Cell captive structures have the potential to help address some of the structural constraints faced by many insurance markets in sub-Saharan Africa, according to a report titled, "The potential of the cell captive structure for sub-Saharan Africa".
The report is published by Cenfri, a South Africa-based independent, a not-for-profit think-tank focussed on financial-sector development in emerging markets; Kenya-based FSD Africa, a poverty alleviation non-profit firm; and UK Aid.
The report says that the cell captive structure holds much promise as a vehicle to realise increased inclusion and growth within insurance markets in sub-Saharan Africa
In Mauritius, the cell captive structure is successfully leveraged for first-party insurance. In South Africa (the global pioneer of third-party cell captives) cell captives have demonstrated their ability to drive retail innovation and provide an entry path into the insurance market. Other countries, such as Namibia and the Seychelles, have also developed preliminary regulation, while others are exploring potential use cases for the cell captive structure in their jurisdictions.
The structure could serve at least four uses in sub-Saharan Africa where conditions include a fragmented local industry facing constraints in the provision of specialised risk cover to the corporate sector, and, in the retail market, a lack of market innovation. The uses are:
- Specialised risk management
- Retail innovation
- Insurance market participation
- Offshore financial centre development
The cell captive structure emerged as a way for a corporate entity to access the benefits of captive insurance without setting up its own captive insurance company.
In a cell captive structure one central licensed insurer forms ring-fenced cells issued to other organisations for the insurance of the cell owner’s own assets or the insurable risks of its client or membership base.
Depending on the statutory or contractual conditions in place, the cell owner can draw dividends on the proceeds of the cell, obtain underwriting from the cell captive insurer and benefit from other insurance-related support functions. The cell captive insurer is accountable for all regulatory compliance and holds the insurance licence that covers the business of all the cells.