Guiding consumers since 2009

Insurers vying to match allure of unit trusts

By Staff Writer

By Regis Nyamakanga

UNIT trusts have wrest ed a large share of premium income away from life companies in recent years, but disinvestments and surrenders are expected to balloon as the credit squeeze starts to bite, an insurance expert at Ernst & Young said yesterday.

Tim Rutherford, lead director for insurance at Ernst & Young said insurers had started offering flexible investment and risk products similar to those proffered by unit trusts in order to recoup its waning share of investment premiums.

“Insurance companies have had to look hard at their product offering in the past three years, as they have had to deal with the negative effect of various pension fund adjudicator decisions on their traditional products.

“The flexibility offered by unit trusts to investors and the wide range of offerings have appealed to the younger markets, that often perceive insurers as old-fashioned,” Rutherford said.

“To vie for a market share of the investment premium, insurers have begun to offer more flexible investment and risk products simpler to understand, with a transparent fee structure similar to those of unit trusts,” he said.

As higher interest rates and a slowing economy started to eat away at household income, Rutherford said unit trusts were expected to start experiencing larger-scale outflows than insurers, bringing an end to the boom.

“We can certainly expect to see a large number of disinvestments and surrenders as investors feel the credit squeeze and stop saving as they need the income to pay household expenses or surrender the policy or unit trust to pay off costly debt. This is when the more flexible unit trust products could potentially feel the reduced premiums and outflows harder than their insurance counter parts,” he said.

Rutherford’s comments came after Ernst & Young yesterday released a report showing the insurance industry had given the International Accounting Standards Board (IASB) strong support for the development of a high-quality global insurance standard.

The report, prepared for the world’s most influential insurance trade bodies, shows some divergence of opinion on how the standard should be “drafted and implemented, often depending on geography, regulatory environment or industry sector”.

The industry was, though, in agreement accounting for insurance should reflect economics of the business. There was little support for present exit values, the report said.

“Many respondents do not agree the transfer concept is appropriate for valuing insurance liabilities. The ‘value in settlement’ measurement supported by many emphasises ultimate settlement, as contracts are not likely to be transferred, but paid or settled by the company in the future,” the report said.

James Dean, practice leader for Ernst & Young’s Global Insurance Centre said: “Whatever final insurance standard the IASB develops will result in a fundamental change in the finance and actuarial functions of many insurance companies. Understanding the effects on systems, data, pricing and capital management will be a major challenge. Insurers should start now to examine how this will affect their financial systems and statements.”

Recent Articles

Featured How are you taxed on your retrenchment package?

Unemployment is one of the biggest problems in South Africa. The emergence of the Covid-19 pandemic has exacerbated the situation with a lot of companies retrenching their employees.  When retrenched, you’ll receive a retrenchment package, but do you know how much tax you’re liable for?

Car repossessed – don’t be taken for a ride

When the country is facing an economic downturn, chances are your finances will feel the pinch. This can lead you to make bad financial decisions such as skipping your vehicle payments. But every decision has consequences and if you don’t pay your instalment, the bank will repossess your car. But what can you do when this happens?

 

Why you should consider gap cover

Your medical aid should protect you from incurring large medical bills when you’re sick. But what if your plan doesn’t cover the full cost of your medical expenses? We got in touch with insurance experts to find out whether gap cover is worth having.

Debt relief - What is your bank offering?

Going through a financial crisis is stressful whether it be as a result of losing your job, being short-paid, having to fork out towards an emergency payment, or finding yourself in the midst of a global pandemic. This is especially taxing if you have a debt to service. It is against this backdrop that banks are increasingly offering payment holidays. Justmoney looks at the various debt relief options available to you from the big five banks.

Deals

Premier Hotel and Resorts Special For Senior Citizens

Price: Available on request
When: Daily
Where: Nationwide

The President hotel 10% discount for locals

Price: Available on request
When: Until 31 October 2020
Where: Cape Town

Get 40% off when you book your stay at Colosseum Hotel

Price: Available on request
When: Until 13 December
Where: Cape Town


Latest Guide

Guide to debt rehabilitation solutions