Small insurers open up life cover to low-income market
Innovation by smaller companies is leading to the introduction of investment products and life cover designed for the traditionally underserved lower end of the market.
While the big insurers have been providing basic funeral cover to low-income earners, these smaller players are now offering value-added products that the traditional players had only offered to middle-and high-income earners.
A few of the smaller insurance groups, such as Hollard and Assupol, have started offering underwritten life cover.
Funeral cover, the form of insurance that has dominated products sold to low-income households, has profit margins of about 5%, whereas underwritten life cover has halved this to 2%-2.5% says Hollard CEO Saks Ntombela.
"It’s essentially making life insurance more affordable for these consumers than it was before, but unfortunately we aren’t seeing the uptake we expected. People don’t want to disclose their medical information because they think we’ll use it against them in future. There’s a lot of consumer education that still needs to be done in this space," said Ntombela.
He said funeral cover was one product that this market understood well. "We are using it to extend life cover by combining the two benefits in the products that we are piloting called MyLife and More."
The last financial inclusion survey released by the FinMark Trust in 2017 shows that while the percentage of the banked population in SA continues to rise, low-income consumers are not properly served and only 22% of adults have insurance that is not funeral cover.
A few traditional insurers, including Sanlam and Metropolitan, have started offering underwritten life cover. But on Thursday, as they gathered to celebrate the 10th anniversary of their representative body, the Association for Savings and Investment SA, they admitted to not catering properly for low-income earners.
"We have to admit that we are not getting it right in the mass market. But we are doing a lot of work to understand the market in order to change that," said Sanlam CEO Ian Kirk.
He said the industry has to find ways to drive down the cost of delivering financial services because incomes in this market are too low to absorb the cost of delivering the products they need. "It is unlikely that we’ll be able to do that traditionally. There’s a massive opportunity for disruption. Someone has to find a simple platform that can handle massive volumes," said Liberty CEO David Munro.
But the CEO of Afena Capital, Grant Cloete, said his group has found a way to make it happen. "There’s a perception that there is no money to be made in the townships and that people can’t save, but it’s happening. People are doing it for themselves in the townships. Look at the rise of micro breweries in Khayelitsha. We have to go there and identify opportunities for collaboration."