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:
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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
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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!
anja@cenfri.org
Tel: +27 21 918 4394
Making financial markets work for the poor