ECONOMIC BENEFITS OF A VIBRANT LIFE INSURANCE INDUSTRY OESAI ANNUAL CONFERENCE 17 TH NOVEMBER 2014

Historical Role of Life Insurance Historically life insurance started as a social safety net through risk transfer Started with burial society and expanded to mutual life insurance companies Product range has expanded to include savings/investment products More companies becoming proprietary

Micro Insurance Benefits – Life insurance continues to provide a social safety net to individuals Life insurance can mean the difference between continued financial safety and destitution in the event of death or disability Provides a means for risk transfer – Especially low income earners – Wealth management Helps individuals and families to grow, preserve and protect their wealth Allows individuals and families to plan for future financial needs such as retirement and children’s education expenses Bridges savings gap that is prevalent in most economies through contractual savings

Micro Insurance Benefits – Microinsurance has created an entry point into the financial services for a large section of the population Use of prepaid cards for benefit payments allows the previously unbanked to join the banking sector of the economy – Provision of employee benefits Employee benefits such as death and disability benefits at a much lower cost to the employer Increase portability of retirement savings benefits through use of retirement annuities instead of occupational pension schemes – Change of individual credit risk profile – Enable more borrowing for investment purposes

Micro Insurance Benefits Access to wider investment vehicles – Allow access for small investment amounts to vehicles such as equity and bonds – Most territories life insurance is the only access vehicle to these products, no unit trust platforms – Higher returns than traditional banking products

Macro Insurance Benefits Employment creation – Insurance industry can become an employment industry on its own with relevant industry qualifications – Businesses which are funded by the capital available in the life insurance industry will lead to more employment creation – The development of debt and equity markets will also facilitate new employment opportunities within the financial services sector – In addition to the financial benefits of additional tax revenue there will be social benefits of higher employment rates Individual provision of financial safety nets reduces reliance on government – Leads to a reduction in government expenditure on social safety programs

Macro Insurance Benefits Source of infrastructural development capital – Lack of appropriate and adequate infrastructure has been identified as an impediment to economic growth in Africa – The insurance industry generally has a long term investment horizon making it an appropriate source of infrastructural development funding – Purchase of government bonds by life insurers can give governments access to necessary funding – The use of public private partnerships can help governments fund these crucial developments while maintaining appropriate debt levels

Macro Insurance Benefits Source of capital for other long term investments – Policyholder funds can be used to fund long term investment requirements in the private sector through either debt or equity – Reduces reliance on FDI, which can disappear in the event of financial crises in developed markets – These investments further stimulate the debt and equity markets Further development of the banking sector – There is evidence of a strong correlation between capital markets development and banking sector development – This development is facilitated by the fact that capital market growth will lead to better risk pricing models – Insurance industry growth can therefore help facilitate further growth within the banking sector

Macro Insurance Benefits Closing of savings gap – Investment products offered through life insurance companies have been used as a major savings tool by individuals – Contractual savings has been shown to be more sustainable than voluntary savings Tax revenue for government – Income tax revenue from profits of life insurance companies and companies funded by life insurance companies – Income tax from employees – Sales tax and/or VAT from goods and services procured

Key Challenges to Growth Skills shortage – There is a serious shortage of the skills necessary to fully develop the life insurance industry on the continent – Skills that are currently in short supply include actuaries, insurance accountants, software developers and insurance professionals – Some of the shortage is global and therefore African companies find themselves competing for qualifies resources with multinationals from developed countries

Key Challenges to Growth Low per capita income – Reverse correlation between per capita income Higher income = higher life insurance penetration Trust of insurance industry – Coming from products not behaving as expected and lack of consumer awareness – Products not meeting TCF principles Lack of meaningful competition Limited data / competitor information Low levels of consumer awareness and education Shortage of matching annuity assets Inadequate levels of infrastructure – Strong correlation between growth of the insurance industry and infrastructure development

Key Challenges to Growth Enabling regulation – The growth in some of the more developed insurance markets was supported by conducive tax legislation such as tax credits of life insurance premiums – These incentives while withdrawn in most forms in most territories have enabled the growth of the industry – Developing markets are trying to play catch up to developed markets regulatory requirements before their markets are not ready Increasing cost of regulatory compliance – Increasing regulatory requirements are coming with additional costs to compliance which will make life insurance products unaffordable for certain sectors of the market

OPPORTUNITIES IN DEVELOPING AND EMERGING MARKETS Growing middle class Use of technology for product distribution – Reduced costs – Easier access and collection – Product innovation Changing regulation – Influence attractiveness of insurance products – Influence positive behavior in industry Support from supra-national entities – Utilise support currently being offered by entities such as World Bank and IMF to promote growth of insurance markets

Key Responsibilities of Main Players Insurers – Consumer education – Product behaving as expected – Education and training of key resources Leads to product innovation Building insurance expertise through professional studies and experiential learning through apprenticeship models – Self regulation Industry bodies to encourage “good” behavior

Key Responsibilities of Main Players Government – Reasonable macroeconomic and political stability – Investment in regulation (financial support for regulators) – Pass enabling legislation and regulation – Conducive policies Prioritization of local borrowing – Provision of required data Limit fraud Allow for market and industry analysis – Case for regional harmonization in order to gain economies of scale

Key Responsibilities of Main Players Regulators Environment appropriate regulation Need for improved regulatory and supervision (encouraging application of International Association of Insurance Supervisors core principles & other best practices) The playing field must be level – Need to standardize legislation and reserving methodologies for entities offering similar products Enforce localization of skills

THANK YOU – KE A LEBOGA!