Enhancing Insurance Coverage for Informal Sector Entrepreneurs in South Africa
This research commissioned by the UNDP SA country office aims to improve resilience for entrepreneurs in South Africa's informal sector, particularly women, by offering social protection through insurance coverage against income loss. The study underlines the vulnerability accentuated by the Covid-19 pandemic and proposes integrating the informal sector into the national social security scheme. It suggests personal insurance and business asset insurance as key components to alleviate poverty and inequality.
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Benefit packages, including best demonstrated practice for an insurance cover for Benefit packages, including best demonstrated practice for an insurance cover for entrepreneurs in the informal sector in South Africa entrepreneurs in the informal sector in South Africa This research was commissioned by, and developed for the United Nations Development Programme, SA country office, as part of its development support on social protection.
There is a need to build resilience to shocks for individuals working in the informal sector There is a need to build resilience to shocks for individuals working in the informal sector particularly women and hence contribute to poverty and inequality reduction in SA particularly women and hence contribute to poverty and inequality reduction in SA Section 1: Section 1: Status Quo in the Status Quo in the informal sector informal sector The Covid The Covid- -19 pandemic has highlighted the vulnerability of entrepreneurs in the informal 19 pandemic has highlighted the vulnerability of entrepreneurs in the informal sector to external shocks and loss of income. sector to external shocks and loss of income. Section 2: Section 2: Needs and possible Needs and possible solutions solutions Social insurance is a possible solution and any form of coverage against loss of income is Social insurance is a possible solution and any form of coverage against loss of income is seen as the seen as the most important benefit by far. most important benefit by far. Section 3: Section 3: Possible types of Possible types of insurance schemes insurance schemes It is of utmost importance to offer personal insurance by integrate It is of utmost importance to offer personal insurance by integrate the informal sector into a national social security scheme. a national social security scheme. the informal sector into Section 4: Section 4: Business asset Business asset insurance pilot insurance pilot In addition, there is a need for a specific business asset insurance as a supplemental In addition, there is a need for a specific business asset insurance as a supplemental voluntary cover for entrepreneurs. voluntary cover for entrepreneurs.
There is a need to build resilience to shocks for individuals working in the informal sector There is a need to build resilience to shocks for individuals working in the informal sector particularly women and hence contribute to poverty and inequality reduction in SA particularly women and hence contribute to poverty and inequality reduction in SA Section 1: Section 1: Status Quo in the Status Quo in the informal sector informal sector The Covid The Covid- -19 pandemic has highlighted the vulnerability of entrepreneurs in the informal 19 pandemic has highlighted the vulnerability of entrepreneurs in the informal sector to external shocks and loss of income. sector to external shocks and loss of income. Section 2: Section 2: Needs and possible Needs and possible solutions solutions Social insurance is a possible solution and any form of coverage against loss of income is Social insurance is a possible solution and any form of coverage against loss of income is seen as the seen as the most important benefit by far. most important benefit by far. Section 3: Section 3: Possible types of Possible types of insurance schemes insurance schemes It is of utmost importance to offer personal insurance by integrate It is of utmost importance to offer personal insurance by integrate the informal sector into a national social security scheme. a national social security scheme. the informal sector into Section 4: Section 4: Business asset Business asset insurance pilot insurance pilot In addition, there is a need for a specific business asset insurance as a supplemental In addition, there is a need for a specific business asset insurance as a supplemental voluntary cover for entrepreneurs. voluntary cover for entrepreneurs.
Entrepreneurs and hustlers in the informal sector in South Africa are particularly vulnerable Entrepreneurs and hustlers in the informal sector in South Africa are particularly vulnerable to any shocks or disruption to their income to any shocks or disruption to their income the Covid the Covid- -19 pandemic highlighted this 19 pandemic highlighted this People turn to the People turn to the informal sector due to informal sector due to high unemployment. high unemployment. People working People working informally are the informally are the missing middle. missing middle. Businesses need Businesses need stock, machinery, stock, machinery, equipment, or stalls. equipment, or stalls. Their capacity to Their capacity to pay for for an insurance an insurance scheme is very low. scheme is very low. pay Any insurance scheme Any insurance scheme needs to improve needs to improve financial inclusion. financial inclusion. They have a median income of R4000 per month living month to month with no chance to save any money. They have a huge need for social insurance schemes for themselves and for their businesses. Around 50% work in trade and around 25% in community, social or personal services or manufacturing. Most can contribute only R600 and R1800 per year (equal to a monthly payment of R50 - R150). Most people in the informal sector still rely on cash payments even though around half have a bank account.
A loss of income for longer than three months, especially due to A loss of income for longer than three months, especially due to hospitalisation the worst impact, together with losing one s assets or savings the worst impact, together with losing one s assets or savings hospitalisation, will have , will have 1 2 3 Not making any money Not making any money with your business for a longer time (more than three months) Losing important assets Losing important assets of your business due to external shock, e.g. a car, equipment, materials Being sick, incapacitated or sick, incapacitated or hospitalized hospitalized for a longer time (more than three months) 92% of survey participants say this will have a really negative impact 91% of survey participants say this will have a really negative impact 90% of survey participants say this will have a really negative impact Source Source: TRi Facts survey about social insurance needs in the informal sector in South Africa (n = 5195)
There is a need to build resilience to shocks for individuals working in the informal sector There is a need to build resilience to shocks for individuals working in the informal sector particularly women and hence contribute to poverty and inequality reduction in SA particularly women and hence contribute to poverty and inequality reduction in SA Section 1: Section 1: Status Quo in the Status Quo in the informal sector informal sector The Covid The Covid- -19 pandemic has highlighted the vulnerability of entrepreneurs in the informal 19 pandemic has highlighted the vulnerability of entrepreneurs in the informal sector to external shocks and loss of income. sector to external shocks and loss of income. Section 2: Section 2: Needs and possible Needs and possible solutions solutions Social insurance is a possible solution and any form of coverage against loss of income is Social insurance is a possible solution and any form of coverage against loss of income is seen as the seen as the most important benefit by far. most important benefit by far. Section 3: Section 3: Possible types of Possible types of insurance schemes insurance schemes It is of utmost importance to offer personal insurance by integrate It is of utmost importance to offer personal insurance by integrate the informal sector into a national social security scheme. a national social security scheme. the informal sector into Section 4: Section 4: Business asset Business asset insurance pilot insurance pilot In addition, there is a need for a specific business asset insurance as a supplemental In addition, there is a need for a specific business asset insurance as a supplemental voluntary cover for entrepreneurs. voluntary cover for entrepreneurs.
Social insurance is seen as the third most helpful type of support after financial support in Social insurance is seen as the third most helpful type of support after financial support in the form of grants and better health care the form of grants and better health care Question to entrepreneurs in the informal sector: To what extent do you think the following forms of support will help if you will encounter these challenges? Better healthcare Social grant Social insurance 82% 81% 79% 57% believe it is very important and 22% say it is a little bit important Source Source: TRi Facts survey about social insurance needs in the informal sector in South Africa (n = 5195)
Unemployment insurance is considered the most important benefit by far, followed by Unemployment insurance is considered the most important benefit by far, followed by asset and health insurance asset and health insurance Benefit types an insurance cover should have (name up to three) 69% 65% 61% 54% 38% 38% Unemployment insurance Asset insurance Health insurance Life insurance Pension or income security for older workers Insurance for losses due to pregnancy or giving birth Source Source: TRi Facts survey about social insurance needs in the informal sector in South Africa (n = 5195)
There is a need to build resilience to shocks for individuals working in the informal sector There is a need to build resilience to shocks for individuals working in the informal sector particularly women and hence contribute to poverty and inequality reduction in SA particularly women and hence contribute to poverty and inequality reduction in SA Section 1: Section 1: Status Quo in the Status Quo in the informal sector informal sector The Covid The Covid- -19 pandemic has highlighted the vulnerability of entrepreneurs in the informal 19 pandemic has highlighted the vulnerability of entrepreneurs in the informal sector to external shocks and loss of income. sector to external shocks and loss of income. Section 2: Section 2: Needs and possible Needs and possible solutions solutions Social insurance is a possible solution and any form of coverage against loss of income is Social insurance is a possible solution and any form of coverage against loss of income is seen as the seen as the most important benefit by far. most important benefit by far. Section 3: Section 3: Possible types of Possible types of insurance schemes insurance schemes It is of utmost importance to offer personal insurance by integrate It is of utmost importance to offer personal insurance by integrate the informal sector into a national social security scheme. a national social security scheme. the informal sector into Section 4: Section 4: Business asset Business asset insurance pilot insurance pilot In addition, there is a need for a specific business asset insurance as a supplemental In addition, there is a need for a specific business asset insurance as a supplemental voluntary cover for entrepreneurs. voluntary cover for entrepreneurs.
There is a huge need for personal as well as business insurance schemes covering life There is a huge need for personal as well as business insurance schemes covering life events that can happen to everyone events that can happen to everyone as well as for specific shocks to the business as well as for specific shocks to the business Personal Personal insurance insurance Business Business insurance insurance Benefits/ Benefits/ Covered loss Covered loss Health Health Equipment, machinery or material Equipment, machinery or material Disability Disability Vehicle/s Vehicle/s Parenthood Parenthood | Maternity benefits, Child Support Stock (food and other products) Stock (food and other products) Family Family | Care Dependency Stall Stall Unemployment Unemployment | Loss of income Incapacitated | Incapacitated | Loss of income Old Age Old Age | Pension, Provident funds, Annuities Death Death | Life Insurance, Funeral cover Policy event Policy event Life events and challenges Theft or crime Impact of weather Disaster or crisis
Benefits that require monthly pay Benefits that require monthly pay- -outs exceed the financial possibility of contributory outs exceed the financial possibility of contributory schemes. Lump sum benefits can cover business assets or once schemes. Lump sum benefits can cover business assets or once- -off loss of income. off loss of income. Solely contributory insurance High High affordability affordability Asset insurance Asset insurance Increasing feasibility and affordability to implement Increasing feasibility and affordability to implement Extreme weather Extreme weather events etc. events etc. Loss of income Loss of income insurance (lump sum) insurance (lump sum) Maternity insurance Maternity insurance Insurance for child Insurance for child care related losses care related losses Life insurance Life insurance Health insurance Health insurance Disability insurance Disability insurance Loss of income Loss of income insurance (monthly) insurance (monthly) Disaster, crisis or Disaster, crisis or pandemic pandemic Retirement / Retirement / Pension Pension Low Low affordability affordability Increasing priority/ importance to entrepreneurs in the informal sector Low priority Low priority / importance / importance High priority High priority / importance / importance
There is a need to build resilience to shocks for individuals working in the informal sector There is a need to build resilience to shocks for individuals working in the informal sector particularly women and hence contribute to poverty and inequality reduction in SA particularly women and hence contribute to poverty and inequality reduction in SA Section 1: Section 1: Status Quo in the Status Quo in the informal sector informal sector The Covid The Covid- -19 pandemic has highlighted the vulnerability of entrepreneurs in the informal 19 pandemic has highlighted the vulnerability of entrepreneurs in the informal sector to external shocks and loss of income. sector to external shocks and loss of income. Section 2: Section 2: Needs and possible Needs and possible solutions solutions Social insurance is a possible solution and any form of coverage against loss of income is Social insurance is a possible solution and any form of coverage against loss of income is seen as the seen as the most important benefit by far. most important benefit by far. Section 3: Section 3: Possible types Possible types of insurance insurance schemes It is of utmost importance to offer personal insurance by integrate It is of utmost importance to offer personal insurance by integrate the informal sector into a national social security scheme. a national social security scheme. cover. the informal sector into of schemes Section 4: Section 4: Business asset Business asset insurance pilot insurance pilot In addition, there is a need for a specific business asset insurance as a supplemental In addition, there is a need for a specific business asset insurance as a supplemental voluntary cover for entrepreneurs. voluntary cover for entrepreneurs.
The pilot project covering business assets will be a solely contributory insurance scheme The pilot project covering business assets will be a solely contributory insurance scheme adjusted to the specific needs of entrepreneurs in the informal sector adjusted to the specific needs of entrepreneurs in the informal sector BTL and ATL Marketing Affordable contributions ATL ATL (roadshows at commercial hubs and retailers) & BTL BTL marketing marketing (Communication through industry associations) R1200 per annum subscribers can choose when to deposit money throughout the year Distribution Distribution Collection Collection Branding to build trust Seamless premium collection Collaboration with well-known and trusted brands (banks, telcos or retailers) Payment through retailers or banks with a basis in low-income areas Payments Bias to basic benefit amount Broad benefit cover Once-off payment ranging from a standard of R5,000 up to a maximum of R50,000 Theft, crime, weather, disaster or crisis. Equipment, material, machinery, vehicles as well as stock and related loss of income
Progress to date and next steps Progress to date and next steps Primary and secondary research Primary and secondary research Stakeholder engagement workshop Stakeholder engagement workshop Concept development Concept development Development of distribution strategy Development of distribution strategy Alignment with stakeholders in the sector Alignment with stakeholders in the sector Launch of product pilot Launch of product pilot Onboarding of insurance company Onboarding of insurance company Other ideas? Other ideas? Product development sessions Product development sessions
