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By: Francis Aldrich CFP®, Technical Marketing Specialist at PPS
Insurance penetration on the continent, including South Africa, remains low at 16.9%, according to the Association for Saving and Investment South Africa (ASISA) report of 2017. The report highlights that consumers’ disposable income continues to shrink as a result of economic pressure, leading to rising inflation, higher interest rates and a high rate of unemployment.
With economic pressures, many consumers are left unprepared when unexpected financial needs such as a funeral, unplanned pregnancy, terminal illness or motor repairs arise. These unforeseen events are usually not budgeted for, leaving consumers cash-strapped and resorting to credit.
As such, a consumer’s first point of cutting or recouping costs is cancelling their insurance policies. The value of paying insurance is generally not appreciated by many consumers because of its intangible nature or benefit. Consumers would rather cancel their insurance than their pay-to-view subscription, because they perceive it as a direct benefit unlike insurance cover.
Insurance is sometimes considered too complex a concept because the benefit materialises upon occurrence of an event that requires lodging of a claim, and or payment of an excess. While not tuning in to satellite may be boring, not having insurance can be equally devastating for you and your family. It’s especially important that brokers get their clients to understand this point. By using the monthly satellite TV costs, for the right level of insurance, consumers will be better placed to protect themselves from the financial impact a potentially catastrophic event may have on their pocket.
In isolation insurance may seem expensive especially if it’s framed in the cost of the cover alone, and the underlying, long-term value is not clearly understood. Insurance should be viewed in light of providing financial support in the case of disability or critical illness, so that your family is provided with a greater level of financial support to help them address the challenges or reality that life has dealt them. The question brokers should ask themselves is how can they assure their clients that insurance costs are justified in their personal circumstances.
According to a FinScope survey commissioned by FinMark, 67% of South African adults trust insurance companies. However, 53% of the 67% disclosed that they find the language used in financial paperwork confusing. This is a well-known challenge in the financial sector, which has attracted regulatory reform as a measure to resolve it.
Perceptions about insurance vary, with funeral cover being one of the first insurance products that comes to mind for consumers. According to FinScope, only 15% of respondents see insurance as a mechanism to protect themselves against asset loss.
The insurance industry should do more to improve access to non-life insurance products such as assets cover which has extremely low penetration. The weak economy should motivate South Africans to have asset insurance to be able to cope with any losses they experience.
The burden of responsibility lies with brokers and insurers to come up with innovative ways to increase product penetration by improving the way we communicate with consumers, and also escalating financial literacy. It’s important for companies such as PPS Insurance Company to work together with brokers to change public perception, ensuring that customers know and understand the various products that are available and suited to their needs while delivering benefits.
We believe that rising financial literacy levels and the growth of the black middle class will have a large impact on the insurance industry for years to come. This will encourage consumers to look at insurance differently and keep their insurance policies, or consider getting policies that will help them in the long run.