Business Brief

The recent rise in inflation – not only in South Africa but worldwide – has made millions of people tighten their proverbial purse strings. According to Statistics South Africa, the country’s consumer price inflation (CPI) surged to a 13-year high in June, reaching 7.4% year on year. This was mainly due to the 45.3% increase in fuel price (again, year on year).

Believe it or not, South Africa is not currently suffering the highest inflation rate. According to WORLD POPULATION REVIEW, inflation in Venezuela reached 1 198% in Jan (year on year). Even in developed countries, inflation has soared. In the UK, FINANCIAL TIMES reports that inflation is projected to hit 18.6%, whereas, in the US, it was 8.5% year on year in July.

Impact

Inflation impacts people’s financial planning and buying choices. The increased fuel price’s drastic impact on people is an excellent example to explain inflation. A year ago – in November 2021 – the inland price for one litre of 95 octane fuel was R19.54. By July, it skyrocketed to R26.74 per litre. The same applies to the amount an insurance policy will cost in the future.

When considering inflationary impacts on insurance, Craig Comrie, CEO of Profmed – an affiliate of PPS – in his article in the July edition of THE PROFESSIONAL, highlights a crucial issue – that the increase in healthcare costs tends to sit at 3% to 4% higher than CPI.

One should also remember that as much as an inflationary increase is typically associated with paying more for things, it often also means that the value of assets, such as property, has similarly increased. As an adviser, you should regularly review the impact higher inflation has on your members’ insurance cover. When reviewing their insurance cover, you should always determine whether the total cover they have bought will cover all their assets as they increase over time.

The fundamental purpose of the increase is to ensure that members’ benefits remain aligned with inflationary changes, safeguarding them against erosion over time. Even in tough times, a member’s insurance benefits must remain in line with their gross professional income (GPI) as the risks of sickness, disability, critical illness or death remain.

This increase in benefits is not underwritten, meaning that if a member has experienced a deterioration in health, their increased benefits will not be affected. However, if they decide not to accept this increase and then apply for cover at a later stage, they will be medically underwritten. Thus, the member would be better off taking advantage of the Declared Annual Benefit Adjustment in the long term.

PPS’s Declared Annual Benefit Adjustment for members' benefits will be 7.5% in January 2023. When the sum-assured increases, members will have more cover, which will cost a little more but will be free of underwriting.

As you review your members’ portfolios, also remember to remind them to inform PPS of the following:

1. Change in occupation – some of a member’s benefits might be linked directly to their occupation, e.g., the Sickness and Permanent Incapacity benefit and the Occupational Disability Provider. If a member’s occupation has changed since they applied for these benefits, they must inform us within 30 days of the change.
2. Smoking status – if a member changed their smoking habits – either started or stopped smoking – they need to let us know, as this will affect the premium they are paying.

Members received a letter regarding the adjustment on 21 November via e-mail or SMS. They are advised to speak to you, their financial adviser, to help them understand and review their benefits.

CLICK HERE for a short video explaining the benefits of benefit adjustment, which can also be shared with your clients.

By Motshabi Nomvethe, PPS Head of Technical Marketing

PPS is a licensed insurer conducting life insurance business, a licensed controlling company and an authorised FSP.