The life assurance industry, which paid out a whopping R599-billion in claims and benefits last year, remains healthy with a solvency buffer that is double what is required by the Prudential Authority.

Payments made to policyholders and beneficiaries included retirement annuity and endowment policy benefits, as well as claims against life, disability, critical illness and income protection policies.

Gareth Friedlander, a member of the Asisa Life and Risk Board Committee, says strong capital buffers ensure that life insurers are in a position to pay claims and policy benefits, even in times of extreme market turmoil and unusually high claims.

Industry reaches record R4-trillion assets under management

The life insurance industry managed assets of just more than R4-trillion by the end of last year, while liabilities amounted to R3.72-trillion. This left the industry with excess assets of R366-billion, and a solvency credit ratio of R176.7-billion.

Friedlander notes that the industry had managed to shore up capital in 2023 to levels last seen in the years before the Covid pandemic. “South African life insurers have shown remarkable resilience in a period marked by unprecedented claims due to the Covid pandemic with only a slight dip in solvency levels in 2021 and 2022,” he adds.

He also points out this is the first time the long-term insurance industry has reported assets above R4-trillion. However, the 10.2% growth in assets from R3.7-trillion at the end of 2022 to R4.1-trillion at the end of 2023 was largely due to market performance, rather than more investors putting money in. The JSE All Share Index delivered a return of 9.3% over the 12 months to the end of December 2023.

High demand for funeral policies

Highlighting the heightened awareness of the cost of death in a post-Covid era, consumers bought 9.97 million new individual policies last year, of which more than 50% (5.59 million) were funeral policies.

Friedlander says 8.25 million risk policies lapsed last year. A lapse occurs when the policyholder stops paying premiums for a risk policy with no fund value.

“Policy lapses are concerning. With every risk policy lapsed, South Africa’s sizeable insurance gap widens even further, leaving more families financially vulnerable should their breadwinner die or become disabled.”

The 2022 Asisa Life and Disability Insurance Gap Study, conducted every three years, showed that the average South African income earner had a combined life and disability cover shortfall of at least R2.4-million at the end of 2021. According to the study, South Africa’s 14.3 million income earners had only enough life and disability insurance to cover 45% of the total insurance needs of their households.

Consumers cash out more than 500,000 savings policies

Policyholders also surrendered 563,326 savings policies in 2023, compared to 585,265 in 2022. A surrender occurs when the policyholder stops paying premiums and withdraws the fund value before maturity.

Friedlander comments that the increase in new savings policies against a decrease in surrenders was an unexpected positive development, given the economic hardships that faced most consumers in 2023.

He says the increase in recurring premium risk and savings policies bought in 2023 is encouraging. “The Covid pandemic years highlighted the importance of protecting your family financially by having sufficient life cover in place, as well as savings that can be accessed in an emergency. Hopefully, this motivates consumers to ensure they have enough cover and savings to protect them and their families when life happens.”

Friedlander says the cost of living driven by high-interest rates and fuel prices combined with the realities of a stagnant economy will likely drive some policyholders to give up their policies and cash in their savings. DM