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Life Industry
Monday, August 1, 2005
Staggering

According to Guardrisk research shows that only 9% of South Africans have a pension fund and 11% have life assurance. Only 11% of the population (older than 16) have a formal life assurance policy, while 15% have a funeral policy with a big institution and 20% contribute to a burial society. The obstacles appear to be the perception that these policies are too expensive, as well as a lack of understanding of how life products work.

Stagnant growth in the South African life assurance industry over the past few years can be blamed on poor markets as well as life assurers not offering consumers appropriate products.
“Investment performance has had an impact on the industry, but from a risk point of view there has also been a lack of expectations being met.” Despite strong growth in the early 1990s, this tapered off in the early 2000s, with the life market shrinking last year.
The insurance industry’s move from combined risk and investment products to risk-only cover could save the consumer an estimated R4.2 billion over 10 years.
Different types of investment risk need to be understood and considered by retirement fund decision-makers. Too many investment decisions are based on historical returns alone. Apart from the obvious danger that past performance is not necessarily an indication of future performance, this approach ignores the other key consideration: the risk that has been borne to achieve those returns.
Trustees of retirement funds need to identify and weigh up the different short-term and long-term risk factors in order to maintain a balanced perspective of what risk means when investing the money of fund members.
Some limits on investment types may be scrapped as they encourage a “herd mentality” among asset managers. The national treasury has recommended scrapping the prescribed limits on investments by retirement funds in particular asset classes, where approved investment strategies exist. If implemented the proposal could, over time, see a significant realignment of the investment of hundreds of billions of rand held in pension fund assets. Based on extracts by Guardrisk from Business Day during November/December; and Business Report, 18th November.
 

Copyright © Insurance Times and Investments® Vol:18.4 1st August, 2005
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