurance than to close a bank account. Also, when times are tough, low-income earners are unlikely to buy long-term insurance cover,” Dempsey said.

He said life insurers had sold about 3.5 million Zimele policies by the end of last December. This figure represented a 13% increase considering the 3.2 million policies sold by December of 2009.

Asisa is expected to release this year’s statistics in March.

The association told City Press that as much as R38 billion worth of premiums were collected last year alone from those consumers, who had bought Zimele policies.

The FinScope survey recommended financial institutions up their game in providing financial literacy to low-income earners if the country wanted to boost financial inclusion.
 
“There are three possible and key interventions to increase financial inclusion in South Africa in a sustainable way. These include building capacity through financial literacy programmes where it is lacking; providing financial products and services that serve a specific need; and removing regulatory barriers to create a conducive and enabling environment for financial inclusion,” said FinMark Trust.

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