The number of insurance policies held by South Africans with a monthly household income of less than R3Â 000 should more than double over the next eight years, according to Metropolitan Life.
Commenting on the life insurance industry’s new initiative to improve the accessibility of insurance products for low-income earners on Tuesday,
Metropolitan Life marketing actuary Jannie Venter said growth in the market was likely to exceed the Life Officers’ Association (LOA)’s target of 81% over the period. Metropolitan’s own higher projection was based on the company’s traditional focus on lower-income groups.
In terms of the LOA plan, which is reminiscent of the banking sector’s Mzanzi initiative, life insurers are now charged with the responsibility of bringing new products to the market that are more affordable, easier to access and understand.
The LOA’s proposal, which was recently formally approved by the Financial Sector Charter Council (FSCC), aims to increase the number of people using life insurance products for individuals with monthly income of less than R3Â 000 to 3,8-million from 2,1-million currently by 2014.
Currently about 40% of South African households — which equates to over 11-million people — fall into the lower-income market segment. Only 12% of this market has any kind of life insurance products.
Gerhard Joubert, CEO of the LOA, estimated that the industry’s new initiative will increase market penetration to 22%.
Venter observed that although a 22% market penetration might appear modest, the challenges in accessing this market are huge.
In addition to developing totally new product ranges, life insurers would have to tackle the issue of affordability innovatively.
“Understandably, other expenses [food, travel, and clothing] take priority
over insurance and savings. Financial education must become a priority, so that the importance of insurance products is understood,” noted Venter.
“Secondly, people in this segment are often engaged in informal employment which means that regular premium collection becomes difficult. At the same
time, targeting this market requires an extensive sales infrastructure, which will require insurance companies to consult face-to-face to get clients.”
Despite these challenges, Venter believed there was still a strong business case for companies to engage with this market more proactively. Although the lower income market segments included employed as well as unemployed people, some of the unemployed still earned a living through the informal sector.
“Apart from this, many lower-income earners will also benefit from general economic well-being and move into higher income segments. The low-income
segment of the market is forecast to grow fast, as most of the economic
initiatives, including government’s recently unveiled Accelerated and Shared Growth Initiative for South Africa (ASGI), centre around uplifting this segment,” concluded Venter. – I-Net Bridge