Achieving growth in a forgotten market

Jonathan Faurie, FAnews Journalist

One of the biggest debates and concerns in the life market over the past two years has been about the lack of products specifically serving the lower income earning market.

There have been a number of reasons given by companies why this is the case. Firstly are the concerns regarding the overall affordability of the market. Secondly is the remuneration of advisers who serve the market. And thirdly are the concerns regarding the best distribution channel to serve this market.

Proving profitability

While these may be seen as valid reasons for the lack of innovation in this market, Assupol has just proven that serving this market can be profitable.

This was evident in its recent set of results for the year ending 30 June 2015. Some of the major highlights of the results included operating profit increasing by 16%, a return on equity of 23%, and the value of new business growing by 70% to R180.9 million.

FAnews spoke with Assupol Group CEO Rudi Schmidt who said that the company showed a lot of robustness and resilience in a market largely underserved by other insurers.

No excuses

If we look at the fact that Assupol’s value of new business grew by 70%, there should be very little basis for the other insurers using affordability as an excuse for not designing products for this market.

“Our growth in the value of new business was mainly driven by new volume growth of 29%. The fact that we were able to achieve this is in a market driven by major challenges is a sign to other insurers that this market can be profitable,” says Schmidt.

One of the major challenges Schmidt referred to is inflation. With salaries not increasing and inflation becoming the silent assassin in the market, discretionary spend is decreasing. In these situations, clients start to look at insurance as a luxury.

While this can prove to be a thorn in the side of insurers, they can overcome these challenges. Schmidt says that insurers need to design suitable products, enhancing products to suit the needs of clients as well as improving their distribution models. “By doing this, companies can grow their brand within a reasonably flat market.”

Demand driven

The fact that many insurers have concerns about the role of advisers and agents in this market also seem to be unfounded if we look at Assupol’s results.

One of the major successes of their new business growth is the role of agents in the industry. Schmidt points out that there is a significant demand for products in the market, and that clients like to do business the old fashioned way.

“Clients want to have face-to-face discussions with advisers regarding the products that they are being sold. The level of education when it comes to the financial services sector is very low and advisers have a significant role to play in educating the public. Advisers cannot manage their clients anymore but rather work with them to become business partners. That way, a once off client can be transformed into a repeat client,” says Schmidt.

While the public may be largely uneducated when it comes to the financial services industry, they are not uneducated when it comes to doing online research on industry products. “We are aware of the effects of disruptive technologies and feel that they will not have an effect in the short to medium term. At the end of the day, clients want a level of engagement that the internet simply cannot offer.”

Cutting the fat

Another driver in the company’s increase in operating profit is the fact that it maintained an aggressive cost cutting programme which added significant value to the company’s operation.

The main method of achieving these cost cutting measures is improving the company’s efficiencies. This has been driven by a flat communication structure where Assupol executives look at the operations on a head office and a branch level to see where action needs to be taken.

“There has been a significant decentralisation from a head office level to a branch level. There were certain processes that were being done at head office that could have easily been done by our branch network. So this work was passed onto them. Conversely, there were processes that were being done at a branch level that needed to be done at head office. So this work was passed onto us,” said Schmidt.

Mortality improvement

The final contributor to what Schmidt describes as impressive results is the fact that the mortality experience has consistently improved over the last few years allowing Assupol to release some reserves held to its policyholders. Assupol is seeing a slight decrease in mortality relative to its expectation.

Schmidt points out that this improvement is due to the positive impact that the ARVs have had on policyholders living with AIDS as well as Assupol’s better understanding of the risks associated with their target market and in force policy books

Looking forward Schmidt predicts that things will become tougher before they improve but is confident that Assupol can maintain its historic growth rate and deliver meaningful value to all its stakeholders.

Editor’s Thoughts:
The lower income market is a market that needs to be served in future. The Financial Services Board has expressed its desire for insurers to focus on this sector, and Assupol has shown that growth in this sector can be achieved. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Ends