While the average South African household finds itself in financial distress, it is not all doom and gloom.
At the release of the 2018 Momentum/UNISA Household Financial Wellness Index, it was pointed out that there are positive signs of improvement in the market.
Further, there are demonstrable steps that households can take to improve their situation; and financial advisers can play an important role in making sure that their clients take these steps.
Making ends meet
While there are signs that the situation is improving for many South African households, the reality is that there are many households that are under so much financial strain that saving is not an option for them.
“There were a lot of reports in the past that South Africa is not a nation of savers. While the savings rate in South Africa is low, it does not mean that there are no savings at all. Almost half of the population does save what they can. Almost 61% of the segment of the population that can save are women, and 39% of this population are men,” said Jeanette Marais, Deputy CEO of MMI Holdings. She added that most of the women who can save can only save an average of less than R500 a month.
Marais pointed out that while saving is more popular among women, unemployment has hit this segment of the population hardest. This makes many people dependent on the state and families for their survival.
“There is a significant desire to save. However, many do not have the means to save. It is the duty of the financial services industry to try and help our clients to not be dependent on the state; when they are not dependent on the state, the economy grows,” said Marais.
The constant companion
One of the unfortunate consequences of the fact that that South African households are under financial strain is that many of these households use debt to pay for living expenses.
“This is a major problem that needs to be addressed,” said Marais, “the research that we have done with MMI shows that financially well households (households that are able to cope with their financial commitments) are spending a significant portion of their household income on servicing debt. Further, it was discovered that financially distressed households (those who cannot cope with their financial commitments) are also facing massive levels of debt relative to their household income,” said Marais.
The impact on our industry
If we consider basic economics; too much debt and a rising level of unemployment means that the uninsured gap in South Africa is increasing daily.
“Despite this, the financial services industry can help address this. We need to ask what can be done so that people can be put in a position where they will be able to service their debt and become financially secure while putting some money away in savings. The reality of the industry is that only 4.8% of the country’s population makes use of a financial adviser, this means that insurance is still very much sold and not bought. It is up to us to remedy this,” said Marais.
The future is now
While it seems as if the insurance industry is obsessed with the Fourth Industrial Revolution, the reality is that technology will improve the way that insurers and financial advisers engage with clients.
“We need to be hyper relative. This means that we must get close enough to our clients to understand them and what they are looking for in an insurer. We need to be able to anticipate their needs and cater for them before they bring these needs to our attention. Financial advisers play an integral role in this,” said Marais.
She added that there is a sense of urgency to work towards this as every insurer in the industry has realised that they need to become hyper relative to remain competitive. So, if one insurer is not meeting these expectations, other insurers will.
While this is a trend in the industry, a question needs to be raised. In the past, many insurers have raised concerns that the cost of insurance precludes many prospective clients. If insurers exist in an industry where they need to be hyper relative (and practice hyper personalisation), where there is not a one size fits all approach, will there not be increased costs associated with this? If there is, will this not preclude some prospective clients even further?
There is an ancient Chinese curse which says: may you live in interesting times. This is certainly the playing field that insurers face. If they can manage all the challenges that face them, then clients will flock to their doorstep. However, one wrong move and all this hard work will fall away. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts firstname.lastname@example.org.
This article is published courtesy of FANews