Cherise Collins | If SA insurers own the default prevention paradox, they can also solve it

Funeral insurance symbolises far more than good financial planning for South Africans. The cultural traditions have made South Africa's funeral insurance market the fastest growing on the African continent.

Today, one in four South African adults have at least one funeral policy, if not more. By 2030, the funeral insurance market is estimated to reach close to R 1 billion. While this projected market expansion reflects a rising demand for funeral insurance products, there is an inevitable truth that insurers have to face. Unless underserved markets are converted into policyholders, this significant growth opportunity could pass the industry by.

Part of the challenge also lies with insurers. To prevent policy lapses, strict payment policies and compliance are enforced. Often, these regulatory steps have the opposite effect, increasing rather than of decreasing payment friction.

This default prevention paradox, stands between the current market's potential and its destined course for expansion. 

Fortunately, if South African insurers own the default prevention paradox, they can also solve it.

Affordability was never the real problem 

What are the next steps for South African insurers to make payments easier for customers, while positioning the current industry for future growth? 

Luke Nel, Head of Protection Solutions at Metropolitan, a trusted South African insurer, explains that the market has historically blamed affordability challenges as the culprit behind policy lapses. "Most affordability challenges are temporary. Whether the customer had unexpected expenses during the month, earn weekly wages as opposed to a fixed salary, or have payment delays of their own, insurers can't assume polices lapses disqualifies a customer as a policyholder." 

Instead of focusing solely on affordability, the focus should be on payment flexibility. Greater payment flexibility overcomes the limitations of traditional payment infrastructure.

When clients are afforded more flexibility, the customer has more freedom to pay when funds become available. "By designing product offerings around customers' circumstances, insurers are supporting their commitment to maintain cover," says Nel.

Marius Brits, Co-founder and Chief Information Officer at 360 Administration and Systems, agrees. Across their operational platforms, the company manages close to seven million insured lives. Brits emphasises that a blanket approach inevitably overlooks individual needs. "Customers with seasonal employment or part of the informal economy shouldn't automatically be considered high risk because they don't pay on the same date each month." 

By interpreting consumer data the correct way, payment behaviour and trends can enable insurers to provide the right support at the right time, "instead of unfairly categorising people based on traditional payment models."

 A lack of payment options is one of the biggest challenges 

In South Africa especially, customers have different financial realities. Product design and payment processes should be developed with these realities in mind. 

Metropolitan's No-lapse Funeral Growth Plan is a result of this thinking. Rather than penalising customers when they can't pay, customers can contribute whatever they can, whenever they can. The goal is to place control back in the hands of the customer. "There are no failed debit orders, no bank penalties, and no unnecessary policy lapses," explains Nel. "Customers simply build their cover over time according to their financial circumstances."

Apart from when and how much customers can pay, insurers need to be innovative about where they can pay. Namhla Gysman, the Business Development Lead at Pay@, a leading South African payment solutions provider, says a lack of payment options is one of the biggest industry challenges. Nationwide, multi-channel payment solutions and extensive partner networks helps expand payment options. 

Gysman explains that convenience has a direct impact on whether customers stay engaged with their policies. Customers need to be able to pay in the way that is most practical for them, throughout the life of their policy. That flexibility helps create a smoother experience for customers while supporting stronger payment continuity for insurers. 

Innovation doesn't mean complexity  

To achieve this, insurers face the formidable challenge of replacing older, legacy systems with newer, more innovative payment channels. The expected financial costs, time, and resources needed often deter insurers from taking this necessary but daunting step.

Gysman explains that it's an industry myth that offering more payment channels to customers comes with complexity for the insurer. With the right partner, payment convenience can become a fundamental part of the customer experience following a seamless and simple process. 

Obey Ndebele from Kings & Queens Funeral Services has witnessed first-hand how introducing flexible payment options has transformed their business operations. "With a strong and strategic collection method, you can significantly reduce both the unnecessary security and operational risks of running a cash-based business." Supporting this claim with measurable results, Ndebele said the business has seen a 30% reduction in lapsed policies since implementing a flexible payment intervention.

Solving for South Africans 

This is where the industry's most entrenched assumption starts to unravel: that policy lapses are primarily a customer behaviour problem. Overlooking the lapses resulting from systems and processes that were designed for a different customer and a different economy.

As South Africa's insurance market continues to grow, the industry's ability to help existing customers maintain their cover will become increasingly important to its long-term growth. 

Ultimately, solving the default prevention paradox will depend on whether insurers are prepared to leave behind an operational-first mindset in favour of one shaped by the realities of our nations' lives.

*Cherise Collins at Metropolitan.