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Will the funeral plan your client buys deliver on its promise and pay valid claims quickly? Not all insurers will live up to their commitment to pay valid claims within a certain timeframe, leaving policyholders without the funds they need to pay for a respectable funeral. As a financial adviser, you need to recommend policies from an insurer that has adequate resources and liquid reserves to pay claims when called on, and offers tailored policies catering for different life stages. Kobus Wentzel, Executive Head of Sales and Distribution at 1Life Insurance, unpacks these three key criteria for sound funeral policies.
A good funeral insurer will be able to pay claims, even when the number of claims is high
Key takeaway for advisers: Make sure your insurance company has the operational capacity to pay claims, even if the number of claims is higher than expected.
The insurance company or companies whose policies you recommend and sell to clients must have the funds available to pay claims. And when claim numbers rise, they must be able to maintain service levels agreed upon. This can be difficult, as we saw during the COVID-19 pandemic, with many funeral and life cover claims taking longer than the norm to pay, frustrating many clients and advisers.
One of the reasons valid claims take a long time to pay is a lack of resources.
Resources is simply operational capacity, such as having enough claims assessors and/or using automated processes. As claims staff are highly skilled, it can be difficult to increase employee numbers overnight, so any unexpected increase in claims relying on human input will be slower than usual.
For example, ASISA noted that South African life insurers reported a “53% surge in death claims for the six months between 1 April 2021 and 30 September 2021,” with a rand value increase of 127%. For some, this resulted in delayed claims as reported in News24, with the Ombud intervening to speed up payments.
Fortunately, technology such as robotic process automation (RPA) can accurately assess claims within required service levels, whether claim numbers are low, normal or high.
1Life Insurance can successfully manage high volumes of claims as we automate many of our processes and have sufficient human resources to manage these processes and deal with any queries. Automating claims saves time for an adviser, client and insurer. It means we can pay valid claims quickly when clients need funds the most. Our promise is to pay valid claims, once all the documentation has been received, within 24 business hours.
Interrogate your insurers to see if they use automation and technology in claims processing, or have sufficient staff to handle high claims volumes, so that your clients aren’t left frustrated and with funeral bills to pay.
A good insurer needs sufficient reserves to pay all claims on time
Key takeaway for advisers: Make sure your insurance company has sufficient liquid reserves to pay claims, even if claim volumes are high.
In addition to having the resources to pay claims, insurers also need sufficient reserves and liquidity. Think of this as having the cash on hand to pay expenses when they are due.
Without sufficient reserves, an insurer can only meet their obligations to pay claims some of the time.
Mandla Mahlangu, an actuary at 1Life Insurance, says that in the past some insurers and banks across the globe have gone insolvent. In South Africa, the Insurance Act of 2017 put measures in place to prevent this and all licensed insurers have to hold sufficient capital resources to cover policyholder liabilities at all times. This means an insurer must be able to pay expected future claims and expenses such as staff salaries and commissions.
There is an additional requirement: insurers have to hold enough reserves for the “Black Swan” events, which are catastrophic 1 in 200-year events. Mahlangu says 1Life Insurance holds more capital than is required and can withstand a 1 in 300-year event. “We hold even more capital than required to ensure that our policyholders are protected from unusual and extraordinary events.”
Reserve numbers are monitored independently by the Prudential Authority (PA), who supervise financial institutions and ensure policyholders are protected.
Although the matter of reserves can be technical, Mahlangu says financial advisers should check that the insurer whose policies they sell has sufficient reserves and solvency, and monitor any changes over time. These details can be found in financial reports. Advisers should also check if the insurer holds enough liquid assets so that if additional funds are required, these can be raised quickly.
The PA will also announce if they have concerns around an insurer’s reserves and solvency and take steps to ensure policyholder obligations can be met. Following any announcements made by the PA will ensure advisers are well informed.
Key number to look for:
SCR: Solvency Capital Requirements ratio, which should be above 1, indicating that all liabilities and obligations can be paid.
Tailored cover to suit different life stages
Key takeaway for advisers: Your insurer must offer flexible policies to suit different life stages and budgets.
Clients need funeral plans that meet life stage as well as affordability constraints. A client with a small family and a small budget is looking for affordable, basic cover, whereas a client with a large extended family, elderly in-laws and a slightly bigger budget can afford a few value-adds to their policy.
The 1Life Family Plan offers cover from R108 per month for 12 additional members, and the 1Life Generational Plan offers cover from R97 a month for a main member with two child members, this plan is ideal for a young family.
The 1Life Essential Funeral Plan offers cover for up to 16 members from R230 a month, with additional benefits such as a repatriation service and continuation option included. Clients can also add further benefits for a small amount, such as a rewards programme and cashback benefit.
Depending on need and budget, advisers can recommend a suitable plan at a competitive premium.
Policies that cannot be tailored to clients’ needs and life stage can quickly become irrelevant, often resulting in lapses. Great funeral plans come from insurers who recognise the importance of flexible cover.
Insurers and policies that meet clients' needs
In a market where trust is paramount, advisers and clients need to be sure that promises will be met, today and years in the future. Focusing on these three criteria will ensure advisers select insurers who can and will deliver and meet client expectations throughout their lives.