ECONOMIC BENEFITS OF A VIBRANT
LIFE INSURANCE INDUSTRY
OESAI ANNUAL CONFERENCE
17TH NOVEMBER 2014
Historical Role of Life Insurance
• Historically life insurance started as a social safety net through
risk transfer
• Started with burial society and expanded to mutual life
insurance companies
• Product range has expanded to include savings/investment
products
• More companies becoming proprietary
Micro Insurance Benefits
– Life insurance continues to provide a social safety net to
individuals
• Life insurance can mean the difference between continued financial
safety and destitution in the event of death or disability
• Provides a means for risk transfer
– Especially low income earners
– Wealth management
• Helps individuals and families to grow, preserve and protect their wealth
• Allows individuals and families to plan for future financial needs such as
retirement and children’s education expenses
• Bridges savings gap that is prevalent in most economies through
contractual savings
Micro Insurance Benefits
– Microinsurance has created an entry point into the financial
services for a large section of the population
• Use of prepaid cards for benefit payments allows the previously
unbanked to join the banking sector of the economy
– Provision of employee benefits
• Employee benefits such as death and disability benefits at a much lower
cost to the employer
• Increase portability of retirement savings benefits through use of
retirement annuities instead of occupational pension schemes
– Change of individual credit risk profile
– Enable more borrowing for investment purposes
Micro Insurance Benefits
• Access to wider investment vehicles
– Allow access for small investment amounts to vehicles such as equity
and bonds
– Most territories life insurance is the only access vehicle to these
products, no unit trust platforms
– Higher returns than traditional banking products
Macro Insurance Benefits
• Employment creation
– Insurance industry can become an employment industry on its own with
relevant industry qualifications
– Businesses which are funded by the capital available in the life insurance
industry will lead to more employment creation
– The development of debt and equity markets will also facilitate new
employment opportunities within the financial services sector
– In addition to the financial benefits of additional tax revenue there will
be social benefits of higher employment rates
• Individual provision of financial safety nets reduces reliance on
government
– Leads to a reduction in government expenditure on social safety
programs
Macro Insurance Benefits
• Source of infrastructural development capital
– Lack of appropriate and adequate infrastructure has been identified as
an impediment to economic growth in Africa
– The insurance industry generally has a long term investment horizon
making it an appropriate source of infrastructural development funding
– Purchase of government bonds by life insurers can give governments
access to necessary funding
– The use of public private partnerships can help governments fund these
crucial developments while maintaining appropriate debt levels
Macro Insurance Benefits
• Source of capital for other long term investments
– Policyholder funds can be used to fund long term investment
requirements in the private sector through either debt or equity
– Reduces reliance on FDI, which can disappear in the event of financial
crises in developed markets
– These investments further stimulate the debt and equity markets
• Further development of the banking sector
– There is evidence of a strong correlation between capital markets
development and banking sector development
– This development is facilitated by the fact that capital market growth will
lead to better risk pricing models
– Insurance industry growth can therefore help facilitate further growth
within the banking sector
Macro Insurance Benefits
• Closing of savings gap
– Investment products offered through life insurance companies have
been used as a major savings tool by individuals
– Contractual savings has been shown to be more sustainable than
voluntary savings
• Tax revenue for government
– Income tax revenue from profits of life insurance companies and
companies funded by life insurance companies
– Income tax from employees
– Sales tax and/or VAT from goods and services procured
Key Challenges to Growth
• Skills shortage
– There is a serious shortage of the skills necessary to fully develop the life
insurance industry on the continent
– Skills that are currently in short supply include actuaries, insurance
accountants, software developers and insurance professionals
– Some of the shortage is global and therefore African companies find
themselves competing for qualifies resources with multinationals from
developed countries
Key Challenges to Growth
• Low per capita income
– Reverse correlation between per capita income
• Higher income = higher life insurance penetration
• Trust of insurance industry
– Coming from products not behaving as expected and lack of consumer
awareness
– Products not meeting TCF principles
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Lack of meaningful competition
Limited data / competitor information
Low levels of consumer awareness and education
Shortage of matching annuity assets
Inadequate levels of infrastructure
– Strong correlation between growth of the insurance industry and
infrastructure development
Key Challenges to Growth
• Enabling regulation
– The growth in some of the more developed insurance markets was
supported by conducive tax legislation such as tax credits of life
insurance premiums
– These incentives while withdrawn in most forms in most territories have
enabled the growth of the industry
– Developing markets are trying to play catch up to developed markets
regulatory requirements before their markets are not ready
• Increasing cost of regulatory compliance
– Increasing regulatory requirements are coming with additional costs to
compliance which will make life insurance products unaffordable for
certain sectors of the market
OPPORTUNITIES IN DEVELOPING
AND EMERGING MARKETS
• Growing middle class
• Use of technology for product distribution
– Reduced costs
– Easier access and collection
– Product innovation
• Changing regulation
– Influence attractiveness of insurance products
– Influence positive behavior in industry
• Support from supra-national entities
– Utilise support currently being offered by entities such as World Bank
and IMF to promote growth of insurance markets
Key Responsibilities of Main Players
• Insurers
– Consumer education
– Product behaving as expected
– Education and training of key resources
• Leads to product innovation
• Building insurance expertise through professional studies and experiential
learning through apprenticeship models
– Self regulation
• Industry bodies to encourage “good” behavior
Key Responsibilities of Main Players
• Government
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Reasonable macroeconomic and political stability
Investment in regulation (financial support for regulators)
Pass enabling legislation and regulation
Conducive policies
• Prioritization of local borrowing
– Provision of required data
• Limit fraud
• Allow for market and industry analysis
– Case for regional harmonization in order to gain economies of scale
Key Responsibilities of Main Players
• Regulators
• Environment appropriate regulation
• Need for improved regulatory and supervision (encouraging
application of International Association of Insurance Supervisors
core principles & other best practices)
• The playing field must be level –
• Need to standardize legislation and reserving methodologies for
entities offering similar products
• Enforce localization of skills
THANK YOU – KE A LEBOGA!