Affordable insurance for low-income market must be part of financial inclusion

Andrew Wood, Managing Director of The Unlimited

We’re listening hard for discussion about improving financial inclusion in South Africa –and are happy that the debate is gaining momentum. Perhaps there are too many blinkers out there and rather too much readiness to be satisfied with general rather than specific outcomes.

FinMark Trust’s 2016 FinScope South Africa Survey on Financial Inclusion found 38.2 million adult South Africans (89% of all adults) have some type of financial account. This is defined quite broadly and includes both formal and informal accounts.

More than three-quarters of all South African adults (77%) have a bank account. It is significant that this proportion was increased substantially by SASSA card holders – if they are excluded, then FinMark found that only 58% of South African adults are banked. And that figure of 58% mirrors very closely the 51% of South African adults who, says FinMark, are borrowing from various sources.

These findings look like a big, fat hint that we all risk being blinded by national financial-inclusion statistics. We should beware of too much satisfaction that the banking credit sectors are doing fine so financial inclusion must be doing quite nicely, thank you.

What we’re not hearing in the increasing hush among those who complacently look at those statistics for banking and credit is much, if any concern about the financial inclusion that sustains and builds families across our country.

That kind of financial inclusion is all about the ability to save or the ability to recover from the shock of the unpredictable. It’s also all about affordability of the product itself, not just the cost of doing business, for instance, as with a bank and the level of its fees.

Unpack the savings level, for example – which FinMark says has “stagnated year-on-year”. It’s tallied 33% of all South African adults as savers. One in three doesn’t sound too bad – but of them it is still just less than one in three (29%) who are saving through banks and formal financial institutions.

About 8% are saving with informal institutions – such as stokvels and burial societies – and 11% told the survey that they were saving at home.

In terms of the major categories of financial inclusion, insurance is so far the worst performer. When you exclude funeral policies, only 22% of South African adults have broader insurance cover.

That means four out of five South African adults are compounding the life risks we all face with the additional risk of facing them without the cushion of insurance to help them survive the hard knocks.

Over the past 23 years, since The Unlimited was founded in 1994, we have been hard at work to help make sure insurance becomes a viable commitment for the lower-income market by developing value-for-money insurance products.

That is why we’re particularly alert to all the frustration across the country at the moment that living conditions have not improved as fast as we hoped they would over this first quarter-century or so of democracy.

The majority of adult consumers in South Africa – 30.8 million of them – are found in the lower-income market. That’s a lot of people, a lot of risk – and a lot of potential business.

You would think the size of that market would attract very keen competition. It should – but we’re still waiting. You can judge the scale of growth we’ve seen in that market by the fact that in 2006 we paid out R3.6 million.

Last year, 2016, our pay-out total was more than 10 times higher at over R30 million. There’s definitely a market in the gap – but all too few companies are marketing to it. So we say – for the sake of South Africa’s uninsured consumers – bring it on!

That’s why we’re prepared to share what’s working for us. We know that in the real world, customers want hospital insurance and car insurance, for instance.

We recognise that most consumers think getting insurance is a hassle and they don’t want to be dealing with different providers for different categories of insurance.

So, we’re helping South African insurance consumers get a better deal by pioneering the bundling of our products so that our consumers can get unbeatable value.

This is an insurance product with a lifestyle product, or an accidental hospital plan topped off by a free private ambulance service 24-hour medical assist helpline all at once.

Financial inclusion is partly about accessibility. We believe that direct marketing, used well cuts through this obstacle. We ensure that customers always reach a living, thinking human being at the other end of the phone – and not a list of automated prompts that leave them with more questions than answers.

We understand that life happens. We know that cash flow can take an unexpected dive. That is why we have devised an operating model that is neither discriminatory nor punitive. This includes working with customers who default on payment – and right now, we can say that more than half of those who defaulted in the past are still with us in 2017.

That means we were right to keep faith with those consumers – and they have repaid our commitment by keeping faith with us. 

At The Unlimited, we have a purpose beyond business – we want to help shift lives. Consumer education is part of that shift to reach a better future. We believe consumer education should be much more than a checklist to be ticked off. It’s an opportunity to build the foundation of a business relationship, trust.

With trust comes the freedom to ask burning questions and to engage profoundly with the opportunities that financial inclusion can bring to customers and corporates alike. Analysts such as Ernst & Young have forecast a great future for the insurance industry in Africa.

But for that to happen, three key tipping points need to be reached: more prosperity and thus more disposable income for the majority; a preponderance of understandable insurance packages reflecting the overall needs of consumers; and direct, personal contact with customers.

The future of insurance is about more than Treating the Customer Fairly. It’s about finding the respect to treat customers as people and respecting their needs, rather than shoehorning them into our templates.                                                                                                                                            

  • Andrew Wood is Managing Director of financial services company The Unlimited.

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