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What's special about the SA market that we have specific financial products?

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asked Mar 5 in BUS 4027W - Actuarial Risk Management by Pandy (2,730 points)

It was mentioned in our ARM lecture last week that both critical illness and lump-sum disability cover are specific to SA. I'm wondering why no other countries have implemented this sort of cover - is there something special about our demographic/market that makes us the only worthwhile place to have it?

1 Answer

+1 vote
answered Mar 6 by MarioGiuricich (1,170 points)
selected Mar 6 by Pandy
 
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I don’t think that it’s the case that these products is not offered in other countries - it’s just that their markets are often much smaller compared to ours. But the question is: why are critical illness and lump sum disability so popular in SA? 

Think about one of the fundamental reasons why (life) insurers offer products in general - it’s either because (a) government doesn’t offer as part of a social security programme or (b) government does offer them but their perceived value is low. In SA, I’m not sure about critical illness, but disability benefits paid by government are very small in size (compared to salary). Now this would be far from ideal if say, your salary was R30,000 and the disability benefit from government was R1,600! Hence, this is why people then turn to the private sector - they are in a position to devise better offerings (for a premium, of course).

Now, a question for you. What do you think will happen to insurers’ lump sum disability offering if government suddenly increases the size of its lump sum disability benefits?

commented Mar 6 by Pandy (2,730 points)

Would it not either decrease or stay the same? Decrease because a greater proportion of disability benefits are now covered by government (assuming people want to keep their level of disability benefit the same), or stay the same because some people might not mind keeping their premium the same if it means getting a little more benefit.

Basically I think the offerings might diversify a little bit, with some benefits decreasing and others remaining the same i.e. more options for the policyholder to choose from.

commented Mar 7 by MarioGiuricich (1,170 points)

Nice reasoning! I would agree that insurers’ offering would diversify - and they would definitely try and add bells and whistles to make their products attractive compared to government’s.

But also think about how long the changes in product offerings would take to reflect. They wouldn’t be immediate. And also think about how this may affect employers who purchase such cover from private insurers via group schemes (have you met group cover yet?). Would they be inclined to purchase the cover from insurers still? Something to think about.

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