South African Insurance Association

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The importance of developing insurance products for the poor

I've worked in the short-term insurance industry for the past 23 years, and like most consumers, insurance was a grudge purchase for me, until I started my MBA research project. What I've learnt in the space of eight months has changed my perspective about insurance completely.

If I had to define insurance today, I would say: Insurance is a financial tool that helps consumers pick up where they left off, after a loss. Without insurance, every time you experienced a major loss, you'd have to start all over again. In fact, this is what the poorest of the poor around the world face every time their shacks burn down or they lose a breadwinner. In a financially driven world, economic growth means having access to money to be able to take your children to school, feed your family, purchase income producing assets, etc. When a loss occurs, the poorest are drawn back to the cycle of poverty, which means the money that could have helped them move to a more secure place, or take their children to school, must now be used to help them start afresh.

The insurance industry has its own challenges in coming up with suitable products to service this market segment. The biggest challenges, of course, are juggling the cost of servicing this market, while ensuring that premiums are affordable and products value adding, with the objective of running profitable business models.

Some of the contributors to the costs are:

Suitable and efficient distribution channels – how do you send a policy document to someone without an address?
Claims management – how does one assess claims without having to send assessors to deep rural areas?
Cost of collecting premiums.
Lack of infrastructure – how does an insurer locate a property that does not have a physical address?
Lack of knowledge about these consumers - if we do not know how this market segment currently copes with various risks, we won't be able to create suitable and affordable products
Consumer education - while a lot of money has been spent in this initiative, has it resulted in an increase in demand for insurance products?
Current insurance business models have been successful in creating a profitable industry, especially in South Africa. However, these models were created for the middle to upper classes of our society. They cannot be replicated in rural areas, or squatter camps.
A 2016 report on the South African Insurance Industry (Oxford Business Group, 2016), highlights that although the industry is sophisticated, has access to mature regulation with a premium-to-GDP ratio, which is one of the highest in the world; there is still limited financial inclusion in the country, with many citizens uninsured or underinsured. A recent survey by the FinMark Trust (2016) revealed that only 22% of adult South Africans had an insurance policy outside funeral cover.

Hence the need for new minds in the industry that are willing to look at this market segment with fresh eyes, and collaborate across sectors, with government; Mobile Network Operators; financial institutions; etc., to come up with new innovative products and service models. The poorest of the poor are not the government's problem, as the current rhetoric goes, they simply require those with the will and money to commit to working together to find solutions that will benefit not just this market, but the economy at large.

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For more information contact: Zanele Gigaba on