Riskebiz is working on a captive cell insurance solution for microfinance institutions. A cell captive is similar to a traditional captive, whereby an insurance company is formed primarily to insure the risks of its non-insurance parent or affiliate, except that the captive insurance company is divided up into protected cells which are "rented" to companies who want to write insurance business (MFIs in this case).
Characteristics of a the captive cell include:
- the MFI provides capital for the cell, and becomes a shareholder in the cell, participating in the profitability of the cell;
- the cell captive company may also provide actuarial, underwriting and other technical assistance, as well as fulfilling the regulatory requirements of an insurer;
- the cell captive operator will have access to the Reinsurance market.
Cell captives are ideal for microfinance institutions who:
- seek to offer microinsurance and want to share in the profit of the risk management;
- do not have the capacity to register as an insurer in their own right; and
- desire more autonomy in product design and management than under an underwriting arrangement.
Below is a diagram illustrating the different types of microinsurance program models. The Hybrid Model is an example of the cell captive company structure:
Source: Alex Bernhardt, Maximizing Microinsurance Investment Returns: A Closer Look at Microreinsurance and Private Equity
Microfinance Insights July/Aug 2009
While partnerships with existing insurers provide a way for such microfinance institutions to offer insurance products, as illustrated in the Partner Agent Model above, it is not always an acceptable solution to them. Likewise, the Full Service Model whereby the MFI runs its own insurance scheme for its clients and any profit or loss is absorbed by the MFI, may not be viable depending on the size, regulatory environment, and a number of other factors. The cell captive route allows them to maintain more control over the insurance process and their client base while also offering the opportunity for them to benefit from any profits on the risk.