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Taking insurance to the masses

24 April 2008Gareth Stokes

One of the biggest challenges facing the financial services industry in South Africa is to extend the reach of financial products to the lower income groups. Traditionally this sector has been limited to funeral policies and innovative financial collaborations like ‘stokvels’. But all of this is about to change. Mutual & Federal, one South Africa’s leading short-term insurance companies, has announced an innovative product that will enable individuals in the LSM 1 to 5 categories to take out affordable short-term insurance cover for both home and household contents.

Keith Kennedy, managing director of Mutual & Federal introduced Insurance 4 All at a media function in Johannesburg. He noted that “as a company with a long history in this country [M & F] believes that they have an important role to play in helping all South Africans protect the assets they have worked hard to accumulate.”

Affordable insurance for all

One of the major problems in offering insurance products to South Africa’s poor is the lack of adequate participation in the country’s formal banking sector. This shortcoming has improved in leaps and bounds since the introduction of the Mzansi entry-level banking product with as many as 25% of the lower income group now banked. But Mutual & Federal general manager for new markets Kgomotso Lekola notes that despite these improvements this market does little to protect their assets. “Less than 2% of people in LSM 1 to 5 have short-term insurance,” he says. The challenge is to ensure greater participation in the short-term insurance industry.

Insurance 4 All is one of Mutual & Federal’s answers to this challenge. What we like about the product is its simplicity and affordability. Cover is tailor made depending on each individual’s unique requirements. Policyholders can obtain cover for their home and household goods from as little as R21 per month. At the heart of the concept is a simple sales strategy. Mutual & Federal hopes the majority of business will be conducted through its toll-free call centre number. The number is 0800 63 4 255 and the entire insurance application can be completed telephonically.

Keeping things simple

Let’s take a quick look at the two categories of short-term cover offered. Buildings cover allows claims for “loss or damage by natural disasters like fire, lightning, explosion, storm, wind, hail, snow, flooding, impact by cars and animals, and theft.” Policyholders will have a simple choice of one of six levels of cover, ranging between R18 000 for a one bedroom house to R108 000 for a six bedroom house. Houses have to be constructed of bricks or concrete with a roof of tiles, asbestos or corrugated iron. It’s interesting to note that M & F has clearly stated that no claim will be entertained when the house is “lawfully taken away or demolished by the authorities.” Nor does the policy cover subsidence or landslip. But there are other benefits to make up for this. The building cover policy include R50 000 liability cover (for claims arising from damage or injury to third parties due to fire), free bereavement cover (of R2 150 for adults and R1 500 for children under the age of 17) and a small R100 excess fee.

Contents cover for personal possessions kept in the home can be taken out in multiples of R10 000 up to a maximum of R40 000. There are a number of exclusions under this section. Most important is that “theft cover is limited to 25% of the option selected and there must be forcible and violent entry.” Cover under this event is also limited to two claims in a 12-month period. Cell phones, laptop computers and items (or sets) of jewellery valued at more than R1 500 are not covered. To limit administrative costs Mutual & Federal has created a simple table for potential policyholders to select the required building and contents cover.

A popular concept with long-term benefits to the communities

One of the challenges in creating the Insurance 4 All model was procurement. During the pilot phase it became apparent that Mutual & Federal’s procurement database did not include contractors  who could cover the vast areas that will have to be serviced to ensure resolution of all policyholder claims. To this end Mutual & Federal will enter into procurement arrangements with people from the rural and other under-serviced communities it covers. They believe this is a great opportunity to create employment in poorer communities.

The idea is that as the number of insured in a particular area grow, so too will the opportunities in various activities related to the fulfilment of house repairs and other related insurance claims.

Editor’s thoughts:
The Insurance 4 All short-term insurance product is one of the most innovative we’ve seen in quite some time. We’d love to hear what you think of Mutual & Federal’s attempts to broaden the appeal and coverage of short-term insurance to South Africa’s lower income groups. Add your comments below, or send them to gareth@fanews.co.za

Comments

Added by Cordelia M, 24 Apr 2008
I think that is great, but will the under-wrinting and claims be handelled by the local branches or will it be handelled by the call-centre. Because that can make or break this product.
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Added by Concerned Driver, 24 Apr 2008
This is great news, especially since 70% of vehicles on the road are NOT insured . . . any initiative to reduce this is a move in the right direction, and as has already been mentioned, perhaps a call centre structure could handle this business - low operational costs, low premiums.
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Added by Broker, 24 Apr 2008
This is a great idea, a few questions. 1) with the household and buildings section, there are limits in the sums insured, will this then mean that average will not apply if there is a claim, if so don't you think it will set a precedent for the other clients that falls outside his spectrum of cover. 2) Bereavement cover is free but you still pay an excess (hahahaha) rather give the cover less the R 100 excess (excess is to try and reduce claims - if you die how do you try and prevent it) 3) liability cover restricted to R 50 000 and for fire only ??????? Otherwise I think it's a good idea but dont think it will work as planned
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