Funeral assurers’ lipstick on frog movement

ITawanda Musarurwa t can be very devastating for a policyholder or the remaining family of the deceased to realise that a policy contributed to so loyally and for decades has become, for all practical purposes, useless.

Funeral cover is one of the most popular insurance segments in Zimbabwe — accounting for around 76 percent of all insurance products.

And the majority of policyholders and/ or beneficiaries tend to be the vulnerable in society.

Ironically, it is that vulnerable segment that could end up paying more in insurance premiums than the benefit paid upon death, because of the open-ended nature of most standard funeral policies.

And with inflationary pressures looming large over the local economy in the last couple of years (and still a concern), funeral policies without term limits can realistically end up worthless.

Premium funeral policies, on the other hand, tend to reach maturity. But if there is anyone who needs funeral policies to “mature”, it’s the less privileged members of society given the risk of possible defaults once the policyholders approach retirement age.

Says Zimbabwe Pensions and Insurance Rights Trust ( ZIMPIRT) general manager Martin Tarusenga:

“The bottom-line, however, is that all policies, funeral or otherwise must reach maturity.

“If not, there are or must be provisions within any policy to deal fairly with other contingencies , like premature surrender, like disability, policy alterations to another policy, etc.”

That is why the Insurance and Pensions Commission ( IPEC) is moving to ensure that all funeral policies reach a point of maturity.

Said IPEC commissioner Dr Grace

Muradzikwa:

“There are funeral policy products in the market, which have maturity dates and some that do not have maturity dates.

“This is mainly informed by the product design. However, the proposed Insurance Bill has a provision for all funeral assurance policies to have maturity dates.”

But because inflation could remain a spectre in the local environment, the flip side of this development is that funeral assurers may be forced to increase their premiums even for the low income earners. This is borne out in latest numbers for the funeral assurance sector.

According to the latest IPEC report, inflation-adjusted gross premium written ( GPW) decreased by 45,6 percent from $12,39 million for the six months ended June 30, 2019 to $6,73 million as at June 30, 2020.

“The effects of inflation were evident on the significant decrease in inflation adjusted premium income as compared to absolute figures reported,” said the regulator.

This is the same sector that has over the years ceded a majority of its market-share to life assurance companies.

For instance, for the six months to June 2020, the funeral assurance sector wrote just 10,17 percent of the entire funeral business, compared to life assurers who wrote 89,83 percent of the funeral assurance business. And now the sector is having to contend with the impact of the Covid19 pandemic.

Zimbabwe Association of Funeral Assurers ( ZAFA) general manager Mr Taka Svosve recently said the Covid-19 necessitated lockdown seriously affected funeral companies’ capacity to meet their obligations.

“While premiums were being eroded by the marauding inflation it was not easy for funeral assurers to review their premiums during the peak of the lockdown.

“Both group and individual clients had their incomes curtailed due to the Covid19 induced lockdown and could therefore not meet any new premiums increases.

“Funeral assures had no option but to defer any premium review but to the detriment of their cash-flows and operational obligations.”

But the sector’s issues go beyond cashflow problems.

Waning trust

Even though contracts are typically legally binding, and cannot be eroded by inflation, so to speak, there seems to be little appreciation of this simple fact on the part of some funeral assurers.

As a case in point, a few weeks ago, a local funeral company told a policyholder that he had to make a top-up if he wanted to collect the tombstone for his mother who passed away and was buried last year (to be clear the tombstone was already part of the initial contract). So why increase premiums post-funeral?

Such seemingly unethical behaviour on the part of funeral assurers is increasing public mistrust in the sector, and they could end up seeking alternatives.

Taking too much risk

And then it can be said local funeral assurers are taking on extensive levels of risk by failing to secure reassurance arrangements.

Data from the IPEC report showed that not a single one had this critical risk management tool in place during the first half of 2020, even though the sector performance during the half year reflected declining profits, increasing costs and generally poor compliance levels.

Outside of efforts being made at the regulatory level, the funeral assurance sector needs to get its house in order, or face extinction.