How 41117 intermediaries grow a financial services brand
If you only read the mainstream media, then the commentary you will have encountered about Old Mutual’s 2023 Integrated Report likely focused on the wage gap between CEO Iain Williamson and the lowest paid workers at the financial services brand. No surprise there, considering that the firm announced a minimum wage across the group of R15 000,00 per month in a year when the CEO’s total remuneration package topped R32 million.
Focusing on intermediary relationships
FAnews notes the wage gap; but this is not our focus. We prefer to comment on the performance of the diversified financial services group, and more importantly, its ongoing relationship with our readers, South Africa’s independent and tied intermediaries.
“Our strong financial delivery, despite the increasingly challenging macroeconomic environment, demonstrates both the resilience of our business and sound strategic choices,” wrote Williamson, in his message to the latest report. In the 12-months ending 31 December 2023 the group achieved a 14% increase in ‘results from operations’ to R8.3 billion; a 11.1% return on net asset value; and an impressive R1.3 trillion in total funds under management. The group is listed on no fewer than five stock exchanges and boasts a 178-year trading history since its establishment as South Africa’s first mutual life insurance company in Cape Town, way back in 1845.
Old Mutual offers investors both geographic and ‘lines of business’ diversification. Under the former tag it boasts operations in 13 countries in Africa plus a foothold in China through a 50:50 joint venture in China Energy Capital Holdings. Under the ‘lines of business’ heading the group is involved in asset management; banks and lending; life insurance and savings; and property and casualty insurance or, if you prefer, non-life or short-term insurance. The business also dabbles in a number of financial ventures simply titled ‘other’ which proved to be a drag on the operating result over the latest period.
Infrastructure, inflation and interest rate woes
Williamson sketched the familiar constraints affecting consumer-facing businesses in South Africa including “high interest rates, petrol costs and unemployment as well as an ongoing confidence crisis which had a restrictive effect on economic growth”. This writer guesses the confidence issues arise from ongoing electricity and logistics supply challenges stemming from state-owned enterprises such as Eskom and Transnet, not to mention concerns over Johannesburg’s water supply and the looming 29 May 2024 national elections.
Setting aside these issues, let us dig into the 106-page integrated report and see what we can learn about the group’s intermediated distribution channel. Early on, the group reported that it sold investment, life and non-life products through 41 117 ‘tied and independent’ intermediaries across the business.
Old Mutual is quite clear on the value it places in this distribution channel, writing: “Our intermediaries are the competitive advantage through which we deepen our relationship with our customers in various segments; they are core to our ability to execute our integrated financial services ambition, differentiated by holistic advice, face-to-face interactions, trust and relevance built through meaningful engagements”. This comes across a bit flowery but should resonate with intermediaries.
Earlier in the report, the group offered a summary of its businesses including the number of tied advisers per region. For example, South Africa boasts 11 776 tied advisers; with 756 in Southern Africa (including Namibia, Botswana, eSwatini, Malawi and Zimbabwe); 759 in East Africa (including South Sudan, Kenya, Uganda, Rwanda and Tanzania); 660 in Ghana and Nigeria; and 9 in China. So, by this writer’s reckoning the group deals with 13 960 tied and 27 157 independent intermediaries: around two-thirds independent versus one-third tied.
Life APE sales up 17%
Armed with this number of financial and risk advice professionals, the group’s Life APE (Annual Premium Equivalent) sales were 17% up on the prior year. This was thanks to “strong savings sales in Old Mutual Corporate, resilient retail and corporate sales in East Africa as well as higher guaranteed annuities sales in the personal finance [segment]”. Williamson also commented on the 37% increase in value of new business accompanied by a small up-tick in the value of new business margin. “This was driven by increased risk sales and effective cost management in the Mass and Foundation Cluster and a higher proportion of profitable corporate sales in East and West Africa,” he wrote.
Many FAnews readers will be operating in what Old Mutual calls its Personal Finance and Wealth Management cluster, a retail segment that offers holistic financial advice and long-term solutions to the middle- to high-income market through high-calibre advisers. According to the report, this segment offers financial solutions to some 1.7 million customers serviced by 3 706 employees, 2 468 tied advisers and 8 750 independent intermediaries. This distribution force helped gross premium flows to the segment 7% higher, to R82.759 billion. Unfortunately, “recurring premium growth [was] constrained below normal expectations, as customers are reluctant to commit to products in the current macroenvironment”.
Claims costs spike; consumers under fire
This writer flicked through to page 97 of the report for the brief overview of the non-life business, Old Mutual Insure. This segment of the business is beset by myriad challenges including increased broker market consolidation; direct competitors with aggressive marketing strategies; and non-traditional businesses diversifying into insurance. “Socioeconomic conditions, such as high inflation, continue to put pressure on our claims costs and place consumers under strain, adversely impacting our ability to retain existing customers and attract new business,” Old Mutual said.
And the increased severity of weather-related events is not helping. Over the latest 12-months, the non-life insurance business paid out R7.5 billion in claims, notably higher than the R5.1 billion paid in the prior year. “The [retail insurance] business was impacted by large weather-related claims from the Western Cape floods and Gauteng hailstorms; furthermore, higher claims inflation on spare parts, labour and building costs as well as higher IT infrastructure costs were reported, contributing to the negative insurance service result,” Old Mutual said. The insurer is working to improve claims processes and refine policy wordings as well as reviewing product and reinsurance pricing.
The Integrated Report offered some insights into the non-life business’ footprint which includes 483 913 policies ‘serviced’ by 2 725 employees, 5 148 tied advisers and 2 958 independent brokers. These employees and intermediaries will drive the financial services giant’s strategic focus over the coming years, namely to “become customers’ first choice to sustain, grow and protect their prosperity”. The group reckons this focus will create a solid foundation for sustainable long term growth, and this aim should resonate with financial services intermediaries across the board.
PS, in the context of the yet-resolved Retail Distribution Review (RDR) proposal on naming conventions, it was interesting that the diversified financial services giant used the name ‘broker’ for short-term insurance focused intermediaries versus ‘independent intermediary’ for the non-tied life insurance and investment distribution force.
Upbeat outlook as retail bank ‘loads’
Despite the tough macroeconomic environment, the CEO remained upbeat on future prospects. “Our focus remains on building the integrated financial services business of the future, anchored in our victory condition of becoming our customers’ first choice … and in doing so, responsibly building the most valuable business in our industry,” Williamson wrote.
He expects the business to deliver profitable top line growth and new business over the coming year, thanks to its integrated holistic suite of financial produce and solutions. And do not forget, dear reader, the brand has plans to enter the banking sector too, with its section 16 submission awaiting approvals from the Prudential Authority (PA).
Writer’s thoughts:
The key message from Old Mutual’s 2023 Integrated Report is that diversified financial services businesses need a strong, intermediated distribution channel to succeed. Were you surprised by the number of independent versus tied intermediaries mentioned in this report? Please comment below, interact with us on Twitter at @fanews_online or email us your thoughts [email protected].
