The Changing Dynamics of Funeral Insurance

As a result of the pandemic, the funeral insurance market in South Africa has significantly changed and become increasingly important to individuals. Executive Head of Retirements, Craigh Chidrawi, explains how the retirement funds market has been impacted by this development.

Did the pandemic impact death claims?

In the last year, the retirement funds that NMG Benefits provides consulting and administration services to have seen a marked increase in the number of death claims being received. The insurers that NMG works with have given feedback that since the start of the Covid-19 pandemic they are receiving significantly more death claims than expected. The value of the death claims is also higher than experienced previously as individuals with higher salaries, and therefore higher levels of cover, pass away.

NMG Consulting’s research team interviewed respondents from 35 different South African insurers, and the results showed that the majority interviewed (43%) expect Covid-19 to contribute to profitability deterioration. Almost every insurer in this group has experienced worsening claims through increased deaths.

What funeral insurance trends are we seeing?

NMG’s retirement fund consultants are seeing an increased focus on the importance on funeral benefits. Where employers haven’t had this type of cover for all staff previously (for example where contract workers aren’t covered for funeral benefits), they are looking to introduce funeral benefits. There has also been a need for funeral cover to provide benefits for not only the member, spouse, and children, but to extend this to the wider family of the member. Extended funeral cover can cover the member’s parents as well as the immediate family.

What impact will this have on insurance costs?

At annual renewal, NMG’s risk benefits consultants are seeing insurers increasing premium rates by as much as 60% because of the increased claims experience in that scheme. The insurers are considering the claims experience at scheme level, the experience at industry level and in their overall book of business. The feedback from insurers is that they aim to ensure sustainability to deal with future negative claims experience.

What does this mean for employee benefits moving forward?

In the past, doing a market testing exercise was a regular occurrence to ensure that the premiums and medical-free cover limits were competitive. When schemes are being rebroked, NMG’s consultants are seeing that most insurers quote similar pricing. While existing insurers are retaining the medical-free cover limit, the market is quoting lower medical-free cover limits. This results in more members that need to provide medical evidence of good health. Some insurers have indicated that they may consider vaccination status when underwriting for individual cover. This is something to watch as group risk insurers may consider a similar approach going forward.

When premiums are increasing, it’s important to consider whether the most appropriate benefit structure is in place. Engagement may be needed to better understand needs. Different, innovative models need to be considered.

What critical impacts should employers and members be aware of?

It has become critically important to ensure that members have completed beneficiary nomination forms. Previously, funeral benefits were often paid to a family member when a member passed away. Recent changes to insurance laws require that the funeral benefit be paid directly to the people nominated to receive the benefit in the insurer’s own nomination form. If there is no nomination form on record, the funeral benefit must be paid to the estate. This could delay the payment of the funeral benefit and cause hardship. NMG’s experience is that some insurers are giving employers time to obtain the correct nomination forms, while others are strictly applying the new legislation.

The information in this communication is for information purposes and is not intended to be detailed advice described in the Financial Advisory and Intermediary Services Act. The fund, administrator and trustees cannot be held liable for damage or loss suffered as a result of any action that you take based on the contents of this communication.