Harnessing SACCOs for insurance expansion

Africa has a combined SACCO membership of more than 43 million, holding about USD 24.5 billion in assets

Kampala, Uganda | ISAAC KHISA | In an ever-evolving financial landscape, Savings and Credit Cooperative Societies (SACCOs) are emerging as impactful entities, harnessing influence grounded in community trust and convenience to bring about transformative changes in the lives of communities.

Initially conceived in Germany during the 1870s with the noble purpose of freeing the underprivileged from money lenders, SACCOs have traversed borders, achieving considerable success on a global scale, notably in North America, Canada, the United States, Australia, and Ireland.

Currently, SACCOs have extended their reach to 98 countries, boasting a substantial membership of more than 400 million individuals and holding assets worth USD 3.6 trillion.

In Africa, statistics from the World Council of Credit Unions (WOCCU) released in 2022 indicate that the continent has a combined total SACCO membership of more than 43 million, holding about USD 24.5 billion in total assets compared to Europe’s USD 36.7bn, Oceana USD 112.5bn, Asia’s USD 640 billion and North America’s USD 2.5trillion.

Kenya leads the continent with 10.7 million SACCO members and assets worth USD 21.8 billion, demonstrating the profound impact of SACCOs in fostering financial inclusion.

Other African countries with the highest SACCO members include Ethiopia and Rwanda, with a membership of 6.1 million and 4.1 million and holding USD 807.6 million and USD 347.9 million, respectively. Uganda has just over one million SACCO members belonging to 896 credit unions.

The growth in SACCOs aligns with the reality that a significant portion of the global population, approximately 1.4 billion people, remains unbanked. The Global Findex Report for 2021 identifies reasons such as lack of awareness, limited access, inconvenience, unstable income, and trust as contributing factors to this staggering statistic.

As such, SACCOs, functioning as trusted entities, have emerged as a solution to bridging this financial gap, offering a reliable and accessible avenue for individuals to engage with the formal financial sector.

Like in most African countries, banks have since partnered with SACCOs to extend their financial services to the underserved population, especially in the rural areas, where the majority of the population live.

Insurance perspective

It is, therefore, time for insurers to pick a keen interest in the operations of SACCOs, as strategic partners for selling insurance. This is because the symbiosis of SACCOs and insurers presents a unique opportunity for greater market acceptability and an unprecedented reach into untapped segments of the population.

So far, the intertwining of SACCOs and insurance services has proven successful in some countries, notably Malawi and Kenya. SACCOs were first promoted in Malawi by the Catholic Church and government in the 1970s to offer savings services to people who were not serviced by commercial banks.

Interestingly, insurance services were an integrated and mandatory part of the SACCO’s activities from the beginning. When members joined the SACCO, they also joined the insurance scheme for loan protection and life savings scheme.

The loan protection covered the unpaid balance of a loan if the member dies, in which both the SACCO, which receives the repayment and the family of the deceased, which does not have to repay the loan, benefitted from the scheme.

In the life savings scheme, which is uncommon in African SACCOs, when a member dies, the appointed beneficiaries receive an additional amount equal to the deceased member’s balance of shares and savings. This seamless integration of insurance into SACCO operations reduced administrative costs and enhanced accessibility, particularly in rural areas where traditional microinsurance faces viability challenges.

This innovation boosted Malawi’s insurance penetration to the current 4.5% which is far higher than in most African countries. Africa’s insurance penetration, according to the PWC, stands at an average of 3% – lower than the world’s average of 6.3%.

In Kenya, CIC Insurance introduced a new cover dubbed CoopCare in 2022 as a customised solution for SACCOs with a minimum of 10 principal members. The product has various plans for members and six dependents which include a premium of Sh2500 per annum for a limit of Ksh 100,000 (USD 620), Ksh3,200 (USD 20) for Ksh 200,000 (USD 1,230) and Ksh3,800 (USD 25) for Sh300,000 (USD 1,850) inpatient services.

Britam Holdings Plc signed a memorandum of understanding with Urithi Premier Sacco in 2017 to provide the latter members estimated to be more than 6,000 with medical insurance coverage.

Similarly, Kenya Union of Savings and Credit Co-operatives Ltd (Kuscco) launched an insurance arm, Kuscco Mutual Assurance Ltd (KMAL) in 2019, targeting at least Sh1 billion in annual premiums mostly from cooperative movement members. This followed securing approval from the Insurance Regulatory Authority to ride on SACCO members as well as other Kenyans to offer long-term or life assurance business focusing on lower to high-end products.

It is therefore no surprise that Kenya’s insurance penetration is about 2.7%, according to the industry regulator, the Insurance Regulatory Authority, though it is still one of the lowest in Sub-Saharan Africa with South Africa leading at 17%.

Uganda, Burundi, Ethiopia, Sudan, Somalia, the Democratic Republic of Congo, and Eritrea among others have less than 1% insurance penetration. However, this implies huge opportunities for the insurance sector for future growth.

What next?

Insurers seeking strategic avenues for market penetration should therefore view SACCOs as compelling opportunities. SACCOs, with their testimonials and strong communal bonds, create an environment where members are not just willing but eager to consider insurance products.

The impending regulatory changes, especially in Uganda about SACCOs, emphasize the urgency for insurers to proactively engage with SACCOs, aligning their offerings with the unique needs and expectations of SACCO members.

This engagement must be nuanced. Insurers must adopt a tailored approach, focusing on open communication, ex-gratia compensations, and products designed to address local nuances. Learning from success stories in Kenya and Malawi, insurers should seamlessly integrate their products into SACCO offerings, building enduring relationships.

The stage is set for insurers to capitalize on the untapped potential within SACCOs. As SACCOs continue to expand their influence and now with digitization, insurers must not merely keep pace but lead the charge. The symbiotic relationship between SACCOs and insurers promises not only financial gains but also a transformative impact on the lives of millions of people.

The call to action is therefore clear – insurers must embrace SACCOs, just as banks have, to unlock a new era of insurance acceptance and market expansion. They should embark on a journey of collaboration and innovation, ensuring that the power of insurance reaches every corner of society providing risk mitigation measures, job creation, and overall economic growth.