Informal Microinsurance Schemes - The Case of Funeral Insurance in South Africa

This article looks at how the bereaved cover funeral expenses from a number of sources including informal credit, informal insurance and friendly societies. Two main types are:

• For-profit, typically run by owners of funeral parlours who sell insurance schemes for relatively expensive services to low-income households;
• Not-for-profit, similar to ROSCAs, formed by those living in the same neighbourhood.

Detail of obtaining credit is given in terms of cost components by amount, cash flow, flexibility of premium payments, complexity of transactions, privacy issues and the specific coverage details. The processes of obtaining finance are listed as:

• Selling assets;
• Credit - trader credit, ROSCAs, moneylenders, informal lenders and formal banks;
• Savings;
• Gifts;
• Insurers - formal and regulated insurers, formal friendly societies, informal non-profit insurers and informal for-profit insurers.

Concludes that there is a need for:

• Local knowledge;
• Transaction simplicity;
• Low-value comprehensive policies rather than high-value policies with exclusions;
• Flexible premium payments;
• Payout in cash and kind;
• A favourable legislative framework.