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Insurance: Zimele standard

The South African long-term insurance industry has developed an endorsement standard, Zimele (1). Zimele is a Zulu word meaning ’to stand on your own two feet‘ and it aims to help South Africa’s low-income earners: those earning ZAR3,000/£300 a month or less, and easily identify those life insurance products that meet minimum product requirements, thus helping customers to distinguish products that are accessible, appropriate, simple, affordable and which offer good value for money. The initiative encourages the take-up of insurance among low-income earners and, as we’ll see, it has been very successful.

The long-term insurance industry commenced in 2004, under the auspices of the then Life Office Association, and began developing the standards as a response to the pending Financial Services Charter. This initiative was aimed at meeting the government’s desire to improve the penetration of financial services products among the poor. The banking sector had launched its own initiative, Mzansi, and Zimele can be seen as the insurance sector equivalent. The South African industry has benefited from the initiative: by being proactive, it led the regulator in its thinking and achieved its goal of a customer-focused business-friendly solution.

Zimele should be seen as a set of product standards: attributes that need to be met for a product to be able to carry the Zimele logo. While Zimele endorsements are available for a range of products, they do not restrict what can be sold: products that don’t meet all the requirements just aren’t able to carry the Zimele stamp of approval. Companies are encouraged to develop and sell Zimele-compliant products as these bring favour with the political powers that be, but it is not mandatory. The Zimele product standards (2) cover a range of products that meet a variety of customer needs:
>> Member-only funeral insurance
>> Member and family funeral insurance
>> Parent funeral cover
>> Credit life
>> Life cover
>> Physical impairment cover.

The standards have been carefully structured not to impinge on the products sold by the incumbent intermediaries; for example, the sum assured on life cover has been capped at a relatively low level so that ‘more traditional, larger-sum assured life insurance policies’ are precluded from Zimele’s scope.

The principles-based standards cover many areas, and ensure that a Zimele-endorsed product ‘treats customers fairly’. Examples of the wide-ranging set of criteria that need to be met include:
>> Policy wording: For example, the wording must be easily understandable, a summary of policy terms must be available in all 11 official languages, and standardised exclusion wording must be used.
>> Underwriting: Underwriting is allowed, although premium loadings and pathology tests are precluded >> Rating limitations: Premiums may only differ based on age, although premiums may differ between ‘groups’
>> Permissible exclusions and limitations (for example, there may not be a waiting period for accidental death)
>> Non-payment of premium ‘grace periods’ and ‘same-terms reinstatement’
>> Minimum and maximum cover limits and age-at-entry requirements, and
>> Maximum monthly age-banded premium rates — see Table 1 below (3) .

Sales of products that meet the Zimele requirements are tracked by the insurance industry and monitored by the Association for Savings and Investment South Africa (ASISA). Since the launch in 2007, in excess of five million compliant policies have been sold (4) — as good a measure of success as any. The participating insurers have been buoyed by the success and are looking at ways to extend the initiative. As an example, the extension of the standards to include mortgage insurance products is being considered.

This successful South African example could be used as a model, and exported to other countries. The portability of these regulations to countries with similar social and economic characteristics to South Africa should be clear: the underinsured and financially illiterate have protection needs that can be met, and these standards can help. While these could easily be adapted to South Africa’s neighbours, and other developing markets, it could be argued that the first world is equally well positioned to benefit from a similar initiative, and using the UK as an example, a perfect storm is brewing:
>> The welfare state is cutting back on benefits due to budget constraints
>> The Retail Distribution Review (RDR) is likely to reduce the number of IFAs, and an estimated 30m adults will be left without access to financial advice (5)
>> The government will be channelling significant resources to financial education through the Consumer Financial Education Body (CFEB)
>> The regulator is looking at simplified products and ways to provide simplified advice (6)
>> The financial services sector is being pressed to give something back to those ‘who bailed them out’.

Zimele products have also been shown to be profitable, and to the extent that they engage customers with a good ‘protection experience’, many will go on to become confident consumers, purchasing more substantial protection products as a result of their positive protection experience. Is this the type of industry response needed to redress the bad press after payment protection insurance and other mis-selling scandals?

The Zimele initiative shows that an existing insurance industry can agree on a set of standards, and that a regulator can permit different sales processes and practices for products that are simple and that treat customers fairly. This practice can be rolled out without curtailing product innovation and the free market, and customers can engage with products that meet their needs. Can something similar to this initiative be rolled out in your market? I think it can.

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1 www.asisa.org.za/index.php/financial-sector-charter/zimele.html

2 www.asisa.org.za/index.php/zimele-product-standards.html

3 www.asisa.org.za/index.php/zimele-product-standards.html

4 www.asisa.org.za/index.php/industry-statistics/long-term-insurance.html

5 www.abi.org.uk/Publications/ABI_Publications_
Increasing_Consumer_Access_to_Advice_a58.aspx


6 www.moneymarketing.co.uk/politics/government-to-create-simple-products/1015545.article

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Greg Becker is a product development actuary at RGA