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ASSISTANCE BUSINESS IN THE RSA

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					ASSISTANCE BUSINESS IN
       THE RSA
      PRESENTATION
             to
           PCOF
             on
       8 Augustus 2003
             by
        A Swanepoel
                         1
ASSISTANCE BUSINESS IN
       THE RSA
Background
Who are the stakeholders?
Characteristics of the market
Problem areas and risks
The way forward?
Questions

                                2
 ASSISTANCE BUSINESS IN
        THE RSA
Background
  Cultural issue of importance
  Provide for funeral plus ancillary services
  Honesty, trust, caring and social responsibility
  important in burial societies
  Very often the first step into financial services
  Contributors are mostly from non-white sector


                                                      3
 ASSISTANCE BUSINESS IN
        THE RSA
Principles to take into consideration
  Is this a market that needs more than the
  normal protection?
  Market conduct rules and supervision the main
  issue
  There are prudential issues with small insurers
  Cost-benefit of supervision?
  Non-systemic

                                                4
 ASSISTANCE BUSINESS IN
        THE RSA
Who are the stakeholders?




                            5
    ASSISTANCE BUSINESS IN THE
                    RSA
Structure of market




                                 6
  ASSISTANCE BUSINESS
       IN THE RSA
Distribution channels




                        7
 ASSISTANCE BUSINESS IN
        THE RSA
Long-term insurers
  37 insurers registered for assistance business
  32 limited to R10 000
  5 limited to 5000/3000/2000/1000(2)
  Total premiums R690 million (plus extra?)
  That is 0,5% of total premium income of life
  insurers


                                                   8
 ASSISTANCE BUSINESS IN
        THE RSA
  Total contributions R??? (my estimate
  R2,5 billion based on 55/15 relationship)
  plus the “extra” volume
Friendly societies
  Total contributions R32 mil (for all types
  of benefits)
  Total benefits: funeral R14m, death R4m

                                               9
 ASSISTANCE BUSINESS IN
        THE RSA
Burial societies
 Approx. 100 000 primary burial societies
 Covering 3 million members
 Between 10 to 200 members per society,
 mostly women
 Contributions estimated at R2 billion


                                        10
 ASSISTANCE BUSINESS IN
        THE RSA
Characteristics of the market
 Buyers are unsophisticated in general
 Market is in the hands of the
 administrators and the intermediaries
 Very often a “long food chain” /fat in
 distribution channel
 No commission limitations on (assistance)
 insurance policies
                                         11
ASSISTANCE BUSINESS IN THE
           RSA
Mostly done via group schemes/typical no
underwriting/only risk, no savings element
Only two types of institutions who can
legitimately underwrite namely insurers and
friendly societies (burial societies)
Demarcation between burial societies and
friendly societies grey
Death benefits normally paid within 48 hours
Benefits often paid in kind but option to receive
cash remains (sec 53)
Not all cover sold under the banner of
assistance business                             12
 ASSISTANCE BUSINESS IN
        THE RSA
Problem areas and risks
  Lack of knowledge of products and
  financial disciplines
  Excessive commission paid
  Often no security that benefits will be
  paid
  Policies cancelled after long periods of
  contributions
                                             13
ASSISTANCE BUSINESS IN
       THE RSA
Policyholders not in contact with
underwriter/long “food chain”
On-off underwriting/difficult to trace schemes
on cancellation
Illegal operators
  (Fraud/disappear/no contractual rights/weak
  enforcement
  Policyholder misled regarding status of operator
  Cash flow underwriting until problems arise
  Only portion of premiums paid to underwriter
  VAT and other tax evasions
  Double underwriting                                14
ASSISTANCE BUSINESS IN
       THE RSA
Integrity of many intermediaries problematic
  Do not pay premiums to next level or
  administrator/underwriter
  Do not pay claims to beneficiaries or withhold
  portion
  Little knowledge of legalities involved
Overselling, too may policies taken out
Undertakers enforce contractual agreement
that they only may conduct funeral
Exploitation regarding costs of coffins and
services                                           15
ASSISTANCE BUSINESS IN
       THE RSA
Fraudulent and excessive claims
Organisational, record keeping and accounting
problems
Difficult for small insurers to comply with Act
Weak enforcement system in Courts/3xfines of
R600
Lack of compliance with PPR and other
sections of the Insurance Act

                                              16
      ASSISTANCE BUSINESS
           IN THE RSA
Developments thus far
  LOA’s Assistance Business Standing Committee
  FSB’s Working Group on assistance business
  Study on Burial Societies (Thomson and Posel)
  National Cooperative Association of South Africa and
  the National Committee on Burial Societies
  FSB’s consumer education campaign (still much to do)
  FAIS Act
  There is a general agreement and a will to do
  something now


                                                     17
     ASSISTANCE BUSINESS IN THE
                RSA
The way forward
 AREA               POSSIBLE ACTIONS
 A.Formal market: 1.FAIS Act will bring conduct of
 insurers         Administrators in line
                  2.Intermediaries/funeral parlours will be
                  brought into the FAIS net
                  3.More controlled movement of schemes
                  4.Disciplinary actions/removal from
                  industry
                  5.Better disclosure now obligatory
                  6.Stricter enforcement of Ins. Act
                                                       18
       ASSISTANCE BUSINESS IN THE
                  RSA
The way forward
AREA                  POSSIBLE ACTIONS
B.Semi-formal         1.Self-regulation (stokvel approach)for
market : friendly and small mutuals
burial societies      2.Revise FS Act and enforcement
                      3.Education on rights and responsibilities




                                                            19
     ASSISTANCE BUSINESS IN THE
                RSA
The way forward
  AREA                   POSSIBLE ACTIONS
  C. Illegal operators   1.Education, education,
                         education
                         2.Name and shame
                         3.Quick and cost-effective
                         enforcement with penalties
                         4.Rather bring them into the net
                         than penalise them

                                                        20
 ASSISTANCE BUSINESS IN THE
            RSA
Further work
  More research necessary
  Making group schemes more permanent (cost vs
  security)
  Beef up enforcement and penalties
  FIC Amendment Bill/Enforcement Committee
  Consumer education
  Central funeral fund(s), underwritten by insurers, cut
  out high cost of distribution?
  Credit Life much the same problems
  Enhance effectiveness of dispute resolution mechanisms
                                                       21

				
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