Emerging market reality vs expectation
IT WOULD seem that, of late, the first of the month seems to be ushering in a mass ping of SMSes, as thousands of debit orders return on unpaid premiums across the country.
According to Ask Afrika’s Target Group Index (TGI) Survey, most long-term financial products – formal and informal, such as funeral cover, stokvels, life insurance (without medical testing), savings and retirement – are lapsing at a terrifying rate, while demand for the products slows.
If we saw a decline in only stokvels, for example, we might wager that perhaps the market was evolving and interest in this form of savings was declining, but when there’s a general decline across the board, you can bet your bottom dollar (or last rand) that affordability is the issue.
Admittedly, the problem is not new, but it is getting worse. The pandemic, rocketing interest rates, inflation, load shedding and the eternally shaky economy have dealt South Africans blow after blow. Their wallets are light, their homes dark and their bellies empty.
Providing for the future loses its urgency when you’re not even sure if you’ll make it through today.
This is a very difficult reality for us to navigate as a country, as it all but ensures the divide between rich and poor deepens. With no money for retirement, we place pressure on our children when they enter the workforce and need to provide for both their parents and kids.
Without savings, we have no cushion for life’s hard knocks which derail us financially. Without life insurance, the only legacy we leave for our kids is one of debt, perpetuating the cycle.
Parallel to this is the fact that, by law, most advisers that service this market cannot sell certain products, and thus these products are not made available to the lower end of our market.
For example, endowments – savings vehicles – are mostly sold to lower-income earners, but with the products, access to funds is restricted to once every five years and expensive guarantees become necessary to sell them in the lower end of the market.
As a result, an endowment generally has higher charges than a unit trust, which also has a savings function but enables funds to be accessed at any time.
At the same time, financial bodies and organs of state are scrambling around, investigating regulatory proposals that will allow consumers to access their long-term savings earlier than planned.
While this might be necessary to give South Africans a life raft in the current economic waters, a life raft is not dry land, and we need to protect against drowning when the economic waters turn even rockier.
This is the context that we, as insurers, operate within, and so the responsibility falls to us to take these market realities into account.
With less than 19% of South Africa’s emerging market believing that financial services providers give them access to products that meet their needs, it’s clear we have a lot of work to do.
Historically, funerals have been big in SA – but the arena is saturated.
Within an African context, funerals have always held extreme cultural significance, with a dignified funeral considered to be of utmost importance. However, we are seeing reduced growth in the industry, as the landscape becomes increasingly cluttered.
Coupled with this is a rising sentiment among the younger generations, who are more concerned with living than dying, that grand and lavish funerals are an ill-advised use of desperately needed funds.
Uptake in life insurance has always been slower, but there is a real opportunity to educate the market about the role that life insurance plays in promoting a healthy financial legacy, removing the debt burden and costs associated with death for those left behind, as well as providing a little extra for the future.
Most of these products also include a funeral benefit, which provides for funeral costs, so this aspect is taken care of as well.
Product flexibility needs to be a priority in an emerging market.
After getting paid, many South Africans rush to withdraw their salaries, so that they can manage their money and prioritise what expenses get paid when, while in an informal economy, money might trickle in at various intervals throughout the month.
Thus, insurers reliant on debit orders as their primary payment mechanism will grapple with an even higher rate of policy lapses than normal.
Innovative products are entering the market that enable payment to be made via multiple channels, such as retail, cash and EFT, while even allowing for a certain level of cover to be retained, depending on what one can afford in any given month (rather than for the policy to lapse entirely).
We need to focus firmly on our market; we cannot design products for other First World economies that don’t share our challenges and opportunities.
The challenges we face demand not just reactive measures, but proactive innovation and genuine empathy. Walking alongside our clients, together we can – and must – build a new pathway to prosperity.