Critical illness insurance in the South African market

The root of critical illness insurance lies in South Africa. Critical illness cover became a must as the health care system at that time in South Africa could not cope with the costs for critical illnesses. The idea stemmed from a discussion between a surgeon and the chief executive of a life office. Since then critical illness cover in South Africa had been one of the most prolific markets around the world. Let’s have a look.

Furthermore, the first critical illness policy launched provided cover for around 4 main critical illnesses. These could have been heart attack, stroke, cancer and coronary artery bypass surgery. As time passed by and a more mature market started to unveil, the insurance companies started to provide cover for 5 critical illness conditions. Nowadays many companies in South Africa may be providing cover for more than 20 serious illnesses. As per O’Mahony S, 2001, “South African dread disease report”, most companies may cover up to 8 core critical illness conditions and 21 extended conditions. Extended cases may be surgeries like balloon angioplasty or states of health such as total and permanent disability.

Additionally, as per Munich Re 2000, at the time critical illness cover was firstly launched nearly all policies may have been riders to life insurance. The highest amount paid as lump sum at that time may have been around R 25,000. This value may have been chosen in accordance with the cost of one of the most serious critical illness conditions at that time, thee coronary artery bypass graft. Nowadays, the maximum amount of cover paid as lump sum could be around R 550,000. On the other hand, bigger companies may offer around R 800,000. Furthermore, during the year 1990, critical illness cover sales may have been estimated to be higher than any other covers. The reason may be because about 60 percent of critical illness covers may have been sold as riders to other policies. But the recent sales may be decreasing as it may now represent a recession of around 50 percent as compared to the year 1990.

In addition to, critical illness cover may have a high price tag in South Africa. So, two departments exist that perform the critical illness cover sales procedures. These could be the life office agents and the brokers. The life office agents sell critical illness cover to people who have a low income. Meanwhile, the brokers sell to those people who earn a high income at the end of the month. Due to many high income earners, most critical illness sales could have come from the broker market.

According to Munich Re 2000, there may be around 14 life insurance companies that provide cover for critical illness. This could represent around 70 percent of all life insurance companies in South Africa. Practically all life insurance companies have ceased to offer standalone critical illness covers as it may have been rather slow concerning sales. Critical illness cover may most of the time be sold as riders, especially mortgage, similar to the UK and Canada.

The maturity of the South African insurance market has already been reached. But as people gain more knowledge about critical illness cover, there could be even more critical illness cover sales. The UK and the Canadian market, though high amount of critical illness cover sales recorded may yet to become as mature as that of South Africa.