Micro-insurance: The next big thing

With the changes to a number of pieces of insurance legislation, specifically to the Long-term Insurance Act, the Short-term Insurance Act and the Policy Protection Rules, this has laid the foundation for enhanced consumer protection and the formulation of Micro-insurance.

The ethos of Micro-insurance is captured in The Insurance Act that was passed by the National Council of Provinces in December 2017. The aim of micro-insurance is to provide low-income South Africans with access to affordable and fair insurance products.

It is very easy to fall into the trap of thinking that micro-insurance encapsulates your traditional funeral policies only, but in reality, micro-insurance will be so much more. This is important to understand because the opportunities that could arise out of micro-insurance could be substantial.

Micro-insurance will offer life-and non-life insurance products.

1. The total benefit cap for Life insurance policies will be R 100 000.00. Typical classes that will fall under the Life insurance category will be:
2. Credit Life Insurance
3. Risk insurance
4. Funeral cover
5. The total benefit cap for Non-life insurance will be R 300 000.00. Typical classes that will fall under the Non-life insurance category will be:
6. Motor insurance
7. Property insurance
8. Legal expenses
9. Accident and health insurance

The following sets a Micro-insurance product apart from the traditional insurance product:

1. The product may not provide for a loyalty benefit, no-claim bonus or rebate claim.
2. All benefits is subject to aggregation. In the case of funeral policies, it is important to note that all funeral policies, whether traditional funeral policies or Micro-insurance policies, will be subject to aggregation.
3. Only Micro-insurers will be allowed to use the term “Micro-insurance” in advertising and communication.
4. Micro-insurance policies will have a contract term not exceeding 12 months for life insurance.
5. No exclusions for funeral and credit life insurance will be allowed. Only exclusion for suicide will be allowed for a period not exceeding 12 months.
6. Waiting periods will be restricted to a quarter of the contract term for death or disability due to natural causes.
7. No waiting periods will be allowed for policies covering accidental death or disability or credit risk policies.
8. No waiting period may be imposed if the client cancels a policy with one insurer in favour of a similar policy with another insurer.
9. No exclusion will be allowed for pre-existing health conditions for funeral policies and credit life insurance policies.
10. No variations to the terms and conditions of micro-insurance policies will be allowed. It will only be allowed if the insurer can demonstrate that reasonable actuarial grounds exists to justify the variation or change. The variation, if allowed, must benefit the client or policyholder.
11. Excesses will only apply to Non-life insurance policies. The excesses must be a standard excess per risk event covered and it may not exceed 10% of the value of the policy benefits or R 1000.00, whichever is the lowest amount.
12. Micro-insurance and funeral policy claims must be settled within 48 hours after receiving all the necessary documentation. It is also important to know that no policy benefit which is paid as a sum of money, may be paid directly to a service provider.
13. If an insurer chooses to reinstate a Micro-insurance policy after it lapsed, the insurer must reinstate on the same terms as before the lapse occurred. The alternative will be to enter into a new policy.

There is no doubt that the micro-insurance environment will become an insurance hub for innovation and development. The exciting new insurance products and solutions that will see the light of day, with real-world solutions to those who need it most. It will provide the industry with excellent opportunities to expand and it will also, and more importantly, provide for excellent opportunity for new entrants into the insurance industry.