Funeral insurance to be tightened up

Funeral insurance is to come under stricter supervision as the Insurance Act, which came into effect on July 1, introduces new rules governing the sector and paves the way for the regulation of micro-insurance.

The act established a legal framework to regulate the financial soundness of insurance companies, contributing to the stability of the financial system, the National Treasury said on Friday.

The act and amendments to the Policyholder Protection Rules, which would bring into effect standards for microinsurance products, would make it easier for low-income consumers to access quality insurance products, said Johan Ferreira, legal and compliance officer at African Unity Life.

Micro-insurance refers to insurance products designed for low-income individuals.

“Micro-insurance and funeral policy claims must be settled within 48 hours of receiving all the necessary documentation,” said Ferreira. The maximum benefit on funeral policies would be capped at R100,000.

Caroline da Silva, executive GM of regulatory policy at the Financial Services Conduct Authority (FSCA), has previously told Business Day that consumers were using funeral policies as investments due to the large payouts that could be as high as R500,000. But there were more efficient ways to save and invest, she said.

The micro-insurance framework aimed to facilitate the entry of new firms, which should increase access to insurance, the Treasury said.

The new act forms part of the Financial Sector Regulation Act, or Twin Peaks, which came into effect on April 1. Under it, the Reserve Bank is now the Prudential Authority overseeing the financial soundness of banks and insurers.

The Financial Services Board, now known as the FSCA, is responsible for regulating the market conduct of banks and insurance companies.