2. Access to the products of the long-term insurance industry – the challenges, pitfalls and opportunities
Nic Kohler, Convenor – FSC Access Ad Hoc Committee

3. AGENDA Committee mandate Process followed by the committee
Summary of LOA access proposal
NSF – an opportunity

4. COMMITTEE MANDATE
The Financial Sector Charter was finalised without access targets for long term insurers.
The LOA’s Access Ad-Hoc committee was charged with the task of interpreting the access requirements contained in the FSC for the long term assurance industry, and developing proposed targets and scoring mechanisms.

5. PROCESS FOLLOWED availability of appropriate needs-based products
Interpreting the requirements – “effective access” means
availability of appropriate needs-based products
products are affordable and offer fair value
simple and understandable terms and conditions
non-discriminatory practices
physical access to sales and service when reasonably required
general awareness of products
Although objective is ACCESS, true measure of success will be PENETRATION

6. PROCESS FOLLOWED
Verified current insurance penetration levels of LSM1-5
Finscope 2003 penetration measures were perceived to be a gross underestimate
the industry participated in Finscope 2004, helping to draft questionnaire
aim to reduce under-reporting
aim to obtain sense of demand
aim to understand priorities
a “supply-side” study was commissioned
both studies used to estimate current penetration

7. PROCESS FOLLOWED Product LSM 1-5 LSM 6-10 Life assurance 4.6% 34.1%
Funeral policy
Any formal insurance
Burial society
Any insurance 35% 61%
Source: Finscope 2004

8. PROCESS FOLLOWED Priorities identified Death of main wage earner
Death of family member
Serious illness of member of household
Illness of main wage earner
Death of partner
Poverty in old age
Source: Finscope 2004
Confirmed by Genesis Analytics study “ Making insurance markets work for the poor in South Africa”

9. PROCESS FOLLOWED
Proposal developed by Access Committee and endorsed by LOA in March 2005
Engaged with other stakeholders (Government, FSB, Labour, Community)
Presented to FSC Sectoral Access Committee in July 2005
Formal approval from Charter Council anticipated in September 2005

10. SUMMARY OF PROPOSAL Individual offices will be measured as to how they
Make appropriate products available
Provide physical access
Promote awareness
Increase penetration

11. SUMMARY OF PROPOSAL Make appropriate products available
CAT Standard Products
(UK CAT = fair Charges, easy Access, decent Terms)
minimum standards NOT standard products
ensures appropriate products, affordability, fair value, non-discriminatory practices, simple and understandable (in 11 languages)
competition will drive innovation and improvements
so far: Funeral, Credit life, Mortgage protection
more standards to come: incl Life and Disability
SCORE 2 POINTS FOR PROVIDING CAT PRODUCTS

12. SUMMARY OF PROPOSAL Provide physical access
Interpreted as transactional access
target is 80% of LSM 1-5
within 40km for sales and servicing at least once per month
within 80km for claims at least every 48 hours
one sale per month demonstrates transactional access
SCORE 3 POINTS FOR PROVIDING TRANSACTIONAL ACCESS

14. SUMMARY OF PROPOSAL Promote awareness Consumer education
0.2% of post-tax operating profits
common branding of CAT products
joint initiatives with FSB
SCORE 2 POINTS FOR PROMOTING AWARENESS

15. The proof of the pudding : Penetration
SUMMARY OF PROPOSAL
The proof of the pudding : Penetration
Setting penetration target for industry
current penetration incl credit life = 13% (2.3m policyholders)
max potential market : people who demonstrate a desire to mitigate risk = 40% of LSM 1-5
max potential penetration : look to most highly penetrated category, LSM 9 = 46%
 adding stretch = 50%
target is 40% of 50% = 20% (+3% for credit life)
 23% (180% of current penetration)
OVERALL TARGET IS 23% OF LSM1-5, OR 4.0M POLICYHOLDERS

16. The proof of the pudding : Penetration
SUMMARY OF PROPOSAL
The proof of the pudding : Penetration
Setting penetration target for individual offices
take account of size of office by policy number market share (all LSM’s)
provide for equal effort by all offices
maintain in-force of LSM1-5 => need to reduce lapses
increase current penetration
credit life 25%

17. The proof of the pudding : Penetration
SUMMARY OF PROPOSAL
The proof of the pudding : Penetration
Target per office:
Annual Target = N/9 * New bus market share (2004)* 1.7m
+ Number of LSM1-5 policies in-force at 31/12/04
where N =1 in 2006, 2 in 2007, etc.
2014 Target = New bus market share (2004) * 1.7m
Reporting – LOA for industry + individual scorecard verified by auditor
SCORE 7 POINTS FOR PENETRATION

18. SUMMARY OF PROPOSAL Scoring
Make appropriate products available points
Provide transactional access points
Promote awareness points
Increase penetration points
TOTAL POINTS
4 points relinquished for savings products

19. SUMMARY OF PROPOSAL Key dependencies: Charter Council approval
LSM1-5 proxy to be agreed
Mzansi permits debit orders for CAT products
banks’ debit order rejection fee set at affordable levels
Persal facility for salary deduction remains available
National Credit Bill should not prohibit CAT compliant single premium policies
exemption may be required under part C of chapter 2 of the Competition Act

20. NSF – AN OPPORTUNITY Savings product standard:
poverty in old age an identified need
NSF appears to be the best solution
CAT savings product standard put on hold and 4 points relinquished for now
industry’s considerable resources should be applied to developing NSF in conjunction with other stakeholders

21. CONCLUSION
“We, the parties to this charter, commit ourselves to actively promoting a transformed, vibrant, and globally competitive financial sector that reflects the demographics of South Africa, and contributes to the establishment of an equitable society by effectively providing accessible financial services to black people….”
- THE FINANCIAL SECTOR CHARTER