South African has a major life insurance problem

Many South Africans are dissatisfied with their insurance premiums and perceived value for money, wasted time, and administrative inefficiencies in dealing with insurers.

This was revealed in the 2024/25 Life Insurance Customer Experience (CE) Index report released by the University of Pretoria (UP).

As the first benchmark of its kind in the country, the index looked into the entire end-to-end customer experience of the country’s life insurance industry.

The index was based on 2,987 comprehensive, audited interviews and focused on the five largest local life insurers by market share.

It featured seven interconnected “cause and effect” components, including quality of experience, value perception, problems and resolution, and loyalty.

Positively, this report found that South Africans are highly satisfied with their life insurers. With an overall CE score of 74.1 out of 100, the industry outperformed many other sectors.

“The life insurance industry is currently performing the best of all industries we’ve measured,” said Professor Adré Schreuder, Head of the Industry Chair in CE at UP.

“Life insurance customer satisfaction in South Africa across the sector is generally very high, especially when it comes to overall service delivery quality, staff competency, process efficiency, and the reliability of digital tools.”

According to Schreuder, the survey depicts an industry that pays claims promptly, resolves problems decisively, and has generated strong goodwill.

The index found that the local life insurance industry exceeded international benchmarks in several crucial areas.

Notably, only 6.6% of customers reported problems with their insurers, beating out the global best practice norm of 10%.

When issues did arise, insurers successfully resolved 53% of cases completely, also meeting international standards.

Respondents indicated positive perceptions around the industry’s ability to deliver high-quality service experiences, with insurers scoring 80 out of 100 on the Quality of Experience measurement.

However, despite excellent performance on some metrics, the study pointed to areas for improvement in the industry.

Quality without value

The index found that positive sentiments did not translate to customers’ opinions around the value of insurance products.

The Value of Experience Index only scored 73.3 points – a 6.7-point difference from the Quality score.

This points to respondents’ dissatisfaction with their premiums and perceived value for money, wasted time, and administrative inefficiencies in dealing with insurers.

The three most common complaint areas were payment and premiums, service, and policy and product concerns.

“The challenge is that buying life insurance often begins with a clear honeymoon phase – there’s a sense of goodwill, security, and a feeling that you’re doing right by your family,” Schreuder said.

“But if brokers and tied agents only check in occasionally, and a simple change like a new address, bank or employment details turns into a frustrating process, or a payment bounces or coverage unexpectedly lapses, consumers’ perception of value may diminish.”

Cost is a major reason many South Africans do not invest in insurance. Given how many South Africans are strained financially, insurance is often seen as a discretionary expense rather than a necessity.

According to the Financial Sector Conduct Authority’s 2022 Financial Sector Outlook Study, only one in ten South African adults has life insurance.

Additionally, the Association for Savings and Investment SA’s 2022 Life and Disability Insurance Gap Study also pointed to a disability cover gap.

In 2022, South Africa’s 14.3 million income earners collectively had only enough life and disability cover to meet 45% of their households’ total insurance needs.

Bidvest Life training specialist Melody Stander warned that this gap means many South Africans are financially at risk.

“This means that approximately 90% of households would struggle to meet their financial obligations if the primary income earner were to pass away or become disabled, with no alternative source of income available,” Stander said.

Marketing misspend

The CE index also found that, when it comes to life insurance customer satisfaction and loyalty in South Africa, life insurers reached 73.9 points out of 100, short of the desired 80 points by international benchmarks.

The study also revealed a sizeable action gap. Although many consumers and policyholders expressed willingness to recommend a brand, only 16.5% actually did so.

The behaviour-to-intention ratio of the life industry of 32.8% was much lower than the 41.8% behaviour-to-intention ratio of the consumer banking industry.

“At the end of the day, customer experience is predicated on customer loyalty,” Schreuder said. “A satisfied policyholder is far more likely to stay with an insurer for the rest of their life, buy supplementary cover or products, and recommend the brand to others.”

“And until declared intent to recommend becomes action, insurers risk mistaking goodwill for growth, lulling brands into a false sense of security that doesn’t translate to the bottom line.”

Notably, 50% of new client policyholders said they chose their current insurer thanks to a referral or recommendation from someone they trust. In comparison, only 8% of new business was driven via direct sales pushes.

The index, therefore, exposed a significant mismatch between marketing spend and actual acquisition results.

Schreuder explained that although referrals account for most new business, industry budgets remain skewed toward above-the-line advertising like broadcast, newspaper, and billboard campaigns.

“The industry is taking a backwards approach, spending the vast majority of their budgets on ventures that bring in the least number of sales,” he said.

“The index confirms that referrals driven by customer experience and loyalty ultimately power growth.”

“Life insurers who reallocate even a fraction of their advertising spend into improving their customer experience stand to reap extraordinary returns.”