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Creditor Insurance in South Africa

  • January 2016
  • -
  • Finaccord
  • -
  • 27 pages

Finaccord’s report titled Creditor Insurance in South Africa offers uniquely detailed insights into the market for creditor insurance, sometimes also referred to as credit protection or bond protection insurance, as acquired by individual borrowers in South Africa. Drawing on the results of a survey of 35 lenders, the study analyses the distribution of creditor insurance by banks and other lending institutions, how provision rates vary for different lending products, operating models used for arranging creditor insurance, and distribution partnerships weighted by the size of distributors. The PartnerBASE™ dataset that accompanies the report details all creditor insurance distribution deals traced by Finaccord. In short, this study will provide you with the definitive guide to current and future opportunities in creditor insurance in South Africa.

Key features of this study plus the PartnerBASE™ dataset and market data annexe that accompany it include:

- quantification of creditor insurance market size and growth with a timeline from 2011 to 2015 and onwards to 2019: how much is this market worth in South Africa and what is its future development potential?

- segmentation of this market both by underlying loan type (differentiating between mortgages, point-of-sale automotive finance, other consumer finance and credit card loans) and by type of cover (differentiating between cover for death / permanent disability and temporary incapacity / unemployment);

- consideration of operating models used for creditor insurance: how advanced is the use of captive and joint venture underwriters by lending institutions in South Africa and what are the opportunities for external underwriters?

- calculation of weighted provider share of partnerships: Finaccord’s unique quantitative analysis helps to identify which underwriters of creditor insurance hold the relationships that offer the most potential;

- investigation into alternative distribution channels for selling creditor insurance: a number of factors could increase the potential for entities other than the lending institutions themselves to sell creditor insurance in South Africa.

Table Of Contents

Creditor Insurance in South Africa
TABLE OF CONTENTS
00 EXECUTIVE SUMMARY 1
10 INTRODUCTION 3
What is this report about? 3
This report provides a comprehensive analysis of loan-related insurance policies in South Africa… 3
Rationale 3
… and tracks all significant initiatives for marketing creditor insurance through lending institutions 3
Methodology 3
Survey of banks and other lending institutions 3
Market data 4
Definitions 5
Creditor insurance 5
Mortgages, consumer finance and credit cards 5
Weighted provider share of partnerships 5
Operating models 6
Abbreviations and exchange rates 7
PartnerBASE and market data annexe 7
Finaccord 7
20 MARKET ANALYSIS 9
Banks and other lending institutions covered 9
Introduction to the banking sector 9
South Africa's 'big four' banks account for a majority of the country's banking assets 9
Competition comes from automotive captives plus both retailers and retailer-owned lending businesses 9
Consumer lending market size and growth 10
Mortgage lending 10
Balances outstanding in the South African mortgage market have stagnated in recent years… 10
Non-mortgage lending 11
… with non-mortgage lending also tapering off following a period of strong growth 11
Credit and other pay later cards 12
Credit and other pay later cards per capita edged up slightly between 2011 and 2015 12
Creditor insurance provision rates, operating models and partnerships 14
Creditor insurance linked to mortgages 14
The leading four underwriters of mortgage-related cover are all classifiable as captives… 14
with Sanlam Group's Channel Life likely to be the leading external partner 14
Creditor insurance linked to consumer finance 16
Over 80% of institutions granting non-mortgage loans have a related creditor insurance proposition… 16
… creating additional opportunities for external underwriters such as Guardrisk and Hollard Insurance 16
Creditor insurance linked to credit cards 18
All credit card issuers other than one promote payment protection insurance policies 18
Creditor insurance risk coverage 20
Over 80% of creditor insurance policies analysed include an option for acquiring unemployment cover… 20
… albeit the penetration rates diminish slightly in the weighted analysis 21
Alternative distribution channels 22
South African borrowers can acquire creditor insurance from a variety of alternative sources… 22
… including both credit and insurance brokers plus one underwriter selling directly… 22
… namely Shackleton Life, a specialist insurer established in 2013 22
Many car dealers also distribute creditor insurance from non-tied providers… 22
… such as Guardrisk, Regent Insurance and Traficc 22
Creditor insurance market size, growth and forecast 23
Creditor insurance policies linked to consumer finance account for the majority of the market value… 23
albeit those linked to credit cards are likely to have grown the most between 2011 and 2015 24
There is some regulatory concern regarding creditor policies linked to consumer finance and credit cards… 25
which could potentially curtail future market growth 26

LIST OF GRAPHICS / TABLES

00 EXECUTIVE SUMMARY 1
Creditor insurance gross written premiums in South Africa, segmented by policy and cover type, 2011, 2015 and 2019 (forecast) 2
10 INTRODUCTION 3
Banks and other lending institutions in South Africa contacted by Finaccord, segmented by type 4
20 MARKET ANALYSIS 9
Residential mortgage lending balances outstanding in South Africa (absolute and per capita), 2011 to 2015 10
Consumer non-mortgage lending balances outstanding in South Africa (absolute and per capita), 2011 to 2015 11
Credit and other pay later cards issued and per capita in South Africa, 2011 to 2015 12
Key data points for the consumer lending market in South Africa, 2011 to 2015 (table) 13
Provision of creditor insurance linked to mortgages in South Africa, 2015: provision rate, operating models and weighted provider share of partnerships 15
Provision of creditor insurance linked to consumer finance in South Africa, 2015: provision rate, operating models and weighted provider share of partnerships 17
Provision of creditor insurance linked to credit cards in South Africa, 2015: provision rate, operating models and weighted provider share of partnerships 19
Unweighted risk coverage of creditor insurance policies in South Africa, segmented by type of underlying product, 2015 20
Weighted risk coverage of creditor insurance policies in South Africa, segmented by type of underlying product, 2015 21
Creditor insurance gross written premiums in South Africa, segmented by policy type, 2011, 2015 and 2019 (forecast) 24
Creditor insurance gross written premiums in South Africa, segmented by cover type, 2011, 2015 and 2019 (forecast) 26
Creditor insurance gross written premiums in South Africa, segmented by policy and cover type, 2011 and 2015 (table) 27
(forecast) 27
Creditor insurance gross written premiums in South Africa, segmented by policy and cover type, 2015 and 2019 (table) (forecast) 27

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