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
Making financial markets work for the poor
About FinMark • • • •
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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
Percentage of South African adults
35%
31.77%
30% 25%
27.76%
22.69%
29.62%
28.38%
23.73%
26.96% 22.69%
20.33%
19.99%
20%
Informal 15%
Formal
10% 5% 0% 2006
2007
2008
2009
2010
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.
Thank you!
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Making financial markets work for the poor
