From a risk perspective, a virus such as HIV would need to be underwritten differently, as the claims to premiums ratio would be high

Historically, life assurance companies were notorious for their apathetic views on assuming the insurance risk of HIV-infected individuals. These views were bolstered by the uncertainty in the science of the virus and whether or not the risks could be actuarially quantified and priced. This led to discriminatory practices, like the repudiation of claims where the individual was found to have been HIV-positive and died of an Aids-related illness, regardless of when the virus was acquired, as this couldn't be certifiably proven.

So it was a watershed moment when the Life Offices' Association announced recently that all its members would waive exclusionist clauses on life and disability policies from April 1. This means SA's 5,4m HIV-infected population will now benefit from the lump sum payouts of their death and disability benefits, provided there was no material non disclosure at the advent of the policy agreement.
The problem is that the founding principle of insurance is the pooling of risk profiles into singular unified risk portfolios, which enables limited cross-subsidisation within the pool and thus keeps policy claims within expected parameters and, consequently, prices low. From a risk perspective, a virus such as HIV would need to be underwritten differently, as the claims-to-premiums ratio would be high and the cost of that business relatively higher than the average of the pool.

If a separate and specialised portfolio with, presumably, different risk underwriting is not created, then the level of subsidisation will be higher and thus inflationary. Moreover, for preservation purposes, the average premium would have to rise above the highest underwritten risk in the portfolio and thus insurance would in effect be unaffordable.

Furthermore, life insurance is considered to be a long-term contractual undertaking, where the average life expectancy in the pool is greater than its mortality rate, enabling continuity in premium collection. HIV is defiant of this principle, with 3,7m actively employed people between the ages 15 and 64 living with the virus. This means individuals covered through group life schemes by means of their retirement funds are at heightened risk. That's because the labour force (aged 24-39) that is expected to support the fund's retirees and its long-term benefit commitments is being depleted at an alarming rate, and their risk is also not homogeneously classified because of the group schemes, creating high levels of cross-subsidisation.

An overhaul of the thinking in the insurance industry is imminent ; risk dynamics are changing and so will industry perceptions.

HIV's sudden and rampant spread will continue to affect other financial services businesses. Medical aid funds are affected by growing claims and this will increase as more of the HIV-positive members reach the Aids stage. Banks are affected as households commit more resources towards HIV treatment and move funds further away from saving and investment accounts.

Government and the private sector are not immune to the economic impact of HIV. Businesses will begin to experience declining levels of productivity, higher absenteeism, greater funding of medical expenses and staff replacement costs. Government will face higher social welfare spending and the threat of economic stagnation, which could undermine its 6% economic growth ambitions.

It was laudable that the LOA members unanimously volunteered to waive the exclusions and non conformance clauses in their policies. Yet it is tragically important that insurance premiums be equitable and reflect the underlying risk and are actuarially justifiable to prevent wholesale risk shedding, which can cause phantom inflation and escalate prices.