Bullet-proof brand is key differentiator in insurance
Clement Chinaka (right), Managing Director, Old Mutual Africa Regions, has good reasons to feel sanguine. After a tumultuous period during the pandemic, business has rebounded. While Covid-19 had led to increased pressure on the life insurance business in particular, claims have reduced with the arrival of vaccines and increased herd immunity.
In addition, tightening prices and restructuring the underwriting side of its insurance operations has brought increased benefits. The Group ended 2022 with a combined profit of R8.743bn ($467.9m) across its various lines of activity, a 99% increase on the previous year. This performance was reflected in the ‘Africa’ region, which refers to the markets outside South Africa, the company’s home and main market.
“We delivered strong volumes of growth in all our lines of business which helped us to increase the scale of our operations. The new business that we attracted delivered fairly good margins and we are satisfied with that. And, 80% of our entities returned a profit,” Chinaka reports.
While the number of Covid-19 claims reduced significantly, the Group experienced an increase in health insurance claims in East Africa, and motor insurance claims have continued to grow from last year. However, in its insurance businesses, the Group continued investments in distribution and intermediary enablement, with the upshot of strong top-line growth.
With its healthy end-2022 figures, Old Mutual weathered the economic storm, and Chinaka is rightly able to adopt a positive perspective as he looks to the future.
An established brand
Old Mutual is one of Africa’s oldest financial services brands, with a strong record that is reassuring to both investors and clients. With interests in insurance, asset management and now banking, and a presence in 12 countries in all regions of the continent, it remains a force to be reckoned with and has an undeniable impact in the markets where it is currently present.
Across those countries, the Group operates 27 companies, although that number may soon change with mergers and acquisitions.
Chinaka says that some countries may offer opportunities for consolidation. “In some markets, we see evidence of overtrading and way too many players, resulting in undercutting in price, which negatively impacts margins. So I think there is room for consolidation in those markets, especially in East and West Africa, where you can see a lot of the players are not making money in the property and casualty segments.”
That is not a problem for Old Mutual itself, however. With the benefit of financial muscle and brand strength, it continues to post positive results.
“About two years ago, when we spoke to investors, I said I wanted to make sure that 90% of our entities are returning profits by the end of 2024 – and we are making progress on that journey. We have made some improvements in our businesses in East Africa in terms of management controls, resulting in that region delivering a profit for the first time since 2015.”
Other encouraging news came from the Group’s banking operations, where focusing on credit risk management and collections delivered the expected results. Similarly, the asset management business continued to grow in 2022. “On the asset management side, we grew by about 5%, coming from better inflows and improved investment returns.”
Even as the Group grows in these different directions, the insurance business remains the beating heart of the operation. The challenge in that industry, especially outside South Africa, is as much cultural as it is structural, says Chinaka.
“People in Africa are no different from people anywhere else in the world. They want to protect their assets; they want to protect their families from untimely death; they want protection from ill-health and yes, they will still need all that in retirement when they can no longer rely on their own incomes.
“These needs are universal, so the question for us is how do you put information [and products] in the hands of the African population in a cost-effective yet profitable way?”
Competition to provide these assurances can come from an unlikely direction, with people utilising informal, social and familial systems to insure against these
Wherever you are, we want you to have the same Old Mutual treatment in order to get the benefit of the expertise that is available across the Group.
risks - that is the cultural element.
Although the nuclear family is ascendant in parts of Africa, the extended family and clan associations can be an option for people in the face of both unpredictable life events such as injury, or old age.
Chinaka believes that financial literacy is the key to addressing this and placing Africans in better control of their financial affairs, aided by the industry and players like Old Mutual.
Boots on the ground
It is also perhaps why Chinaka is not so sure that technology and the capacity to deliver financial products over mobile electronic devices is quite the disruptor it is touted to be.
“Technology has been helpful in raising awareness and delivering products, especially certain types of simple insurance such as travel insurance, insurance for a gadget and other ‘short-term micro’ products,” he argues. “These can be distributed via technology like USSD and mobile phone apps. It also offers a way for customers to track their portfolios as well as some sales servicing. However, in terms of actual customer acquisition, there is still some way for technology to go.”
For Chinaka, who began his insurance journey in Zimbabwe before being drafted to the mothership in South Africa, insurance is still a product that is sold rather than bought and will continue to require boots on the ground, operating online, but more importantly offline.
Which is not to say that the Old Mutual Group is not attuned to the opportunities presented by the digital revolution. Indeed, it is expanding in exactly that direction with, among others, the recent launch of O’mari mobile wallet in Zimbabwe, by Old Mutual Digital Services.
“We are looking at other models of delivering financial services to the market,” says Chinaka. “Next176 enables us to look at the insure-techs and fintechs that are out there in the world and see which ones can help us to solve some of the problems that we are trying to resolve, [to] improve the customer experience and the ways in which customers can access our services.”
Backed by Old Mutual, Next176 was founded to create significant impact in specific ecosystems that affect the future of emerging economies, by creating businesses that deliver disruptive and sustainable growth.
The Group would then consider partnerships with or acquisitions of these firms to help it deliver better services to its customers. The motivation for this is simple, as expressed by Chinaka. “As a company, we are 178 years old. We have managed to maintain our relevance to customers through all the changes in the industry and in consumer behaviour.
“I see us doing the same with the 4th industrial revolution, where we will have to make sure that we bring our customers along with us.”
In more traditional directions, the Group is in the process of building a bank in South Africa. Chinaka says this is part of the Group’s desire to provide end-to-end financial services for its customers.
“We want to be our customers’ first choice to sustain, grow and protect their prosperity and that means covering a broad range of financial services – from protection, to banking and investments. We want to be that trusted partner that can do that.”
The bank already has some lending operations in Kenya and Chinaka says that they will continue to explore opportunities of that nature. The success of this would mean more customers relying on Old Mutual as a one-stop shop for financial services.
Uniform experience
Wherever and however customers interact with Old Mutual, they must have a uniform experience. “Wherever you are, we want you to have the same Old Mutual treatment and that means getting the benefit of the expertise that is available across the Group.”
This applies even though none of the markets offers the full suite of products and services. In Rwanda, for example, the Group does not offer property or health insurance products, however they are available in neighbouring Kenya. In South Africa, the Group does not offer health insurance, but that activity does a robust trade in East Africa. The important thing is that customers are able to rely on the brand, however they are able to engage with it. This, Chinaka says, is the rationale behind the re-branding that is currently taking place in East Africa to bring the different entities under one single brand, an exercise that has now been successfully completed in Kenya and Rwanda.
“Old Mutual is the strongest insurance brand in Africa and we want to leverage that across the continent, wherever we operate. We are known for our bullet-proof financial strength and the fact that we are one of the most trusted brands in the continent.
“I think that lack of trust is the reason why insurance as a concept is not as big in some markets, and I think that we can help remedy that and restore trust in the industry. That is the whole vision of our brand.”
That bullet-proof strength is, he explains, a key differentiator, and, in insurance, strength and stability are key to winning over people’s trust. However, that has not always been the case across the industry on the continent, often the result of a market that is too fragmented and with too many smaller players.
Regulatory challenges
A major challenge to building continental brands offering seamless experiences is the fragmented nature of the regulatory environment around the continent.
Differing demands on market operators and even the speed with which regulations change within markets, affect how companies operate and the services they can deliver.
Chinaka says it is a good thing that regulators are so diligent but believes that the rapid changes can have some unintended consequences.
“We are having to spend a lot on compliance because the regulations are changing so quickly and so often, which means we have to divert resources from our core business of attracting and retaining customers with superior service and devote those resources to regulatory compliance.”
More consultation and collaboration between regulators and players would help address this issue. Similarly, closer collaboration between regulators in the different markets could address the situation where, for example, varying capital requirements mean that liquidity is tied up in one market that could be applied elsewhere.
Another risk to the industry is the prevailing macroeconomic conditions, more
Lack of trust is the reason why insurance as a concept is not as big in some markets, and I think that we can remedy that and restore trust in the industry.
severe in some countries than others. Inflation and the widely applied cure – interest rate hikes – have conspired to drive up the cost of premiums, which is especially troubling in markets where customers are sceptical about insurance in the first place.
Just as significant is the fact that the debt situation means that sovereign debt is no longer the triple-lock bet that it has been perceived to be for a century. In Ghana, for example, private sector creditors have had to endure ‘a painful haircut’ which, Chinaka says, requires investors to view sovereign investments differently.
Another is currency depreciation, which can have a tremendously disruptive impact, including on African multinationals such as Old Mutual.
The other challenge the Group is facing right now is around human capital. Companies have to fight to retain their staff, especially as countries in Europe are able to offer better terms as they seek to shore up their labour markets in the face of ageing populations. The effect of this is higher costs, to keep staff and to train replacements for those who leave.
There is also competition from new entrants, especially non-traditional players such as banks and tech platforms that are muscling in on the insurance market.
Lastly, extreme weather events, brought on by climate change, are a particular nightmare for insurance companies because they inevitably result in increased claims and there have been a lot of those in recent history.
All of these require insurance and financial service firms to be ever more inventive, to recalculate risk premiums and to reposition for the new realities.
Chinaka says Old Mutual is focused on sustainability, driven by the belief that what is good for the community is ultimately good for the business.
“One of the ways we are doing this is to drive financial education to help lift communities so that they can participate in the financial services sector.
“The other is by responsible investment. We recognise that with R1.3trn ($71bn) under management, we are one of the biggest asset managers on the continent and we are in a unique position to influence the companies we invest in to do their part on things like environment, social and governance.”
Old Mutual itself has R180m ($10m) committed to investments in green initiatives such as solar, wind and hydro. It is also funding agriculture in Zimbabwe and Malawi, where large parts of the population are reliant on farming. Indeed, the Group’s Zimbabwe business has received a Top Sustainability Oriented Organisation accolade from CSR Network Awards for its interventions in agriculture and renewable energy.
That Old Mutual is able to do this – invest in initiatives with a broad and positive effect on the continent – adds to the increasing calls for nurturing and empowering African financial institutions that can apply their strength for the benefit of the continent.
Chinaka recognises Old Mutual’s responsibility as a leading player on the continent and says the board and management fully embrace the challenge.
“There is a lot of work to do in the African continent and so we need to gather assets to invest in Africa. We can only succeed as Africans if we do this ourselves and the financial services sector can help do that by harnessing resources and making them available for investment in Africa. If we don’t do that, we will have to remain reliant on other continents and that is just not sustainable.”