GREG BECKER: Capitec’s impressive entry into the insurance industry

Insurance business is often hidden behind policy wording and regulations, among mounds of data and complex actuarial formulas. In a fascinating and wide-ranging interview Capitec group executive for insurance Katherine Barker explained how the group’s business model is well suited to insurance and where it is headed.

Capitec has been making waves in the banking industry since inception in 2001. The thousand-fold rise in its market capitalisation since 2004, and the 70% rise in 2024 alone, should be enough to grab headlines. Capitec now rivals Standard Bank for the title of largest market capitalisation for an SA bank.

Barker explained how Capitec has ridden this wave by sticking to four fundamentals, which she described as simplicity (“can my grandmother understand it?”), affordability (achieved by “being the most efficient” and then passing on the savings), accessibility (being accessible to all customers) and by offering a personalised service.

The 20-million customers who have been attracted by Capitec’s simple, affordable, accessible and personalised proposition has resulted in its SA retail and business banking market share growing from 3% in 2011 to 14% today, with share of profits rising from 4% to 20% over the same period.

Capitec has rapidly expanded its branch network and ATM footprint, and is now the largest in SA by a meaningful margin — ensuring it can give personal service to those who are either unbanked or want an affordable alternative to the Big Four. 

The Capitec ethos of being efficient and customer focused has seen it make profits while having the lowest transaction costs. As a relatively new player that has been able to avoid legacy systems, scale means profits. Data is seen as a valuable commodity, especially financial transaction data that can be used to develop a customer profile, credit score and financially underwrite potential insurance customers. Capitec — with its large and growing customer base — has been able to apply this to its loan book, and more recently to its insurance book.

Life insurance products are a good fit for banks, with some sales being tied to loans so the banks can manage their repayment rates in the event of death, known as bancassurance. Capitec’s initial foray into insurance was two-pronged, offering credit life on its loan book through a cell captive arrangement with Guardrisk, and through a partnership with Sanlam covering funeral plans. Capitec decided there were benefits to tighter integration and going it alone, and gave Sanlam notice in November 2023.

The long-term nature of the contracts sold meant Capitec had to pay Sanlam for the future value of the in-force book transferred. Three million policies — the largest book transferred in SA history — were migrated to Capitec at the end of October 2024, and Capitec went from managing no claims in October to dealing with a claim every minute in November.

The Swiss Re annual survey of the SA insurance market classifies life insurance by distribution channel and type (either as risk, credit or funeral business). Funeral plans are small sum assured policies payable on death (say <R200k), credit life ensures loans will be repaid in the event of death, with risk cover covering both mortality and morbidity risk. Funeral plans are suitable for many South Africans and many of Capitec’s customers, and in 2023 Capitec had a 36% market share. None of its rivals had a double digit market share.

Interestingly, Capitec’s market share of premiums is smaller, but this is a function of Capitec’s premium rate being consistently less than half that of competitors' offerings, in particular those products distributed by brokers or direct distribution. Capitec saves on commission and marketing costs by rather relying on the steady stream of customers entering its bank branches daily, and those interacting with them through its online app.

Capitec has a customer-centric focus, and it makes noble claims of not being concerned that others will copy its successful practices as long as this is in the interests of broader society — even if this means losing market share. In the case of funeral products that are distributed by banks (the cheapest form of distribution), Capitec’s rivals were forced to lower their costs by a third between 2018 and 2021, and even then they still remain 10% more expensive than those sold by Capitec.

It is probably easier for Capitec to be so magnanimous given that it has built something of a fortress. Warren Buffett has spoken highly of companies with “moats” such as being the lowest cost producer. Capitec’s credit risk sales will continue to grow in line with its share of individual credit, and its share of funeral business will reflect their banking penetration rate in the market segments that purchase that product as they bring financial services to the unbanked and uninsured. Its share of risk business will expand as Capitec starts to promote the risk product range in 2025.

Barker quoted Capitec MD Gerhardus Fourie’s strong sense of direction in using three words: “focus, focus, focus”. Capitec’s cost effective insurance offering has enhanced its customer proposition, which will be further expanded in 2025. Once it has focused on the insurance proposition, what’s to stop it focusing on other areas such as retirement or health products, or bringing the benefits of financial inclusion to the citizens of neighbouring African countries?

• Becker, a retired actuary and recently qualified maths teacher, is founder of MyTutor.chat.