Only 10% of South Africans have life insurance, with the 2022 Asisa Gap Study numbers showing that South Africans remain underinsured for death in terms of life cover by R14.4 trillion. These numbers suggest that there is a large, underserved market, which should offer advisers an opportunity to grow their businesses. They do, but there are also many challenges. Advisers who take time to understand and work with communities in these markets can overcome these challenges and benefit in the long term.
Room for growth in underserved markets
While a high number of South Africans have bank accounts, far fewer have life insurance products.
- 81% of South Africans have bank accounts (FSCA Financial Sector Outlook study 2022)
- 10% of South Africans have life cover (FSCA)
- 42% of South Africans have funeral cover (FSCA)
- The average South African earner is underinsured for life cover by R1 million (2022 Asisa Gap Study)
The numbers show a substantial underserved market. Although, not everyone with a bank account is an active participant in financial markets. 19% of bank account users withdraw all funds when they are deposited, for example social grant recipients. Nevertheless, that still leaves a gap between those who actively use bank accounts and those who have life insurance and funeral cover. A gap is an opportunity for growth.
Need for life cover
In many underserved markets and communities life insurance as a product is not widely understood. However, the need is appreciated with income earners well aware of the impact a loss of income can have on families and dependants. The cover a life insurance policy can provide to those left without an income earner can make a substantial difference and help families gain some financial independence.
Many in these communities are familiar with funeral cover, and many more are stokvel members. Life cover, as a much more formal, regulated and underwritten product is new territory. Advisers need to keep this in mind when considering these markets because it will require time and effort to meaningfully build a client base.
Trust needs to be built, affordability needs to be taken into account, and advisers may find more time is taken on education than in markets where life insurance is more widely understood and used.
Meet the challenges
New markets always present new challenges. These can be daunting but they are not insurmountable.
Challenge #1 Life insurance is not well understood
Understanding life insurance, and how life insurance as a product works is limited. Financial literacy is low, and even plain language insurance products can be difficult to explain. There is also often reluctance to take out underwritten products where personal questions have to be answered and medical history given, along with possible medical tests.
Advisers will need to explain and show how life insurance works and clearly explain the differences between life cover and a funeral policy. The onus of education falls far more on the adviser in this instance. However, increasing knowledge is a good opportunity to build trust by taking time to understand and educate this market on the financial industry, financial products and how they benefit clients and their families.
Advisers also need to emphasise that underwriting life cover makes it much cheaper per rand covered than funeral cover, and that tests are minimal and results are confidential. One life cover product should be far cheaper than multiple funeral cover policies.
Challenge #2 Affordability
A further challenge is lower, and sometimes irregular incomes. A few hundred rand for an insurance premium may not seem a lot to a middle-income worker who has a regular job. To a lower income earner, who may not earn every month of every year, it is a significant budget amount.
Clients and potential clients need to know that affordability can be catered for, for example by lowering cover or combining life and funeral cover in one product, such as 1Life’s Pure Life Plus. They also need to know that there are multiple ways to pay if a premium is missed. 1Life avoids double debits, which can be devastating to many clients, if premiums are missed, and has alternative pay channels that include retail stores such as Pep, which are easy to access.
Missed premiums also represent a risk for the adviser’s commission, depending on the commission payment model. Advisers should discuss this with product providers and find ways to de-risk commission so that income streams can be smoothed and clawbacks limited. You can discuss 1Life’s commission model options with your 1Life consultant.
Challenge #3 Trust
Big corporate businesses in a market more familiar with stokvels and funeral parlours offering funeral policies aren’t easily trusted. Your potential clients will have spent many years getting to know their communities and fellow stokvel members, and they know the benefits of positive peer pressure. Life insurance offered by authorised financial services providers (even saying it is a mouthful) is far from this world.
Building trust will take time, commitment, care and consistency. Show how clients and communities you know can benefit from life insurance and why, and also explain why it is highly regulated. Don’t be afraid to find out who it didn’t work for (declined claims are always big news) and why so you can explain these cases as well and dispel a few myths.
The 2021 Township Marketing report suggests that community leaders, those with positions of authority, are key influencers. Working with these leaders can assure communities you are credible.
You can also use surveys and awards these markets will be familiar with to show credibility. For example, in 2022, City Press readers awarded 1Life a gold trophy in the City Press Your Choice Competition.
Trust can also be built by highlighting special other benefits products offer. For example, 1Life clients have access to a free online financial education course from Truth About Money and debt counselling services, as well as a legal assistance benefit. Funeral cover has benefits that include a memorial and grocery benefit, as well as a repatriation service. Value is key in this market.
Challenge #4 Accreditation
Advising and selling life insurance requires specific accreditation from the FSCA and the various product providers. Make sure you have this before venturing into the market. Your product provider can usually assist with this step.
Save time with tech
Digital platforms with end-to-end solutions are a must in this market.
Tech saves time, costs and can make it easier to transact. It also builds trust. For example, digital onboarding allows clients to be involved in the purchase of a product. It also makes insurance easy to purchase for a market who might expect long forms and multiple visits! Vantage is a digital solution that enables straight through processing including remote acceptance with electronic signatures and one-time-pins. Using Vantage our brokers are confident that 97% of policies will be issued within 35 minutes!
Have a strategy
Don’t miss this important step when you enter a new market. Work out what you will offer to who, and how, and what the value will be to your clients as well as your business. Find those who work in this market and ask their advice. Be prepared, because communities will quickly call you out if you are not. As the Township Marketing Report cautions, you are speaking to a market that has a range of experiences, incomes and ages. Avoid stereotypes as these can be both inaccurate and insulting, and double check any assumptions you make. Spend time with this market and meet their needs, and they will want to work with you.
Start small, build trust and break through
Take your time to get to know the market and understand it. Building trust and life insurance literacy isn’t going to happen overnight, but should such a big market and big opportunity be ignored?