Funeral insurance is possibly the oldest form of insurance - it has been popular since the days of the Greek empire and can be found all over the world. It is still the most common form of insurance in sub-Saharan Africa - so given its universal appeal, the MiN’s latest Expert Forum sought to find out how can it be used to drive other products including health, crop or livestock cover?
Moderator Raimund Snyders from Leapfrog Investments noted that success stems from a clear need, a simple product structure and an efficient and easy way to collect premiums. The need comes mainly from social pressures to provide dignified - and in some cultures, lavish - funerals. In Ghana, for example, the cost of a funeral may be equivalent to a year’s income for many people - it is not uncommon for the bodies to be kept on ice for up to six months while the family tries to accumulate enough money for a fitting ceremony. Another key driver could be mobile technology - as Snyders observed, “We have seen how mobile penetration has driven money management and savings. The question is, can it also drive insurance uptake?” Insurance is still at the back of the queue - challenges include the cost of distribution, priority of need, money collection, trust and complexity of product, but mobile funeral insurance could help overcome them.
Erlend Berg, an economics lecturer from the University of Bristol who recently published research on funeral insurance, said the main difference between modern life and traditional funeral cover was that beneficiaries from life insurance can spend the cash on anything they like, whereas funeral plans are generally restricted to the costs of the ceremony itself, and can come in the form of both cash and/or services. However, insurance providers trying to penetrate new markets could consider re-labelling life as funeral as it is easier to sell a product people are already familiar with. Funeral insurance is popular because it acts as an “intergenerational commitment device” - in other words, the person taking out the policy knows the survivors can only spend the money on the funeral, not on themselves. Such a product constraint can be highly desirable from the customer’s point of view.
According to data presented by Hollard’s Strategy Manager Mark Robertson, South Africa is a “global outlier” in funeral insurance penetration rates way above the global average - driven by the popularity of funeral insurance resulting from cultural, religious and social pressures. Multiple cover is common, with some individuals holding six or seven policies, and there are strong social pressures to hold big, costly funerals.
However, Robertson warned that although marketing funeral insurance in South Africa is relatively easy because of the well-educated market who know and accept the product, there’s a danger that providers are “milking, not innovating” and are in danger of falling behind. “We haven’t understood what value means to customers and what it means at different income levels,” he said. “The cost is currently too high for many customers to graduate to higher-end life products.”
Russell Haresign, BIMA’s Head of Africa Operations, said the experience of years of selling funeral insurance in developing markets shows that it has encouraged clients to move onto other types of insurance. In Africa, where funerals tend to be very expensive in relation to average incomes, funeral insurance is an excellent first policy - it’s classic risk insurance, very easy to understand, easy to confirm when someone actually has died and with predictable payouts. Funeral insurance can help counter resistance in some markets where consumers have had bad experiences of insurance such as poor service or arguments over payouts. 75 percent of BIMA customers now have more than one policy, in most cases having started with funeral cover.
However, Haresign warned about the possible social and cultural impacts of formal funeral cover. In countries with a tradition of informal insurance clubs or community risk management, is there a danger of encouraging people to spend too much on funerals? Against this, many people get into debt over funeral costs, and insurance can help mitigate the burden - microinsurance policies are not intended to cover all the costs, but they typically relieve around 30 percent of the debt.
Wrapping up, participants learned that bundling or cross-selling products helps by reducing acquisition and introduction costs; that country-specific marketing is vital (in Indonesia, for example, ‘final expenses’ is used instead of ‘funeral costs’); and that although penetration in sub-Saharan Africa is relatively high, there is still plenty of scope in other regions.