Large retailers and banks pivoting to fintech are coming for funeral parlours’ piece of the insurance resale pie, but parlours can win back market share by adjusting their business models and bringing back good old-fashioned personalised customer service.

Funeral insurance is the largest segment of the South African insurance market because the average South African owns up to four different funeral policies. In this competitive landscape, funeral parlours that used to dominate the funeral insurance resale market are now challenged by the rise of mega retail and mass market digital financial services.

One industry expert however believes the small local players are missing an important trick and could regain lost market share if they use their core strengths to radically enhance their business models for the benefit of the consumer.

“In the old days, in our grandparents’ and parents’ generations, everyone bought their funeral policies from the trusted local funeral parlour or parlour chain. These were small hyper-local businesses that were hugely relied upon as caring and holistic service providers in their communities. Customers could focus on grieving their loved ones while the parlours took care of all the arrangements seamlessly,” explains Clinton Macdonald, CEO of KGA Life, specialists in funeral policy underwriting and regulatory compliance.

How digitisation and commercialisation have changed the funeral policy game

In the current era of digitalisation, big data and mass retail domination, large mass market retailers, technology companies and banks have stepped in to take market share from small players. “Many South Africans now own funeral policies from an array of providers and may have one funeral policy through their local parlour in addition to several other policies from the money market counters at their supermarket or via additional debit orders from their banks or other financial service providers. While multiple policies from multiple suppliers may have been pursued to save money, seamlessness and quality of service gets lost,” he says.

Macdonald warns that while new platforms and channels can bring digital efficiency, the fragmentation of services and providers are changing the way customers experience these services. “To provide an example, today if someone loses a loved one, they may need to take the death certificate to two or three different money market counters to get all their pay-outs, to cover various different funeral expenses including the event, flowers, food, coffin, transport etc. Once the policies are paid out, the customer must seek out the services, whereas earlier generations could rely on single community supplier to help them with A to Z,” says Macdonald.  

Parlours need to embrace Customer Lifetime Value

“Funeral parlours can learn from modern financial service providers in terms of their pursuit of Customer Lifetime Value,” says Macdonald.

Customer Lifetime Value is defined as the value of a customer relationship over time and dictates that a single high value transaction with a customer is worth far less than lower value multiple or recurrent interactions with the same client over time. “In the funeral policy space, it might mean that a funeral parlour may seek to be the customer’s go-to provider of multiple services and products, including a variety of different kinds of policies that can be converted into all the services that are needed quickly when a loved one passes away.”

“The small guys must realise they have something the retailers and fintechs will never have and that’s authenticity. They have highly skilled and experienced staff who can provide superior customer support, they have real customer relationships, and they have community and cultural insights corporates will never have. They are also nimble, quick and excellent at complex problem-solving. Many of the new competitors in the space do pure cash pay-outs and nothing else.”

Macdonald further explains that even if clients take out all their funeral policies only via one local funeral home, they can still own different policies from various different well-established national insurers. “The diversity of products – providing price competitiveness and mitigation of risk - is still available, but the difference is that the client has one trusted funeral specialist coordinating all administration, logistics and services even before payouts happen or death certificates are issued. This is particularly beneficial in cultural circumstances where funerals have to take place immediately and there is no time to first wait for the issuance of a proof of death certificate, which can take Home Affairs several days or even weeks.”

“There may also be a financial benefit to the consolidation of policies with one funeral service provider, as service providers will be able to negotiate for discounts for existing customers acquiring new products. This is because they view the customer as a life insured and not just a policy. It’s a 360 degree, far more human and personal approach to the administration of funerals,” says Macdonald.

If the small local funeral service providers can learn from and adopt the Customer Lifetime Value Model, it could change the industry for the better, he concludes.