Risk Movement past, present & future Life Seminar th February Presented by: Dr Brad Beira

AON CONFIDENTIAL Perspective 2 How have insured Life Risk patterns evolved / changed over the past 10 years ”The more they change the more they stay the same”

AON CONFIDENTIAL Shift the risk to the consumer  Pure risk to savings products to pure risk –Move away from endowment type products with insurer guaranteed maturity values to unit linked products –Shift investment risk back to the policy holder –Policy holder has more investment freedom (and greater potential investment return) at a cost of guaranteed values  Return to pure risk life policies –Life insurance remains a grudge purchase, cleaving off the endowment policy makes the product cheaper –Higher costs lead to higher expense loading on premiums. Investment banks more competitive for non risk components of products 3

AON CONFIDENTIAL Intermediaries  Financial Advisory Intermediary Services Act (2004) –Increase requirement for structured financial investment advice and financial planning advice –Full disclosure required on complexity of any insurance product offered  (proposed) National savings model –May affect middle to lower end of the market –Death / disability insurance market plus compulsory retirement savings –Could remove the intermediary as a distribution model  New commission regulations are being drafted –Evolution to fee for service advice model that may only service the upper end of the market 4

AON CONFIDENTIAL 4 main drivers for the future  Financial Services Charter  The Regulatory environment  Rising consumerism  Technology 5

AON CONFIDENTIAL Perspective 6 Are there risk life cycles from the past that can help us prepare for the future ”The more they change the more they stay the same”

AON CONFIDENTIAL Definitions  Disability definitions –were Occupational based –shift toward Functional / Medical definitions –Lack of clarity around definitions of incapacity  Integrated products –Group life products linked to disease management  SARS and SARS –Tax structuring for medical insurance subsidy removed (TES) –Removal of peripheral benefits as non taxable –Implementation of wok site clinic programmes to manage the risk of respiratory illness, global pandemics (SARS) and other occupational health related risks 7

AON CONFIDENTIAL

Definitions  HIV / AIDS –Exclusion clauses – failed due to ‘cause of death’ descriptions –HIV tests on inception –‘voluntary disclosure’ policies (Inclusive Life) –LOA announced waiver of AIDS exclusions clauses for all policies from 01 January 2005 –HIV / AIDS specific waiting periods scrapped for all new business written after 01 June 2006 –All HIV/ AIDS exclusion clauses waived on existing products from April 2007 (applied to all lump sum death and disability cover) Not applicable to income protection disability insurance, hospital cash plans or policies requiring future HIV testing. 9

AON CONFIDENTIAL Perspective 10 What risk challenges and demands does the SA Life Market face and how is the industry going to meet these challenges ”The more they change the more they stay the same”

AON CONFIDENTIAL The Africa Competitiveness Report  The HIV epidemic poses far reaching and long term implications for South Africa and Africa. This impacts employees as the private sector is displaying a tendency toward out-sourcing, defined contribution rather than defined benefit funds, pension funds and in certain instances capital intensive production to minimise the financial and productive impact of ill health on the organisation.  Outsourcing of employment has a disadvantageous effect for employees with respect to employee benefits. This trend results in the cost of ill health being borne by individuals and families while the defined benefit structures offer employers greater security. »World Economic Forum 11

AON CONFIDENTIAL

 Total cost to company packages!  The death of the “defined benefit” provident fund  Integrated medical insurance products linked to Life policies  Coupon insurance 13