Adding value in all development phases key to successful partnership

In a drive to offer customers greater convenience, an expanded range of financial products and services, as well as to grow existing insurance business, Absa launched a stand-alone life insurance product at the end of 2007, marketed under the Absa Life brand.

Due to the exceptional growth of Absa’s bancassurance business and the fact that Absa has one of the largest intermediary forces selling life insurance products to the South African market, it was a logical next step in the evolution of product development for the bank to launch a suite of stand-alone life products.

“We required the right specifications to make this product competitive in our broker market, as the Absa brokers are totally independent”, commented Izak Smit, Managing Director at Absa Life. “Our aim is to gain a 10% share of the products sold through our intermediary market, so Absa needed to develop a life product that could compete with the other leading offerings in this space. Absa Life therefore needed to develop a product that our brokers were confident in selling, so expertise in product development was one of the key elements when we selected reinsurers to partner with.”

RGA Reinsurance Company of South Africa Limited (RGA), the only dedicated life reinsurer in South Africa, was selected as the lead reinsurer on the development of the complex life products. “Our initial focus was developing a full product range that could be introduced to the market at competitive rates,” continued Smit. “This was a new challenge for the Absa pricing team, so we required assistance and support with regard to the pricing and design of the product from a trusted expert development partner, which we found in RGA. Other reinsurance partners also played an important role, but RGA took the lead in most of the development. ”

The relationship with Absa and RGA is one built on trust and has thus grown over the years, which according to Smit is largely due to the accessibility to RGA’s executives and the added value that RGA brings to the business relationship. “We have maintained good relationships with all our reinsurance partners over the years, always putting long-term goals and trust before short-term pricing or other considerations. RGA bought into this established philosophy very easily.” The RGA team, led by Bernard Ross, Executive Director at RGA South Africa, ensured that value was added even before the tender process.

“RGA conducted a customer survey, independent of Absa Life, where we met with the Absa broker market on a one-to-one basis to gain a better understanding of the issues facing the brokers, the bank and their customers”, says Ross. “Although a general structure was adhered to, the interviews we conducted were unscripted and allowed us to really dig deep in order to identify these key issues, which was critical to the success of the project.”

Having presented the findings back to Absa, product development could commence. However, first Absa decided on their reinsurance partners. “The tender was split, with RGA appointed as the lead reinsurer on the complex life product development because of the value they had already brought to the project through their research. This added value made it impossible for us to not give them a significant slice of the business”, stated Smit.

A multidisciplinary product development team was then assembled by RGA and Absa to handle the pricing, underwriting, claims and product development. “We utilised a feedback system with a feedback loop between Absa, the broker, back to Absa and then to RGA when developing the life product suite, which comprised death, lump sum disability, critical illness, functional and physical impairment and funeral cover”, said Ross. “To ensure that we met standards across all product offerings and benefits, we utilised industry software as a benchmark rating system, thereby ensuring that Absa brokers will have a competitive offering to sell.”

The feedback system allowed Absa and RGA to easily identify areas in the product development process that required further refinement from the multidisciplinary team. “A dedicated resource was assigned the task of testing the new products that were added to the Absa Life product suite. And Absa did the same, checking consistency with needs from their brokers”, continued Ross.

“In terms of pricing we needed to ensure that Absa Life was competitive with current market rates. This required RGA to develop risk premiums that Absa could convert to competitive insurance premiums across the product range,” commented Ross. “RGA was also able to assist with the development and pricing of both underwritten and non-underwritten benefits in the product suite due to the strength of our experience and expertise in this field.”

According to Smit, Absa aims to target the mass market as part of their growth strategy. “The previously ‘unbanked’ provide huge potential for growth, especially as we have a big advantage in terms of reaching them due to our national footprint. However, a great deal of non-underwritten products is sold into this market, thus requiring extremely competitive pricing to ensure this volume-driven business can offer some level of profitability. This was therefore another area where RGA was able to add value,” continued Smit.

Both Ross and Smit attribute the success of the project to the close partnership and strength of the insurer-reinsurer relationship. “What made this partnership successful was the fact that RGA was not just a capacity provider, but rather a strategic partner in the development of both the product and pricing”, concluded Ross.

“The value added services that RGA provided, in the form of their market research, the manner in which they drove the project and the skills and expertise they brought to the table really made working with them an enjoyable experience”, said Smit. “The manner in which they were able to offer advice in areas wider than just pricing and product development, for example setting underwriting requirements and assisting with claims documentation and processes, ultimately led to the success of the project and allowed us to successfully launch towards the end of 2007.

“Absa firmly believes in building long-term business relationships with all of our strategic partners. We see our relationship with RGA as one with mutual benefits, a true win-win. RGA’s willingness to play open cards at all times, their commitment to deliver above what is expected of them and their experience and expertise will ensure Absa Life’s continued involvement with them into the future,” Smit concluded.