Herman Schoeman, managing director of South Africa-based insurer Guardrisk Group, lifts the lid on the country’s fast emerging captive industry, led by a dynamic captive cell framework which has been enabling growth in innovative new areas, such as embedded insurance

In the ever-evolving landscape of insurance, an innovative trend has taken off around the world with remarkable force: the ascendancy of embedded insurance products offered by non-traditional insurers leveraging their inherent strengths to enter the insurance market.

While many different avenues to embedded insurance distribution exist, in South Africa one concept at the forefront of this transformative movement lies in that of captive cells, a dynamic framework that has found particularly fertile ground in this jurisdiction.

This is thanks to a winning triumvirate of factors: an innovative and enabling regulator, lateral thinking from captive managers, and the emergence of the most flexible and resilient technology architecture at the right time.

In a third-party cell captive structure, a brand – be it an online retailer or a car manufacturer or dealership – wields a heightened level of influence and control over their product design, a power derived from their unique customer insights.

They also share in the underwriting profits or losses of the business written, all while maintaining their own financial accounts, resulting in a transparent and empowering partnership between non-insurance brands and the cell captive manager.

Within this construct, the role of the cell captive insurer, exemplified by Guardrisk, transcends the conventional. The insurer earns a transparent fee for providing the structural framework along with associated insurance services.

However, the brand takes on the mantle of solving all facets of the value chain, save for maintaining the insurance licence and related reporting. This involves addressing system, administrative, and claims aspects, though outsourced arrangements can come into play. The cell captive insurer, acting as a guide, facilitates the brand’s journey toward resolving these intricate challenges.

Demand

The rise of demand for embedded insurance products among South African third-party cell captives stands as a testament to the harmonious collaboration between the cell captive insurer and the retailer/motor manufacturer, or similar non-insurance brand. Crafted with meticulous intent, these products bear the distinct mark of both entities, ensuring a seamless alignment with their respective customer value propositions and experiences.

This alliance is engendering insurance offerings that resonate deeply with the end-users, seamlessly integrating into their journey and enhancing their overall engagement. Crucially, this partnership imbues brands with an unparalleled level of flexibility and autonomy, bolstered by the insurer or reinsurer. It’s not just an insurance product they offer; it’s embedded within their existing product or service and inextricably linked to their brand and reputation.

From Guardrisk’s vantage point, harnessing technology has for some time been pivotal in joining the dots between these different insurance functions, and enabling the successful management of a cell captive programme.

Collaborating with API-first technology platforms like Root, Guardrisk endeavours to provide a modern and compliant end-to-end system that facilitates the efficient administration of cell captive programmes. The existing expertise and insight we have garnered from this partnership has come into its own in an exciting new dimension, namely supporting non-insurance affinity brands that are exploring launching embedded insurance programmes through third party cell captives.

Embedded insurance

Guardrisk currently manages a portfolio of 278 cells, of which roughly half are third-party managed. This third-party cell captive model finds favour among large retailers and non-insurance brands, including automotive retailers – entities which are all keenly interested in the burgeoning embedded insurance distribution channel.

This enthusiasm for embedded insurance is due to three factors: the excellent potential for organic growth of their cell captive portfolio, where the embedded channel supplements existing ones; as well as the pursuit of entirely new embedded-only cells; and the opportunity to extend the relevance and value of insurance into new areas and get closer to their customers than ever before, redefining the value on offer.

This is particularly important when considering some customer demographics who have been excluded from financial services in the past, in part due to the price of traditional insurance premiums. Underinsurance is a particular challenge in the South African market, and the potential of embedded channels combined with new accessible payment methods such as digital wallets to significantly increase insurance penetration rates and enhance resilience is undeniable.

Again, the primary enabler of this paradigm shift is technology, coupled with a regulatory environment in South Africa that is conducive to innovation.

Retailers are also astute in recognising the advantages inherent in embedded channels. Their existing infrastructure, established relationships, and client trust all work synergistically to simplify their entry into the insurance market. More often than not, a retail brand’s reputation for innovation and brand recognition affords it an edge over traditional insurance companies.

This positioning leverages the customer’s willingness to rightly trust an insurance offering from a forward-thinking entity from which they are already buying a car, or a gadget, etc.

The distinct data advantage enjoyed by retail players further underscores their competitive edge. With rich and unique insights into their customer base, they are poised to craft personalised solutions that often surpass standalone insurance products available in the traditional market. This data-driven approach accelerates the underwriting process, minimises waiting periods, and tailors policy features and benefits.

The case of motor retailers and car dealerships underscores this trend. By capitalising on data from vehicles’ safety and performance, motor manufacturers can refine risk models and offer tailored insurance policies based on individual driving behaviours. This seamless marriage of data and insurance exemplifies the potential of embedded insurance solutions.

Embedded insurance through third party managed cell captives is quite simply good lateral thinking from non-insurers. Motor retailers we work with for instance have experimented with free motor insurance premiums for limited periods as part of a sale or promotion, where the insurance is embedded in the car purchase.

This is possible because all the risk data is there already for this type of insurance- they already have a good understanding of the demographic, and the free period is limited, so it doesn’t have to be individually underwritten, and instead is a flat premium irrespective of individual risk profile, which has proven very successful for limited offers like this.

Technology partners

Embedded is also being used for value-add products and services – in the example of motor insurance again, windscreen warranty for instance, or tyre and wheel insurance. Again, technology partners like Root are well positioned to facilitate the embedding of these warranty type products. And when I say embed I mean true platform thinking – at the point of sale from the register in the car showroom, the policy is embedded.

Enhancing the customer experience is another pivotal aspect of this evolution. Affinity players can expedite sales and reduce customer acquisition costs by leveraging external expertise for customer onboarding, payment options, premium collections, payout mechanisms, policy administration, and claims processing, to name just a few efficiencies we have seen.

Looking forward, embedded insurance is poised to become an integral part of products and services. Asset and vehicle finance, for instance, increasingly integrates insurance into the package. The growth of telematics and real-time vehicle connectivity allows motor manufacturers to gather data that refines risk profiles, thus enabling them to offer more accurately priced insurance policies. The advent of shared assets in megacities further emphasises the potential of cell captives to meet the insurance requirements of this novel scenario.

The role of cell captives in driving economic transformation and incubating disadvantaged business enterprises is also noteworthy, particularly in the South African jurisdiction. The framework provides the necessary infrastructure, while cell owners are primed to distribute products and expand their businesses, fostering capacity and skill growth in populations which have previously been excluded from this kind of opportunity.

Ultimately, the embedded insurance model powered by cell captives ushers in a new era, replete with innovation and adaptability. As we traverse this dynamic landscape, it is clear that the future of insurance lies in unlocking new opportunities, blurring traditional boundaries, and maximising value for both providers and customers. In doing so, we not only redefine insurance but also elevate the way industries collaborate and customers engage with financial services.