Why Capitec’s funeral cover strategy is beating legacy insurers - Tech Tides Africa

R102.95 versus R360.00. That stark price difference - for essentially the same R50,000 funeral cover product - isn't merely an aggressive pricing strategy. It represents a fundamentally different understanding of South African market realities.

A revealing LinkedIn post by Tim Treagus, the founder of WhatsApp-based market research platform Yazi, recently detailed how Capitec Bank has, in just six years, transformed its funeral cover business from scratch into a multi-billion rand powerhouse - now issuing one in every three new funeral policies in South Africa.

The striking revelation wasn't Capitec's scale (2.7 million active policies covering over 12 million lives), but rather how dramatically its pricing diverges from industry stalwart Avbob, which holds roughly the same number of policies but generates three times higher premium income. Worth noting, of course, is that Avbob's higher premiums include actual funeral services (transportation, burial preparations, etc.), while Capitec offers financial payout only - yet this product distinction doesn't fully explain the dramatic price gap.

This example surfaced just as Sona Mahendra, a venture builder turned founder currently concepting a healthcare venture in South Africa (and who has been steadily fuelling my growing interest in Indian market dynamics), shared a GrowthX podcast featuring Sajith Pai, a partner at Indian venture capital firm Blume Ventures.

Pai has built a solid reputation for insightful market analysis since joining the firm in 2018. His investment focus spans EdTech, HRTech, B2B Marketplaces, and consumer Internet business models - giving him a panoramic view of India's complex tech ecosystem.

Blume Ventures itself has distinguished itself in India's venture capital landscape through exceptional portfolio performance (with its inaugural fund achieving 5x gross returns), its support for deep-tech innovation, and perhaps most notably, its commitment to "insight open sourcing" - including the rare step of declassifying the 12-year performance report of its inaugural fund.

In the podcast, Pai articulated what he calls "India One, Two, Three" - a stark economic stratification that defies conventional Western market segmentation models.

"India One" comprises roughly 30 million households (about 140 million people) with an average annual income of $15 000 (R270 000). "India Two" represents an Indonesia-sized population of 70 million households (300 million people) with roughly $3 000 per capita income. The remainder falls into "India Three."

What's particularly telling is Pai's observation about the lack of mobility between these segments: "The country develops by moving more and more people from India Two into India One... In India, I would say the last decade there was some progress... but India Two to India One has stopped, and especially since Covid, it's just paused."

Sound familiar? South Africa's income distribution follows similarly rigid patterns, with limited mobility between segments despite nearly 30 years of democracy. The added complexity in South Africa, of course, is the country's well-documented racial dimension - where economic stratification still largely mirrors apartheid-era racial classifications.

Within this context, even non-South African people of colour who might be considered expats rather than immigrants (a distinction often determined more by economic privilege than nationality) often find themselves occupying privileged economic positions within these deeply segregated strata. This creates an awkward positioning within South Africa's complex racial dynamics—a positioning particularly visible in the NGO and international investor classes that wield outsized influence in African innovation ecosystems while, for the most part, remaining disconnected from on-the-ground market realities.

Microtransaction insight

Harsh Jain, the co-founder and CEO of Dream11 (India's leading 'fantasy sports' platform - or what many might recognise as sports betting with a corporate PR makeover), as quoted in the podcast, captured a critical insight: 'If I create a product which is 300 rupees per month, 1% of my target audience will buy it. But if I do the same 300 rupees broken down into 30 days at 10 rupees, 100X will buy it.”

This microtransaction pattern explains why many presumably 'innovative' digital financial products fail in African markets. Nigeria's eNaira - launched with fanfare as Africa's first Central Bank Digital Currency - flopped because it failed to acknowledge existing behaviour patterns. As TechCabal’s former editor-in-chief Olumuyiwa Olowogboyega noted in a recent Notadeepdive analysis, Nigerians had 'already embraced private digital payment solutions' that were 'perceived as more efficient and reliable.' The eNaira offered no compelling incentive to switch, particularly when alternatives already addressed how people actually managed their money.

This insight might go some way to explaining Capitec's success. By pricing their funeral cover at a third of competitors', they've tapped into a vast market segment that couldn't - or wouldn't - allocate R360 monthly for funeral coverage but can manage R102.95.

The implications extend beyond financial services. Pai noted how Indian hyperlocal, dialect-based content platform Stage charges 399 rupees (R86) annually (less than Netflix's monthly fee) by radically reconfiguring their content costs. They film high-impact drama scenes in smaller settings, avoid expensive crowd scenes, and identify 10-12 emotional tropes that can be produced at the lowest possible cost. 

"Top-up" versus "stock-up"

Another keen observation from Pai concerns consumer behaviour patterns. While American consumers typically "stock up" (monthly Costco runs - think Makro - with massive purchases), Indian consumers "top up" (frequent small purchases).

This behavioural distinction isn't just cultural - it's driven by structural realities: smaller homes and refrigerators, steadier pricing due to regulated Maximum Retail Prices (MRPs), and significantly lower discretionary income. Similar dynamics tend to shape consumer behaviour across most African markets.

Africa's hyper-fragmentation

As instructive as the Indian parallels are, Africa presents even more complex market segmentation challenges. While India is a single regulatory environment with constitutional cohesion despite linguistic and cultural diversity, Africa comprises 54 sovereign nations with drastically different regulatory frameworks, currencies, and economic structures.

The Indian analogy is useful but insufficient. If Pai gives us a tripartite segmentation model, collectively, Africa might require a kaleidoscopic one - with segments that not only differ in income levels but also in regulatory contexts, financial system access, and digital infrastructure.

Segmentation that actually exists

I would hazard that Capitec's funeral insurance prices reflect actual market capacity, not idealised, Western 'emerging markets' insurance models. Similarly, digital products gaining traction across Africa and India are those aligned with microtransaction behaviours and genuine income distribution patterns.

What's particularly noteworthy is how often well-funded ventures with imported business models struggle to gain traction despite seemingly sound market logic. Meanwhile, less heralded local innovations - often with modest funding - achieve remarkable adoption by working within, rather than attempting to transform, existing economic constraints. 

This tension between market reality and aspirational vision creates a perpetual challenge for those committed to building transformative ventures while remaining clear-eyed about actual market conditions—requiring a delicate balance between ambition and pragmatism that many 'Africa rising' and 'Africa now' narratives fail to acknowledge.

The disparity between conventional market segmentation approaches and ground-level economic realities might explain at least some of the bewilderment experienced by investors and entrepreneurs when apparently rock-solid theses and business models that work elsewhere face adoption challenges in African contexts.

As African tech ecosystems continue to evolve, a valuable contribution might be the emergence of more realistic frameworks for understanding market dynamics - ones that acknowledge the actual stratification patterns, mobility barriers, and consumer behaviours that define our economies rather than the ones we might wish existed. ​​

In this light, Capitec’s insurance pricing strategy isn’t just a business decision - it’s a case study in the kind of market literacy that too few entrepreneurs and investors prioritise.

Andile Masuku is Co-founder and Executive Producer at African Tech Roundup. Connect and engage with Andile on X (@MasukuAndile) and via LinkedIn.

BUSINESS REPORT