Emerging Project Lessons
A group product design with a flat rate enables inclusive coverage. The BSSP product is attractive for rural populations, as it mimics informal mechanism for funeral coverage, and is easy to understand for the target population thanks to its flat rate. There are neither age limits at registration nor exclusions, and no underwriting requirements, as adverse selection is limited thanks to the mandatory registration of all group members. But in a competitive market, flat rates are expensive for the younger part of the population and BSSP products starts attracting older membership (representing higher risk). The GFS product is more attractive for the younger groups, which may prefer price competitiveness to simplicity.
Enabling inclusive coverage, such as reducing or eliminating the waiting period improves sales. The waiver of the waiting periods for previously insured groups has created a significant increase in sales. However, the net effect of this may also be an increase in claims, which should be measured.
It is important to segment the market, as burial societies in South Africa are of two categories, smaller burial societies that are managed by the community, and larger groups that are managed by funeral parlours, each of which have different characteristics and needs for funeral product. The groups managed by funeral parlours have higher expectations of profits and will switch the business more frequently. In addition, the larger groups either provide some level of self-administration or use a third partner administrator, which requires specialized software and IT links to be provided by the insurer. OM first focused on addressing the needs of the smaller groups, but the Foundation Market is now trying to reach the funeral parlors, by launching the more price-competitive GFS product and developing software which will enable web-based administration.
Group product management requires a different system than individual products. As OM has always been in the business of individual policies, the administration for BSSP was originally set up on a system for individual insurance policies, customized to allow for some level of group billing and member data. OM is now developing a new system to suit the requirement for appropriate administration of group policies.
Too much flexibility in the product design can be simplicity’s enemy – especially in a retail distribution model where most sales are passive. The PWYC product is meant to address income irregularity by providing a top up option rather than requiring monthly premium payments. All top ups are for 14 month coverage, including a two month waiting period. While the design is flexible, it adds complexity as it is difficult to calculate the active coverage amount at different points in time. Pre-launch market research as well as low sales performance are showing that the market does still not fully understand the new concept, as it is the first of its kind and is not supported by adequate knowledge of the product by Shoprite staff. OM will work on increasing product knowledge among front line staff and enhance the benefits of the product.
Date of last Learning Journey update: January 2012