Don’t let that policy lapse
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.