ARTHUR GOLDSTUCK

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South Africans spend enormous sums on funeral insurance, much of it bought by households with little room for waste in their monthly budgets.

Yet the structure of the market means that some of the people who can least afford expensive insurance are buying it through one of the costliest channels available to them. Large employers can obtain group cover at far lower rates, but millions of workers in smaller businesses remain outside those schemes.

“Many of these employees have two or three funeral policies with different providers,” says Anthony Miller, founder and CEO of Simply Financial, a South African insurance technology start-up that provides life, disability and funeral cover to individuals and employer groups. “Partly that’s because they’ve taken them out at different times to cover different family members, and partly because they’re worried one or other might not pay if there’s a claim.”

He gives the example of a call centre with 2,000 employees, where R20,000 in family funeral cover could cost around R12 to R15 per person a month. Similar cover bought individually can cost R100 or R150.

Miller came to insurance after co-founding property data business Lightstone and later moving into vehicle finance, warranties and financial services. He was struck by the contrast between spending on funeral cover and the protection available through group policies.

“If you looked at the time at the total premium being collected in the South African long-term insurance space, something like R40bn or R50bn out of R120bn was retail funeral cover. And yet, when you looked at the amount of cover being provided in those group-risk policies versus the amount being provided in the funeral policies, it was orders of magnitude more.

“There was an opportunity to do things differently and, in that process, provide significantly more cover for people without requiring any more premium.”

Group funeral cover, in terms of how much cover you get, can be up to 10 times better value than retail funeral
— Anthony Miller, founder and CEO of Simply Financial

Simply Financial launched in 2016 with an online retail model, but cheap digital distribution did little to change how people bought life insurance.

“South Africans — particularly mass- and middle-market South Africans — don’t buy life insurance online, no matter how good it is and how cheap it is. They buy life insurance from a person.”

The company rebuilt its platform around brokers and employer-based cover. Miller says many large insurers have minimum group sizes of around 20 employees, while most SMEs have fewer than 20 staff. Commission on group cover is also regulated at relatively low levels, leaving brokers little incentive to spend much time on very small accounts.

But once an employer handles premium collection, policies tend to remain active for longer, reducing one of the major costs of retail life insurance.

“Persistency is actually a bigger driver of the economics of life insurance than claims,” says Miller. “When you go via an employer, the persistency is much higher. Because you’re getting premiums for a longer period of time, you don’t need to charge as much in order to get your return on capital.”

This is merely one of the gaps in an inefficient market.

“Group funeral cover, in terms of how much cover you get, can be up to 10 times better value than retail funeral. And group life is significantly better value again than group funeral. So if we can start shifting poorer people into group life cover, you can increase the amount of cover 10- to 20-fold without any more money being needed.”

The absence of cover can also cost a company later. Miller says some owners feel compelled to help a family directly after an employee dies or becomes disabled, while colleagues notice how the business responds.

“Someone dies and the company doesn’t come to the party, and everyone else thinks, ‘Clearly they don’t really care about us.’”

Technology allows smaller accounts to be administered at lower cost. The platform connects directly to payroll systems, adding or removing employees as staff records change, and cutting manual administration and making small groups viable for the insurer.

“The way we’ve typically used tech to create efficiencies is through APIs (application programming interfaces), integrating with third-party systems, enabling prepopulation of data to save time and reduce errors,” says Miller. “It’s only now that we’re starting to see AI filter properly into the business.”

He sees AI extending to hybrid policies in which employers provide basic cover and employees buy additional protection through payroll. But meanwhile, basic tools like WhatsApp could help employees understand their policies and deal with changes when they move between companies.