What's Happening?

Finding the gap



It may not seem like it, but now more than ever, South Africans need financial advice.

The past two years have thrust many families into financially tight corners, as they navigate a stagnant economy, the rising cost of living, and retrenchments. Similarly, small businesses have also been struggling to keep afloat amidst the ongoing effects of the Covid-19 pandemic on the global economy, as well as persistent loadshedding.

Burgeoning business

It may seem counterintuitive, but in this same period, more businesses were registered during Covid-19, 60,000 new millionaires emerged in 2021 and female enrollment in universities now outnumber those of males. Females are increasingly becoming significant players in the workplace too. And therein lies opportunity.

Establishing our value

Research shows that at least 42% of South Africans have funeral insurance, about 10% of the employed population have life insurance, roughly 10% have car insurance and even less of the population have health insurance at 8%.

The problem is not necessarily the affordability of insurance, but rather, the question of what the value of insurance is.

When trying to broaden the base of people who are willing to spend money on cover, we have to remember that the average premium in South Africa for life cover is not cheap, roughly in the R1,000 p/m zone for about R1 million of life cover, and the client still needs to go through the process of underwriting to access this cover.

However, what they get for that amount leaves families far better off than before when life adversities hit the primary income earner – insurance then becomes the difference between destitution and stability for the loved ones they leave behind.

Coverage gap

In spite of this, it’s no secret that this country is under-insured. This was reflected in the Association for Savings and Investment South Africa’s 2022 Life and Disability Insurance Gap Study which indicates that around 14.3 million income earners in this country have only enough life and disability insurance to cover 45% of the total insurance needs of their households.

Broken down, the average income earner has a life insurance hole of at least R1 million and a disability cover gap of around R1.4 million.

As a result of this, the average household, which is supported by at least one income earner, would be forced to cut living expenses should this earner die or become disabled, and no other source of income is available.

Notwithstanding all the prevalent challenges in SA, some groups of people are getting jobs and continue to receive salary increases to cope with rising inflation. This is where the opportunity lies for FAs – this group of people are mostly skilled graduates who can and have made themselves indispensable. This is also perhaps why so many skilled people are leaving the country as opportunities for this group are somewhat easier to come by. SA graduate professionals, like chartered accountants, doctors, and actuaries, are particularly sought after.

Bridging the divide

It’s telling then that the graduate unemployment rate sits at 12.6%, which is 21.9% lower than the national official unemployment rate. This clearly indicates that graduates are still being absorbed into the workplace.

Amid this group of skilled people who are managing to get by, and who are most likely under-insured, we can include artisans, like plumbers and electricians, whose skills also remain in demand, and for whom pay remains healthy and has kept abreast with inflation.

Entrepreneurs also are finding that there are rewarding opportunities out there, likely because there are so few people like them willing to take a chance. Entrepreneurs are more likely to find the resources and skills to prosper under the current conditions.

Notably, 58% of graduates today are female, and they represent a significant opportunity. Fewer females are insured compared to their male counterparts, but present good risk profiles for insurers since they live longer and are more risk averse.

These may be tough economic times, but the need for insurance remains strong and there are many potential clients out there who can be persuaded to cover themselves and their families.

Indeed, many of these people with jobs right now are looking after more than just their immediate families. These tough times mean in many cases, those with jobs, are also having to care for extended families or relations as well. Covid-19 has highlighted the need for life cover, and this presents a real opportunity to get people into building a safety net for themselves and their families. Navigating these rough seas takes skill, but like all skills right now, it’s a matter of finding the right people to partner with and success will follow.