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Sanlam CEO Paul Hanratty tells The Africa Report that the decision to focus on the continent was rather an easy one to make: “We’ve got a billion people living in Africa. Very few of them have financial services – that’s a reality. If you want the economy to grow, you need financial services. Financial services is like the railroad, you need to put in the railroad.”
Building that railroad will entail targeted attempts to “engage as many of those billion people as we can. Okay, many of them are children, but maybe 500 million adults,” he says. “We are bullish in the long run about Africa. The demographics are fantastic. It’s got a young population. By the end of this century, Africa is going to have the biggest workforce – bigger than China, bigger than India. Isn’t that a fantastic opportunity for all of us?”
The African Continental Free Trade Area (AfCFTA) agreement gets an honourable mention. Because “trade is tricky”, notes Hanratty, “as [the AfCFTA] gets going it really is going to help [growth]. We know, historically, that trade is an absolutely key driver of the economy and an enabler of growth.”
One of Sanlam’s strategic pillars is becoming “an African champion”. Overall, the group spans 32 countries in Africa directly, while its indirect presence in developing and developed markets – through joint ventures and partnerships – raises that figure to 44. Sanlam considers general insurance one of the biggest prospects for growth in Africa because of the relatively low levels of penetration. This was a major aspect informing its decision to buy the remaining stake in Moroccan insurer Saham for $1.1bn in 2018.
A face-to-face hiatus
“Saham was strong in general insurance. One of the big plans when Sanlam acquired Saham was to try to roll out life insurance across Saham. [Life insurance] is the strength of Sanlam. [But] life insurance is heavily dependent on face-to-face advice,” says Hanratty.
The spread of Covid-19, with its associated lockdowns and restrictions on contact and movement, slowed down some of these plans.
“Covid-19 […] made it difficult,” concedes Hanratty. “So the expansion of the life insurance business had a bit of a setback. It restricted us in terms of servicing clients. This was a huge, huge issue. Every time there was a lockdown, it was difficult for us to engage wherever we have face-to-face advice with customers.”
He maintains the company is “still positive about the future. In fact, the life insurance business has been doing nicely, [and] growing strongly as an add-on to the Saham proposition.”
This partly explains why Sanlam’s Saham strategy will be ‘phased in over time,’ according to the group, citing the ‘current market values and economic climate’ as the reason.
Ethiopia, which is in the process of opening up to private capital, is nowhere near being on Sanlam’s horizon – yet. When the company will venture there is a question that many have asked.
Hanratty’s response is emphatic: “We’ve made it clear that we want to strengthen where we are. It doesn’t mean we’ll never go to new places. Ethiopia is a populous country. It’s got a great long-run potential. But it’s a little early for us to be talking about Ethiopia,” he says.
When it comes to Nigeria, Hanratty strikes a more enthusiastic note. In the year ending 31 December 2020, Sanlam acquired the remaining 65% interest in the Nigerian insurance operations of First Bank of Nigeria for R1.2bn ($80.3m), financed through debt. ‘The intention remains to introduce a new partner into the business,’ according to the group’s communications.
Nigeria: a long-term build
“Nigeria is one of the giants on the continent. If you want to be an African champion, you’re going to have to participate there,” says Hanratty. “It’s a big country. It’s a wealthy country. It’s a complex country. It’s a very entrepreneurial and dynamic country. It’s very fragmented in insurance. In fact, it’s fragmented in banking as well. We see it as a long-term build. We want to step up our involvement in that economy over time,” he says.
A cornerstone of the “stepping up” will be involving local partners. “We’re an industry that powers up economic growth in countries. Sharing that with local partners is fundamental, particularly in developing economies. We don’t think sucking the life out of economies is a good idea. We’d rather invest alongside locals and let everybody benefit,” says the Sanlam CEO. Also, “there’s no way we would tackle a country like [Nigeria] without local expertise.”
The Saham acquisition is a good reference point for the group. “One thing I’ve been impressed about from the Saham transaction is the quality of the management. Local management in each country is good. We’ve been able to attract great people [in Morocco]. And we’ll need the same in Nigeria.”
Back home in South Africa, where Sanlam’s operations originally began, Hanratty took over in early 2020, at the height of the Covid-19 crisis.
“I knew the company well. I knew the industry well. And I knew the South African context well, so that made it a bit easier,” he says. He had spent a considerable period on the Sanlam board as a non-executive director.
However, Covid-19 loomed large in South Africa. This gave rise to “a massive challenge that we faced as an industry with business continuity insurance”. The issue was at the centre of court proceedings instituted against several general insurers, including Sanlam subsidiary Santam.
“That impacted our South African results. We didn’t get a dividend out of Santam as a result of that,” admits Hanratty. “Barring that, we would have seen strong numbers out of South Africa.”
In addition to the challenges surrounding the business continuity insurance, Covid-19 mortalities meant a rapid rise in death claims, and lockdowns were accompanied by repayment holidays in some jurisdictions.
In India, the retail credit business was subjected to a six-month repayment holiday. But India remains a good business for Sanlam. There is a thriving ecosystem, wherein credit and insurance are interlinked, as well as the fact that the brand is strong among the customer base, says Hanratty. That ecosystem is built on a partnership model with Indian insurer Shriram.
Interestingly, given India’s size and similar market dynamics to Africa, there are no tangible lessons in terms of products Sanlam wants to replicate on the continent. However, Malaysia is different. “We’ve had more learnings out of our Malaysian business for Africa than we have out of India, particularly on the digital front.”
The Malaysian business has been innovative around digital insurance and digital technology: “A lot of those ideas have now found their way into our business on the African continent. Of course, the big opportunity for us is to leapfrog obstacles.”
The most important thing for Hanratty, though, is accessibility. “That’s the problem with most financial services. It’s quite inaccessible, either physically or psychologically. You don’t really understand something, so you’re a bit embarrassed to approach someone to ask them about it. We’ve got to get over that issue of accessibility.”
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In South Africa, this inaccessibility has shown up for Sanlam in the retail mass market. In response, the company has restructured Sanlam Personal Finance and replaced it with SA Retail Mass and SA Retail Affluent.
“We haven’t managed to penetrate [the] retail mass market with either savings products or general insurance products because we haven’t designed products specifically for those markets. We’re missing the opportunities,” he observes. The solution, Hanratty says, is “to be much more in tune with our market needs. That’s why we’ve restructured the way we have.”
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