Don’t let that pol­icy lapse

Finweek English Edition - - MONEY - Tandisizwe Mahlutshana tan­di­s­izwem@fin­

Data from the As­so­ci­a­tion for Sav­ings and In­vest­ment South Africa (ASISA) shows just how much t he con­sumer strug­gled in 2012. The data re­veals that 4.6m in­sur­ance poli­cies worth R7.3bn lapsed last year, up from 4.5m in 2011, due mainly to the con­sumers’ in­abil­ity to hon­our re­cur­ring monthly pre­mi­ums. The aver­age pre­mium of poli­cies lapsed was R118.56 a month.

In­sur­ance com­pa­nies have been bat­tling to man­age their per­sis­tency lev­els since the 2007/08 fi­nan­cial cri­sis. Per­sis­tency refers to the per­cent­age of writ­ten poli­cies that re­main in force with­out in­ter­rup­tion. It is this per­cent­age that in­sur­ers al­ways look to in­crease as it is a crit­i­cal suc­cess fac­tor for them.

The main driver of in­sur­ance pol­icy lapses is the fi­nan­cial hard­ship the con­sumers are faced with as a re­sult of eco­nomic fac­tors such as the ris­ing price of ba­sic goods and ser­vices like food, elec­tric­ity and trans­port.

Says Ian Wil­liamson, MD of Old Mu­tual’s Re­tail Af­flu­ent: “Per­sis­tency is one of the most crit­i­cal levers in our busi­ness to both our fi­nan­cial re­sults and as an in­di­ca­tor to the qual­ity of the cus­tomer ex­pe­ri­ence we are pro­vid­ing. Cus­tomers are cur­rently ex­pe­ri­enc­ing fi­nan­cial pres­sures from the gen­eral eco­nomic en­vi­ron­ment as well as from in­creas­ing prices of fun­da­men­tal goods and ser­vices.

“Nev­er­the­less, we be­lieve that through a con­sis­tent, fo­cused ef­fort on en­sur­ing that we pro-ac­tively en­gage with our cus­tomers where they are ex­pe­ri­enc­ing such pres­sures, we will main­tain or im­prove our over­all per­sis­tency lev­els this year.”

When they feel the f inan­cial pinch, many con­sumers im­me­di­ately opt to cir­cum­vent in­sur­ance pay­ments in favour of more ba­sic bread-and-but­ter needs. While this may ap­pear to be a quick f ix out of f inan­cial dif­fi­culty, it could rep­re­sent a ma­jor fi­nan­cial headache for those con­sumers in the long run, when they go back to their in­surer to buy a new pol­icy.

Ex­plains Nicholas van der Nest, Divi­sional Di­rec­tor of Risk Prod­uct Man­age­ment at Lib­erty Life: “The cost of fu­ture cover may be sig­nif­i­cantly higher due to changes in health, gen­eral in­creases in pre­mium rates for new busi­ness, or sim­ply be­ing older (as in­sur­ance pre­mi­ums are usu­ally based on your age), mean­ing that even if you are in ex­cel­lent health later in life, you may pay sig­nif­i­cantly more for a new pol­icy com­pared to the one that you lapsed pre­vi­ously.”

What this points to is that as an in­sur- ance client you have the re­spon­si­bil­ity to un­der­stand pol­icy terms and con­di­tions fully and that you would be able to con­tinue pay­ing the pre­mi­ums. There are other in­sur­ance cover op­tions you can buy to pro­tect your in­come, mean­ing that even if you are no longer em­ployed you would be able to hon­our your fi­nan­cial de­mands and stay pro­tected in the event of ei­ther be­ing re­trenched or suf­fer­ing a dis­abil­ity.

Fur­ther, most in­sur­ers have add-on op­tions, which al­low clients to pay some­thing ex­tra into their pol­icy. This ad­di­tional amount of money is then kept in a cash-type in­vest­ment, which would then be avail­able to the client in times of need. If a client with such a pol­icy were to skip a pay­ment in a spe­cific month, his pre­mium would then be paid from this add-on cash fa­cil­ity, en­sur­ing that his pol­icy won’t lapse and his cover re­mains in force.

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