Monthly Archives: October 2016

The reason for leaving too many people

Relative to its peers in the SADC region, South Africa has a high percentage of people with formal bank accounts. While 94% of the adult population in the Seychelles has a bank account, and 85% do so in Mauritius, South Africa’s banked adult population stands at 77%.

This contrasts starkly with the likes of Madagascar or the Democratic Republic of Congo, where only 12% of adults have bank accounts. In Angola, the ratio is 20%.

These are figures produced by the Finmark Trust, an organisation set up more than a decade ago to promote financial inclusion. And at face value, they may appear to suggest that South Africa is measuring up reasonably well.

However, the Trusts’s Dr Prega Ramsamy says that there is a lot more to financial inclusion than whether or not someone has a bank account.

“It’s a multi-dimensional problem,” he told the Actuarial Society 2016 Convention in Cape Town. “There is an element of access, but there is also an element of affordability, an element of proximity, and most importantly an element of quality. We might have huge access in terms of people having bank accounts, but it doesn’t necessarily mean that they are financially included because the quality of such access might not be there.”

He pointed out that often products are inappropriate or inaccessible.

“At the moment there are about 20.9 million people in South Africa with access to insurance,” he pointed out, “and of those, 18.9 million have funeral cover. So funeral insurance completely dominates the sector.”

He acknowledged that there is a cultural aspect to why this is such a popular product, but he questioned why so many people are able to afford funeral policies but don’t have any other long term risk cover or savings.

Ramsamy pointed out that ten years ago, about one million South Africans had multiple cover, in that they held more than one funeral policy. That number has grown to five million. Yet the penetration of other risk products has remained very low.

“We sit in an office and think we can provide insurance, but we don’t really know if this kind of insurance fits the needs of the people we are selling it to,” he argued. “Agents are also just interested in selling numbers for commissions, but don’t ask if what they’re selling is the type of insurance or product that their customers need.”

Speaking at the same event, Ruth Benjamin Swales of the Asisa Foundation acknowledged that there is a real challenge for financial services companies to design more relevant offerings.

How much money that you need for diabetics

A friend was on holiday in a small town when her baby’s scheduled immunisation was due. After being directed to the local clinic who had the stock of the required vaccination, she duly fell in line with other patients to open a new clinic file. Although it seemed that many patients waiting in the queue could read, the clinic assistant in charge was adamant on reading the questions and completing the forms on their behalf.

“Do you have disabilities?” It would thunder through the room, and so forth. By the time it was my friend’s turn, she insisted on reading the questions herself. And to her surprise, the “disabilities” everybody was questioned about, turned out to be “diabetes”. None of those in front of her had disabilities, but should they have been questioned correctly, they could have confirmed their diabetic status.

Among the top five most prevalent chronic conditions

Diabetes is one of the world’s fastest growing lifestyle diseases. In 2015 South Africa had 2.28 million cases of diabetes according to the International Diabetes Federation (IDF). The problem is that for every diagnosed adult, there is an estimated one undiagnosed adult. The number of undiagnosed cases in South Africa is projected at around 1.39 million.

Both diabetes mellitus types 1 and 2 rank among the top five most prevalent chronic conditions under medical scheme members.

Although it is one of the most prevalent conditions and the coverage ratio for medical scheme members with Diabetes mellitus Type 2 is slowly increasing, the coverage still seems to be low.

The proportion of Diabetes mellitus type 2 patients claiming for chronic disease medicine was a mere 28.8% in 2015, the Council of Medical Schemes Annual Report shows.

The coverage of monitoring tests, such as the creatinine test was 33% in 2015 and coverage for the HbA1c test was 26.2%. It was at similar levels the previous years.

This is despite Diabetes insipidus and Diabetes mellitus types 1 and 2 being covered as chronic conditions under prescribed minimum benefits (PMBs). This means that medical schemes must cover costs of all members who suffers from diabetes, regardless of their benefit option.

Property and bonds

Old Mutual Investment Group sees domestic equities, property and bonds delivering higher returns in 2017, on the back of improving economic prospects.

It expects peaking interest rates and inflation in South Africa to create a positive environment for interest rate sensitive assets such as domestic property and bonds.  It sees inflation averaging at 5.4% in 2017 compared with 6.3% in 2016 and the benchmark repurchase rates falling to 6.5% by the end of 2017, down from 7% currently.

According to Peter Brooke, head of Old Mutual Investment Group’s MacroSolutions Boutique the 13.5% return on domestic bonds year-to-date as at November 24 2016 is artificially high due to an oversold bond market.

Instead, he said SA cash – with a 6.8% return in rand terms – is the best performing local asset class thus far. SA listed property delivered returns of 4% and the FTSE-JSE Share Weighted Index (SWIX) returned 2.5% over the same period.

After starting the year with the highest level of cash in its fund ever, the group is seeing more opportunities in equities as the domestic equity market de-rates.

“We’re not at the stage where the JSE is cheap yet. It is on a 13x forward but it does offer a real return in the region of 5%. We’re not back to levels that we have enjoyed for the last 100 years of around 6.5% but value is starting to incrementally rebuild,” he said.