30 September 2021
RISK
Why disability insurance is for everyone
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he pandemic has highlighted the financial vulnerability of people living in South Africa. Amidst a lagging vaccination programme and a resurgent third wave of infections, it is clear that the catchphrase ‘it won’t happen to me’ no longer carries the same confidence it once held. Old Mutual’s Claims Statistics Report 2020 has revealed a significant rise in the number of disability income claims year on year, as well as a 3.5 times increase in sickness income claims under the disability insurance category. The highest cause of sickness income claims was ‘infectious diseases’, under which COVID-19 falls. Despite the increase in disability income claims and growing concerns about health, Priya Naicker, Head of Strategic Retail Marketing at Old Mutual, says that many South Africans do not have disability insurance. “Traditionally, when people think of disability insurance, there is a common misperception that it applies only to those working in dangerous industries, or in high-risk jobs,” she says. “However, this could not be further from the truth. Disability insurance is virtually for everyone. It means being able to help cover the costs that come with being disabled and unable to work or take care of yourself because of an
“It is actually younger people who are more adversely affected by disability”
illness or injury. It also lets you carry on providing for yourself and your loved ones, preventing you from becoming a financial burden on someone else. In the context of those suffering from COVID-19-related health issues for extended periods of time, disability insurance can help you and your family maintain monthly obligations without financial stress, which is critical for a smooth recovery.” According to the Association for Savings and Investment South Africa’s Insurance Gap Study 2019, the total existing shortfall in disability insurance was a staggering R19.3tn, which equates to R1.2m per average South African earner. However, this gap is substantially wider for earners younger than 40. “While younger people rarely think about dying or becoming disabled, or even see the need for disability insurance, it is actually younger people who are more adversely affected by disability because they have not had as much time to accumulate wealth and create a financial buffer,” says Naicker. The latest Claim Statistics report showed that the average age of disability claimants sits in the family provider age group, with the average age for male claimants at 47 and for females at 43. However, within the claims category for infectious diseases and trauma and lifestyle, which was the most prevalent cause for claims under sickness income, the ages 20 - 30 and 30 - 40 each contributed to 36% of sickness income claims. “It makes good financial sense to have cover that suits the life stage you’re at,” says Naicker. “Not having disability insurance only increases your risk of going into debt, which
Life insurer sees 60% increase in funeral claims
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n 2020, Sanlam Individual Life paid out 99% of all death and funeral claims. It paid R4.75bn in total claims, with R3.97bn for death and funeral claims; R398.9m for disability, loss of income and impairment claims; and R386m for severe illness and injury claims. “COVID-19 has been an incredibly hard time for many people, and we extend our deepest condolences to those who have lost family and friends,” says Petrie Marx, Product Actuary at Sanlam Individual Life. “We paid out R458.95m in pandemicrelated claims in 2020. With the second wave, we surpassed this significantly, and paid out R622.66m for COVID-19 claims in Q1 of 2021.” The number of claims for COVID-19 fatalities in 2020 for Sanlam Individual Life was initially relatively low, with most COVID-19 claims being for sickness and income protection. Claims for death and funeral benefits increased to make up the majority in December 2020, January 2021 and February 2021. Following the second wave, the first three months of 2021 saw significantly more death and funeral claims, with the Individual Life business paying out its highest number of COVID-19 claims in any month in
February 2021: R8.25m for sickness and income protection and R422.73m for death and funeral claims. “It’s clear the second and third waves are having a greater impact on our Individual Life client-base,” Marx adds. “But it should be noted that Sanlam Sky and Sanlam Corporate (our employee benefits business) were already hit hard in wave one.”
34 www.moneymarketing.co.za
Petrie Marx, Product Actuary, Sanlam Individual Life
could have serious consequences on your future financial security. It could mean risking your home, your car, and the ability to continue with your retirement or even shorter-term savings goals. For those with families, it may affect parents’ ability to fund their children’s education.” In the case for disability insurance, an Old Mutual customer who is an accountant was diagnosed with colon cancer and booked off work. During this period, his disability income insurance provided him with an income that allowed him to focus on his recovery, without additional financial worries. “While many younger South Africans may question the idea of paying for disability insurance, thinking they will never need it, or perhaps wondering if they can afford it, a more pertinent question may be to ask whether they can afford not to have it,” says Naicker. “It is important that we do not underestimate the value of disability Priya Naicker, insurance and the role it Head: Strategic can play in protecting Retail Marketing, your future and the Old Mutual financial wellbeing of your family.”
In 2020, death claims resulting from ‘diseases of the respiratory system’ increased to 21%, from 11% in 2019. COVID-19 was also the single biggest factor behind the 60% year-on-year increase in funeral claims. The pandemic also had less obvious implications, including 60% fewer claims under the accidental death benefit, while lump sum disability claims for mental disorders went from 8% in 2019 to 19% in 2020. “Aside from the increase in claims resulting from COVID-19, the main effect we saw in 2020 was a decrease in accidental claims for all benefits. This may well have been the result of the strict lockdown regulations. It was also evident in the breakdown of disability claims. COVID-19 has had a massive impact on people’s mental and financial wellbeing, although it’s difficult to make a direct link from just one year’s statistics,” Marx says. He notes that the 2020 claim statistics did not include the impact of the second and third wave, so Sanlam expects to see a different outcome in 2021, where lockdown laws were looser, and its main client-base was more affected. “There is also speculation that 2021 may see an increase in claims as a result of late diagnosis of, say, cardiovascular disease
or cancer, or from people suffering from ‘long-COVID’ – but we have not yet seen this coming through in our claims.” In total, Sanlam Individual Life paid R29.95m in claims for people being booked off work for COVID-19. This hints at what absenteeism may have cost the country. Positive COVID-19 cases have once again peaked in the third wave, which SA has experienced over the last few weeks, and Sanlam is currently experiencing an influx of claims as a result of the third wave. Marx says some provinces such as Gauteng, the Northwest and Limpopo are showing a decline in positive cases, while coastal provinces such as KwazuluNatal continue to show an increase in infections. “We’re hoping the coastal provinces will follow suit and record a decline in cases, but can’t predict it with any certainty at this stage.” The Sanlam Individual Life claim statistics also made it clear that it is imperative not to lose sight of the other main causes of severe illness in the country. “Cancer remains the main cause of severe illness claims; in the last six years, it’s accounted for 60% of all the severe illness claims paid annually. We’re also seeing trends from previous years continue, like the continued rise in breast cancer in women.”
“COVID-19 has been an incredibly hard time for many people”
