Insurance sector vital for sustainable economy - Treasury | Fin24
 
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Insurance sector vital for sustainable economy - Treasury

Jul 25 2016 17:58
Lameez Omarjee

Rustenburg – Insurance can play a fundamental role in supporting a sustainable economy, by protecting governments and consumers from losses.

This is according to Dr Reshma Sheoraj, director of insurance in the financial sector policy unit at National Treasury. Sheoraj was speaking at the Insurance Institute of South Africa’s (IISA) annual Insurance Conference for 2016, at Sun City on Monday.

“The insurance sector is an important pillar of our financial sector of South Africa,” said Sheoraj.

Short-term and long-term insurance accounts for 23% of financial assets in South Africa. It contributed R18bn to the country’s revenue base in 2015. Short-term market contributions to GDP came to 3%. Gross premiums for short-term insurance came to over R100bn, and R42bn claims were paid out. The life insurance penetration rate is at 12%, one of the highest in the world. Short-term insurance penetration is at 2.7%.

“South Africa is home to one of largest insurance markets in Africa,” she said.

The insurance sector can play a critical role in solving some of the issues South Africa is facing. This includes current economic instability, a potential recession, a looming credit ratings downgrade and the impact of climate change, said Sheoraj.

Improving access to insurance can contribute to the country’s growth strategy, she explained. “The financial services sector is one of the largest contributors to GDP”. If all South Africans have access to insurance, they will be able to protect themselves from unforeseen events. This is especially important for low-income households, where the effects of job losses can push them further into a poverty trap. “Insurance cushions the loss and can prevent them from sinking further into a poverty trap,” she said.

However, a large proportion of the population continues to be excluded from access to formal insurance products and services.

According to the Finscope 2015 survey, only 18.5m are approximately insured, only 6.6m have non-funeral insurance and 5.5m have two or more funeral products. There are 11m cars on South African roads and only 30%-35% are insured. Household insurance is mainly sold to upper LSMs.

Small businesses are not adequately protected either, she said. In the agriculture sector, smallholder farmers often don’t have protection. This is an opportunity for domestic and international insurers to develop products in this space.

“Insurance is often seen as a grudge purchase, and when people buy it, they hope they never have to use it,” said Sheoraj. Insurance providers need to ensure consumers have access to the best deals, fair and transparent premiums and service delivery free of hassles.

Caroline da Silva, deputy executive officer of the Financial Services Board, said that changing this perception by consumers will take a long term approach which requires changing the behaviour of companies to meet customer expectations in terms of delivery. "We need to manage their [consumer] expectation through better education and delivery of services."

In order to create a diverse, skilled workforce, transformation should be at “the heart” of the South African story, as a tool to reduce inequality. “South Africa has one of the most unequal societies in the world,” said Sheoraj.

The pace of transformation in the insurance industry has been slow, and not reflective of the realities of South Africa, she added. There are few executives of colour, and few female executives.

More teams with diverse backgrounds and skills sets must be built as this makes for innovative business. “The insurance sector should work with government to create opportunities to train and skill young people to enter formal employment,” said Sheoraj.

As for climate change, South Africa is still dealing with the aftermath of the drought last year, which impacted five out of nine provinces. As a result, government has endeavoured to stay ahead of the “climate change curve”. Treasury will also be introducing support for the agricultural insurance market to create sustainability. 

service  |  economy  |  insurance
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