A group of black professionals organised as KCB and largely known for their ambition of establishing a cooperative bank are also working on a mutual insurance operation titled KCB Life. They promise to take the market by storm. We asked KCB steering committee member, Moeketsi Nchoba, to clarify what KCB Life is about.
What is mutual insurance and how does it work?
Like other insurance concerns a mutual insurance operation exists to minimise the risk of loss for policy holders but it does this via a nobler business model. Unlike private insurance companies which are owned by a few shareholders, mutual insurance operations are owned and to some extent run by policyholders.
Policyholders are entitled to vote for members of the company’s board of directors, and may share in whatever surplus (profit) generated by the operation. Depending on the quantum on premiums, capital distribution to policy holders can be substantial. We know of cases where policyholders reap millions of rands each from mutual insurance profit share. This becomes possible when you remove the corporate monster from the equation and replace it with the member interest.
How do they generate money for policyholders?
Insurance operations are anchored by a pot of collectivised premiums from policyholders. Typically the premiums are applied as follows:
- Administration costs
- Settling claims and benefits
Our research tells us that in the privately owned insurance operations that dominate South Africa, premiums are utilized as follows: About 30% goes towards settling claims/benefits, 20% to administration costs and reserves, 25% incentives and another 25% is claimed by private shareholders as profit.
The 25% of premiums that is claimed by profits in private operations is typically distributed back to members as surplus in the mutual insurance model. And the member’s surplus can surpass the typical profit percentage (25%) because mutual insurance operations are unlikely to have bloated operational costs and incentives inflated by greedy executives who claim ludicrously high remuneration packages.
Consumers who seek to escape the corporate greed should consider the mutual insurance model.
This is a tough market dominated by giants who’ve been around for ages. What makes you think you’ll succeed?
There is hunger for ground up financial services operations in South Africa. You see this from the so-called black bank political campaign. While the political side of this campaign seems stuck, ordinary people on the ground have been doing their own thing to feed the hunger of owning their own financial services operations.
Our research reveals steady growth of community based financial cooperatives across South Africa. There are about 30 licensed cooperative banking operations in the country and many more that are bubbling under the licensed surface. KCB is one of the latter.
Our confidence to break into the market is derived from the rhythms and networks we have established over the past 24 months or so. As an operation that started out with an ambition of establishing a cooperative bank, we have established a functioning network of more than 200 people in and around KCB. We will be using that growing network to launch the mutual insurance operation. Simply put, our members will be our agents of launch and growth.
And by the way, mutual insurance is a big global reality. The latest Global Mutual Market Share has mutual and cooperative insurance sector claiming about 30% of the global insurance market by premiums. The sector shows consistent growth to boast 990 million in total number of policyholders. The sector employs about 1.13 million people across the globe.
Its market shares stands at 37% North America, 31% in Europe, 15% Asia and Oceania and 12% Latin America.
Africa’s market share lags behind at 3%. We see this as an opportunity to reclaim Africa’s economic control.
South Africa has had a fair share of mutual insurance operations. In fact most of the major insurance operations of today started out as mutual insurers and were demutualized or privatized if you wish.
For KCB this is a continuation of the ground up black economic empowerment (BEE) path we have chosen. We have carefully considered the dominant BEE paths carved over the past 24 years or so and concluded that they are grossly inefficient as mainly defined by the top down approach. And so we are carving a new path where we start, operate and own our economic concerns.
And what about the bank?
We’ve been hard at work laying the ground to engage the cooperative banking licensing process. Remember that we set out to start at cooperative financial institution (CFI) which is like a half way station to a fully fleshed cooperative bank. We needed to have a minimum of 200 members and R100 000 in equity amongst other things to engage the regulator. We’ve gone way past the equity threshold. But we did struggle with the membership number given the market conditions and a growing trust deficit factor. Stories of pyramid schemes and financial scandals in the sector have not made things easier. We found that many people took a wait and see approach.
It’s taken us more than two years but we are there now. We were meant to hold our prelaunch AGM in March but we had to move it forward partly to accommodate the mutual insurance venture. And there is another exciting financial project in the mix. All three arms of the operation should be ready by the time we go to the AGM in September.
So, how do people get hold of you?
People who are interested to become pioneers of this venture can submit their names and contact numbers at the following email address: firstname.lastname@example.org.
Alternatively they can contact:
Moeketsi Nchoba: 0829408575
Sibonelo Radebe: 0823391121