Can ART turn South Africans into savers?
- Herman Schoeman, MD of Guardrisk

South Africans are notoriously poor savers: ours is one of the lowest savings rates in the world and, with a national savings rate of only 13% of gross domestic product, we're lagging way behind other emerging markets. Its not surprising then that the recent "national savings month" received vociferous backing from the government as it went all out to convince consumers to spend less, and save more.

What is surprising is that - in a country desperate to inculcate a savings culture - it is against the law to incentivise someone to take out what is actually a very effective savings product: a retirement annuity. Section 45 of the Long-Term Insurance Act of 1998 specifically precludes "inducement" in any form for long-term insurance policies, including retirement annuities.

Creating a savings culture seems a pipe dream while consumers are constantly deluged with offers of loans, credit cards and other facilities aimed at making them spend more. And it's no wonder that - against a background of ever more alluring advertisements for these types of products ? South African household debt as a percentage of disposable income is at an all time high of 68%.

It really doesn't make sense: it's a no-no to entice people to take out insurance policies that have a savings component; but it?s fine to ?sell? them other financial products that effectively have the sole purpose of making them spend, spend, spend.

One way to get South Africans saving is to bring the concept of alternative risk transfer (ART) down to the man in the street. Think about it: in the corporate world ART is effectively a mechanism and culture to build capacity for unforeseen future events, avoiding the need to borrow to cater for self-insured liabilities. Effectively - just like ART - such facilities would create reserves for tough times.

Certain industries - notably medical aids - have successfully done this in the form of medical aid products that include a contractual obligation to save a certain portion of the monthly premium, which is set aside to be used specifically and exclusively for medical expenses. In simple terms, this instills the culture of putting something away for a rainy day; unlike the popular "cash back" bonuses offered by some short term insurers, which - although they do promote prudent risk management - essentially facilitate spending (in the form of a "bonus") rather than saving.

There is a real opportunity to introduce the concepts of ART into personal lines short-term insurance products by introducing an element of contractual saving where a portion of the monthly premium goes into a saving fund to cater for a self funding component. The industry's current offering of high excesses in exchange for lower premiums is suitable only for individuals who can afford to pay the higher excesses out of their own pockets. This benefit could be extended to the broader market by allowing individuals to choose a progressively higher self insured element, while building up capacity as an increasing portion of the premium is put aside for this purpose.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: 011 669-1001

Issued by:
Melanie Davis, PR@Work
Telephone: 011 615-3309 / 083 225 7450