FINANCE: Diversity Helps Sanlam
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While the current credit crisis has seen ongoing write offs at major banks due to sub-prime losses and numerous collapses, Sanlam is weathering the financial storm thanks to its diversification.
This is according to Johan van Zyl, Group CEO of Sanlam, who addressed a UCT Graduate School of Business (UCT GSB) Distinguished Speakers Programme hosted in association with Deloitte and Old Mutual.
Van Zyl, speaking on the topic “Diversification and Convergence in the Financial Services Sector”, explained that Sanlam’s diversification strategy of the last few years has paid dividends in creating a resilient business.
“We are today one of the businesses that have held up best in the midst of the current global economic crisis. Yes we have taken losses, but in comparison to other players in our sector, we have weathered the storm well,” he said.
Van Zyl offered some insight into how Sanlam has achieved a greater robustness, pointing to changes in the South African market in the last ten years.
“In the domestic environment a number of changes have taken place contributing to the changing landscape. These include regulatory changes such as the National Credit Act and the role of the Pension Funds Adjudicator, new commission proposals, changes to early termination values. We will also see future changes through the Social Security and Retirement reform and Credit Insurance Panel Report,” he said.
“In addition, from where we were in the 1990s – when ordinary people could not invest in the stock exchange and therefore invested in life assurance – we now have a reality where technology has made it possible for people to invest directly.”
Consumers, he added, are also under increasing pressure with inflation over 10%, interest rate hikes and an escalating fuel price. Turbulent and volatile financial market conditions have also created a challenging operating environment, the effects of which can be huge losses.
“As a business – our model needed changing. But how do you change, particularly when you only used to sell life assurance?”
To address the key drivers of change, there has been a noticeable shift in life assurer’s business models to focus on diversification, a focus on growth, capital optimisation, increased governance and adoption of best practices, and empowerment and redistribution of wealth to previously disadvantaged communities.
“When I joined Sanlam, people said at the time that we were dead in the water. That’s when you grow up – today we have 14 – 15% of market share. This, however, can’t happen quickly – you need to change your staff and your business,” said Van Zyl.
In terms of capital optimisation, he said that the sale of Sanlam’s stake in ABSA was an example of the business optimising capital use. This gave the business cash to repurchase shares and subsequently change its footprint and take the business in new directions. Its increased governance has seen the company garner awards and commendations, and in terms of empowerment it was one of the first big companies to put initiative sin place and today it has achieved significant equity targets.
Its diversification strategy saw the company expand its offerings, and today it “sells everything” as Van Zyl puts it. “We do everything from home loans to health insurance.”
“Today you can see how we have grown income from alternative sources over our life business. While our life business has grown from R13 to R17 billion from 2002 – 2007, our non-life business has grown from R18 to R85 billion,” said Van Zyl.
How exactly has Sanlam done this? Van Zyl says it’s down to several important elements in the Sanlam strategy.
The driving forces today at Sanlam are: client centricity, adapting to changing consumer needs, making the most of cross-pollination opportunities, entering new growth markets, and focusing on multi-distributional initiatives. We have also improved overall efficiencies. There is also been a focus on improving overall efficiencies.
“We have changed the whole way we look at clients. We want to do what is best for that particular individual – whether we sell them a product or not. We offer an integrated service and show our clients that we are going out of the way for them and their individual needs – it’s a tailored approach,” he said.
“For our retail clients, we offer a whole range of solutions – we try and look at people holistically from their household cover needs to their banking needs. If we can’t do it ourselves we do it through our partners.”
This requires strong relationships with other businesses. “We don’t have a banking business for example – that makes our relationships imperative with players in these areas,” says Van Zyl.
There is also is a huge area for new opportunities and room for experimenting in distributional channels. Sanlam recently launched MiWay and consumers can now buy insurance directly over the internet.
According to Van Zyl, there is much potential for growth in the domestic market as the current size of the entry level market is 18 million people, and only 20 – 30% of them have insurance-related products. There is a growing black middle class as well, which has a combined buying power of R180bn (28% of SA’s total). It is also projected that the number of people in the middle market will grow rapidly in the next few years.
Beyond the borders of South Africa, Van Zyl sees other African and other emerging markets as attractive due to their low industry penetration and competition, strong economic growth, and the availability of higher margins.
Commenting on the convergence in the domestic financial services sector, Van Zyl said that it is driven by an insatiable need for growth, the need to enter new markets and diversify products and services (thereby reducing risk), and the desire to capture the maximum share of wallet of customer.
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