State tar­gets death pay­outs

Pro­posed new so­cial ben­e­fit is poised to dis­place bil­lions in funeral poli­cies

CityPress - - Business - DEWALD VAN RENS­BURG dewald.vrens­burg@city­press.co.za

South Africa’s funeral in­sur­ance in­dus­try is set for an up­heaval as gov­ern­ment pushes ahead with plans to cre­ate a funeral ben­e­fit scheme for all old age grant ben­e­fi­cia­ries. This ben­e­fit would be manda­tory for the roughly 3.3 mil­lion ben­e­fi­cia­ries, and would prob­a­bly amount to R10 000 upon death, the depart­ment of so­cial de­vel­op­ment’s deputy di­rec­tor-gen­eral, Bren­ton van Vrede, told City Press.

At the same time, the depart­ment wants to re­peal reg­u­la­tion 26(a), a mech­a­nism which al­lows in­sur­ers to deduct up to 10% of a grant for funeral pol­icy pre­mi­ums be­fore the grant even gets paid to the ben­e­fi­ciary.

Cur­rently, 19 in­sur­ers use this mech­a­nism. The largest three are As­supol, 1Life and San­lam, ac­cord­ing to data from the depart­ment.

The 19 in­sur­ers to­gether de­ducted about R1.5 bil­lion from 800 000 grant ben­e­fi­cia­ries ev­ery year, said Van Vrede.

This is apart from any funeral in­sur­ance which ben­e­fi­cia­ries may be pay­ing for af­ter they re­ceive the grants – busi­ness that can also get dis­placed by the planned new manda­tory ben­e­fit.

The lat­est FinS­cope sur­vey, re­leased this week and pro­duced by the FinMark Trust – an in­de­pen­dent trust es­tab­lished in 2002 with the aim of mak­ing mar­kets work for the poor – es­ti­mates that a to­tal of 1.2 mil­lion old age grant re­cip­i­ents have for­mal funeral in­sur­ance poli­cies of some sort.

This in­di­cates that at least 400 000 ben­e­fi­cia­ries have funeral poli­cies that do not use the 10% de­duc­tion mech­a­nism.

THE PLAN

Last week, the depart­ment of so­cial de­vel­op­ment gazetted pro­posed amend­ments to the So­cial As­sis­tance Act, in­clud­ing a pro­posal for the cre­ation of a sup­ple­men­tary ben­e­fit fund.

In do­ing so, there are two prob­lems the depart­ment hopes to ad­dress: the high cost of ex­ist­ing funeral in­sur­ance and the fact that too many peo­ple have no in­sur­ance to be­gin with.

Van Vrede said the monthly “pre­mium” charged by the state fund would amount to R50 at most – but would hope­fully be as low as R35 to pro­vide a R10 000 death pay ben­e­fit.

Trea­sury still had to weigh in, and the plan would prob­a­bly be pre­sented to Cab­i­net in Jan­uary, he added.

Nev­er­the­less, Van Vrede said he was “quite con­fi­dent” about these num­bers.

Given the grant sys­tem’s ex­ten­sive records, he added, the so­cial de­vel­op­ment depart­ment could “pre­dict with rel­a­tive cer­tainty” how many ben­e­fi­cia­ries would die in a given year. That means it does not have to es­ti­mate risk and price it in the way pri­vate in­sur­ers do. SMS us on 35697 us­ing the key­word FUNERAL and tell us what you think. Please in­clude your name and province. SMSes cost R1.50 reg­u­la­tion 26(a) of the So­cial As­sis­tance Act has al­ready been sig­nif­i­cantly cur­tailed re­cently to stop abuses by pri­vate in­sur­ers.

De­duc­tions were capped at 10% in 2013, or a monthly R150 com­ing off an old age grant.

Late last year, the depart­ment banned these de­duc­tions on the child care grant – a move that re­sulted in it be­ing dragged to court by Lion of Africa.

Lion of Africa had launched an ag­gres­sive cam­paign to sell over­priced funeral poli­cies to chil­dren, said Van Vrede. “We saw peo­ple sell poli­cies to chil­dren who have al­most no risk of death,” he told City Press.

“You could, hy­po­thet­i­cally, sell funeral in­sur­ance to kids at R1 a month if the risk was re­ally taken into ac­count,” he added.

In­stead, the poli­cies were priced at ex­actly the 10% max­i­mum of R35 a month. “That is just pure profit,” said Van Vrede. The case went to the Con­sti­tu­tional Court, but was dropped, leav­ing the le­gal ques­tions un­de­cided just as they could be­come rel­e­vant again – be­cause of the plan to stop de­duc­tions off old age grants as well.

The Re­serve Bank also dis­ap­proves of reg­u­la­tion 26(a) be­cause it gives a risk-free and pref­er­en­tial col­lec­tion mech­a­nism to one sec­tor of the fi­nan­cial ser­vices in­dus­try.

San­lam, too, has chal­lenged the so­cial de­vel­op­ment depart­ment in court about its de­ci­sion last year to scrap many de­duc­tions on so­cial grants that were not prop­erly con­sented to by re­cip­i­ents.

FUNERAL POLI­CIES EV­ERY­WHERE

Funeral in­sur­ance is by far the most com­mon form of in­sur­ance in South Africa. The FinS­cope sur­vey es­ti­mates that 19 mil­lion adults have funeral poli­cies, while only 8.6 mil­lion have any other kind of in­sur­ance.

In its lat­est sur­vey re­sults, FinMark flagged the com­mon­place prac­tice of tak­ing out more than one of these poli­cies.

“About 5 mil­lion South African adults have more than one funeral pol­icy and would prob­a­bly be bet­ter off buy­ing life cover,” FinMark said.

When it comes to old age grant ben­e­fi­cia­ries, the sur­vey found that:

30% of old age grant re­cip­i­ents have for­mal funeral cover prod­ucts in their name;

28% be­long to a burial so­ci­ety, of­ten in ad­di­tion to their funeral poli­cies;

18% of old age grant re­cip­i­ents are only cov­ered by a pol­icy in some­one else’s name; and

36% of old age grant re­cip­i­ents do not have any type of funeral cover at all.

PHOTO: GETTY IMAGES

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