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Spotlight on PPS

13 May 2008 John Marsden, National Sales Director, PPS Insurance

1. How has the PPS model changed over the last 10 years?

The philosophy of the PPS model hasn’t changed since the Company’s inception in 1941. Today, PPS is as committed as ever to its original philosophy – a society, established by practicing professionals, to provide specifically tailored benefits to its members.

In 2001, the legislative requirements led to changes in the structure of PPS. The Company, which was originally registered as a Society under the Pension Funds Act, become a life insurance company under the Long Term Insurance Act. This did, however, not impact the nature of our relationship with our members. And, with no external or institutional shareholders, PPS members remained the only people with a financial interest in the Company.

In the last two years, the most significant change in PPS has been the launch of a groundbreaking range of financial products, to meet the changing needs of the modern graduate professional. In June 2007, PPS transformed from a “limited product range company” that offered only sickness & incapacity benefits, to a fully-fledged financial services business that offers access to a complete range of life, savings, retirement, investment, business assurance, short-term insurance and healthcare products.

Our members – the policyholders – continue to share exclusively in the Company’s operating profits and investment returns each year, via the Surplus Rebate Account – a model unmatched in the market. In 2007 alone PPS shared R1.3 billion; and over the last five years a total of R6.9 billion! Just another way PPS works towards its vision – to create wealth, and offer peace of mind and financial security for its members.

2. Where does the PPS model differ from other underwriting models?

The very nature of the core benefits of the PPS Sickness & Incapacity Benefit requires more detailed underwriting than general life insurance products. Because of the upfront detailed underwriting, members can claim for sickness benefits without having to complete lengthy claims forms or needing to prove loss of income. The PPS Sickness & Incapacity Benefit differs radically from competing products in that it provides for sickness benefits should the member become unable to practice for a period of 7 days or longer; and pays benefits from day one. This does however not mean that the time from submission of an application to issuing a policy is longer than the average for the industry.

3. Where does the PPS model differ from other distribution models?

The PPS distribution model is similar to that of the rest of the insurance industry – we engage with independent brokers, who operate within our target market. Although the PPS distribution force is small, it continues to grow favourably. PPS accredited financial advisers engage in face-to-face contact with clients. Our experience has shown that professionals prefer personal interaction with regards to financial planning, even though they are sometimes pressed for time.

4. Why the need for a unique insurer in this space, while most insurers target this segment of the market as well?

Having been established by professionals 67 years ago, PPS has developed a unique proposition of being the only company of its kind in South Africa that focuses exclusively on the graduate professional market. As a result, PPS has a unique position in the local insurance market and has one of the strongest brands in the industry.

Graduate professionals are an attractive market to all insurance companies. Market surveys indicate that graduates in the professional market have a far better risk profile for insurance than the broader market. PPS has always had the interests of its members at heart and continuously looks at ways to provide better benefits and improved service. This is why PPS has, over the past two years, enhanced its product range to a suit the changing needs of the modern graduate professional; and offers its members the benefit of lower premiums on select products.

As is expected, this level of change comes with some level of stress for all concerned. And, despite some challenges we have experienced, the response shown to our new products have been exceptionally positive. I would therefore like to take this opportunity to thank our loyal supporters for their hard work and commitment.

Although PPS has undergone immense change, as a result of the product enhancements, the Company achieved excellent results at the end of December 2007.

PPS shared R1.3 billion with the members through the unique Surplus Rebate Account (R6.9 billion over the last 5 years). Total assets have grown by 24,1% per annum, compounded over the last four years to R12.4 billion. Gross premium income increased by 18,6% to R1.2 billion.

PPS continues to grow from strength to strength, which is reflected in the remarkable performance figures. In the last four years of our 67 year history, PPS has successfully doubled the size of its business. And, with an exceptional outlook, PPS is focussed on service delivery in 2008.

The PPS Annual Report is now available on http://www.pps.co.za/

5. In your view, what are the opportunities for advisers in the professional segment of the market?

Dealing with the professional segment of the insurance market can be challenging. Professionals have strong opinions, are well-read and have little time to spend on financial planning.

For this reason, I believe that there is an opportunity for financial advisers to secure solid relationships with this target market if they offer effective advice, without consuming too much of their client’s time. In my experience, clients remain loyal to their financial adviser, once they are confident in the relationship, which results in the persistency of business being extremely high.

6. It is well known that the upper-middle income and above group has grown significantly over the last few years. Has the need for life cover in this sector also grown?

Yes, this is quite evident. However, it must be noted that the professional market and the high income market are not always aligned. By that I mean that one cannot assume that all professionals are in a high income group. In PPS’ experience, many professionals are underserviced and underinsured.

Generally speaking, we find that the need for life cover in the graduate professional market has grown significantly over the last few years. However, the problem financial advisers are faced with, is getting access to the client’s time in order to identify needs appropriately. While graduate professionals are a primary target for financial advisers, there tends to be a level of resistance for new advisers to penetrate this space, as a result of the prospective client’s existing relationship with his/her financial adviser as well as time constraints.

7. How does the previously disadvantaged group respond to the need for life cover?

In the PPS target market the response is exceptionally favourable and we believe that there is a major growth opportunity for life insurance amongst the previously disadvantaged group.

In 2007 the transformation of PPS Insurance received a considerable boost with the implementation of the BEE Transaction – well ahead of the 2010 schedule set out by the Department of Trade and Industry’s Codes of Good Practice and the Financial Sector Charter. Currently 40% of policyholders are black professional members, who hold more than 25% of the company’s economic interest.

8. How should advisers approach consumers from this segment, given that professionals expect professional advice?

Professionals demand good service. And, I think it would be fair to say that financial advisers are often cautious about approaching professionals, particularly those in private practice. This is mainly because they feel that their own skills level and knowledge could be insufficient; and they would consequently be unable to offer the level of technical advice that professionals expect. For this reason, many financial advisers may miss an opportunity to gain a prospective client’s business.

PPS product-accredited financial advisers specialise in this target market and constantly deliver professional and effective service. This, coupled with the prominence of the PPS brand in the insurance market, puts them in a position where they are able to more readily secure appointments and consult with prospective clients.

9. Where to from here for PPS?

PPS is committed to remaining focused on providing benefits specifically designed for the graduate professional. As a result of our members having an active input in the type of products that they require, we see a major growth opportunity in being able to continuously meet the changing needs of the modern graduate professional.

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