DON'T MISS : Talking Africa Podcast – Mozambique's insurgency: After Palma, what comes next?

South Africa’s Ongeza seeks funding for life-insurance expansion

By David Whitehouse
Posted on Thursday, 13 May 2021 17:15

Virus Outbreak South Africa
Many who work in the informal economy can't pay fixed monthy insurance premiums. (AP/Themba Hadebe)

Ongeza Life, pioneer of a whole life insurance product that provides cover even if regular premiums cannot be paid, is seeking funding to expand, CEO Patrick Ndururi tells The Africa Report.

The company wants to raise about R10m ($700,000) for marketing and information-technology upgrades in return for an equity stake, Ndururi says from Johannesburg. He is aiming to raise the money as quickly as possible, and adds that the investment could be staggered over the coming 10 months.

The developed-world model of fixed monthly insurance premiums, based on the assumption of permanent formal employment is, Ndururi argues, ill-suited to covering those who earn irregular incomes in the informal economy.

Obstacles to increasing life-insurance penetration in South Africa include lapses in premium payments that result in cover being lost, he says, adding that it leaves a ‘bad taste’ in the customer’s mouth.

  • Ongeza Life sells policies where the initial premium is used to provide life cover. The level of protection purchased can then be increased through further premiums.
  • The minimum initial premium is R500 ($35).
  • No medical questionnaire is needed. The amount of cover that can be bought in a 12-month period is capped at $10,000 to limit losses from people who enrol when they are already ill.
  • Customers can get a quote on the company’s website, but under South African rules, the sale has to be closed through a broker.
  • The company is seeking to persuade regulators to allow the entire sale process to be carried out online. In principle, this may be possible if the regulator is convinced there is adequate consumer protection, Ndururi says.

Cell captive

Ongeza Life operates as a ‘cell captive’, a South African technique of owning a ‘mini-insurance’ company.

The concept was developed in the early 1990s as a way for entrepreneurs or organisations with an insurance concept to start operating without having to get their own licences.

The cell owner — Ndururi — subscribes for a special class of shares in an insurance company — in this case Guardrisk — that is licensed to issue cell captives. All the operations of the cell are ring-fenced within the insurer: the assets of one cell cannot be used to meet the liabilities of another. The cell owner obtains the conventional insurance capabilities enjoyed by a licensed insurer in a cost-effective way.

  • According to Guardrisk, there were more than 300 cell captives operating in South Africa through a dozen insurance companies in 2018.
  • As far as Ndururi is aware, South Africa is the only place in the continent that uses the cell-captive concept.

Ndururi, an actuary from Kenya, owns 100% of Ongeza Life. Though South African insurers see Ongeza as competition, its product can be a complement to a customer’s existing life policies, he says.

The company started selling insurance in February 2020 but Covid-19 has slowed down its development. Ndururi says the impact of the pandemic on the South African economy has “set us back quite a bit”.

  • Ndururi says the company, which is reinsured by Munich Re, is likely to reach break-even point in 10 months.
  • Ongeza’s life-insurance product can also be sold on a group basis, for example, to employers who want to provide security for their employees or to retirement funds where employees often lose life cover once they retire.
  • Ndururi, who had the initial product idea 15 years ago, hopes to eventually extend distribution outside South Africa.

Bottom line

Ongeza is betting that single-premium whole-life cover will attract customers daunted by the prospect of permanent monthly payments.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options