MZANSI Corporate non life insurance products

Transcription

1 MZANSI Corporate non life insurance products Page 1 of 10

2 SUMMARY Mzansi short term Insurance policies will be no frills policies to provide cover for the home (dwelling), household goods and personal effects against specified perils i.e. fire, lightning, explosion, storm, flood, impact and theft (sudden and unexpected events). The short term (non life) insurance industry, in response to the Financial Sector Charter requirements, started working on developing a product which would be accessible and affordable for low income groups in To date one company has made a product available to meet these requirements, with more being expected in the first quarter of the new year. The Financial Sector Charter Council in its first annual report on transformation in the financial sector states: The Charter Council emphasises... that South Africa is in the opening stages of an ambitious national project of transformation, and that the initiative to give all South Africans access to first-order financial products represents a significant departure from past practices by the financial sector. Refinement in some aspects substantial refinement of the oversight and implementation of the initiative may be necessary, but the initiative itself has demonstrable value and is likely to make major and quantifiable contributions in the future to access to first-order financial products by historically unbanked strata of South African society. 1 The initiative has faced obstacles in implementation. The most significant delay arose from the regulatory aspect. A standard product wording was initially developed as the most effective means of reaching this target market. Following advice from the Competition Commission this route had to be reconsidered. A set of minimum standards was then developed in line with the Charter Generic Access Standards to ensure that appropriate products are available. Companies are then able to develop their own products in line with the standards. Other challenges are: 1. Legislation covering intermediaries that sell insurance products 2. Poverty 3. Lack of education on and understanding of short term insurance products 4. Commission made to intermediaries would be very low 5. Lack of distribution channels into this target market Solutions to address these challenges are: 1. Changing legislation to allow lower level intermediaries to sell Microinsurance products 2. Consumer education to address financial literacy and understanding of short term insurance products 3. Alternative distribution channels 1 Financial Sector Charter Council, 2005 annual review of transformation in the financial sector, pg 25 Page 2 of 10

3 Introduction The Financial Sector Charter is a commitment that was voluntarily developed by the South African financial sector and a transformation framework that establishes mechanisms for Broad Based Black Economic Empowerment and social and economic upliftment. The Charter, which was signed in October 2003, effectively commits all signatories to actively promote a transformed, vibrant and globally competitive financial sector that reflects the demographics of South Africa and contributes to the establishing of an equitable society by effectively providing accessible financial services to black people and by directing investment into targeted sectors of the economy. According to the Financial Sector Charter (section 2.22) Effective access means: being within a distance of 20kms to the nearest service point at which first order retail financial services can be undertaken, and includes ATM and other origination points, except in the case of the products and services of the long term assurance industry, where effective access, including physical access, will be in terms of the availability of these products and services, and in terms of proximity or accessibility of financial advisers to community based infrastructure. a sufficiently wide range of first-order retail financial products and services to meet first order market needs and which are aimed at and appropriate for individuals who fall into the All Media Product Survey (AMPS) categories of LSM1-5; non-discriminatory practices; appropriate and affordably priced products and services for effective take up by LSM1-5; Effective access to short-term risk insurance products and services, as defined in paragraph of the Charter, means that by 2008, appropriate first order retail financial services, affordably priced and through appropriate and accessible physical and electronic infrastructure, will be made available to 6% of black persons in the LSM (Living Standard Measures) 1-5 grouping. LSM divides the population into 10 groups, 10 (highest) to 1 (lowest). The LSM is a unique means of segmenting the South African market. It cuts across race and other outmoded techniques of categorising people, and instead groups people according to their living standards using criteria such as degree of urbanisation and ownership of cars and major appliances. Page 3 of 10

4 Paragraph of the Charter further defines insurance products and services as the mitigation of impact of defined first order basic risks (e.g. life insurance, burial society, household insurance and health insurance). The Challenges faced 1.1. A distribution channel cheap enough to still keep the overall premium affordable. a. The product must be cheap and simple which is in contrast with the following: - Clients want face to face contact - Clients don t want to be treated as poor or uneducated - Sound underwriting principles which necessitates a few questions which in turn may not be understood by this specific market or which makes the sales process slightly more complicated How to find and train sales representatives and claims assessors The response from the conventional intermediary has been somewhat muted. a. Low premiums and caps on commissions, equal low commissions, which for most does not make good business sense. b. Premium collection challenges. c. Access to the market and how to service it d. This is unchartered territory for the conventional intermediary How to approach the LSM 1-3 market. We re more familiar with the LSM 4-5 market since they are close to the market we re already servicing ie the LSM We re not sure whether the LSM 1-3 would be interested in insurance, they barely have enough money to feed and clothe themselves. It is clear from various surveys that a high proportion of LSM 1-5 adults will have little propensity to purchase insurance products. The FinScope 2003 survey indicated for example that about 9.5 million adults out of 17.5 million (54%) have incomes of less than R500 per month, and 5 million have no income at all. Additionally, in the 2004 survey it was found that 30% of South Africans are unemployed and 26% are either students or retired. Of the remaining 44%, only 21% work full time Premium Collection - Currently we are reliant on debit orders via Mzansi type accounts. Although the news that the fees for these have reduced drastically is most welcome, there are still problems with other costs such as failed debits due to lack of available funds. Also, not all clients have access to a bank account Product Usage - The low penetration of formal short-term insurance in the low-income segments is significant. According to FinScope Page 4 of 10

5 2003, only 0.2% of survey respondents in the LSM 1 5 income categories reported that they had purchased some short term insurance. This figure increased to 0.4% in 2005, suggesting that some companies are beginning to make an impact, albeit small, on this market 2. The Solutions 2.1. Approaches adopted by some companies a. Key to the whole process was to develop an understanding of the needs of the client base. b. Identifying committed business partners. c. The conventional building and contents offering may have to be linked to a life or funeral benefit as this is a product that is understood and appreciated by the target market. d. We have come to the conclusion that there are more ways than just the conventional insurance approach to servicing the needs of our partners and their client base and have adapted accordingly. e. There has to be an element of a tangible reward system for clients not claiming or paying their premiums in a responsible manner. The conventional cash back approach is not the solution as rewards will be small as a percentage in conjunction with the low premiums levied and the time line to build up a reasonable refund is just too long. Free airtime and subsidised life/funeral policies could be an alternate solution. f. Initially decide on the geographic areas we wish to do business in. These are a combination of urban and rural areas and the needs of the client base differ between the two. g. Identify affinity groups. h. Match these to the correct distribution channel. i. Apply a combination of high and low-tech approaches to write the business using the distribution channels. j. Back this process with a product that is relevant to the client base. k. Utilise a central call centre to administer the underwriting and claims settlement process. l. Adapt our claims procurement and administrative strategy to best suit the client needs. m. Partnering with a retailer, active in the target market, who will distribute the product and collect premiums. n. Training up of previously disadvantaged individuals to take on key insurance rolls General Approaches a. Consumer Education. b. Premium collection may be achieved through the utilisation of existing networks provided by banks, post offices, approved affinity groups including church groups, burial societies, informal savings clubs etc, retail outlets, or others. Other methods of Page 5 of 10

6 premium collection need to be explored. Pay as you go type insurance covers purchased at nationally represented retailers or using cell phone network provider synergies are options to be explored. c. Changing the legislation governing the sale of financial products to introduce a new category of intermediary who will sell microfinance and microinsurance products. MZANSI INSURANCE In line with the requirements of the Charter, only the personal lines insurance requirements will be addressed at this point. Any commercial or SME (small, medium and micro enterprises) requirements may be addressed at a later stage. The findings from the research into the target market showed that: Their biggest fear is fire and weather related risks Their biggest threat is theft Some conventional insurance principles cannot apply Application in writing Proof of ownership Average Continuous payment 1 Mzansi Standards The standards have been designed as a first loss policy to reduce administration costs and provide fair value to the client. 1.1 If the sale of a product is made as part of any group scheme, the product must comply with the standards in the same way as if it was an individual policy. 1.2 The documentation must be simple and understandable and comply with the proposals in the sample policy wording. 1.3 Underwriting: Underwriting is permitted and underwriting questions may be asked Existing information on record may be used in underwriting 1.4 The various components of the insured cover cannot be sold as individual policies. 1.5 The policy must cater for irregular premiums payments. For example: It is important that you pay your premiums each month to make sure that you remain covered. If you cannot afford to pay your premium in any one month, we will not cancel your policy and we will give you a 2 nd chance to pay that premium. Page 6 of 10

7 If you claim from us, at least 80% of your premiums must have been paid at the time of the claim. You will need to pay the remaining, outstanding premiums before we will settle the claim. If your policy is older than 12 (twelve) months, the 12 (twelve) months 2 directly prior to the claim will be taken into account when calculating the percentage of premiums paid by you before the claim will be settled. 1.6 The policy must offer cover at pre-determined levels. The cover that the insured selects then is the cover that is paid. This means that averaging will not apply for these policies. 1.7 The policy cannot be cancelled after the first non payment. The policy holder must be given the opportunity to make up premiums. The principle of no premium no cover will still apply however. For example: If you do not pay the premium on the agreed payment date, you will not have any cover for that monthly period. From the second payment we will allow a 15 day period of grace for payment of the premium. All premiums must be fully paid before any claim will be finalised. 1.8 Due to the nature of the target market, alternatives to application in writing and changes in writing must be sought. 1.9 Cognisance must be taken of the fact that most people in this target market will be unbanked and therefore alternative premium collection facilities should be sought Cognisance must be taken that due to the low premiums for these products they will not generally be sold through traditional broker channels. Alternative distribution channels should therefore be sought The product should cover both the household and the household contents. As a minimum the policy must provide catastrophe cover. For example: This section covers you for loss or damage to the building of your home and home contents belonging to you and your household members who live with you at the agreed address Loss or damage to the buildings or contents caused by: fire, theft, impact by cars or animals lightning, explosion, storm, wind, hail, snow, flood Page 7 of 10

8 1.12 Repair or replacement must always be the first option when settling a claim Proof of ownership is not always possible in this target market and should not be absolute criteria. Where proof of ownership is not possible an affidavit should suffice In order to reduce the incidence of fraud an excess must be built into the policy Theft cover must be build into the policy at a limited percentage of the total cover The policy must include limited liability cover A simplified version of the SASRIA wording has been designed for products meeting these standards. This must be included in the policy wording. 2 Generic Access Standards On the 13 th December 2005 the Financial Sector Charter Council approved the Generic Access Standards. These standards as applicable to the short term insurance industry are: Access Principle Short-Term Insurance Industry Standard Physical accessibility Nondiscrimination Appropriateness Affordability Simplicity and understandability No physical accessibility standards as products marketed mainly through brokers, call centres or other financial institutions infrastructure ShareCall line available 07h00-19h00 and on Saturdays 08h00-14h00. Contracts must be available in the legal languages of the country. All other documentation should be translated into the official languages and made available in all the major languages of the province. Small contributions need to be accepted but should have a choice of lump sum if this reduces costs Ability to make up missed premiums should be allowed Ability to pay premiums any day of the month Irregular payments should be allowed Household contents and Homeowners insurance should aim to replace that which was lost rather than provide cash. Replacement should be at the value selected; That is averaging should not apply. Standardised disclosure commission conditions for exit exclusions lapse periods and their implications Page 8 of 10

9 3 Consumer Education The three projects being implemented by SAIA, with its contributing members Financial Sector Charter Consumer Education funds, are showing extremely gratifying results. The projects being undertaken and their progress is: 1. Financial literacy in schools. This has entailed the printing and distribution of an existing teacher resource, developed during the 2004 initiative, to all schools. The resource is supported by workshops aimed at enabling teachers in previously disadvantaged communities to utilise the resource in the classroom. The resource ties financial literacy in to the national curriculum for grades 10 to Financial literacy workshops in communities. Basic financial literacy has, as at the end of September, been delivered to people in various communities in 5 provinces, in local languages. The training has been designed to meet the unit standard for Managing basic personal finances. The training is delivered through community and labour networks. 3. Financial literacy awareness aimed at public transport commuters. Awareness on the basics of financial literacy is delivered through messages distributed at taxi ranks, train stations and in taxis. The campaign is run in all 9 provinces and will be completed by the 04/11/2006. Definition of Consumer Education: Consumer education is the process of gaining knowledge and skills to manage personal resources and to make decisions that affect individual wellbeing and the public good. The outcome of the consumer education process is the development of consumers skills, attitudes, knowledge and understanding of the financial sector and its products and services so that they are able to use consumer information effectively. Consumer education empowers consumers with knowledge and skills to enable them to make more informed decisions about their finances and lifestyles. Consumer Education Standards 1 Physical Accessibility Consumer education initiatives and programmes must be offered and available to all consumers of Charter products and services at points of service or transaction. Page 9 of 10

10 2 Appropriateness Consumer education initiatives and programmes must meet the identified needs of and be directed at consumers in the Charter target groups with the aim of achieving the Charter s access goals. The outcomes of Charter consumer education programmes must be measurable. Consumer education must enable consumers to make more informed decisions about their finances and lifestyles. 3 Affordability Consumer education must be offered free of charge to the consumer. 4 Simplicity Consumer education initiatives and programmes must meet the identified needs of, and be directed at, consumers in the target groups with the aim of achieving the Charter s access goals. All consumer education materials must meet Charter criteria for simplicity and understandability and disclosure. 5 Non-discrimination Consumer education materials must be freely available in all languages. Note: According to the above definition and standards, consumer information or awareness does not form part of consumer education. However, due to the understanding that consumer awareness is a fundamental part of consumer education, it is allowed to a limited amount. 4 Possible Next Steps Microinsurance for Small and Medium Enterprises Catastrophe for informal settlements Leila Moonda Transformation Manager South African Insurance Association 16 th November 2006 Page 10 of 10