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Burial societies and microinsurance in South Africa: The way forward. Anja Smith, Centre for Financial Regulation and Inclusion (Cenfri) 2 nd Burial Society Indaba 28 October 2011. About FinMark. Independent trust established in 2002 (initial funding from UKaid)
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Burial societies and microinsurance in South Africa: The way forward Anja Smith, Centre for Financial Regulation and Inclusion (Cenfri) 2nd Burial Society Indaba 28 October 2011
About FinMark • Independent trust established in 2002 (initial funding from UKaid) • Purpose: “Making financial markets work for the poor, by promoting financial inclusion and regional financial integration” • Facilitating and catalysing the next generation of development around access to financial services in SADC region • Focus areas: • FinScope • Housing finance • Consumer financial empowerment • Rural and agricultural finance • Retail payment systems • Insurance • Policy and regulation • Regional Financial Integration • Further information available at: www.finmarktrust.org.za
SA funeral insurance market (FinScope 2010) • 40.3% (9.9m) of SA adults in LSM1-7 have funeral cover: • About half of above group (4.9m) adults have some type of informal funeral cover • 6.6m have formal funeral cover – about 0.9m with funeral undertaker • Of adults that have informal funeral cover in LSM 1-7, 4.1m say they belong to a burial society, rest get cover from another informal group • Other market features: • Large unregistered funeral insurance market • Low awareness and understanding of compulsory credit life • No significant penetration beyond funeral yet
Informal funeral cover losing ground (FinScope 2010) LSM 1-7
Despite migration to formal insurance people continue to use burial societies (FinScope 2010) LSM 1-7
Funerals are big business, but market is vulnerable • Large market with substantial low-income exposure: • 3,000-5,000 funeral parlours • 80,000 – 100,000 burial societies • Estimated R5bn spent on funerals per year • Vulnerable market: • Social and psychological presence of death • Importance of dignified funeral • Insensitivity to prices • Multiple cover from multiple providers • Cultural drivers entrenched by current market behaviour
New regulatory framework for microinsurance (Policy Document July 2011): Objectives • Extend access to variety of good-value formal insurance products to low-income households; • Facilitate formalised insurance by currently informal providers; • Lower barriers to entry to all participants; • Enhance consumer protection; and • Facilitate effective supervision and enforcement.
New regulatory framework for microinsurance (Policy Document July 2011): Key pillars • Microinsurance license under current or separate legislation • Level playing field for providers • players providing same products subject to same regulatory requirements - license open to public companies, private companies and cooperatives • Product standards and benefit limits • Risk products only, long and short-term products under same license • Life insurance limit: R50,000 • In-life (e.g. legal, unemployment) limit: R50,000 • Asset limit: R100,000 • Lower prudential standards • Minimum upfront capital of R3m • Appropriate intermediary requirements • More effective supervision and enforcement
New regulatory framework for microinsurance (Policy Document July 2011): Implementation strategy • Transitional phase of 3 years • Phase 1: • During first 12 months following enactment of the Act, nominal registration for all entities underwriting their own books without being registered as insurers. • Nominal registration will provide amnesty from regulatory prosecution for rest of 3 year period. • Phase 2: • During remainder of three years, all entities registering as microinsurers will be permitted to register with minimum capital of R1.5m – treated as provisional license holder. Capital to be built up to R3m over remainder of period. • All entities that can meet full compliance requirements may register as microinsurer any time during 3-year period.
New regulatory framework for microinsurance (Policy Document July 2011): Implications for burial societies • Informal groups that do not guarantee cover able to continue operating informally(but must act in accordance with regulatory framework for cooperatives as supervised by dti) • When proposed membership threshold of 2,5000 reached, will need to register with FSB for microinsurance license • Microinsurance options for cooperatives: • Option 1: autonomously underwrite own risk – obtain own microinsurance license • Option 2: obtain underwriting from a licensed insurer • Option 3: consolidate under a secondary cooperative that obtains own microinsurance license • Option 4: enter into a cell captive or similar arrangement.
