The funeral industry trend is characterized by exorbitant costs, informality, non-compliance and corruption and many funeral parlours are operating without certificates of compliance.

Combined Funeral Holdings Limited (CFH), a public company that acquires and operate businesses within the funeral industry plans to change that.

These are some of the identified market failures and abuses in the funeral services market that the company wants to tackle to create value to customers: 

1. Monetary benefits: existing provisions in the Long-term Insurance Act require funeral insurers to offer policyholders the option of a monetary benefit. This is however not enforced, and evidence collected through focus groups and the survey of funeral parlours suggests that very few funeral parlours (with the general exception of parlours affiliated to formal insurers) offer clients the option of a monetary benefit. Where they do offer this option, it is not made clear to the client, or the package is structured in such a manner to make it seem better to take benefits in kind. 
   
   
2. Price behaviour: funeral parlours define their benefits in terms of the funeral service, to which a nominal value is attached. The value applies to the whole package and is not broken down by the separate items included in the package. This makes it very difficult for the consumer to know and compare the true value of offerings amongst the various potential providers. 
   
   
3. Set funeral package: at the time of death, individual components of the funeral package are not negotiable downward, and the client can only upgrade to more expensive options (usually at substantial cost). If unhappy with a particular component, the client cannot opt to exclude the component in question in favour of money. If the client wishes to replace a component with one that was bought elsewhere (e.g. a different coffin), they are allowed to do so, but the funeral parlour will not refund money on the coffin that will no longer be used. 
   
   
4. Lack of competition: the effect of the product structure and the absence of a monetary benefit option results in severely restricted competition in this market. Funeral parlours only compete in terms of how impressive the funeral display is, but not on the value or cost to the client. The way in which products are structured prevents consumers from reducing the cost of the funeral by a more careful selection of components, and marketing of products exploits cultural vulnerabilities with regard to the need for “dignified” funerals. The combination of the above dynamics results in a substantial welfare loss to consumers and the maintenance of artificially high funeral costs. 
   
   
5. Forfeiting of benefits: in some cases market structure results in consumers simply forfeiting their benefits. For example, one of our research respondent contributed to a funeral parlour in Carletonville for 20 years. When she left the area, the funeral parlour refused to continue covering her, as they would not do a funeral service outside of Carletonville. As a result, she was forced to forfeit the policy she had and find a new parlour. Another participant in our research was covered under each of her three children’s policies with separate funeral parlours. As the parlours only offered benefits in the form of services, two of the children’s policies will be forfeited with no cash alternative.

According to Fischer Khambule, CEO of CFH Limited, “CFH considers the following 5 aspects as key to our business proposition;”

• High costs of funeral services and goods
• Set (bundled) funeral packages that are not negotiable downward
• Exploitation of grief for profit by funeral homes.
• Underserviced funeral homes in townships and rural areas.
• Fiduciary risk – the abuse in both the informal and formal funeral insurance market.

“Through our economic resources, talent and skills of our people and our service capability, our customers can expect to benefit from;

Added innovative products and services that enhance quality.

Our branch network, services capability, distribution centres, storage and handling facilities.

Reduced costs of funeral services and goods and our prudential oversight of their funeral policies”.

According to Stats SA’s latest Quarterly Labour Force Survey, more than 6% of working South Africans are employed as Domestic Workers*, and more people are employed in private households than in the mining and agriculture sectors combined. If dependents of these workers are included, then as many as four to five million people are supported by this industry.

However, up until recently there haven’t been many options for the average South African domestic worker to access simple, good value life insurance. There are a number of insurance companies targeting low income customers, but the products are often limited to funeral cover only. Given the financial challenges many domestic workers face, they also often struggle to keep up with payments, so in many cases their cover lapses and isn’t in place when it’s needed.

Insurtech player Simply Financial Services (Simply) has introduced a new life insurance bundle called Domestic Cover which is aimed specifically at employers of domestic employees.  The product, which comprises life, disability and funeral cover, is affordable, easy to understand and strong on accessibility. Its also completely flexible, with the customer able to customise the bundle to suit their needs and budget. The policies are underwritten by Old Mutual Alternative Risk Transfer Limited, an insurer in the Old Mutual group – so customers can be safe in the knowledge that valid claims will be honoured.

“Simply’s aim is to provide easy-to-understand, affordable and accessible life insurance for the mass market in South Africa, and thereby contribute to a significant new level of financial security to people in this segment,” said Anthony Miller, CEO of Simply Financial Services.

“Life tends to be risky and uncertain for domestic workers and their families.  When a breadwinner becomes disabled and possibly even dies, the families are left without significant savings and with large funeral bills to pay.

“If you add societal risks such as taxi accidents and random violence for the workers who often travel large distances to and from work, the level of risk facing this sector becomes apparent,” Miller said.

“The bottom line is that the worker’s dependents are very often consigned to poverty in the event of death or disability,” he said. “Their employers may feel obliged to provide financial assistance in these situations”.

By using technology and an innovative operating model, Simply products are able to deliver great value. For example, a 30-year-old woman earning R4 500 a month gets R100 000 life cover, R150 000 disability cover and R15 000 family funeral cover (which covers the insured person, the spouse and up to five children) for R92 per month.

And by putting the responsibility for paying the premium on the employer, the risk of cover being cancelled due to lack of payment is greatly reduced, meaning the cover will be there when needed. If the domestic worker moves on, they can choose to take over the payment of the premium on the same terms, or they can ask their new employer to take over the policy.

As an alternative Simply also offers a Family Cover product with similar benefits and costs, but where instead the employee takes out the cover and is responsible for paying the premium themselves.

Signing up is simple. The entire online process takes less than ten minutes and requires the individual to fill in some personal details and answer three health-related questions.  Should they qualify, cover is immediate.

For the employers of domestic workers in South Africa, this represents a great opportunity to provide a valuable safety net for their staff, many of whom have been loyal employees for decades, without adding significantly to their costs. 

For more information about Simply, go to www.simply.co.za.

*Source: https://businesstech.co.za/news/business/180831/south-africa-has-more-domestic-workers-in-employment-than-professionals/