High barriers to entry are making it difficult for innovators in the insurance industry to gain traction in Africa, but cell captives could provide a solution, according to a note from the Centre for Financial Regulation and Inclusion (Cenfri).
Cell captives could provide insurers in South Africa and sub-Saharan Africa (SSA) with more cost effective access to the insurance market and fewer compliance hurdles than what they would expect with a full insurance licence, Cenfri explained.
Cenfri’s Matthew Dunn, Christine Hougaard and Jeremy Gray noted that cell captives also provide insurers with more autonomy, and the ability to share in the economic gains of insurance, as compared to an intermediary licence.
“This is particularly relevant for innovative players like insurtechs who do not want to become insurers in their own right, but find that being relegated to a broker or agent licence does not speak to their unique value proposition,” the note said.
Cell captives “can also be part of a graduation path towards a full insurance licence,” Cenfri noted, helping newly formed cells to gradually upskill and build up their capital to the point where it is feasible for them to acquire an insurance licence of their own.
Cenfri stressed that setting up and maintaining a cell captive still requires considerable technical, administrative and managerial skill and should not be undertaken lightly. Many countries in SSA operate under a common law system under which a cell captive may be allowed but will be regulated according to regulations that were not specifically designed for them, it noted.
Centre for Financial Regulation and Inclusion, Cenfri, Matthew Dunn, Christine Hougaard, Jeremy Gray