How Avbob dou­bled its as­sets in five years

With the rein­ven­tion of an Afrikaner vol­un­teer so­ci­ety into the mar­ket leader in funeral in­sur­ance and ser­vices, its com­pet­i­tive ad­van­tage lies in its abil­ity to of­fer both the pol­icy and the ac­tual funeral.

Finweek English Edition - - ON THE MONEY AVBOB - By team

avbob­has seen ex­plo­sive growth in the past five years, with its num­ber of pol­i­cy­hold­ers up by 65% to 1.7m, and to­tal as­sets grow­ing from R6.2bn to R14bn.

Pol­i­cy­hold­ers have reaped the ben­e­fits. They are the only own­ers of the com­pany, which isn’t listed on the JSE. Over the past nine years, Avbob has paid out al­most R6.4bn to pol­i­cy­hold­ers, cred­ited to poli­cies. The lat­est al­lo­ca­tion of R1bn was made in July, and an­other spe­cial bonus is planned for 2018, when the com­pany cel­e­brates its cen­te­nary.

Africa’s largest mutual as­sur­ance so­ci­ety was es­tab­lished amid the dev­as­ta­tion caused by Span­ish Flu, when soldiers re­turn­ing from World War I spread the dis­ease. Al­most half a mil­lion South Africans died. Poor fam­i­lies could not af­ford to bury their dead and a group of vol­un­teers started rais­ing funds to help them. The vol­un­teers formed a burial so­ci­ety called Afrikaanse Ver­bond (AV) in 1918, en­cour­ag­ing peo­ple to start mak­ing small but reg­u­lar con­tri­bu­tions in ex­change for funeral pay­outs.

A few years later, the AV bought a bank­rupt funeral es­tab­lish­ment, ex­panded into funeral ser­vices and be­came Avbob.

While Avbob started selling poli­cies to black South Africans in 1947, its clients re­mained pri­mar­ily white un­til the late 1980s, when the com­pany – known col­lo­qui­ally as Al­mal Vrek Be­halwe Ons Bo­ere (Ev­ery­one Croaks Ex­cept Us Bo­ers) – fi­nally shifted its fo­cus.

At the time, it launched ex­ten­sive mar­ket re­search to un­der­stand what black con­sumers needed, and how prod­ucts can be shaped to bet­ter suit their re­quire­ments. This in­cluded faster cash pay­outs to help fund ex­penses as­so­ci­ated with fu­ner­als – in­clud­ing the rit­ual slaugh­ter­ing of an an­i­mal – and free trans­port of the body within South African bor­ders (cus­tom dic­tates that a per­son has to be buried in ances­tral land).

“We came to un­der­stand how in­te­gral fu­ner­als are to the African cul­ture,” says CEO Frik Rade­man, who has been with the busi­ness for the past 34 years. “But be­cause of the sig­nif­i­cance, the cost of these rites can be over­whelm­ing for poor fam­i­lies. Funeral poli­cies can pro­tect these fam­i­lies.”

In the early 1990s, Avbob started mar­ket­ing its prod­ucts ag­gres­sively to the black mar­ket. The shift in fo­cus also ne­ces­si­tated a cul­ture change within Avbob, says Rade­man. The busi­ness lan­guage switched to English (al­though Afrikaans still features strongly) and it re­cruited large num­bers of black em­ploy­ees. To­day, 92% of its 6 000 em­ploy­ees are black and the com­pany has achieved a Level 2 BEE score. Its ex­ec­u­tive re­mains over­whelm­ingly white, how­ever.

The ma­jor­ity of its ex­ist­ing pol­i­cy­hold­ers are now black, as well as 90% of new pol­i­cy­hold­ers. De­spite strong com­pe­ti­tion from a num­ber of new en­trants (ev­ery­one from Pep to Vodacom has en­tered the funeral pol­icy space), by its own es­ti­mates, Avbob has the largest mar­ket share in both funeral in­sur­ance (15%) and funeral ser­vices (10%).

Avbob’s com­pet­i­tive ad­van­tage lies in its abil­ity to of­fer both a funeral pol­icy and a funeral, through one of its 280 out­lets. Un­like al­most all other funeral in­sur­ance providers, a free ba­sic funeral (val­ued at R9 600) is in­cluded. Also, the de­ceased is trans­ported (Avbob has a fleet of 1 000 ve­hi­cles) free of charge to any location within the coun­try’s bor­ders. Costs are kept low by cut­ting out the mid­dle man and by man­u­fac­tur­ing its own funeral ware. “If a fam­ily wants a cas­ket in the Or­lando Pi­rates colours, we can de­liver quickly,” says Rade­man.

“Avbob’s success is due to sim­ply be­ing a good busi­ness that does busi­ness well. They dom­i­nate the mar­ket and they’ve got a good brand,” says Kokkie Kooy­man, CEO of Denker Cap­i­tal and fund manager of the San­lam Global Fi­nan­cial Fund.

Its success has not gone un­no­ticed. “We have been ap­proached many, many times,” says Rade­man. “But a takeover won’t be in our pol­i­cy­hold­ers’ in­ter­est.” Avbob has also re­sisted the temp­ta­tion to list. “Our pol­i­cy­hold­ers would have ended up with a cou­ple of shares as part of the de­mu­tu­al­i­sa­tion, which most prob­a­bly would have sold for the cash. This would not have been in their long-term in­ter­est.

“Also, we would have had to man­age the com­pany with an eye on the share­hold­ers, and not in the in­ter­est of pol­i­cy­hold­ers.” He be­lieves that by re­main­ing a mutual as­sur­ance so­ci­ety (PPS is the only other high-pro­file ex­am­ple in SA), the com­pany was able to make long-term de­ci­sions that could drive more sus­tain­able growth. While it is not able to in­cen­tivise em­ploy­ees by giv­ing them shares in the busi­ness, Avbob runs a phan­tom share scheme that of­fers sim­i­lar ben­e­fits, says Rade­man.

Kooy­man be­lieves Avbob, which is

Over the past nine years, Avbob has paid out al­most R6.4bn to pol­i­cy­hold­ers, cred­ited to poli­cies.

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