Failing the number one SME asset in the country

By Schalk Malan, Executive Director, BrightRock

BrightRock views the business owner of an SME as the business’ most important asset, which should be covered just like the physical assets of the business.

The affordability of suitable cover is a stumbling block for many business owners and financial advisers, because traditional business assurance policies are structured in the same form as personal life insurance policies.

We believe business assurance must provide a high degree of flexibility to maximise the relevance and affordability of owners’ risk cover as their businesses grow and develop. There’s both an opportunity and a demand for product providers to introduce more efficient product structures that better address entrepreneurs’ changing needs.

Looking at traditional product structures – whether providing protection for Keyman, Contingent Liability or Buy-and-Sell – most of these products provide cover via a single capitalised lump-sum that is priced for the maximum term and is usually set to grow over time. The structure of this cover is not necessarily in the best interest of the business owner, because the cover increases as your needs decrease, leading to cost inefficiency in the way premiums are structured. The cover is also more expensive because it is priced to extend for the maximum possible term (whole of life, until clients are aged 110, for example), while the business insurance need will cease at- or before the client retires and leaves the business.

KeyMan_Image

This is why we decided to follow a more flexible approach, which allows 40% more cover per premium Rand, allowing business owners to invest more funds in their businesses, or allocate the savings to more cover in the event of underinsurance.

Our premium efficiency and cover sustainability is achieved by structuring business owners’ cover to meet their exact needs. BrightRock’s cover removes premium waste and saves money from the payment of their first premiums. Our unique approach allows advisers to tailor business owners’ cover over time to match the profile of their needs.

In addition to this, business owners have the unique ability for them to redirect their premiums to cover for their personal needs if their business cover needs reduce or end. This is done free of underwriting, giving business owners the benefit of the underwriting they initially underwent and premiums they have paid thus far.

But what should small business owners do in the event where the business’ growth exceeds expectations, leaving the business owner with the desire to increase his or her cover?

This is not a problem for BrightRock policyholders: Standard BrightRock policies automatically have access to an extra cover account, to access later in the business lifetime. The only requirement in this event is an HIV test.

In conclusion, the following product attributes ensure sustainable cover for business owners who are covered by BrightRock:

  • Affordability: In the early stages of a business, entrepreneurs have to juggle the conflicting demands of large capital expenditure, a significant debt liability and limited cash flow. It’s vital that premiums are as low as possible, while delivering the required level of protection. By matching the duration and behaviour of cover exactly to that of the underlying need, BrightRock’s cover is more efficient. We find that this efficient structure gives clients on average 40% more cover

 

  • Relevance: Once a debt liability has been met, there’s no longer a requirement to provide cover for it. Similarly, as a business evolves, its reliance on specific key individuals is likely to change or lessen and eventually end, impacting on the nature and extent of the keyman cover required. Many of these future changes in need can be anticipated with a fair amount of certainty. Business assurance products should offer the ability to structure cover taking these future changes into account from the outset. For example, a business owner may know that his vehicle fleet will be replaced every four years and wish to structure his business’s debt cover to increase in line with inflation every four years. BrightRock offers unique features that allow this level of flexibility;

 

  • Access: While it’s possible to anticipate certain future developments – such as the date that a debt will have been paid off – it’s also possible that new needs will arise or the business’s growth will play out differently than expected. Future insurability and access to cover with minimum effort is a critical requirement. While BrightRock prices cover for the appropriate need to maximise efficiency, we underwrite a client’s premiums for life. This means, should their needs change in future, business owners have the ability to redirect their premiums to different needs and insurance events (even to personal cover) anytime their needs change, free of medical underwriting. They also have the ability to buy up cover with limited medical underwriting (only requiring an HIV test).

This article was originally published in the April edition of Cover Magazine.

BrightRock delivers more than R100 billion in cover in 3 years

Trail-blazing insurance player BrightRock recently achieved a major milestone when its cover in force exceeded the R100 billion mark (as at 30 September). This was achieved in just over three years from its market entry, confirming BrightRock’s status as South Africa’s fastest growing provider in the intermediated individual risk market.

“We believe that our needs-matched, client-centric approach to insurance cover has been the driving force behind our exponential growth,” explains Schalk Malan, Executive Director at BrightRock. “While the South African insurance industry as a whole has remained stagnant over the past year, our positive growth trajectory has seen an 89% increase in year-on-year gross premiums billed.”

The company has also paid out more than R125 million in claims since it started operating in March 2012, reflecting its philosophy of comprehensive and certain cover.

“Claims certainty is a central principle of our needs-matched approach. We’re proudly paying claims that traditionally would not have been paid or been paid at a lower level. We’ve found that our transparency, objectivity and clear criteria have gone a long way to give clients peace of mind about how their claim will be assessed and paid,” emphasises Malan.

“The success of this approach is clear from our strong new business growth, and our competitors have definitely taken note. One or two have recently introduced benefits that seek to emulate some of the features we introduced to the market, but none have been able to replicate the flexibility, efficiency and claims-certainty that BrightRock’s unique needs-matched product offers.”

BrightRock is set to build on its strong, differentiated product platform, with several new product enhancements, effective from 1 November 2015.

“Again, with the new features we’ve introduced, our focus has been on increasing claims certainty and clarity for our clients, by expanding the spectrum of claims we cover,” notes Malan.

Highlights include:

  • Trauma IQ, a world-first new approach to assessing and covering the additional expenses that may arise from a trauma event. This proprietary assessment tool significantly broadens the scope of factors that are considered when it comes to trauma events, thereby increasing the likelihood of a claims pay-out. Where BrightRock clients suffer a “less severe” trauma or accident that would be overlooked by traditional critical illness products, the unique Trauma IQ assessment will consider nine additional factors that contribute to the financial impact of a traumatic injury. These include the length of time of surgery and the degree of rehabilitation undergone. This means that clients are able to access a pay-out of up to R500 000 to compensate for the substantial out-of-pocket expenses that would otherwise not be covered by medical aid or traditional life insurance products.

This has no impact on the client’s additional expenses cover, which fully reinstates immediately. This market first for the insurance industry is currently pending patent registration locally with international patent applications to follow. “BrightRock policyholders without a doubt enjoy the most comprehensive cover for additional expenses available in the market today” says Malan;

  • A number of improvements to clients’ temporary expenses cover for illnesses or injuries they can recover from. BrightRock has introduced further certainty by adding guaranteed pay-outs for 37 conditions to its temporary expenses cover, plus an extensive list of more serious conditions with a much longer specified payment period. This gives clients certainty that they will receive guaranteed pay-outs for a specified number of months, regardless of whether they are booked off work, or for how long. For example, a BrightRock policyholder (who doesn’t also have permanent expenses cover with us) who is diagnosed with stage III cancer requiring treatment for more than six months will receive pay-outs from their temporary expenses cover for a guaranteed period of 12 months or 18 months, depending on the cover they bought with us;

 

  • An additional occupational underpin for permanent illness and injury claims. Occupational disability assessments have traditionally been quite subjective and it’s not always clear to clients and financial advisers whether or not a person working in a specific occupation will qualify for a pay-out. The new Job Fitness Test aims to give clients transparency upfront, and even more certainty at claim stage. According to Malan, BrightRock’s clinical criteria already cover an explicit list of 120 + conditions, regardless of the impact of a client’s injury or illness on their occupation.

 

“The Personal Job Fitness Test has always provided an occupational underpin to the clinical criteria, providing pay-outs where a client is unable to work in their own specific occupation because of an illness or injury. BrightRock now also offers an additional, stated occupational underpin in the form of the new Job Fitness Test.” Malan says this transparent, objective test uses a points-based system to evaluate a client’s ability to do the work that someone in their stated occupation would typically do. “The assessment criteria are disclosed upfront to ensure transparency – a market first – so clients know from the get-go exactly how their claim will be assessed,” explains Malan. As an example, an accountant who loses the ability to speak (severe inability to produce or comprehend language symbols) would qualify for a 100% pay-out.

The updates on BrightRock’s performance and the launch of these enhancements formed the basis for a recent nationwide series of update sessions attended by over 1 000 financial advisers, who have welcomed the increased certainty BrightRock has created for their clients.

“In the past three years, BrightRock has laid strong foundations for our future growth, and we’re excited to see the impact our product thinking has had on the market. We are looking forward to further building on these successes through the new product features , which will come online on 1 November 2015 and, we hope, will prove to be another game-changer for our industry,” concludes Malan.

  • This article was originally published on the Cover Magazine website on 27 October 2015 – read the original version at this link.

BrightRock reaches R1 billion in future premiums written

6 November 2014. Cover Magazine.

BrightRock has recently released updated figures on its performance in the individual life insurance market.

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Since opening for new business in April 2012, it has already written future premiums of just over R1 billion (R1 034 million, as at 30 September) in total, with cover in-force equating to around R70 billion. Nationwide, more than 2 700 independent financial advisers have signed distribution contracts with BrightRock to date. Month-on-month, the number of activated policies is growing by an average of over 15%.

According to BrightRock, it’s ‘needs-matched’ product design has given clients the power to co-create life insurance products suited to their needs with their financial adviser.

Schalk Malan, Executive Director at BrightRock and the main architect of the company’s unique needs-matched product structure, commented on the achievement. Malan received the 2013 Cover Excellence Award in recognition of BrightRock’s product innovation.

“BrightRock’s CAR (capital adequacy ratio) cover is at a healthy 2.8 times the required solvency level, ensuring the long-term sustainability of its risk book. Year on year, the value of in-force premiums has doubled, albeit off a low base, a positive indicator for future profitability.

“BrightRock has also seen a positive experience variance in terms of the company’s embedded value relative to its projections, this is largely attributable to better than expected investment returns. In terms of overall market share, and taking into account the split between distribution by Independent Financial Advisers (IFAs) and tied agency distribution in the industry, it is estimated that BrightRock accounts for between 8% to 10% of new life insurance business written by IFAs in South Africa.”

“… These indicators are all signs of the company’s positive growth in a competitive market,” concluded Malan.

However, Malan again emphasised that the true measure of a life insurance product’s value is not in its sales but in its performance at claim-stage. Despite modest claims volumes, a function of its relatively recent market entry, BrightRock has already made a number of substantial pay-outs – the largest claim paid to date was a death claim of R16 million.

Malan says that the tremendous demand for cover created by the huge insurance gap in South Africa (of R24 trillion, according to the latest ASISA industry study), presents a significant opportunity for BrightRock:

“That’s why we started this business. We knew change was needed and believed we could deliver the kind of consumer-centric product thinking required to help close the gap.”

Malan says he and his fellow founders – fellow executive BrightRock directors Sean Hanlon, Leopold Malan and Suzanne Stevens – are proud of what’s been achieved to date.

“In such a competitive, well-developed insurance market, we are pleased with our growth trajectory and  the continued progress we have made on the R&D front, which ensures we are able to meet consumers’ changing needs through highly-efficient, relevant life products. We are positive about our future prospects and our ability to establish a strong presence in the market going forward,” added Malan. – By Katya Smith

(This article was originally published on the Cover Magazine website on 6 November 2014.)

The flip-side of risk opportunity

18 July 2014. Cover Magazine.

With a growing insurance gap and regulatory changes in the offing, risk opportunity are abound in the life insurance industries. The smart money’s on insurance players that are ready to seize the opportunity for change.

In November last year, the Association for Savings and Investments (ASISA) published its insurance gap study. South Africans are underinsured by R24 trillion. Conducted by True South Actuaries and Consultants in partnership with Unisa’s Bureau of Market Research, the study found that employed South Africans between the ages of 18 and 65 require 62% more death cover than they currently have and about 60% more disability cover.

Industry statistics by True South and ASISA show that new recurring premium policies declined by 16% in the first half of 2013. The last Ernst & Young Financial Services Index showed a drop in SA life insurers’ confidence levels. The index cites GDP growth and global economic outlook as the main drivers of the decline. The IMF has cautioned growth has slowed and financial conditions have tightened in emerging economies.

The industry paid risk benefits of R13 billion on individual life policies in the first six months of 2013 and R6 billion in risk benefits on group life policies.

Stats SA employment statistics indicate that more than 1,9 million South Africans are employed in the financial industry, many of  which work in the life insurance sector, one of SA’s most stable labour sectors.

South Africa ranks among the world’s top 20 insurance markets. Dread disease cover is a South African invention exported to the US, Canada, Australia and New Zealand.

We need more innovation and more consumer-centric products. Life insurance has become increasingly commoditised. The basic product structures have remained unchanged and even the ‘new-generation products’ have been around for more than a decade.

Despite signing up for ‘whole of life cover’, many policyholders lapse their cover within ten years, due to economic pressures and outdated and inefficient product structures.

Deliver better value

Traditional life insurance product are priced for the maximum term and set to increase over time, funded by a premium that increases too, often at a high rate. As costs rise consumers inevitably buy down or lapse cover. In practice they’re paying life-long rates for term cover. This is inefficient and wasteful. Insurance should match needs and each component of a policyholder’s cover should be priced for the duration it’s needed.

Identify need for cover

Life insurers should show people their specific financial needs and how their life insurance can meet those needs. Product structures must be adjusted to clarify the link between consumers’ need and their insurance cover.

Understand trade-offs

When it comes to life insurance cover sacrifices and rewards are less clear. Industry research shows that South Africans prioritise death cover over disability and income protection cover. If consumers can discern the exact purpose of their cover relative to their financial needs, they would prioritise their life insurance purchasing decisions more appropriately.

Products must support advice 

Advisors are reliant on product providers to create products and systems that support and streamline the advice task. Fortunately technological advances can help cut down on unnecessary paperwork and task duplication.

Sustainability over time

Premium funding patterns offer premiums at a discount, followed by premium increases as the policyholder ages, to compensate for the discount. When premiums grow out of kilter with the underlying cover policyholders are likely to reduce their cover or give it up. BrightRock commissioned a study that found that more efficient products free up premium savings that negate aggressive age-rating. The majority of our clients opt for more conservative, more sustainable premium patterns with more affordable initial premiums.

As the ASISA gap study shows, consumers need life cover in tough economic times. It’s time our industry change their life insurance cover to meet their needs. After all, the flipside of risk is opportunity.

– Written by Schalk Malan, executive director at BrightRock. Read the original article here.

 

 

Keeping small businesses covered

9 July 2014. Cover Magazine.

Small firms contribute to more than 40% of South Africa’s gross domestic product¹. Considering tax and labour legislation has made the SMME space a rather hostile environment, this figure is a testimony to the determination of our nation’s entrepreneurs.

In spite of its challenges, this sector of the economy is expected to become more lucrative thanks to pending initiatives by government to decrease tax measures on businesses in the lower end of the spectrum. Grants received by small and medium sized businesses are also expected to become tax exempt².

With the majority of South Africa’s small businesses operating in the agricultural trade-, tourism- and construction industries³, business owners face a substantial amount of risk, as businesses in these sectors require a hands-on approach.

It’s important to insure a small business against rainy days. Business owners need to remember that they are their businesses’ most important assets and should be covered too, along with physical assets. That’s where life insurance comes in, in the form of contingent liability insurance for major debts, cover for buy-and-sell agreements and key man insurance.

However, the affordability of cover could be a stumbling block for many business owners.

Traditional business assurance policies are structured in the same form as personal life insurance policies.

There tends to be a single capitalised block of cover for all needs, and this cover is priced for the maximum term. This cover structure is not necessarily in the best interest of the small business owner, because the cover increases as your needs decrease – leading to cost inefficiency in the way premiums are structured.

BrightRock’s flexible approach allows an upfront premium savings of 30% on average, allowing business owners to invest more funds in their businesses, or allocate the savings to more cover in the event of underinsurance.

Business owners can convert up to R7,5 million of their cover to personal cover at a later stage – without the requirement of medical underwriting.

Business owners can redirect premiums to cover personal needs if the business cover needs reduce or end. This is done free of underwriting.

When the business’ growth exceeds expectations, the business owner can increase cover.

Short-term risks for small businesses:

  • Fire, explosion and earthquake
  • Acts of nature (wind, thunder, lightning, storm, hail, flood and snow)
  • Damage caused by bursting and overflowing geysers and water pipes
  • Malicious damage
  • Power surges
  • Impact
  • Fire brigade charges
  • Vehicles or fleets
  • Buildings
  • Contents
  • Travel
  • Employer’s liability
  • Business interruption
  • Stock and money
  • Employee dishonesty
  • Public liability

Long term insurance for small business: What should be covered?

1. Contingent liability insurance for major debts

Contingent liabilities are liabilities that may be incurred by an entity (like a small business) depending on the outcome of an uncertain future event – such as the inability to honour a major debt due to a serious illness, debilitating injury or death

2. Long-term insurance for buy and sell agreements

This will ensure that co-owners of the business can continue to operate the business with as little disruption as possible in the event of the death of the business owner. It also ensures that the estate of the deceased business owner receives fair value for his or her business interest, as well as the settlement of his credit loan account.

3. Key man insurance

An insurance policy taken out by a business to compensate the particular business for financial losses that would arise from the death or extended incapacity of an important member of the business.

[1] Making small business work in South Africa (http://www.foundation-development-africa.org); Small business in South Africa (http://www.sabusinesswarrior.com/index.html)

 

[2] Tax relief favours small business (http://mg.co.za/article/2014-02-28-00-tax-relief-favours-small-business)

 

[3] “Small business in South Africa” (http://www.southafricaweb.co.za/page/small-business-south-africa)

(Originally written by Schalk Malan, executive director at BrightRock. The article, as it appeared in Cover, can be read here.)