South Africa’s government said it plans to protect the country’s poorest people by stopping insurers from selling funeral cover to welfare recipients.
The companies that could be impacted include Sanlam, the biggest insurer based in South Africa, and Lion of Africa Assurance Co. They are among companies selling funeral cover that is paid for from welfare grants meant for children. Other companies sometimes draw money from social grants for other services, a practice which is illegal.
The government will replace private schemes with a state-run funeral plan, Minister for Social Development Bathabile Dlamini said in a speech to parliament on Wednesday. “The absence of a funeral benefit has opened our social grant beneficiaries to exploitation by private-insurance companies,” Dlamini said. “The lack of government action to protect them has led to a very loud outcry by our beneficiaries and various civil-society organizations.”
Sanlam and Lion of Africa are both trying to maintain the current system through separate court cases being heard this month. About 16.9 million people are on welfare, more than the number in work. That’s part of the post-apartheid government’s attempt to reduce poverty and narrow inequality in a nation with one of the world’s biggest gaps between rich and poor. About 70% of the grants are for children.
While the government can stop deductions being made before the grants go into a recipients’ account, it will struggle to implement a complete ban on the practice, Lion of Africa CEO Paul Myeza said by phone. “It doesn’t dramatically change the landscape,” Myeza said. “Those members can buy policies like anyone else. It’s an open market.”
While Lion of Africa won an interdict against a moratorium stopping all new deductions from child grants, Sanlam said it had complied with the measure. Its case, to be heard on May 10, seeks to clarify how a process to clean-up the industry is implemented.
“Sanlam supports the new moratorium and we’ve applied it as of December 1,” Jurie Strydom, the deputy CEO of its Sky division, said by phone on Thursday. “Sanlam is not party to the legal action taken by Lion of Africa Assurance.”
The law currently allows deductions from social grants for a single funeral insurance policy amounting to a maximum of 10% of the grant. Many on welfare complain that there are many deductions being made for funeral cover and other services without them being aware that they signed up for them, according to the government.
Minister Dlamini will on Friday announce new measures to end all deductions from social grants, her spokeswoman Lumka Oliphant said by phone..
Lion of Africa calculations show there’s a risk of between 30% and 156% of a funeral policy payout, because as many as eight people can be covered by a family policy, according to its actuarial head EC du Toit.
© 2016 Bloomberg