Vodacom is looking to tap into South Africa's insurance market, offering its customers life and funeral insurance.
Until a few months ago, the mobile telco offered its contract and prepaid subscribers device insurance only.
According to Vodacom's latest business and financial integrated report, for the year ended March, SA's total insurance market is valued at R61 billion.
Andrew Culbert, managing executive at Vodacom's Telcosurance, says insurance is a growth and focus area for the Vodacom Group. He says Vodacom owns two registered insurance companies, providing life and short-term insurance.
The integrated report notes Vodacom's insurance portfolio generates revenue of R441 million and is growing at 36% a year. Only 7% of Vodacom's contract customers have device insurance, which leaves a 93% potential opportunity to grow the insurance business.
In 2014, a FinScope consumer survey revealed 40% of South African adults do not have any kind of financial product covering risk, with lack of affordability cited as the main barrier to uptake. Only 33% have formal funeral cover, reads the survey.
Vodacom's life insurance products range from R200 000 assured up to R10 million. The average premium for Vodacom's life cover insurance is R250, while the average price for a funeral policy is R150.
Culbert says the insurance process is simple and ticks all the boxes for the "middle market".
"We're not going for the very, very high value customer who requires extensive financial planning, a thousand medicals ? this is very much for people who require cover, don't know how to get it and don't have access to a broker. So that's very much our target market," he explains.
"Vodacom has a very strong moral view of creating access and improving people's lives, and this is just one more way that we can do this. Consumers trust the Vodacom brand and therefore seem to trust us to provide financial services products to them."
Culbert notes the financial services business has become increasingly technology-based, which means Vodacom as a technology company is well-positioned to create access and distribution in the market, and do it "more efficiently and cheaper" than competitors.
Protecting the future
Lehlohonolo Mokenela, ICT industry analyst at Frost & Sullivan Africa, says it is a natural fit for Vodacom to focus on device insurance, but it is unexpected for an operator to venture into other types of insurance, such as life insurance and funeral cover.
Vodacom clearly sees a growing opportunity in this market, with less than 10% of its contract customers using the operator's device cover, he says.
"Vodacom is leveraging its strong presence in device insurance to move into other segments of the market. Given this is not their core business, and it is still new in the market, it is unlikely Vodacom will be looking to provide anything as comprehensive as what is available from the specialist insurers. But it does give them an opportunity to serve that segment of the market that is still looking at basic cover," says Mokenela.
Thecla Mbongue, senior research analyst at Ovum, says mobile operators could be exploring life insurance business to compensate for revenue loss in the voice segment and to generate further revenue.
Ovum's first quarter report shows quarterly voice revenue in SA declined by 7% year-on-year to R15 billion in the first quarter of 2015, says Mbongue.
"We can view Vodacom's insurance initiative as an attempt to boost the company's financial services, currently mostly consisting of money transfer (M-Pesa). Like for the general banking sector, there is a potential to grow insurance penetration in the low-end segments in South Africa, especially if potential customers are offered low-value payment fees," she says.
"In South Africa, MVNO Econet Wireless offers micro-insurance services targeting the Zimbabwean community living in South Africa, mainly death and repatriation insurance, with monthly fees starting at R20," Mbongue notes.
Market shift
It's not only mobile operators in SA that are diversifying operations to increase profits. Kenyan-based independent analyst Francis Hook says telcos in Kenya, Uganda, Ghana and Nigeria are looking for value-added services to provide to customers to maintain loyalty and grow additional revenue streams.
"The fact that mobile network operators (MNOs) are required to register customers means part of the administrative work is done and data on a subscriber exists ? therefore the cost of delivering insurance services is lower and therefore premiums are lower. MNOs just send existing data on subscribers to insurance firms to prepare a policy. All digital ? no typing/data entry," he explains.
"It's about retaining customers and thereby ensuring revenue streams. Insurance is a long-term product, so it sort of limits churn from MNOs."