IN WITH THE

Should Old Mutual, a traditional life office, really be competing with private bankers and bespoke asset managers for the wealthy section of the market?

Old Mutual SA’S main strength over the past 20 years has been its ability to build a dominant business in the mass market. Its Mass and Foundation Cluster (MFC) is in low income — a sector in which, up to 1990, insurers could not find profitable business.

MFC reverses the conventional thinking on selling insurance. Instead of agents who rely on upfront commissions there is a 4,000-strong salaried sales team which sells products through workplace marketing.

To reduce the risk of policy lapses, MFC focuses primarily on the public sector, which has higher job security. So government employees still account for 60% of sales.

The business operates in 45,000 worksites.

Few competitors sell savings products into the mass market. Old Mutual has an almost equal split with 1.6m savings products, which includes retirement annuities, tax-free savings accounts and education policies, and 1.7m protection policies: funeral policies are the anchor product but life-cover sales are growing.

The MFC cluster has a 58% share of the premium income in its target market. Old Mutual has a 15% share of new risk policies written, but it is a large market with 5.2m policies a year.

Funeral & life What it means:

Few others dare tread into the mass savings market. This means Old Mutual has a 54% share in that line of business, which has 1m policies up for grabs.

Clarence Nethengwe, MD of the MFC, says his own education was funded by savings his mother built up through Old Mutual mass-market savings policies. Like a preacher, he spreads the word about savings and protection. Ironically, he is also an evangelist for personal loans.

Old Mutual Finance is the closest the group gets to a bank branch network, and with 307 branches it has a 6% market share of unsecured loans. OM Finance does not take deposits though it has a thinly disguised proxy called the Money Account.

Nethengwe continues to sweat the sales staff who have, since 2014, been selling an extra policy each every week. He sees an increasing need for digital communication now that cellphones are ubiquitous in his target market.

In the past, analysts might have referred to MFC as a distinct unit hidden away from the mainstream Old Mutual business. Now, with R3.1bn in pretax operating profit, it is getting closer to the R3.4bn generated by “mainstream” Old Mutual, now called Personal Finance (PF).

Old Mutual has deployed arguably its brightest star, Karabo Morule, to knock the PF business into shape. She was only the second African woman to qualify as an actuary in SA. Morule says the target market is income earners from R20,000 to R80,000/ month.

PF has no end of competitors in this sector. They include Sanlam, Liberty and Momentum as well as the debit-order-based products provided across the unit trust industry. The majority of sales, R1.4bn, are in savings products but the largest profit source, of R1.36bn, is protection products.

PF has an even broader range of distributors than MFC. It still generates a majority of sales (55%) from tied agents with 28% from brokers and independent financial advisers.

There is also a further 10% from franchises. Only 7% comes from digital or teleadvice channels but Old Mutual is slowly dropping its old-school approach to selling insurance. Digital sales have more than doubled to (a modest) R80m over the past two years.

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