Capitec eyes big growth
FOCUS ON R250K TO R3M SEGMENT Over 500 000 policies were issued under its licence up to 29 February.
JSE-listed Capitec Bank plans to expand its insurance business on the back of double-digit growth of this new segment for the group, taking on established players in the market like Old Mutual, Momentum, and Sanlam.
Capitec CEO Gerrie Fourie said at the company’s 2024 full-year results presentation on Tuesday that the group will launch a new life cover product in June.
This will expand the insurance business it started building last year, expanding the group into a broader financial services company.
Stellenbosch-headquartered Capitec obtained its long-term insurance licence in 2022. Its move into the insurance space comes as South Africa’s financial services companies are increasingly diversifying their services by venturing into subsectors other than their core competencies.
For example, the country’s second-largest insurer, Old Mutual, recently got the green light to launch its own bank later this year.
Capitec started issuing credit life insurance policies in May last year, and in the year under review, managed to grow its insurance profit by 12% to R3 billion. Net credit life insurance income was up 13% to R1.9 billion, with 558 417 policies issued on Capitec’s licence.
Fourie said that Capitec sees an opportunity in the insurance market segment of R250 000 to R3 million. “This is the area we intend to focus on.”
Capitec has been working towards growing its insurance team from four people to over 120, comprising actuaries and IT officers. The insurance division is headed up by Katherine Barker, who joined Capitec in June 2021. Before then, she headed the life and health business for Southern Africa at Swiss Re.
Growth through existing clients
Capitec intends to utilise the benefit of having access to vast amounts of data thanks to its 22 million client base, which is 36% of the South African population. “We want to use data to look differently at insurance,” Fourie said.
Craig Metherell, an equity analyst at Denker Capital, said that financial intermediaries are increasingly looking to “own more of the customer’s wallet”.
In principle, this type of “vertical integration” makes sense, as it allows a bank – or insurer in Old Mutual’s case – to create an ecosystem for customers where they can see to all their financial needs in one place and ultimately generate higher revenue per customer.
“However, integrating insurance into banking or vice versa has proven to be more challenging than these companies have envisaged,” Metherell noted.
Diversifying income streams
In October last year, Capitec gave notice to Sanlam of the termination of the Funeral Product Co-Operation Arrangement at the end of the initial seven-year term. From 1 November this year, Sanlam will cease to provide reinsurance and administration services for the funeral policies forming part of the arrangement.
Capitec’s insurance venture is part of its strategy to diversify income streams and grow quality clients.
Fourie said the bank’s non-interest income has contributed significantly to the 16% growth in its headline earnings for the 2024 financial year, increasing to 72% of income from operations after credit impairments. Last year, this figure was 66%.
According to Metherell, Capitec has proven innovative and successful in making its products simple and convenient.
“Initially in the banking space, and now in insurance, which has resulted in market share gains as some incumbent players have perhaps been caught by surprise by Capitec’s entrance into the market,” he said.
“Although life cover has proven to be a difficult product to offer for banks, given the lack of insurance-related skills and experience, this is changing, and the profit pools in life insurance make it an attractive market.”