The insurance gap needs to be understood and addressed from a black middle-class lens

The wealth demographic in South Africa has shifted.

The wealth demographic in South Africa has shifted.

Published Dec 12, 2023


By Bongani Khulu

With more than 3.4 million of South Africa’s population in the burgeoning black middle-class consumer segment, addressing the country’s insurance gap of R34 trillion cannot meaningfully happen unless one key aspect is considered – perspective.

The wealth demographic in South Africa has shifted. Today, the black middle class has become the foremost consumer segment growing, not only in scale but in buying power.

A year ago, the UCT Liberty Institute of Strategic Marketing released its much-anticipated report on South Africa's black middle class. The report noted that the segment constituted 3.4 million people with a combined spending power of R400 billion a year.

However, a nuanced history belies its spending focus, particularly relating to insurance.

The Association for Savings and Investment South Africa’s (Asisa) latest Life and Disability Gap study – estimated every three years by Asisa in partnership with True South Actuaries & Consultants – shows that SA’s 14.3 million income earners only had life and disability insurance to cover 45% of the total insurance needs of their household.

Furthermore, it showed that should the average household supported by at least one income earner lose that member to death, that family would be forced to cut living expenses if no other source of income can be found. According to Asisa, the total insurance gap amounts to R34 trillion – with the average income earner having a life insurance shortfall of at least R1 million and a disability cover gap of around R1.4 million.

From as far back as the 1970s, many Black South Africans have equated life insurance with funeral insurance or being able to pay for the burial of their loved ones.

Indeed, funeral cover remains one of the most popular forms of insurance in SA because of its affordability and accessibility, with about 42% of adults claiming to have a funeral product.

However, the only way the country will grow is through the success and continued effectiveness of the Black Middle Class as a subsect of the economy. And that begins with understanding the value of insurance in being able to shift the paradigm towards comprehensive risk management and the creation of generational wealth.

The generation and-a-half

Linked back to the “uncle selling funeral insurance” picture of the 1970s and 80s, there remains a generation of the current Black Middle Class that equates insurance to merely funeral policies instead of the myriad of wealth planning and protection solutions available.

Furthermore, from a middle market to affluent black professionals’ perspective, there lies a marked opportunity for financial advisory and wealth management firms to navigate clients through the complexities of wealth creation and ensure this wealth is protected sufficiently.

The difficulty therein is that there still largely lies the notion of these professionals still being “the first generation” within their families of either having completed a university degree, attained a corporate job, or become a successful entrepreneur, etc.

Therefore, many of the financial decisions taken, are based on consumerism rather than planning and managing risk for the future. The struggle then becomes rebasing family wealth, while also being an active player in the economy.

Consolidation before wealth creation

There still exists a lack of fundamental understanding as to what comprehensive insurance solutions can solve, for many clients, particularly as it relates to the proper financial planning of their futures. At times, we are too quick to go from having funeral insurance to amassing wealth – and we skip a critical step, consolidation.

Before one can create wealth, one needs to embark on a consolidation phase to ensure they have a full and clear understanding of what their financial commitments, savings, and investments for the future look like.

And I would argue that most of the black middle-class consumers are still in the consolidation phase, as they work to create meaningful inroads toward generational wealth.

This often calls for going back to the drawing board to ensure the basics are covered.

For instance, many South Africans, our research shows, are setting up their retirement saving plans too late – and this is particularly true of the Black Middle Class too. Only 6% of South Africans will retire comfortably according to the National Treasury.

Our research findings conducted to understand retirement trends better from an insurer perspective show that only 31% of people between 30 and 35 years old have an established retirement savings plan.

By the ages of 45-49, this figure jumps to 63% -- meaning our population is setting up their savings plan too late.

We know that our parents have not retired properly or comfortably because retirement planning for them was not done or done too late. In the Black family structure, there is always a lot of responsibility placed on the shoulders of a few individuals who are income earners.

That responsibility extends to what can be done for the next generation – today. And for many within the black middle class, that begins with a simple, yet profound shift in perspective.

* Khulu is the executive of OmniChannel and Bancassurance at Liberty.