By: Schalk Malan, BrightRock CEO
2022 has been a fascinating and challenging year, in which our industry has started to emerge from the COVID-19 pandemic and its impacts. During 2021, BrightRock, like most other insurers, saw a sharp increase in claims. While economic conditions remain tough, all indications are that a more positive picture is starting to emerge. Statistics to the end of June 2022, which were released by ASISA in September, showed that the number of claims reduced significantly in the first half of this year relative to the same period last year when the country was still in the midst of the COVID-19 pandemic. According to these ASISA statistics, insurers paid out claims and benefit payments to the value of R270.2 billion to policyholders and beneficiaries in the first half of 2022.
BrightRock has paid out a total of over R4.5 billion in claims since we sold our first policy in 2012 (as at end of November 2022). We paid out R1,2 billion in claims across our business (individual life, group risk and funeral offerings) in 2021 alone. This is equal to the total amount we paid in claims in our first seven-and-a-half years in business! The increase in claims was unprecedented in our business.
While the influx of claims has subsided since the peak of the pandemic, BrightRock is still seeing an upward trend in the amount we’re paying.
Despite COVID-19 contributing less and less to our death claim payments, the number of claims that we’re seeing is still high relative to a couple of years ago. We’ve seen an increase in the number of temporary expenses and additional expense needs claims we’ve received over the last few months.
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Opportunities and trends for 2023
Along with the challenges listed above, however, the pandemic has also created opportunities for our industry and for our business, allowing us to protect our policyholders and to reengineer our processes to improve our service offering to our clients. In BrightRock’s case, from a distribution perspective, we’re seeing huge opportunity in the IFA space, where our focus in 2023 will be on service delivery and ease of doing business to support IFAs.
The recent ASISA gap study has highlighted for us the value of our needs-matched offering and how it can help advisers close gaps in their clients’ cover. The recently released 2022 Life and Disability Insurance Gap Study shows a significant gap in the average South African income earners requiring life and disability insurance cover. These findings serve as a reminder to consumers that proper financial planning, even in tough economic times, is a necessity and not a luxury. The study measures the extent of life and disability cover under-insurance in South Africa1.
It shows that South Africa’s 14.3 million income-earners included in the study had enough life and disability insurance to cover only 45 percent of the total insurance needs of their households.
The gap study clearly shows that clients’ need for disability cover is higher the younger they are, yet the most common permanent disability cover structure available in the market is a lump sum that starts out low and increases every year. It also shows that policyholders end up reducing this cover in the future when they get closer to retirement age. This means that, with these traditional structures, policyholders are simply not getting cover that meets their needs. BrightRock’s needs-matched product is designed to match clients’ needs initially, and change with them as your needs change, by offering a more efficient pricing model, and disability cover that’s designed to protect a client’s income until they retire. Through this more efficient pricing model, we are able to offer clients an average of up to 40% more cover per premium rand.
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This is borne out by the latest Swiss Re new business volume survey, which shows that BrightRock sold the most cover in the intermediated risk market (16,6%) in 2021, but our premiums received for that same cover comes in at fourth place (12,6%) – showing that clients are spending less with BrightRock, yet getting more cover than with any other insurer in the same market. Given the current economic conditions in South Africa, therefore, we believe the efficiency and affordability of this approach creates tremendous opportunity for BrightRock in the market.
Other trends that will impact our industry in the year ahead will include long COVID, where we hope to see a better understanding emerge regarding the causes of long COVID and how best to manage the risk associated with it. Over the past few years, life expectancy has been steadily increasing – typically, we see a three-month life expectancy improvement per year. However, as a result of the pandemic, the expectancy in the USA reduced materially over the past two years, by 2.8 years for men and 1.9 years for women. Scientists also posit that climate change is likely to increase the likelihood of further pandemic events, which in turn will lead to further changes in terms of life expectancy, something the industry will need to monitor and understand.
Other industry trends that will continue into the next year include the continued focus on:
- Improved customer experience through digital technologies. Life insurers in South Africa continue to focus on digitising and enhancing the client service experience using online technologies. This is something we at BrightRock have always passionately advocated for and adopted since our market entry in 2012, and it’s a strategy that we’re actively and continuously working on – we hope to introduce exciting new enhancements in this regard in 2023
- Focus on finance and accounting. We expect the introduction of the new IFRS-17 accounting regime to impact the industry significantly during the year ahead. Coming into effect for reporting on the 2023 financial year, it is the most significant change to insurance accounting requirements in over 20 years. This new reporting methodology requires life insurers to measure and account for insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to these insurance contracts. This requirement will provide more transparent reporting about insurers’ financial position and risk.
- Regulatory changes to support better client outcomes. During 2022, the FSCA published a plan spanning 1 April 2022 to 31 March 2025, with details around the planned reform of various financial sector laws, particularly those that govern the outcome for clients. The COFI Bill’s aims, according to Treasury, is to significantly streamline the legal landscape for conduct regulation in the financial sector, and to give legislative effect to the market conduct policy approach. For life insurers and financial advisers alike, these regulatory changes are likely to impact how we engage with clients, and how we work together to ensure fair outcomes for those clients.
There’s no doubt – 2023 promises to be a year filled with change and challenges for our sector.