Informal risk management and specifically funeral insurance in South Africa has been a topic that FinMark Trust and Cenfri team members have been studying for the better part of the last decade. The South African funeral assistance business first became a target of debate in 2003 following the South African Parliamentary Committee on Finance (PCOF) where evidence of abusive practices in the funeral insurance market in South Africa was presented. To inform these conversations FinMark Trust commissioned a study on the funeral assistance business, which was presented in collaboration with the National Treasury and Financial Services Board at the 2nd PCOF hearings in 2005.
Following the 2003 and 2005 hearings, the South African Parliament requested the National Treasury( as financial sector policymaker) and the Financial Services Board (as insurance regulator) to investigate these abuses in order to propose regulatory reform that would better protect vulnerable consumers, especially those in the lower-income segment. Cenfri team members supported the National Treasury and the Financial Services Board through research, advice and later input into the proposed regulatory reform of this market.
The results from the 2005 hearing and the experience in South Africa were presented at the Regulator's Dilemma at the Munich re Foundation International Microinsurance Conference in Cape Town, attracting global attention. The International Development Research Centre (IDRC) recognized FinMark Trust's market oriented approach and requested they lead the multiple country case studies on "Expanding access to insurance for the poor: the role of policy, regulation and supervision of microinsurance". The case studies were a critical component in the establishment of the IAIS linked Access-to-insurance-initiative (A2ii) – a global programme to enhance access to microinsurance for low-income clients.
In 2006, the scope of the regulatory process for the Microinsurance Policy Framework was broadened beyond funeral insurance to create a framework for microinsurance at large . The aim was to (i) create a formalisation path for informal funeral insurance as well as (ii) facilitate outreach by the commercial insurance sector into the lower-income market.
The study on the nature of informality in the South African funeral services market:
- Confirms the need for informal insurance practices to be formalised;
- The implications of which will require the current operating practices of most informal providers in the funeral services market to change; and
- In most cases a microinsurance licence will not be a viable licence for informal providers.