Special Focus Archive 2007

This Special Focus on the history of the Great North Burial Society in South Africa is provided by FinMark Trust and is based on the Case Study on Great North Burial Society, Genesis Analysis (2006), prepared for FinMark Trust.

FinMark Trust is an independent trust based in South Africa and an active member of the CGAP Working Group on Microinsurance. The trust's mission is to promote and support policy and institutional development towards the objective of increasing access to financial services by the un- and under-banked in Africa.

South Africa 1955. A man was killed in White City Township, his family did not have enough money to transport the body back to Limpopo Province, and therefore he had to be buried in Johannesburg. This event trigged the foundation of the Northern Transvaal Burial Society (NTBS) when people realized that they needed to unite forces and pool resources, in order to provide for the time of death. At first, members came together and contributed only when a death occurred but they soon realized that there were insufficient funds when more than one death occurred at a time. Despite of that, people were not very keen on contributing every month because they were wary of a misappropriation of funds.

Growth and Evolution

In order to develop the society and secure funds, in 1962 NTBS registered under the Friendly Societies (FS) Act and changed its name to Great North Burial Society (GNBS). It counted on 46 members that met once a month to contribute funds that were kept in a bank account.

They started a strong marketing campaign to recruit new members: home visits (hostels), church visits and attending to funerals where members and leaders of the society would pray for the deceased. The present families would then join because they themselves could see the advantages of saving a small amount of money each month, and when the time came and a death occurred, the money was paid out in cash, in a defined lump sum.

The society had established a couple of restrictions for people to joint: only people staying in the same household could be covered; to apply they had to fill out an application form (policy holder’s name, spouse and children’s names) and then GNBS would try to establish, by a simple family visit, the actual existence and health of people listed on the application. Initially there was no age exclusion or waiting period. These lack of proper procedures and exclusion policies were making the pool unsustainable.

Therefore, in 1967 after the Annual General Meeting (AGM) of members, under advice of the actuary, the exclusion policies were introduced. They had to be submitted for authorization form FSB (the regulator of the Friendly Societies Act).

In the early 70s, GNSB introduced three new plans with different premiums/benefits better tailored to the members’ affordability level. They also opened their first office in central Johannesburg to administer the organisation and manage claims. Later on, in search of being closer to its members, the society moved its headquarters out to Orlando West Township, and soon they started to work with undertakers in urban areas, who carried out the burials.

In 1976, uprisings at Soweto caused lots of deaths; thus, awareness towards the need to financially provide for the time of death increased and membership rocketed. By mid-1980s the political violence and tensions worsened, leading the society to its ‘glory days’ in terms of membership, reaching 25,000 (3,000 policyholders covering in average 8 lives per policy).

The Difficult Years

In 1988, when the founding president Hebron Leshabane passed away, numerous members resigned. The year after the second president was suspended and later dismissed for a misappropriation of funds, the society registered more and more drop outs.

Membership reduction put the society in a difficult situation, so they decided to provide some more facilities to their members by building a new office in Orlando West, where the ground floor was made into a mortuary. Back then GNBS was not aware that they were violating the legislation whereby only registered undertakers could bury.

The situation was not looking any better and members still wanted more benefits. Hence, in 1993 during the AGM, even thought the actuary did not agree, they decided to introduce a “Super-Policy” that would change the ratio from R1/R100 premium/benefit to R25/R3,500. Members accepted to receive benefits in burial services provided by the mortuary, but two years later members decided (against the actuary’s advice) to offer cash benefits under the Super-Policy.

During the late 1990s the Super-Policy began to put strain on cash-flow and sustainability. The society actuarial predictions showed that if the Super-Policy continued, GNBS would have had to apply for liquidation. In addition, the regulator (FSB), acknowledged that GNBS was running an illegal mortuary and ordered an inspection. A report made by the actuary provided the following outcomes: 1)The Mortuary business had to be closed until it had a proper licence and 2) GNBS had to either scrap the Super-Policy (go back to the pro-rata system of R1:R100) or get underwriting to continue offering the Super-Policy.

GNBS decided to look for underwriting. Consequently they realized that they could also increase the benefits up to R10,000 for a premium as low as R38, which members would obviously be keen to go for. The society formed a relationship with the formal insurer New Era Life (NEL). This agreement allowed them to continue operating by getting underwriting, thus avoiding a voluntary liquidation.

The “New Era” Relationship

Although there was an initial increase in membership (over 27,000 members) when New Era Life (NEL) policies were introduced, the relationship did not turn out as expected. There were differences on regularity of premium revisions and on payment processing delays.

On one hand, NEL revised premiums twice a year and GNBS could only afford one revision at each AGM meeting. Thus, the premium increases that NEL made, were carried out by GNBS until the next AGM meeting. On the other hand, GNBS stipulated that individuals who had been members for more than 5 years were allowed to miss six payments before the policy lapsed, whereas the contract with New Era stipulated that policies could lapse if only one payment was missed, leaving GNBS liable for benefits (increased to R10,000 in some cases) to members who lapsed according to NEL, but were still within GNBS grace period.

In 2002 FSB noticed that the FS Act (which was limited to R5,000) was being violated because some GNBS members were receiving benefits up to R10,000. Therefore, adjustments on benefits of all policies had to be made, they had to become R5,000 and below. Members were not happy with this measure and started leaving the society, which in addition started having more competitors as funeral parlors and banks that offered better funeral benefits for the same amount of money.

Current Situation

At the present time some indicators look unhealthy: membership dropped down 66% since 2001, subscriptions (income from premiums) dropped down 67% since 1999 and investments and current assets dropped down 46% between 1999 and 2003 because of the mismatch in lapses during the relationship with NEL.

Additionally, there are two major constraints: 1) the Friendly Societies Act poses various limitations in terms of benefits (maximum R5,000), investments (not allowed into other type of assets), marketing (FS does not pay taxes, therefore they can not advertise and as a result they are less competitive), and the fact that there is not a no-forfeiture clause (which is inconsistent with the lapses considered by GNBS and the underwriter); and 2) Getting re-insurance could be difficult for a Friendly Society and the only re-insurer which is able to re-insure a fund business like GNBS, would need to be compliant with the Financial Advisory and Intermediary Services Act (FAIS) and it may not be willing to go through the process.

The Options for GNBS’s future

There are many open questions/challenges concerning the future of GNBS:

1. Getting a specialized (dedicated) licence for assistance business that would achieve both an increased benefit (greater than the cap in the FS Act) and allow for re-insurance (a limited licensed insurer). This would require doing lobby for regulatory change;

2. Considering registering under the Co-operatives Act and increasing benefits, however, that could imply fiscal disadvantages (taxes) and a complex swapping over procedure;

3. Buying into a cell-captive which means that GNBS premium levels would have to reach at least R5millions;

4. Acting as an intermediary by selling other products (banking products, medical schemes, etc.) or becoming an insurance agent, but that would probably mean arriving to similar problems like with New Era Life relationship;

5. Operating illegally (increasing benefit to R10,000) which would be the only option to keep going parallel to the regulatory apathy; or

6. Exiting the market (because of the slow change on regulations, GNBS choose not to operate illegally).

It seems that the only way for GNBS to reverse the membership drop-down is to increase the R5,000 cap, and therefore the two options they could consider are:

1. Register under the Co-operatives Act or,

2. Investigate how to obtain a LT insurance license with adjusted requirements (e.g. reduced capital requirements).

To choose either of both options would define the future of the greatest burial society in South Africa, the question is still open. The society would have to find a balance between its original mission (assistance business) and its financial viability.

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From 13 to 15 November 2007, the Microinsurance Conference 2007 will take place in Mumbai, India.

This event is the third international Microinsurance Conference and jointly hosted by the CGAP [Consultative Group to Assist the Poor] Working Group on Microinsurance and the Munich Re Foundation with the support of the IRDA.

The agenda has been updated and the speaker's biographies have been added.

The CGAP Working Group on Microinsurance Annual Meeting will be held on 16 November 2007.

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ADA (Appui au Développement Autonome) and BRS (Belgian Raiffeisen Foundation) in collaboration with the CGAP Working Group on Microinsurance (Performance Indicator sub-group) organised a second workshop on financial performance indicators for microinsurance. 19 different microinsurance organisations attended this two-day workshop in Luxembourg in July 2007.

The workshop built upon a first set of key principles and financial indicators for measuring microinsurance operations that were established during a first workshop in October 2006.

The objectives of the whole initiative are:
- To strengthen awareness towards performance analysis and risk management;
- Share information and knowledge necessary to monitor performance and to increase transparency; and
- To promote exchange of experiences between participating microinsurers.

The set of principles and financial indicators was tested again with data provided by the participants and discussed during this second workshop. Furthermore, the elaboration of a toolkit consisting of a factsheet and handbook was discussed. The toolkit will enable microinsurance providers to use the key financial indicators within their organisations.

MEASURING PERFORMANCE IN MICROINSURANCE

Measuring financial performance points out a microinsurance product’s weaknesses and strengths. It allows management to answer the question: “How does the insurance product perform, what needs to be improved and how?”

The management needs to define a business plan by following key principles and setting goals. The follow-up and assessment is facilitated by using performance indicators.

The Key Principles

Microinsurance as a risk management instrument should ensure that the client gets good value for his or her money. The benefit of the client should be central to the development and management of microinsurance products. In this sense, a ninth principle “Client Satisfaction” was added to the previously approved ones.

The key principles are:
1. Separation of data
2. Collection of relevant and accurate data
3. Production of financial statements
4. Calculation and setting up premium and claim reserves
5. Efficient claims monitoring
6. Clear investment policy
7. Right technical insurance expertise
8. Transparency
9. Client Satisfaction

Important for implementing and following these principles is good MIS. Although several MIS tailored to specific organisation exist, there is little information and support available in general.

The Key Indicators

The ten key performance indicators should be understood as a management tool that is used regularly: Their trends should be especially monitored and evaluated as these are often more important than singular results (i.e. snapshots) of the microinsurance programme. Results need to be interpreted in each specific context. Viability in this sense is not to be understood as profitability, but as an indication for the sustainability of any programme. To know how many subsidies make a programme sustainable does not suggest that subsidies are bad, but allows management to make strategic decisions for any post-subsidy agreement.

The proposed set of key indicators are not exhaustive but rather a guideline for what should be the basic performance aspects to look out for. Although, it has been highlighted that results will differ widely for different delivery models and areas, and product types (thus benchmarking should only be used for peer groups), the set of key principles and indicators as such aim to be universal and are based on common business practises.

Social performance is a real concern to practitioners and therefore, more importance will be given to the social interpretation of the ten key indicators. Furthermore, a social performance indicator working group will be established within the Performance Indicator sub-group as to advance on this issue. Participants have proposed a set of social performance indicators that will feed the discussions.

The addition of a Frequency Ratio was discussed and will be validated by further tests.

The present performance indicators are:
1. Net Income Ratio
2. Incurred Expense Ratio
3. Incurred Claims Ratio
4. Renewal Rate Ratio
5. Promptness of Claims Settlements
6. Claims Rejection Ratio
7. Growth Ratio
8. Coverage Ratio
9. Solvency Ratio
10. Liquidity Ratio

General Conclusions

- The client is focal to all microinsurance related activities;
- There is a need for microinsurance MIS and actions need to be taken from the donor side;
- Depending on the scheme, some indicators are more relevant than others, but all of them need to be followed-up;
- Each programme has its particularities that have to be taken into account when interpreting performance indicators.

The next steps for this initiative will be:

- Finalise a first version of the toolkit with a further test round;
- Evaluate possible training needs for the adequate use of the toolkit.

For more information on the key principles and indicators, download the report from the 2006 workshop here

The International Association of Insurance Supervisors (IAIS) and CGAP released a paper entitled Issues in regulation and supervision of microinsurance, prepared by the IAIS-CGAP Joint Working Group.

Regulators and supervisors in emerging market jurisdictions realise that a more conducive and enabling regulatory environment creates an “inclusive” insurance market that works effectively for the upper as well as the lower income segments, with the latter being the focus of “microinsurance”.

The paper released today outlines salient features of regulation and supervision of microinsurance and provides input for high-level expert discussion among regulators, supervisors and other stakeholders involved in the provision of insurance services for lower-income segments. It recognises that the IAIS Insurance Core Principles are the foundation of all insurance supervision, including microinsurance.

Mashudu Munyai, Chair of the IAIS-CGAP Joint Working Group on Microinsurance, remarked that the Group’s work is “strongly aligned to the common goal of servicing and providing effective access to financial services to our constituents, in a manner that is useful and inclusive”. He continued, “A closer examination and analysis of different unique aspects of microinsurance and a continuous dialogue with supervisors will assist in determining the key principles in its regulation and supervision.”

Brigitte Klein, Chair of Regulation, Supervision and Policy, CGAP Working Group on Microinsurance, commented that “inclusiveness covers both the need to have markets accessible to those that microinsurance can serve, as well as providing them with the benefit of prudential oversight.”

Press release 1 June 2007)

Read Issues Paper (pdf)

More information about the Regulation, Supervision and Policy Sub-group

Paper on landscape study analysing more than 350 microinsurance products and over 100 social security schemes is now available.

The MicroInsurance Centre developed this paper with the involvement of Quindiem Consulting, several CGAP Working Group on Microinsurance members and other microinsurance expertsLandscape Study Certain trends became apparent in this research:

• A significant presence of health microinsurance, especially in West and Central Africa. Though high in number of programs, the membership of these programs is generally small and their growth potential limited.
• The dramatic effect of insurance regulation introduced in India over the past few years, which has pushed microinsurance out into the rural areas and towards the poor. Over 30 million low-income people are covered by over 130 products. However, as one might expect from regulation-enforced targeting, not all these products actually benefit the poor.
• A noticeable lack of microinsurance in North Africa and the Middle East. In no other region is the absence of microinsurance as evident.
• Weak delivery channels hinder the advancement of microinsurance. Though retail models are beginning to be implemented, only 1.8 million (2%) of the people covered by microinsurance are covered by products delivered through retail intermediaries. Broker activity in microinsurance is almost non-existent.
• Considering that microinsurance products and services were found to cover 78 million lives, donor activity has been miniscule. The gross value of donor investment per covered life works out to be about USD 0.12 for the few who are covered.
• Most microinsurance programmes identified were found to be very small measured by numbers of policyholders.

Read Landscape Study Paper (pdf)

From 13 to 15 November 2007, the Microinsurance Conference 2007 will take place in Mumbai, India. This event is the third international Microinsurance Conference and jointly hosted by the CGAP Working Group on Microinsurance and the Munich Re Foundation with the support of the IRDA.

The conference will have plenary panel discussions and working group sessions on key topics addressing an interdisciplinary audience. Interactive sessions are the key part of the conference, encouraging the discussion of work in progress and facilitating dialogue in small groups on emerging issues. For these sessions, the organisers of the conference announce a call for session proposals on the following topics:

More information on Proposal Submission

Based on the publication of PROTECTING THE POOR: A MICROINSURANCE COMPENDIUM, Microfinance Gateway compiled a highlight on microinsurance, a field that is starting to take shape even if it includes many different insurance products delivered by a variety of institutional arrangements across the globe.

The compendium will be a valuable resource for insurance professionals and microinsurance providers, or practitioners who want to know more about this new field. It is also intended for those who assist practitioners, such as technical assistance providers and donors, and for policymakers and regulators who influence the environment in which microinsurance operates.

Go to Highlight on Microfinance Gateway.
Go to Protecting the Poor page on MicroInsurance Focus.

The final REPORT OF THE WORKSHOP OF PERFORMANCE INDICATORS (October 16-17, 2006, Luxembourg) is now available.

This workshop set out to test and discuss several key indicators with more than 20 practitioners from Asia, Africa and Latin America, and it is to be understood as a first step towards microinsurance performance assessment and benchmarking. The proposed list of principles and key indicators is not exhaustive, but should be considered as a “Work in Process” aiming at expanding and strengthening the offer of microinsurance products for low-income households. Click here to download the report or contact insurance@microfinance.lu to receive a hardcopy (available end of January).

More resources for Performance and Benchmarking.