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Life Industry
Thursday, May 1, 2008
Good 2007

For the first time in the history of the South African long-term insurance industry, individual policyholders paid more than R100-billion in premiums for life and disability insurance and savings policies in 2007.

Gerhard Joubert, CEO of the Life Offices’ Association (LOA), says the R103.6-billion individual premium income received last year represents a 13% increase over the R91.9-billion attracted in 2006. He says the life industry as a whole recorded a solid growth rate of 12% for 2007, with total premium and investment income increasing to R226-billion.
Joubert says while the individual premium income figure for 2007 includes growth in existing recurring premiums, the 22% growth seen last year in new individual recurring premium business and the 12% growth in new individual single premium business is equally as significant.
“In total the life industry managed to attract new individual premiums of R57.2-billion during 2007, an increase of 14% over the R50.2-billion attracted in 2006. This is a very healthy growth rate, indicative of renewed consumer confidence in the life insurance industry.
“This growth in new business was experienced by the large insurers as well as the medium and smaller life companies.”
Individual business typically consists of life, disability, dread disease and income protection policies, as well as endowments, retirement annuity funds, living annuities and compulsory annuities.
Joubert says given the findings of a recent independent study commissioned by the LOA into the life and disability insurance shortfall for South African households, there remains room for significant growth in premium income as far as risk insurance is concerned. The LOA’s Insurance Gap Study showed that South African families were grossly underinsured by an estimated R10-trillion.
He says the new business statistics for 2007 also indicated that retirement annuity (RA) fund investments were back at levels last seen in 2004. New RA fund recurring premiums increased by a healthy 30% to R1.5-billion last year from R1.1-billion in 2006. Until last year the highest new business levels recorded for RA fund recurring premiums since 2002 was in 2004 with R1.5-billion.
Individual policyholders received benefit payments of R90.7-billion from the life industry during 2007 – a 13% increase from the R80-billion paid during 2006. Group schemes and pension funds paid out benefit claims worth R74.7-billion, a 21% increase over the R61.8-billion paid in 2006.
Joubert says this means that in total life companies paid beneficiaries, policyholders and pension fund members more than R165-billion last year as a result of death and disability claims, maturity pay-outs and pension and annuity payments. This was 17% more than in 2006, when benefits worth R141.8-billion were paid.
He says as expected the individual policy lapse rate for last year is indicative of the tougher economic environment which started impacting in all earnest on South Africans towards the second half of last year. From June to December last year lapsed premiums were 14% higher than for the first half of the year and 31% higher compared to the corresponding period in 2006. A lapse occurs when the policyholder stops paying premiums before the fund value exceeds the unrecovered costs meaning that the paid-up (or surrender) value is zero.
“It is important to remember that in the case of pure risk policies, a lapse causes no immediate financial loss for the policyholder as there was no policy value. The policyholder does, however, lose valuable life or disability cover which might not be available at the same premium again.”
The value of individual policies surrendered in the second half of last year was up by 17%, compared to the first half of 2007. Compared to the second half of 2006, surrenders on individual policies were up by 10%. Joubert points out, however, that the new minimum higher termination values clearly played a role in pushing up the actual surrender values.
A policy is surrendered when the policyholder stops paying premiums and withdraws the reduced fund value before maturity. Minimum early termination values were put in place in terms of the Statement of Intent, and came into effect on 1 December 2006.
Insurance, will be releasing its findings and proposals shortly.
Following the findings of the Gap Study released in February, the LOA is planning a consumer awareness campaign aimed at highlighting the importance of life and disability insurance.
 

Copyright © Insurance Times and Investments® Vol:21.4 1st May, 2008
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