Growing microinsurance industry crucial in the fight to alleviate the xenophobic aftermath and poverty in South Africa

The role of the insurance industry in driving social development and change is becoming an issue of ever increasing potency since the recent release of the National Treasury’s discussion paper advocating Government’s support for a better regulatory framework for micro-risk management tools and industry players.

That is the view of Lion of Africa CEO, Adam Samie (pictured right), who says that in addition, the recent xenophobic plaque and related devastation that has recently hit the country has made access to microinsurance products as a means of solid recourse and financial alleviation to victims of civil crime an urgent and pressing need in South Africa.

According to Samie, the countless challenges facing South Africa at present are being exacerbated by the current economic crisis - the downside of which perpetuates the struggle for already impoverished communities and victims of xenophobic attacks. It is estimated that only 18% of South Africa’s population has access to insurance products while insurance penetration across the continent is even lower, ranging from 1%-3%. As a result, registered and unregistered insurers are gearing up their product portfolios and restructuring their businesses to penetrate this underserviced and somewhat underestimated segment of society.

In addition to providing a solid infrastructure to help alleviate poverty amongst South Africa’s poor, this untouched terrain holds profitable prospects for established and informal financial services providers seeking to gain market entry.

Samie says there are a number of reasons why this market has, until recently, remained largely untapped. “Typically, traditional financial services products were engineered by first world providers where the inflexible product and pricing strategies were predominantly aimed at mid to upper income brackets to whom the premiums were affordable. The resultant impact created a market rift, propelling wealth creation and protection for the affluent and pushing the destitute into perpetually perilous predicaments.

“We are observing and experiencing a pressing need to broaden access to financial services products to disparate market segments in South Africa where it is not only the responsibility of the providers to understand the intricacies of this market but developmental strategies and educational initiatives need to be deployed in order to protect the individual interests of this market. Communities who are vulnerable to acts of civil violence, such as those who have laid victim to the current xenophobic attacks, will need these microinsurance products more than ever so that they have solid recourse to rebuild their finances and livelihoods,” says Samie.

He says the sophisticated insurance industry became out of sync with the individual needs and predicaments of this market which naturally gave rise to the emergence of unregulated, underground establishments. Although these informal players held a deeper understanding of this market, the unregulated nature of these businesses compromised the well being of individuals through failed payouts of customer claims. Government’s call for increased industry regulation promises to establish a sustainable framework through the legitimisation of informal players into sound providers through the attainment of dedicated microinsurance licenses.

In addition to protecting the right of the consumer, the newly proposed regulatory framework addresses the adverse reputational issues faced by the insurers at large.

“Industry players will need to earn the trust and respect of the mass market through changing the way they conduct business. It is crucial for providers to personalise the interactions they have and the offerings they will provide to this market. It will then become a win win situation for both the consumer and the provider” adds Samie.

In addition to the deployment of increased regulatory practices, it is imperative for bigger, more established players to streamline and simplify their business processes to ensure that sophisticated financial services products are still fully accessible to this market coupled with a user and price friendly framework and a more diligent regulatory backbone.

Samie states that although the world of microinsurance is permeating at a global level and has proven to be an ever increasingly profitable arena, in South Africa particularly it is crucial to have ethical individuals who hold an authentic understanding of this market, running and developing specialist microinsurance services.

“A thin line exists dividing the issue of market development driven by profit motives and consumer protection” adds Samie.

From an economic standpoint, the deployment of all microfinancing activities, collectively, will achieve a cumulative positive impact on the economy through the enablement of emerging entrepreneurs and the provision of wealth creation tools driving increased upward mobility for SA’s poor.

“For the first time, Microinsurance provides a means of enabling individuals to establish a solid capital infrastructure. With rampant flooding and fire hazards on the rise, informal settlements are being annihilated in a matter of minutes on a daily basis. The opportunity to offer these individuals solid recourse to safeguard their assets and recapitalise their personal possessions and livelihoods has become an urgent need” says Samie.