Cell captive industry provides insurance for low income earners

South Africa’s vibrant cell captive industry is providing an insurance boon for consumers normally considered uninsurable by traditional short-term insurers.

A cell captive insurer is a registered insurance company, able to extend its insurance license to independent third party businesses.

Many companies use their cell captives, managed by Guardrisk, but branded as their own, “to provide cover to consumers traditionally considered uninsurable” says Herman Schoeman, Managing Director of Guardrisk.

Major furniture retailers, for example, operating third party self-insurance cells with Guardrisk are in a position to offer their customers short-term theft and replacement insurance for only a few Rand extra per month - added to each customer’s account and paid in cash at stores countrywide.

Cell owners, often large corporate retailers, are able to structure and operate their own insurance facilities in a way that best suits their business goals - yet with Guardrisk bearing the regulatory, infrastructural and operational burden. In this way people considered uninsurable by the country’s traditional insurers are able to access financial service products that protect their assets on a small scale and for limited periods.

Since people in LSM 1 to 5 have traditionally had little or no access to short-term insurance they usually purchase goods like televisions in installments over, say, a 24 month period.

“There is no way people in this income bracket will be able to get a traditional insurer to cover their television for purchase price and / or replacement for a 24 month period at an even remotely affordable price” says Schoeman. More importantly, given the numbers covered, the third party self-insurance structure is able to provide the consumer with short-term cover at very little increase to their monthly installments.

In short, the third party self-insurance model gives large corporate retailers the tools to use short-term insurance to attract, insure, service and retain customers on a large scale.

For example, a customer who, over several years, had successfully paid off six hire purchase items decided to purchase an electrical appliance. Since the appliance required a car battery to run the customer purchased this independently and then left, and lost the battery, on a taxi. In view of the store’s long association with the customer and his record of regular payment, the retail chain could make the call to use their third party self-insurance cell with Guardrisk to replace the customer’s battery so that he could operate his electrical appliance.

“The benefits of this kind of facility in growing customer loyalty for a retail brand is enormous” says Schoeman. Certainly, the flexibility of this kind of customer support is beyond the capacity of traditional insurers.

Unlike traditional insurers South Africa’s large hire purchase retail market is also able, through third party self-insurance, to continue to cover customers who are two to three months behind in payments since the retailers’ history and relationship with individual clients makes them confident of payment. “As historically loyal customers find their hire purchase goods covered, even when they are in installment arrears, brand attachment strengthens and loyalty deepens” adds Schoeman.

Guardrisk registered South Africa’s first cell captive business in 1999 to assist larger corporate clients operate their own insurance companies without the need to either register or administer the facility.

“Look at is as third party self-insurance where, through a shareholders’ agreement, Guardrisk issues a specific class of shares to different cell owners entitling them to a share of the underwriting and investment profits of the cell” explains Schoeman.

Guardrisk manages the day to day insurance transactions for the cell owner on a third party basis. This means that customers of the cell owner receive branded cover and insurance servicing from the retailer that they purchased from, even though transactions are managed by Guardrisk.