Part of the FinMark Trust series of case studies on innovative microinsurance models and products in South Africa Authors: Anja Smith and Herman Smit Date: 16 July 2010
The Centre for Financial Regulation and Inclusion USB Bellville Park Campus, Carl Cronje Drive, Bellville, 7530, South Africa +27 21 918 4390 www.cenfri.org
Table of Contents
1. 2. 3. Introduction ........................................................................................................................1 About the institution ..........................................................................................................1 About the products and channel ........................................................................................2 Bibliography ..................................................................................................................... 10
This case study forms part of a series of case studies completed for the FinMark Trust by the Centre for Financial Regulation and Inclusion (Cenfri), as part of a larger study titled “Update on innovative microinsurance models and products in South Africa”. The purpose of the case studies is to review the success and development of various microinsurance models that have been launched during the last few years in South Africa. This allows for the identification of success factors and obstacles and challenges to the distribution innovation process, contributing to a better understanding of how to make insurance products work for the low-income market. The main focus of the case studies is on distribution, an area that has seen particular innovation. Nevertheless by reviewing both the distribution model and the products provided through a particular channel, product innovation is also considered. Methodology. The project draws on information gathered during a number of interviews with innovative microinsurance providers, as well as new organisations entering into the insurance distribution space such as retailers or retail payment providers. The information from interviews is supplemented by publicly available information on these providers and their distribution channels, such as newspaper reports, websites and annual reports. Since this report builds on a series of earlier FinMark Trust research reports, the report also draws on earlier information and insights from this research. Availability of data. Given that the case studies will all be placed in the public domain, data that provide a true reflection of the success and value of different models and products, for example the number of policies sold, claims ratios, policy persistence, total premiums generated, profit, etc, are often not disclosed by the providers on the basis of its being commercially sensitive. Where companies were willing to share this data, it is included in the case studies. Given that we obtained different types and levels of information for the different case studies, the length of case studies also vary. This case study highlights the Shoprite experience in the microinsurance market. It illustrates how a retailer can fulfil a role similar to that of an insurance broker by selling the same category of insurance product, funeral insurance, of more than one insurance company.
About the institution
Shoprite Holdings (Ltd), the holding company of the retail group that includes well-known South African supermarket chains Shoprite and Checkers, started operations in 1979. Today, the Shoprite group has 1,068 corporate and 275 franchise stores in 16 African1 countries and India. In South Africa, the company’s store network is as follows:
African countries include: Angola, Botswana, Ghana, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Nigeria, South Africa, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe and the Democratic Republic of the Congo.
Trade name Shoprite stores Checkers Checkers Hyper U-Save OK Furniture OK Express House & Home Hungry Lion
Number of stores 309 128 24 124 175 13 44 103
Table 1: Shoprite Holdings’ South African operations Source: Shoprite Holdings, 2009.
Insurance is only sold through the 309 Shoprite stores. Shoprite’s business model is to provide customers with the lowest possible prices and to add additional value to the customers’ shopping experience through value added services such as the Money Market Counter, discussed in greater detail below (Shoprite, 2009).
About the products and channel
Shoprite and insurance. Shoprite’s insurance offering started as early as 1999 with the introduction of an HTG Life insurance product (Genesis, 2006). Subsequently, due to various reasons, Shoprite has added and withdrawn several insurance products from its range. According to management, the addition of insurance to Shoprite’s product offering has been an attempt at differentiating Shoprite from its competitors by increasing the product offering to their clients (Smit, 2009). While Shoprite displays insurance products in-store just before the cashier isles, most premiums (depending on product design) have to be paid at a separate counter, the Money Market counter, in the store. Money Market Counters. The Money Market counter was introduced in 1998. The main objective of the Money Market counter is to enable customers to settle more of their daily transactions in one place (Shoprite Holdings, 2008). This initiative started out by giving clients the option of buying cell phone airtime and pre-paid electricity at a designated counter in the store. The original product offering has now been expanded to include money transfer products, postage stamps, water accounts, municipal rates and taxes, theatre and events bookings, telephone accounts, lottery tickets, bus tickets, flight bookings and insurance. The overall success of the Money Market Counter initiative has been noteworthy. Shoprite estimates that more than 50% of its clients make use of the counter while in the store (Shoprite Holdings, 2008). Target market. Insurance policies can be purchased at any Shoprite store and monthly payments can be made at any Shoprite or Checkers Money Market Counter. The Shoprite supermarket has been chosen by Shoprite Holdings as the most appropriate of its stores to distribute low-income insurance, as it has positioned itself to serve the LSM2 4 – 7 market segment. While insurance products can only be purchased in Shoprite stores, clients are also able to pay their premiums at Checkers, a supermarket targeting a higher-income market segment than Shoprite.
The South African Advertising Research Foundation’s (SAARF) Living Standard Measurement (LSM) divides the population into ten LSM groups with 1 being the lowest and 10 the highest. Grouping is based on 29 factors including degree of urbanization, ownership of cars and of major appliances.
Products from different insurance companies sold in-store. Shoprite stores offer insurance products from several insurance companies. According to management, this stems from a belief that the customer should have a choice between insurance providers and not be limited to one insurance company (Smit, 2009). The product offering consists of three funeral insurance products, underwritten by different insurers: Pay-when-you-can underwritten by Old Mutual, a life insurer; Cashback Funeral Policy by Cover2go, a division of Metropolitan Life3; and Doves Family Funeral Policy underwritten by Union Life Ltd It is also possible for the clients of Santam4, a short-term insurance company, to pay the premiums of their household structure and content insurance products at Money Market Counters. Compliance with intermediary regulation Shoprite Checkers (Pty) Limited, in compliance with the Financial Advisory and Intermediary Service (FAIS) Act5, is registered as a Financial Service Provider (FSP) with the Financial Services Board (FSB), the insurance supervisory authority. The Act requires that all intermediaries of financial services products be registered as an FSP or representative of a registered FSP. 3
More information on Metropolitan Cover2go and their different products and distribution channels can be found in a separate case study, part of this series, that focuses on Metropolitan Cover2go. 4 This payment channel, for Santam clients, was discontinued shortly before publishing this case study. 5 The act that provides the legal framework for the regulation of insurance intermediaries.
All the above insurance products are sold by Shoprite on a non-advice, tick–of–the-box basis. According to Shoprite and the insurance companies selling their products through Shoprite, the Shoprite cashiers perform only a clerical or administrative function. They are not allowed to offer any verbal information on the insurance product to the client as they are not registered intermediaries. The client can obtain product information from the policy documents of the different insurance products. If any further information or clarification is required, the client should contact a call centre where a registered representative of the insurance company can provide advice and/or information on the product. Below, we provide a more detailed overview of each of the three products. Pay-when-you-can by Old Mutual Pay-when-you-can, an innovative flexible insurance top-up package, was launched at Shoprite Money Market counters during November 2007. The product allows individuals to buy insurance on a top-up basis to a maximum cover amount of $2,3636 (R20,000). The product is sold in the form of a starter pack (similar packaging to the way in which cell phone sim cards are sold), and contains two insurance policies: Family Funeral Cover and Family Accidental Cover.
Rand values converted into US dollar equivalent using the 6 month average, interbank exchange rate, where USD1 = R8.58, for the period March 2009 to end of August 2009.
Target market. According to Old Mutual management, the product is targeted at the LSM7 1 – 4 market, with monthly household incomes of $118.15 (R1,000) to $354.45 (R3,000). This is a slightly lower-income market than Shoprite’s defined target market. The product is designed to take into account income flows of seasonal and temporary employed workers (Mupanbirei, 2009). Product features. The funeral benefits provide different levels of cover at different premiums. The following table sets out the different policy options Premium payable 8 every six months $1.65 (R13.95) $0.28 (R2.35) pm $3.30 (R27.95) $0.55 (R4.66) pm $8.26 (R69.95) $1.38 (R11.66) pm $15,35 (R129.95) $2.56 (R21.66) pm Funeral Benefits Policyholder & Spouse - $59. 08 (R500) Child – $29.54 (R250) Stillborn - $14.77 (R125) Policyholder & Spouse - $118.15 (R1000) Child - $59. 08 (R500) Stillborn - $29.54 (R250) Policyholder & Spouse - $295.38 (R2500) Child - $295.38 (R1250) Stillborn - $73.84 (R625) Policyholder & Spouse - $590.10 (R5000) Child - $295.38 (R2500) Stillborn - $295.38 (R1250) Age 18 – 64 0 – 20