Entry-level consumers are holding on to funeral cover despite tough economic times that have placed people under pressure to cut costs, says Sanlam, South Africa's biggest insurer.
“Yes, it is a tough economic condition, but people see the value of funeral products. People will cut a lot of things before they cut their funeral cover. People will also make sure they have funeral cover,” Sanlam group financial director Abigail Mukhuba said this week after the release of the group's interim results.
In the six months to June, Sanlam's retail mass business increased sales by 10%, while recurring premium sales in the affluent retail segment rose 5%.
Sanlam's retail mass segment, serving clients who earn R12,000 a month, reaped the benefits of the group's partnership with Capitec, she said, adding that it has sold more than 1.4-million funeral policies since its 2018 launch.
“A lot of the 10% growth for retail mass business comes from the joint venture with Capitec. Some of the growth is driven by walk-in customers who buy products at Capitec,” said Mukhuba.
“I think ... our customers ... value funeral products. That is one of the last things they will cut. I think they would rather cut vehicle insurance before they cut their funeral insurance products. The 5% increase we saw is mainly in risk products, but the savings products were slightly down.”
The affluent retail business for customers earning R20,000 a month is stable, but in some cases management had to assist struggling customers in the retail mass business through measures including temporarily pausing premiums, she said.
This is because the persistency ratio, which is the proportion of policyholders who were able to pay their premiums over the past two years, had been under pressure in the retail mass business, added Mukhuba.
"[When we look at] the persistency figures, we see there is a deterioration that continues and that is primarily driven by much higher costs of living and therefore people are having to choose wisely whether they want food on their table or what we call a grudge-purchase insurance product.”
Our strategy is pegged on South African growth and becoming an African champion. We realise that for South Africa and Africa to flourish, it is going to take us, a South African company, to dig in our heels and invest instead of expecting foreigners to come in
— Abigail Mukhuba, Sanlam group financial director
Santam, Sanlam's short-term insurance business, experienced higher claims as a result of the KwaZulu-Natal floods in 2022, but technology helped it mitigate the effects of June's floods in Stellenbosch after it introduced geo-coding underwriting.
“We saw the impact of geo-coding underwriting when the Stellenbosch floods happened. We avoided R50m or R60m we would have had to pay if we did we not have the geo-coding process. That helps us in avoiding unnecessary risk and we price risk accordingly, instead of having a flat rate for different customers,” said Mukhuba.
In the geo-coding underwriting process, premiums are based on how close customers are to flood-prone areas and ensures premiums are risk-adjusted to customers' specific type of risk.
Mukhuba said growth opportunities in South Africa were among the biggest risks for Sanlam.
“Our growth as a group is highly linked to the performance of the overall GDP of the country and the markets we operate in. We are very much committed to South Africa and we want to see South Africa grow. We want South Africans to have employment [to help] grow the country.
“We are concerned about ... energy supply, logistics that have an impact on levels of economic growth and high levels of crime that have an impact on the ability to attract tourists, the ability to attract key skills from other countries to see this as an investment destination”.
Mukhuba said while South Africa will remain a core market, Sanlam has diversified into others.
“Our strategy is pegged on South African growth and becoming an African champion. We realise that for South Africa and Africa to flourish, it is going to take us, a South African company, to dig in our heels and invest instead of expecting foreigners to come in,” she said.
Sanlam, which in the six months to June acquired 60% of AfroCentric, a health insurance and solution provider, this week announced the SanlamAllianz, a partnership with Germany's Allianz group that's valued at R35bn.
SanlamAllianz will extend the group's presence in 27 African countries.
In Africa, Sanlam will now be by far the largest insurance group, said Heinie Werth, CEO of Sanlam Emerging Markets.
“As Sanlam, we are already big. Now we cement that with SanlamAllianz. There is real potential on the continent. Potential differs between the markets. East Africa is different from West Africa, northern Africa is different from South Africa. You need to be flexible and adapt to the needs of the different markets,” he added.
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