‘Pandemics are when insurance companies must come to the fore’

With mortality claims predicted to increase as Covid variants spread, insurers have a chance to prove their worth to customers, says the CEO of Africa’s second largest insurer.

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When a large shock hits the system, it is the insurers who are the first line of defence. Claims go through the roof and the bottom line of the financial service providers takes a hit. 

But the unprecedented shock of Covid-19 also provides a time where insurers can come out of the woodwork to reassert their value in society, setting the stage for increased business further down the line, despite initial payouts. 

Paul Hanratty, CEO of South Africa-based Sanlam, one of the largest diversified financial services groups in Africa, tells African Business that pandemics are when insurance companies must come to the fore. 

“Behind every claim is an unfortunate hidden story, but that is what we are there for,” he says. “In a sense, it is when you prove your worth to people as a company during tough times.” 

Tale of two years 

Hanratty, who has sat on Sanlam’s board since 2017 and was appointed CEO last year, says that 2020 and 2021 have been two very different years for the company. 

He describes last year as more of an “economic crisis” than a “health crisis” in South Africa. Claims increased for business continuity insurance, where companies are covered for unexpected events that shut down operations, like infectious diseases. The group was also impacted on credit insurance as people were unable to repay loans due to widespread loss of jobs and a downturn in the economy.

Sanlam says that it lost more than $135m to excess claims because of Covid-19 in 2020. Earnings for the year were negatively impacted and lower than 2019, with lockdowns forcing a decline in new business growth as people were unable to visit branches. Corporate life insurance sales fell by 26% and individual mass life insurance fell by 10%, for example. 

In a surprise turn of events, medical claims were limited as South Africa’s strict alcohol ban – which continues today – brought down average fatalities while Covid-related deaths went up. 

“Research has shown that if you ban alcohol South Africa has 42 fewer deaths per day, so there were some offsets last year from the lockdown and the first wave,” Hanratty says. 

The beginning of South Africa’s second wave in December ushered in new impacts of the pandemic for Sanlam. The new wave, driven largely by the Beta variant, was far more deadly than the first and sent South Africa into a serious health crisis amid the return of strict lockdowns. 

“2021 has been a much tougher year from a mortality claims point of view. They have been much more significant, predominantly in December, January and February,” he says. “Now the third wave I think is somewhere near the peak. It will be hard to predict the future.”

Savings rise

However, Hanratty says that unlike 2020, sales in South Africa have been very strong this year for several reasons.

One is that economic lockdowns have forced savings rates to rise across the world, for those who have been able to keep their jobs. This means that more people can take out insurance, Hanratty says. 

Another is that reoccurring bouts of Covid-19 infections, driven by the ever-increasing number of variants amid a global vaccination drive that is playing catch-up, has led many people to start thinking more seriously about their future. 

“When the pandemic first came, everybody thought it was one bad flu year. Actually this is going to be with us for a few years and people really need to think about having cover because generally they are at risk,” says Hanratty. 

He projects that premium rates will probably have to rise to deal with the extended amount of risk and more people being covered. 

As the second-largest insurer in Africa and one of the most dominant forces in the South African market, Sanlam is also hoping to outmanoeuvre competitors during the pandemic. 

“It is an opportunity for us to take a bit of market share,” Hanratty says. “In tough times people tend to turn to quality and we are fairly well known as being a secure place. We have a very well run, well organised business that was able to respond quicker than other competitors.”

Communicating the message 

Conveying the brand message to clients will be a key focus for Sanlam moving forward. Rather than creating any new Covid-19 products, the main driver of growth will be looking at more innovative ways to reach people, including digital means. With a solid set of products, Hanratty believes that now is a perfect time to bring more people onboard. 

The company has also rebranded this year to strengthen its message to the consumer. The new tag line “Live with confidence” is expected to reassure customers and tap into their aspirational wishes of how they might like to live. 

“When you already have a good brand you don’t want to disrupt anything or destroy value,” Hanratty says. “We did a lot of testing and we recommunicated what the brand was all about.” 

This message will be rolled out across Sanlam’s 32 African markets, as the CEO says the pandemic has not dampened the insurer’s appetite for growth in Africa. Indeed, new business volumes grew dramatically outside South Africa in 2020. East Africa saw a 227% increase and North and West Africa saw a 12% increase. Despite poor initial results from Sanlam’s acquisition of Morocco-based Saham Finances in 2018, Hanratty says that the business started to pick up last year. 

While there are no plans on the table for any big announcements in the upcoming period, he says that Sanlam is always on the lookout for good deals. Preferring “local partners” the method of choice for expansion plans will be M&A as opposed to greenfield investments, he says. 

South African outlook 

Though South Africa has faced many years of subdued growth, Hanratty is confident that Africa’s rainbow nation will eventually turn a corner. 

Widespread rioting after the arrest of former president Jacob Zuma hit over 40,000 businesses and left damages totalling more than $3bn in July. Though it will help with recovery, Hanratty says Sanlam is not subject to increased claims as many claims will be processed by Sasria, a state-owned non-life insurer that provides special risk cover to individuals, businesses and government entities against risks such as civil commotion, public disorder, strikes, riots and terrorism. 

Despite another dampener to the growth outlook, the Sanlam CEO says that things had been looking up before the riots began. 

“Before the unrest there were actually a lot of relatively good signs,” he says. “If you talk to any businesses in South Africa, they were getting surprised at upside growth and greenshoots.”

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