“The insurance gap of R28trn is disappointing. It reflects the harsh economic realities in South Africa. I’ve been following these trends for 20 years and the gap continues to increase every year. It is a great concern because it has a direct influence on the financial stability of the individual and the next generation of income earners,” says Johan Minnie, Liberty Group executive for sales, distribution and Bancassurance.
“We’ll probably won’t make up the massive number of R28trn in our lifetime. We wouldn’t have this gap if people saw the need for insurance. However, people don’t want to think about illness or death. It’s not a thought that you want to entertain. In addition, under the current economic conditions, many South Africans will be sacrificing their insurance cover to make ends meet in the coming years,” he says.
While it is encouraging to note that South Africans are starting to service their debts more effectively, it is clear that the average South African doesn’t wake up every morning, thinking about insuring their lives. The reality is, if long-term insurance is not made a priority, the ability to service basic debts after a life changing event becomes impossible.
“Consumers should look at long-term insurance as an investment instead of a grudge purchase. When you buy your new car, you know that before you leave, you need to have car insurance. Yet, the person behind the steering wheel who earns the income is not investing in the body that is generating the income. If something happens to the person, all the assets in the household will be lost if the right level of long-term insurance is not in place,” says Minnie.
Another reason for the lack of long-term insurance cover is that people are overwhelmed with technicalities. They don’t want to make mistakes in getting cover, so they end up doing nothing instead.
“This is where the true value of a financial planner comes into play. They are essential in changing the mind-set of customers. Financial advisers must focus on the lifestyle requirements of the customer, and provide simple long-term insurance solutions in place to cover all their needs at once,” says David Kop from the Financial Planning Institute.
However, there is another gap in the number of advisers versus the number of consumers needing advice. There are approximately 40,000 financial advisers in the country servicing a massive population of income earners. As a result, people are buying less risk cover.
“Financial education is vital, especially in those areas where people are struggling in day-to-day. We all need to start talking about basic financial management. South Africa as a whole needs to get involved in educating the public sound financial management skills, from basic education until earning your first income. We need to use technology to make financial planning smarter and more effective.”
