South Africa holds the unenviable record of having the world’s
highest prevalence of HIV/AIDS. Given the absence of long-term
actuarial data, insuring HIV-positive people represents a major
challenge for life insurers and one that they are tackling with a
growing range of innovative products.
South Africa is home to almost 14 out of every 100 of the 38.6
million people afflicted by HIV/AIDS worldwide, according to
estimates made by UNAIDS, an agency of the United Nations. It
leaves the country, which has a total population of about 48
million, with the unenviable record of having the world’s highest
HIV/AIDS prevalence and has created a monumental challenge for life
insurers.
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It was a challenge that the South African life insurance industry
initially met with stringent HIV/AIDS policy exclusion clauses.
However, this protectionist approach has gradually given way to a
more liberal one spearheaded by initiatives launched by industry
body the Life Offices Association (LOA), whose 36 members provide
over 95 percent of the insurance business in South Africa.
The LOA’s first initiative saw the adoption by insurers of the HIV
Testing Protocol in October 2000. The protocol sets out quality
standards for HIV testing and also addresses aspects such as
personal pre- and post-test counselling. In addition, in the event
of doubt relating to the results of an HIV test, the client is
regarded as being HIV-negative.
In the next significant initiative driven by the LOA, its members
scrapped HIV/AIDS exclusion clauses for policies issued after 1
January 2005. This was followed by the scrapping of HIV/AIDS
specific waiting periods for new business written from 1 June 2006
and, in the most sweeping move yet, an agreement by LOA members to
waive existing HIV/AIDS exclusions for all lump sum death and
disability benefit claims submitted from 1 April 2007.
According to the LOA’s CEO, Gerhard Joubert, South Africa is one of
only two countries where HIV-positive people have access to
individual life insurance products. Three of South Africa’s biggest
life insurance companies – Old Mutual, Sanlam and Metropolitan Life
– were the first to introduce life policies for HIV/AIDS positive
people in as early as 2001. The Netherlands followed suit in 2006,
said Joubert.
However, Joubert explained that a lack of reliable South African
data relating to the HIV/AIDS survival rate and the way the disease
responds to anti-retroviral therapy (ART) treatment means that life
insurers have to use assumptions when pricing products for
HIV-positive people.
The most comprehensive assessments of the impact of HIV/AIDS on
mortality on which insurers may draw have been undertaken by the
Actuarial Society of South Africa (ASSA) in collaboration with the
University of Cape Town’s Centre for Actuarial Research and the
Medical Research Council of South Africa (MRCA).
Actuarial models
The ASSA AIDS Committee was formed in 1987 and modelling of the HIV
and AIDS epidemic in South Africa by actuaries began with a model
developed in 1989 by a team of actuaries headed by Peter Doyle, the
current CEO of Metropolitan Life. This model, dubbed the Doyle
Model, has been superseded by a number of more refined models, the
latest of which, the ASSA2003 AIDS and Demographic model, was
released in November 2005.
In a report published by the ASSA in November 2006, it estimated
that in the middle of that year:
• 5.4 million South Africans were infected with HIV (11.2 percent
of the total population);
• 19 percent of the working age population (ages 20 to 64) was HIV
positive;
• the HIV prevalence rate in women was highest between ages 25 and
29 (33 percent) and in men prevalence was highest between ages 30
and 34 (27 percent);
• among adults aged 15 to 49 years, 71 percent of all deaths were
due to AIDS between mid-2005 and mid-2006; and
• 1.8 million AIDS deaths had occurred in South Africa since the
start of the epidemic. The first recorded case of AIDS in South
Africa was diagnosed in 1982.
The impact of HIV/AIDS is reflected in a significant decline in
life expectancy. According to the ASSA’s report, life expectancy at
birth declined from 63 in 1990 to 50.7 in 2006, while by 2015 life
expectancy at birth is projected to be 50.3 years. The report also
noted that mortality rates in 1990 suggested that a 15-year-old had
a 29 percent chance of dying before the age of 60, while mortality
rates in 2006 suggested that 15-year-olds have a 56 percent chance
of dying before they reach 60. By 2015, total annual AIDS-related
deaths are forecast by the ASSA to reach 429,862, up from 354,379
in 2006 and equal to 51 percent of all deaths. Total cumulative
AIDS-related deaths by 2015 are forecast at 5.35 million.
Other studies have produced results similar to those of the ASSA.
The MRCA, for example, estimates that between mid-2005 and mid-2006
there were 336,000 AIDS-related deaths – 47 percent of all deaths.
The ASSA’s estimate of AIDS-related deaths during the same period
is 345,640 people. UNAIDS estimates that AIDS claimed 320,000 lives
in 2005.
Two types of products
Against this grim background, it is not surprising that Joubert
noted that life insurance products available to HIV-positive people
are “relatively expensive”. He explained that there are two types
of products available, the first of which he termed
“older-generation products” from Old Mutual, Sanlam and
Metropolitan Life. These products were developed before treatment
options were available for HIV-positive people, said Joubert. He
added that some of these products also offer lower rates for
HIV-positive clients who are on ART at the time of applying for
life cover.
More recently, what he termed “new-generation products” have become
available that are much more affordable and flexible in their
cover. However, they generally require policyholders to be on ART,
monitored through a properly structured treatment programme.
“Over the past decade, vast improvements have taken place in the
treatment of HIV/AIDS,” said Joubert. “Provided there is full
compliance with ART prescriptions, HIV it is now fast becoming a
chronic treatable disease like diabetes and many others.”
In 2001 AltRisk, a special risk insurance unit of composite South
African insurer Hollard Group, became the first South African
insurer to begin offering new-generation products based on the
premise that HIV/AIDS was a chronic treatable disease. To obtain
cover, a client is required to commit to a disease management
programme that includes monitoring by a health practitioner on a
six-monthly basis. AltRisk currently offers whole life, level term
and decreasing term policies with cover up to ZAR2 million
($285,000) and dread disease and disability benefits as riders.
German reinsurer Hannover Re reinsures the majority of risk.
Notably, AltRisk’s target market is the upper income sector where
the prevalence of HIV is also rising, according to a study by the
University of South Africa. The study found that while the richest
one-third of South Africa’s population in 2005 had a lower
estimated HIV prevalence than the poorest one-third – 8.5 percent
compared with 23.4 percent – new infections were increasing most
rapidly in this demographic, rising by 39 percent between 2002 and
2005 compared with only a 14 percent increase among the poorest
one-third.
AltRisk was followed into the market in November 2005 when AllLife,
a life insurance company formed in 2004 with the specific objective
of developing products for HIV-positive people, launched the first
of a range of products. Unlike AltRisk, AllLife targets the
middle-income sector and now offers term life, whole-life and
permanent disability cover products.
Strict rules for policyholders
All these products require the policyholder to adhere to a strict
set of rules that include a commitment to having HIV monitoring
blood tests at least once every six months. AllLife’s MD, Ross
Beerman, explained that there are two key aspects to HIV/AIDS that
require close monitoring. The first is the viral load – the number
of HIV copies in a millilitre of blood. A high viral load can be
from 5,000 to 10,000 copies and can range as high as 1 million or
more. Once on ART treatment, the viral load can fall to an
undetectable level.
The second aspect of HIV/AIDS that is monitored is the CD4 count;
this is a count of the white blood cells and indicates the strength
of an individual’s immune system. An uninfected person will have
count of 1,000 or more, said Beerman. Any person with a count below
200, or the presence of an AIDS-related illness such as
tuberculosis, is regarded as having full-blown AIDS.
AllLife’s products are underwritten by Centriq Life Insurance
Company, a joint venture between general insurer Santam (a
subsidiary of Sanlam), which has a 66.7 percent stake, and
investment holding company Kagiso, which has a 33.3 percent
stake.
In November 2007, Sanlam put its marketing muscle behind AllLife
when it launched Sanlam LifePower, a range of HIV insurance
products to be administered by AllLife. The first HIV products from
a major life insurer, they consist of term life cover, whole-life
cover and a loan protector option. Permanent disability cover can
be added as a rider.
Optimistically, Joubert predicts that more South African insurers
will launch pioneering new-generation products that will offer
competitive premiums for HIV-positive people on an ART programme.
However, he also highlighted a number of reasons why life insurers
have been slow to develop cheaper and more innovative products for
HIV-positive people.
One of the main problems is that access to treatment and
availability of ART remain a concern, since life insurers can offer
competitive premiums to HIV-positive clients only if they remain on
appropriate treatment programmes. In addition, the long-term
compliance and effect of viral resistance against treatment
protocols still need to be established. According to Joubert, about
300,000 HIV-positive people were receiving ART in 2006.
Joubert said that a second problem facing insurers is that demand
for policies developed for HIV-positive people has been low. He
added that currently, only 2.5 percent of the annual 500,000 life
insurance clients tested for HIV at the application stage test
positive. In addition, very few of the people who test positive for
HIV request life cover because they fear loss of confidentiality as
a result of having a special policy for HIV-positive people.
Distribution of products was the third key factor hindering growth
in the HIV insurance product market, said Joubert. He explained
that life and risk cover insurance are marketed primarily by
intermediaries and given the confidentiality issues and
stigmatisation of HIV/AIDS in South Africa, this form of
distribution has obvious drawbacks because the HIV status of the
applicant will be known to the intermediary.
