Employee benefits threatened
ONE of the greatest concerns for the country regarding AIDS is that the hardest hit age group is the economically useful 30-45 year age bracket, and that more than 2,1% of people currently applying for life assurance policies are HIV-positive. Based on the 127th AIDS Claims Statistical Report, published by Mercantile & General Reinsurance, there were more than 1 700 AIDS or AIDS-related cases by December 1995, the cost to the insurance industry amounting to about R65-million.
Andrew McGinn, Divisional Head of Fedlife Group Benefits, says Fedlife has been close to the building industry for over 50 years and, based on Fedlife's initial studies, the costs of providing death and disability benefits to building industry retirement funds will increase by about 50% by the year 2000 and be double current levels in 10 years' time if nothing is done to prevent the spread of the epidemic. "This means that for the average defined contribution fund that maintains the current level of funding, letting the risk costs eat away at the retirement allocation, the retirement benefits will be more than 20% lower than if risk costs stay constant at their current level."
Nicholas Davies, actuarial consultant at Hollandia Life Reinsurance, says statistics from Zimbabawe and Malawi show that group life and disability insurance premiums have escalated dramatically while benefits have decreased steeply in an effort to meet mushrooming AIDS-related death and disability claims.
Davies says Hollandia, a significant player in the reassurance of employee benefits, has been well placed to monitor AIDS-induced trends. "The last available industry figures show group business claims increasing at a rate twice that of individual claims on life business and five times on disability business. Clearly, insurers and employers cannot sustain payments at this level, and measures will have to be taken to protect against astronomical employee benefit costs."
Erich Potgieter, Old Mutual Actuaries & Consultants senior actuary and consultant, says some funds responded to rising group life and disability costs by reducing retirement funding contributions or the rate of bonus added to these, which is a cause for concern: "Fund members are possibly not even aware that their long-term benefit prospects are being reduced to subsidise risk-benefit costs in the short term. If this strategy is adopted, we believe it is vital to communicate this to the members and explain to them how their retirement and resignation benefits are affected."