African funerals are large-scale, often expensive events that families share with the community. So, more than half of South Africans have some kind of funeral plan, says Jennifer Preiss, deputy ombudsman for long-term insurance and chair of the International Network of Financial Services Ombud Schemes.
But with banks and insurance companies competing over funeral policies, more consumers are now choosing funeral insurance over funeral service societies, where families would have traditionally pooled money to cover expenses.
Today a full funeral service in Durban starts at around R11,800 (£664), says Keith Love of Avbob, Africa’s largest mutual assurance society, but despite the promises of helping families meet the cost of funerals, many worry the cost of the insurance itself is prohibitive.
Nomusa Mbatha, who earns above the minimum wage as a domestic worker in Durban, worries about managing her finances. “It’s just me caring for three children,” she says. “So I still battle to pay some credit accounts. But it’s important to me that we all have funeral insurance.”
This means carefully budgeting R176 a month to cover the family, including her mother. Mbatha’s funeral insurance payments are deducted by direct debit from her bank account.
In 2004, much broader financial inclusion was negotiated as part of theBlack Economic Empowerment charter signed between the South African financial sector and government, to reduce inequalities in access to finance. In 2013, 75% of adults had at least basic banking, 5% higher than the government target.
As part of these efforts to make financial products widely available and affordable, funeral insurance premiums start as low as R35 a month and are advertised and sold everywhere in South Africa (SA), from mass-market clothes retailer Pep, to coming bundled as a “free” incentive with membership of furniture discounter Ellerine’s loyalty club.
With some 10 million adults now policy holders, exploitation of consumers is also increasing. Collecting premiums by direct debit has made it easier for less scrupulous insurers to take advantage of the less financially literate and first-time consumers of financial products. Customer complaints are on the up – in January this year, for example, the SA Financial Services Board named nine companies under investigation in five provinces.
Recipients of state welfare are allowed only one funeral deduction from their payments. But in July 2011, evidence of various unauthorised third-party deductions from beneficiaries’ bank accounts started to emerge, says Thandiwe Zulu, provincial director of Black Sash, a human rights organisation.
In 2013 Black Sash released a statement accusing the South Africa Social Security Agency and other parties for illegally siphoning money off for other transactions. “There is mounting evidence that the micro-lending industry are debiting the bank accounts of grant beneficiaries in a manner that is increasingly frenzied and often unauthorised, leaving families with vastly reduced monthly incomes,” the statement read. The organisation isseeking amendments to the social assistance act.
What about other marginalised groups? Have these policies made any difference to the traditionally “uninsurable”, such as South Africa’s HIV-positive community?
Despite the rollout of the world’s largest antiretroviral treatment programme, people with HIV had often found life insurance costs most prohibitive, at about four or five times the usual premium. Zulu is concerned about the life insurance industry not abiding by the equality clauses in SA’s constitution, and marginalising those with chronic diseases, such as diabetes and HIV/Aids.
But parts of the industry have seen the opportunity in reaching people excluded from other insurance policies. Ten years ago AllLife developed innovative cover for those with diabetes and HIV.
“HIV-positive clients thought being declined for life insurance meant you’re as good as dead,” says Ross Beerman, AllLife managing director. “This led to people not bothering with treatment, withdrawing from society and the economy.
“Showing we believe they should live long enough to see their grandchildren, buy a home for the family or build their own business fights stigma and boosts morale.”
AllLife staff use South Africa’s e-government and health data to monitor medication uptake and blood test results, with specially trained staff checking in with each client once a month. This broad-based, regular contact also helps prevent policy lapses, explains Beerman.
“We might be discussing a blood test result but add, ‘How are things otherwise?’ If the client says, ‘I’ve just lost my job’, before the situation becomes urgent we can talk about a premium holiday of up to six months.”
With South African unemployment at its highest since 2008 and 12.5m in financial difficulties, this model of regular contact could help forge understanding between new policy holders and their financial providers. The payoff for both sides is fewer lapsed policies and less debt issues. But the biggest challenge is whether the legal system will adapt to keep pace with new financial products, so that it protects the most vulnerable in South African society.
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