Transforming the insurance market
The structure can give entrepreneurs access to the market in a way that gives them overall control over the product
There is a direct correlation between savings and insurance. As people start to save, they also purchase insurance.
The problem in SA is that nearly half the population falls below the poverty line, and are unable to access insurance of any kind. One of the proposed solutions to this is what is known as microinsurance, which is aimed specifically at lower-income brackets.
Funeral cover is one such product already freely available in SA, but the new Insurance Act, which came into effect this year, allows for the licensing of microinsurers offering a wider range of products, such as coverage for low-value assets, as well as death, disability and illness.
Guardrisk sees cell captives as one of the ways to improve insurance penetration across lower-income groups. One of the key advantages of the cell concept is the ability for the insured party to own the full share in the cell, which advances the goal of transformation.
A 2012 World Bank study titled “Potential Estimates of the Global/sa Micro-insurance Market” puts the potential size of the SA microinsurance market at 24.3-million people in the middle- to lowerincome bracket (defined as those earning around R600 a month). It estimates that 30% of SA adults already have some form of microinsurance, which is high relative to countries such as Colombia (19%), Philippines (5.4%) and India (2%). More than half the SA market for microinsurance is covered by formal sector providers, and a substantial part of this relates to compulsory credit life policies which are taken out with hire purchase and similar agreements. Credit life policies typically ensure the debt outstanding is paid off in the event of death, disability or loss of job.
A 2010 study by the Centre for Financial Regulation & Inclusion, an independent, nonprofit think tank, explored the potential for cell captives as an enabler for deeper microinsurance penetration.
The study concluded that “cell captives allow easier and cheaper access to the insurance industry than what would be the case if a cell owner applied for an insurance licence outright”, but also warned that there were a “number of challenges to unlocking the cell captive mechanism in the low-income market”.
The report identifies three main benefits of cell captives as vehicles for insurance sector transformation: reducing barriers to entry; encouraging entrepreneurship; and building capacity.
It recognises that the cell captive structure is suitable for (black) entrepreneurs or businesses wishing to enter the insurance market in a way that gives them control over the product offering and value chain, while being able to rely on the insurer to manage the compliance burden and provide technical support. This, while building capacity and transferring skills.