New study highlights how cell captive structure can help transform the insurance market

23 July 2018

Cenfri (the Centre for Financial Regulation and Inclusion), an independent, non-profit think tank, has over the past decade been exploring how insurance can serve more South Africans. When, in the 2008 Microinsurance Discussion Paper, the regulator recognised the cell captive mechanism as an alternative to a dedicated microinsurance licence for extending the reach of the insurance market, Cenfri, on behalf of FinMark Trust, commissioned a study to review the cell captive structure and its potential to support the development of the microinsurance market in South Africa. The resulting report, The Role of Cell Captive Insurance in the Development of the South African Microinsurance Sector, was released in 2010 and recognised 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 license outright”, but also warned that there were a “number of challenges to unlocking the cell captive mechanism in the low-income market”.

In 2017, during the parliamentary hearings on financial sector transformation, the developmental potential of the cell captive arrangement once again came to the fore, but this time with a much broader focus – can cell captives be part of the solution to achieve a more transformed insurance market? And if so: what needs to happen to enable that role?

This prompted Cenfri to embark on an industry wide study, which was funded by Guardrisk, part of the MMI Holdings Group, to map the landscape of cell captives in South Africa, the functioning of the mechanism and the potential it holds for transformation. The final report, Third-party cell captives as an enabler for transformation in the insurance sector, was released this week.

“As the creator of the cell captive concept, it was fitting for Guardrisk to fund the research and participate alongside other stakeholders in the consultations” says Herman Schoeman, CEO of Guardrisk.

But, according to Doubell Chamberlain, MD of Cenfri, the report was not to provide a one sided industry view, rather it “seeks to highlight the potential of this market for transformation and to identify industry as well as regulatory imperatives to unlock such potential, as the basis for ongoing dialogue between policymakers, regulators and market players”.

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 allows 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.

“We have always believed that the cell captive structure and industry in South Africa has a role to play in the broader insurance space and we are pleased that the report (which received input from regulators, policy makers, industry associations and a range of market and regulatory stakeholders) supports this view and identifies ways to unlock the transformation potential inherent in cell captives,” says Schoeman.

Cenfri’s full Third-party cell captives as an enabler for transformation in the insurance sector report can be accessed here.