During the parliamentary hearings on financial sector transformation last year, there was a strong sense of urgency for radical transformation. In the insurance industry, some targets have been met, but others are still lagging behind. Can cell captives help to drive a more transformed insurance market? And if so, what needs to happen to enable that role?

The cell captive structure is now entrenched in the Insurance Act of 2017. It enables smaller businesses to participate in the insurance sector through buying a special class of shares from an existing insurer who has been licensed to offer cell captives. Owners of third-party cells can then offer insurance to clients and earn dividends on their investment into the cell structure, thereby sharing in the economic benefits of insurance.

Cell captives are an example of a locally grown, innovative solution to support the transformation of the financial sector in South Africa. While it is not a panacea for transformation, it can be an important piece of the puzzle as industry and government go into the financial sector summit negotiations this year.

This report follows our workshop – it identifies the benefits of the structure for transformation, as well as the risks inherent in the structure. It finds that, to unlock the transformation potential, an explicit industry commitment is required alongside clarity on core remaining areas of regulatory uncertainty.

Note that this report was published before the recent release of the FSCA of the draft Conduct Standard on Requirements for the conduct of cell captive insurance business in relation to third party risks. The draft Conduct Standard is referenced as forthcoming in the report. The report should be read in conjunction with the draft Conduct Standard for an update on regulatory positions as it pertains to the analysis.