The Life Offices’ Association (LOA) has announced far-reaching new measures aimed at ensuring that South Africa’s estimated 17,5-million low-income earners are given access to appropriate life-insurance products.
Aligned with Financial Sector Charter (FSC) requirements such as physical accessibility, appropriateness, simplicity and affordability, the LOA’s initiative was developed in close collaboration with the FSC Council.
Branded “Zimele” — a Zulu word meaning “to stand on your own two feet” — the new measures come in the form of life-insurance product standards that guarantee fair charges, easy access and decent terms.
Gerhard Joubert, CEO of the LOA, says the Zimele product standards, which signal a new era of protection for South Africans earning less than R3 000 a month, were developed by the LOA following extensive research aimed at establishing the needs of low-income households.
“Zimele is the result of extensive consultation with all FSC Council participants and has been approved by all stakeholders involved, as well as the FSC Council board.”
Joubert says the purpose of the Zimele brand is to help the country’s low-income earners to identify easily those life-insurance products that meet FSC requirements. Provided a policy document displays the Zimele stamp, together with the issuing life company’s brand, consumers will know that the product meets the minimum protection requirements.
Although all life-insurance companies can use the Zimele brand to indicate to consumers that the product standards apply to a specific product, each insurer will develop and offer its own unique products.
The aim, says Joubert, is to encourage life insurers to design appropriate yet innovative and competitive products for the low-income market.
Joubert says this is where Zimele differs from the banks’ Mzansi brand. “While Mzansi is the name of the product offered by banks to low-income earners, Zimele represents the minimum product standards applied by each life insurer and not the actual product.”
Fighting poverty
Joubert says currently only 12%, or 2,1-million, of South Africa’s low-income earners have life insurance policies. “The aim is to provide at least 22%, or 3,8-million, low-income earners with life insurance over the next eight years.”
He says studies have shown that poverty can only be reduced on a sustainable basis if the poor are helped to effectively manage risk, since a clear link has been found between risk, poverty and vulnerability.
“Poor households face financial ruin every time a member of the families dies and therefore need the certainty that, as long as they pay their premiums, their claims will be paid quickly. Zimele-approved life-insurance products therefore require no medical history — an identity number, address and death certificate is enough to buy a policy and to submit a claim.”
Zimele product standards
Life-insurance products sold with the Zimele stamp of approval must comply with the following standards:
- While policies may be issued in English, policy summaries must be available in the dominant languages of each province. The LOA has developed templates in all 11 languages.
- Low-income earners must be able to buy a policy, pay the premium or amend the policy at least once a month within 40km of their residence or work.
- Low-income earners must be given the opportunity to lodge a claim and receive payment of the claim at least every second working day within an 80km radius of their residence or work.
- A share-call line must be available six days a week.
Funeral products first under Zimele
The first products to be offered by life insurers under the Zimele brand are funeral products.
Andrew Cartwright, convener of the LOA access committee, says one of the most significant protection measures offered by funeral policies carrying the Zimele stamp of approval is the fact that policyholders will be given grace periods should they skip a premium.
If a premium is not paid, the policyholder is given one month to pay the premium. However, if the premium is not paid within that month, the cover will cease. On policies older than a year, the grace period will be extended by one month for each year that the policy has been in existence, with a maximum grace period of six months.
In addition, where a policy has ceased because premiums were not paid, policyholders will be allowed to reinstate a policy at least once on the same terms, provided this is done within three months from the date of the last premium payment.
Other product standards applicable to funeral products include the following:
- Accidental-death cover must commence on receipt of the first premium — no waiting periods may be applied.
- Only a two-year suicide exclusion will be allowed and a temporary natural causes exclusion of a maximum of six months. In the case of parent cover, a 12-month natural-causes exclusion may be applied.
- All payments must be made directly to beneficiaries, and not to undertakers.
- Premium-rate differentiation may only be based on age.
- Premiums may not be increased as the policyholder grows older.
- The minimum cover must be at least R5 000 for the principal member, and the maximum cover may not be more than R20 000.
- Maximum entry age for principal member and spouse must be at least 65. In the case of parent funeral cover the maximum age must be at least 75.
- Minimum entry age for the principal member must be at least 14 and not higher than 18.
- Monthly premiums must be set and no additional administration fee or levy may be added.
Cartwright says that in line with the capped pricing structure for funeral products sold under the Zimele stamp of approval, R5 000 cover for a member and a family under the ages of 55 will cost no more than R45 a month.
Now that the full set of Zimele standards has been approved for funeral products, life companies can use this pricing blueprint to start developing other products that are not only affordable, but also appropriate for the LSM 1 to 5 market. These will include credit life, mortgage protection, life cover and disability cover.