Marrying tradition with westernised policies

Burial societies have been in existence for decades, addressing a crucial need among South African communities. With the steady increase in funerals, mostly due to tuberculosis and HIV/AIDS related deaths and the traditional importance of the funeral in the South African environment, the South African funeral industry has become a considerably lucrative one over the past few years.

This has lead to a significant rise in the number of burial societies entering the market. Up until a few years ago, these were informal financial institutions that fell outside the Financial Services Board (FSB)’s regulatory scope. In order to protect consumers from fly-by-night societies and funeral parlours, the FSB has had to regulate the industry, and recently demanding that funeral undertakers have an insurance underwriter to make sure clients are properly covered.

This has created the opportunity for the insurance industry to enter this market. Herein also lays the challenge: marrying the traditional and informal way of burying loved ones with the formal regulatory requirements imposed on the insurance industry.

Andrew Rheeder, Business Development Executive at Sanlam Sky Solutions, says entering this market has been an interesting journey for the formal sector. “Burial societies, funeral parlours and the less formalised type of savings societies have been around for lot longer than formal insurance businesses. They have an intrinsic understanding of the needs of their members,” he says.

“Societies also allow for members to pay contributions according to what they can afford, and establishing an average contribution suitable for the society is therefore a challenge,” says Rheeder.

Another challenge posed to insurers is the absence of formal administration and data capturing processes. Crucial data, such as members’ ID numbers, is often lacking. This makes it particularly tricky for insurers to cover burial society members and avoid ante-selection or potential fraud issues.

“When it comes to paying out, insurers are required to pay out to formal structures or at least contract with formal structures. Some of the burial societies are not formally registered or do not have official names - insurers often do not know which entity to pay out to,” Rheeder explains. These challenges have made it difficult for the industry to penetrate and formalise the market.

In spite of these challenges, the informal sector, such as burial societies, has recognised the need and benefits of having their liabilities covered via premiums to an insurer.

“One of the main benefits of formal insurance underwriting is that, even as a start-up, you will always be covered for liability – as long as your premiums are up to date,” he says.

Rheeder says burial societies, stokvels and other informal financial institutions that require formal underwriting need not approach insurers directly. “They have access to the service through a reputable and registered funeral parlour in their area.”

Burial parlours in particular generally have a large book, and can therefore negotiate premiums on behalf of its members,” he says. “This is a popular way for smaller societies to access the benefits of formal insurance underwriting,” Rheeder says.

The South Africa insurance industry is currently working together with leading players in the informal funeral sector in finding workable solutions for compliance to regulatory requirements. “It is paramount that we ensure sustainability of this sector by providing opportunities for informal players to upskill and to become part of the formal, regulated industry,” Rheeder concludes.