Falling real incomes and rising living costs have resulted in fewer people with life insurance than before the pandemic.
According to a research paper published by Hollard Insurance on Monday, only 10% of South African consumers now have life insurance, compared to 12% when the Financial Sector Conduct Authority (FSCA) did its last Financial Sector Outlook Study in 2019.
Those with life insurance are still mostly people who've completed post-secondary education and are likely to have more disposable income. Hollard's research showed that 56% of people with post-secondary education have it, compared to 28% of those who have completed secondary school.
The primary reason for this is affordability, but prioritising retirement and long-term savings, job uncertainty and distrust of insurers have also eroded demand.
Hollard's head of strategy and insights, Mark Barrington, says insurers are operating in one of the toughest environments they've ever faced. They are trying to sell life insurance in a country where one in three adults cannot even put food on the table.
"We know that SA has this dynamic, where one salary feeds anywhere between seven and nine people, and there are eight million people in SA that want to work and cannot work," he said.
SA is also struggling to achieve economic growth rates of 2% or more, diminishing hopes for the 61% of youth that don't have jobs. Barrington expects that, as food prices continue to skyrocket, hurting the poor the most, there will be "greater volatility" playing out in certain market segments.
"Our expectation is that we will start to see more unrest bubbling up in society at the moment, as a result of not just a political situation, but the broader economic situation people find themselves in," he said.
Still, Hollard expects to grow its market share in this shrinking pool of life insurance customers in SA.
In terms of volumes, Hollard still sells mostly funeral cover products, even though it has added simple life and fully underwritten life cover over the years to compete more with big players like Sanlam and Old Mutual.
It holds about 7% market share in the funeral cover market in SA and a much smaller share in underwritten life cover.
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Noticing that many funeral cover customers hold multiple policies – which often makes their total premiums much higher for a fraction of the cover people get when buying underwritten life – Hollard has employed technology to help it convert those funeral cover customers to life insurance clients.
The insurer has launched full digital underwriting to help its brokers write policies fast, without paperwork, apart from a few digital clicks. Many life insurers have moved to digital underwriting for their direct online sales, but Hollard has rolled that out for brokers too.
"What we are trying to get to here is the average consumer that has multiple funeral policies to try and solve a lot of funeral arrangements, get them to take a life policy with a much bigger sum assured.
"The end game is to make this a saving for the consumer. We are trying to draw this product into the market that hasn't had access to fully underwritten life cover before," said Barrington.
He said that decades-long observations showed Hollard that not much has changed in terms of the insurance products different income groups buy, despite many efforts to improve financial inclusion.
Funeral insurance still appeals more to the mass market, while cheaper, fully underwritten cover tends to be more for the middle to higher-income market, he said.