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.
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.