If the COVID-19 pandemic has done anything, it’s exposed the shortcomings of the long-term insurance industry. Precious few insurers were prepared for a crisis that would result in a local and global lockdown, leaving many policyholders without jobs, and likely even more customers facing hard decisions between what they can afford and what they should prioritise.
The burning platform for change is clear. Stats SA’s latest Quarterly Employment Survey for the first quarter of 2020 showed a decline in the number of people employed – and this was before the effects of COVID-19 hit the country. The economic effect on the country has been monumental.
COVID and the lockdown have demonstrated to many individuals just how devastating a break in income can be. And with a high risk of incurring a temporary injury or illness, they can now appreciate how that would impact their earnings.
Contrary to popular belief, your biggest risk before the age of 70 is not death. Rather, it’s an injury or an illness that keeps you off work for a period of two weeks or longer. A 30-year-old male, for example, has a 15% chance of dying before the end of his working career. In contrast, he has a 91% likelihood of being unable to work for more than 14 days during his working years1.
FMI’s claims stats show that 7 out of 10 policyholders will have at least one injury or illness during their working lives that allows them to claim on their income protection policy. And yet, the statistics for the South African life insurance industry show that three times as much life cover2 is currently sold than disability cover. So, the question is: why aren’t all income earners getting income protection? Is it because people don’t know about the options available to them? Or maybe income protection hasn’t been able to keep up with the types of work they do? And if that is the case, what are insurers doing about it?
What happens to you and your loved ones when you’re unable to work? Many customers think they’ll be able to fall back on sick leave, their savings or somehow just skimp by for a month or two. FMI’s 2018 RealityCheck Consumer Survey shows that for many South Africans, a three-month interruption can have dire financial consequences, like not being able to pay school fees or their bond.
What we, as an industry, need to do is to focus more on educating customers around their risks. Financial planning should include protection that sufficiently protects them against temporary injuries and illnesses.
We need to offer better quality of cover to more South Africans, giving customers and advisers more claim certainty in the face of their most likely risks. If you can’t work due to complications from minor illnesses like flu, your lifestyle shouldn’t suffer.
We’ve also got to extend our cover to include more occupations. Right now, only a select number of occupations qualify for income protection cover. That’s got to change if the industry is going to bridge the so-called ‘insurance gap’. The industry hasn’t been able to keep up with the different types of occupations in the market, especially amongst independent workers like the self-employed individuals and independent contractors.
A musician shouldn’t have to go without food because they have a fingernail infection and can’t work for two weeks. Hairdressers, tattoo artists, fishermen, and sportspeople who were diagnosed with COVID-19 and couldn’t work during various levels of the lockdown should have been able to cover their incomes and their livelihoods.
It’s time we changed the way we do life insurance. We need to cover more occupations, for more risks. Only then will we, as an industry, be relevant to the needs of ordinary South Africans in 2020. As we speak, we’re innovating to offer income protection to more occupations than any other insurers in South Africa. Watch this space.
1 FMI Risk Reality calculator, 30-year-old male, non-smoker
2 NMG 2020 Quarter 1 data
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