Somewhere in a small town in South Africa, someone’s uncle has died.
A long, drawn-out illness. Family members left behind, grieving. And a funeral plan, dutifully maintained through both sickness and health, finally paid out.
The money is used carefully. A stately casket. An elegant tombstone engraved with loving words. Refreshments in abundance for those who’ve come to pay their respects. A dignified funeral, on all accounts, to honour the deceased.
But the funds are also used for other things. A new roof is erected, on a leaky home. Outstanding school fees, finally paid up. New shoes are purchased, for an anticipated job interview. Someone has died, but the needs of those left behind are, very much, alive.
Is this what the insurer intended when drawing up the terms and conditions of their funeral policy? Probably not. But should this be frowned upon, or outright prohibited?
In South Africa, where financial inequality prevails and the vast majority have more needs than money, there are four ways for those living on the breadline to access a decent chunk of funds. They can save (difficult, when there’s always more month left at the end of your income), they can gamble (risky), they can borrow (which comes with its own set of barriers and pitfalls), or they can use the pay-out from an insurance policy.
In this context, funeral cover, a subset of life insurance, is seen as a wealth creator for families, given its innately community-centric design that provides for the cover of multiple lives. In practise, while intended to cover the costs of a funeral, these policies are also used to provide for anything that life cover would normally cater for.
Why is funeral cover then prioritised over life cover in an African market? A couple of reasons. One; funerals are sacrosanct and a dignified passing is considered the utmost priority. Two; funeral cover is designed to pay out quickly, given that a timely burial is important in many cultures and thus these funds are rapidly accessible and three; this type of cover has low barriers to entry. There’s no rigorous underwriting, no medical or lengthy and invasive health questionnaire – all you need is a name and ID number or birth date to add a person to the policy.
Thus, when one person in a family dies, those left behind can access sorely needed funds in the form of a funeral policy pay-out; not only to give their loved one a dignified passing but also to address their own pressing needs.
As insurers, we need to think about this with both nuance and understanding. In industry speak, we talk about the concept of ‘insurable interest’, which refers to the interest that one might have in something of value, such as a property or an individual. If they were to lose that property or person, they would suffer a loss. We also talk about ‘unjust enrichment’, where one should not be unjustly enriched by another person’s passing.
As insurers, we could loftily argue that it is our duty to protect against possible moral hazard, but what this stark lens at times misses is that, when you’re serving a country whose socio-economic status reads as ‘it’s complicated’, you cannot be too prescriptive in how you apply these concepts and you need to constantly exercise contextual judgement.
One better than this comprehension is intentionally designing products that speak to the realities of our market. For example, Metropolitan’s funeral plan offers a flexible payment mechanism where the level of cover can be adjusted up or down per insured life, depending on what one can afford, with premiums able to be paid at various intervals over the course of the month (understanding that many policy holders form part of the informal economy and don’t get a salary on a fixed date every month). There’s also a paid-up benefit, where a policy holder no longer has to pay their premiums once they reach a certain age while enjoying full cover. Finally, a cash-back benefit sees policy holders receiving a portion of their premiums back at certain intervals; a welcomed ‘bonus’ that helps to ease financial burden.
We have often heard funeral plans referred to as ‘township savings policies’. This term is used cynically, epitomising a very short-sighted view of the market and how these products are typically utilised. As long as people are not venturing outside the legal parameters of our policies, insurers need to understand that our clients are not being dishonest; they’re using their insurance to survive.
If you had spoken to the uncle when he was still alive, he might have told you that his legacy was for his family to be kept safe and warm. To help his nephew get a good education. To buy his brother shoes that might impress a prospective employer and help his sibling put food on the table. Had he been alive and could have helped them all, he would have – and they, in turn, would do the same for him.
This culture of reciprocity is one that is deeply engrained within the African psyche and is something that we, as insurers, should acknowledge and celebrate, rather than ignore or red tape away.