Sophisticated insurance does not have to mean it is complicated

SA is seen as tops for life insurance innovation and BrightRock’s flexibility fits the bill, writes Stephen Cranston.

Product complexity in insurance is one thing and it was what made the old universal life policies so confusing. It was hard to work out if these multiheaded hybrids of protection and savings were good value for money.

But there is also product sophistication, when highly customised technology can add something new and desirable to the product range.

BrightRock falls in the sophisticated rather than the complex bucket. This insurer was formed in 2011, at a time when there was a race to the bottom as plutocrats such as Douw Steyn turned life cover into a commodity.

BrightRock was founded by a multidisciplinary team, some of whom wanted another challenge after the big company atmosphere at Discovery. No company in the world runs its policies in the same way as BrightRock. As CEO Schalk Malan puts it, it is a needs-matched approach.

A traditional life policy combines all cover in a single capitalised lump sum, which might be fixed or grow at a set rate over time. The trouble is that some financial needs exist only for a few years, others last a lifetime. So why should you pay for cover you don’t actually need?

You might have heard of BrightRock from its sponsorship of the Stormers as well as from some chat shows it sponsors on SuperSport and kykNET. But you won’t see it much on peak-time conventional advertising slots. I sometimes think Willem Roos of OUTsurance has bought all the slots there and sells them on to competitors when he is feeling generous.

Anyway, BrightRock quite rightly doesn’t believe its product set is appropriate for direct sales. It is sold through 3 800 accredited financial advisers, who gathered R6100m in premium income in 2016.

BrightRock’s key selling point is that it strips out wasted cover to deliver premium savings. And you never lose the value of your savings: when needs fall away you move your premium to buy more cover for a different need, say from death to disability. And if the client needs more cover, he can reserve future years and take it up when needed.

A feature that impresses me is the ability to make a choice on how to take on disability or critical illness cover at claims stage. It is hard to know at the inception of a policy whether a guaranteed income or a lump sum is more important. Expected longevity and severity of the condition need to be taken into account.

At BrightRock, the client does not have to choose upfront but can decide if income, a lump sum or a combination of both is the right approach.

BrightRock provides a graphic with six kinds of needs ranging from household needs, which are likely to grow at least at the rate of inflation, to healthcare, which tends to grow ahead of inflation, as would unpredictable costs of illness or injury and death-related needs such as estate duty and bequests.

In contrast, debt – such as bond and car payments and personal loans – should eventually come to an end, as should childcare costs. Each of these financial goals is provided for by a distinct tranche of the policy, each of which has its own termination date and is disclosed in the written updates.

I was interested to see that SA is seen as the most innovative life insurance territory, accounting for 46% of the votes in a recent Munich Re survey. Australia scored a feeble 6%. But in spite of this there is an inefficient pricing structure here and the policies can’t adapt to clients’ changing needs. It is hard for clients to alter their cover in what BrightRock calls critical change moments.

Marketing director Suzanne Stevens points to a real case in which BrightRock proved to be a better option than any of its competitors. A teacher just 38 years old tool out a policy in May 2014 worth R5.5m for disability and dread disease. In September of that year she went into a coma from pneumococcal meningitis and died eight days later. Under the ruling that most life offices follow, if a client dies within 14 days of an “event”, such as a stroke, the policy pays nothing. The only exceptions are Discovery Life, though it would have given less disability cover for the same premium, and Liberty, which would have paid somewhat less than BrightRock for disability and paid nothing on dread disease. But life offices such as Old Mutual, Momentum and Sanlam would have paid absolutely nothing. Is that treating customers fairly?

Karl Leinberger, the chief investment officer of Coronation, seems quite defensive on the topic of long-term investment. I am not sure why, as the Coronation Equity Fund in its 20-year existence has added 60% to the all share index return. Some people see talking long-term as a way to buy time in a poor year such as Coronation experienced in 2015. And quite a lot of mediocre fund managers do ask clients to wait for the long term even though they are doing badly.

Leinberger has probably added as much value from the shares he hasn’t picked than from the shares he has. He showed a slide from the 2008 road show in which he explained why he did not own Murray & Roberts, then seen as bulletproof because the infrastructure boom around the Fifa World Cup was in full swing. The share has since gone from R110 to R11. Leinberger says that in a time of lower returns it makes even more sense to invest with an active manager.

Of course he would say that, but it seems fair enough to argue that skill becomes more valuable in challenging times. In fact good managers often do more alpha (excess return) in weak markets than in bull markets. Just look at Allan Gray, which routinely adds almost all its alpha in bad markets.

I am a strong believer in giving fund managers a balanced mandate instead of trying to juggle the whole range of different asset-class building blocks in a fund. Leinberger makes the point that a balanced manager can make asset allocation decisions in real time – no need to wait for approval at the next trustee meeting. The manager needs to understand the total portfolio, the rand hedge position across asset classes on a see-through basis, the total interest rate holdings and the total inflation hedge.

* This article first appeared in the Business Day of 10 February 2017. Click here to read the original version.

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.

Do I really need life insurance?

LongTermIns

When money is tight, we tend to forego insurance (especially life insurance) in favour of more immediate expenses. Here’s why that isn’t smart – and which insurance you really need.

(Originally published in Fair Lady Magazine, May 2015, p. 82)

Our expert: Schalk Malan

  • Executive director: BrightRock
  • 2013 Cover Excellence Award in the Life-Risk Category
  • Association of Savings and Investments in South Africa (ASISA) Life and Risk Board Committee member

What`s the point of insurance?

If you are injured or ill, you may be off work for a while and you’ll have extra costs. And if you pass away while people depend on you financially, their income is gone too. Long-term insurance fills the gaps.

What kinds of long-term insurance should I have?

It depends on where you are in life. Typically, the most important events you need to consider are death, dread disease and disability (temporary or permanent). And there’s also cover for retrenchment. Ask yourself, ‘What do I need this cover for?’ For instance, part of your lump sum cover might cover your bond, part might provide an income for your dependants, and part might pay for your children’s schooling. But your needs change as you get older: you`ll pay your bond off after 15 or 20 years, your children will become self-sufficient (hopefully), and you’ll retire by 65. As each element changes over time, make sure you only buy what you need.

Is insurance optional?

Yes.

How much should I spend?

What you can actually afford. The most important thing to protect is your ability to generate an income. So obviously, income protection should be your main insurance cost. If you can’t cover your income fully, start with 50% or 25% – but understand how under-insured you are. You must start somewhere.

If you’re single, have just started working, have no debt, few assets (so no risk of inclining estate duty if you die) and no dependants, your main worry is suffering a temporary or permanent disability. If you can`t work, who`s going to take care of you, and how are you going to see out the rest of your life? But your needs change: you buy property, have kids. You need to consider what happens to your dependants if you pass away tomorrow.

It sounds so complicated! How can I be sure I’m choosing wisely?

Get an expert – a skilled certified financial planner (CFP) – to advise you. This is really important. That person knows the landscape, understands the jargon and can debunk it for you and put a plan in place with cover that changes over your life stages. Independent financial advisers are governed by the Financial Advisory Intermediary Services Act, which legislates that they get a defined amount of commission. Also, they are not tied to a specific product, so they can give a more objective view.

Is it best to use one institution for all your life insurance?

Every time you open up a policy, the insurance company assesses your risk – we call it underwriting. So practically, you don’t want to go through this with a lot of different companies. Also there’s a fixed amount of cost built into each product, and the more you separate these products between different providers, the greater the administrative costs will be. Your adviser will help you choose your best strategy.

Should I go for the cheapest insurance I can get?

No. A slightly more expensive product might serve you better at claims stage. Take a diagnosis of Parkinson’s disease, for example. Some products pay out your benefits the moment it’s diagnosed. Others pay only after the disease reaches a certain severity, which could take years. But your costs will be high in the meantime. Again, it’s important to get advice from a skilled adviser.

How important is it for me to tell my insurer if something changes?

If you start smoking but don’t tell your provider and something happens, your claim will be honoured, but it may be less than what you thought it would be. So it’s best to notify them. But it works both ways: if you stop smoking, tell them, as you might actually enjoy a saving from then on. Also, notify your insurance provider of changes in your financial needs – marriage, divorce, having children, new debt, increasing your bond, a new bond, income changes –so that they can adjust your cover.

How do insurance companies work out what you need to pay for cover?

The life insurance company looks at the chance, or risk, of you claiming. Is it higher than the norm, or lower? Which risk factors differentiate you from the norm: Are you older? Are you younger? Do you skydive, bungee jump or smoke? Have you got high blood pressure?

How can I improve my risk profile?

Stop smoking. Drink moderately. Exercise. Monitor your blood pressure and other health markers, and take medication if necessary. Basically, manage your health to imporove your risk profile.

Any products you`d advise us to steer clear of?

The type that say they’ll give you your premiums back after a certain amount of time, say 15 years. For that option, you’re probably paying 30% more on your premiums. And they only give it to you if you haven’t claimed! Rather buy something that’s cost-effective now, and get the saving into your pocket, as opposed to having to wait 15 years (if you’re still around) to get something back. Then invest that 30% extra: if you need your money tomorrow, or next year, you can access it. In the meantime, it will grow.

And avoid products with dynamic underwriting. Your life insurance company has looked at all your risks, and you want certainty from that point on that the claim will be paid when you need it. But what happens if you develop high blood pressure, or cholesterol problems later? You should not be penalised for this. With dynamic underwriting, they reassess you every year, so your activities and wellness over time have an impact on your premium. In other words, you can be penalised if things change after you took out the policy.

What happens if I miss a few payments – say, my debit order bounced because of insufficient funds?

It’s important to understand that during the period that you don’t pay premiums, you won’t be covered in the event of a claim. If you’d like to start again after a few months, a lot of providers will allow you to, but they might ask you to sign a declaration of health to say that nothing has changed. From then, the product runs its normal course. Think carefully before you stop or suspend your premiums. 

 

 

BrightRock’s Schalk Malan on Finweek Money Matters

10 April 2015

While many people believe they have to take out a life cover in an event of death, did you know you may fall under the group of individuals who do not need to take out a life cover? BrightRock’s Schalk Malan appeared on Finweek Money Matters on CNBC Africa to explain viewers who needs a life cover and why they need it. Watch the clip below or access the original Finweek post at this link.

How to ensure for your child’s financial well-being

31 July 2014. All4Women.

Ensuring for your child’s financial wellbeing can be split into two components:

Day-to-day living expenses
Education costs

How to Ensure your childs_small

Getting the balance right

From a savings point of view, it’s accepted industry wisdom that education should be prioritised. However, both components need to be protected to provide for a family should its financial well-being be affected by the death, disability or serious illness of an income-earning parent.

The sooner parents start saving for their child’s education, the better. That said, savings for your own retirement should not be neglected either. And, you should also secure risk protection for your future expenses relating to caring for your children.

It’s a tough balance to strike and that’s where a financial adviser can play an important role.

Insurance products that you should consider when ensuring your child’s financial well-being

  1. Day-to-day needs and education

In addition to saving for your child’s education, it is also important to make sure a child’s day-to-day living costs will be covered in the event of a parent’s death or temporary or permanent illness or injury. Many parents do not have adequate life insurance cover in place to cover either of these needs.

If a life cover policy makes provision for your child’s education, bear in mind that these costs tend to rise at an average of around three percent more than consumer inflation every year.

You also need to know whether you’ve signed up for indemnity cover or stated benefit cover, which provides more flexibility.

Apart from school fees, tertiary education costs tend to be much higher than secondary school costs.The growth of life insurance protection for education costs should factor this in, otherwise your insurance may prove inadequate in claim.

  1. Dread disease cover for your child

There are “child dread disease” benefits available in the market to provide cover for additional expense needs in the event of your child suffering from a serious illness or injury.

Cover should be particularly focused on the first few years of your child’s life, as the incidence of severe illness claims is highest in the first few years after birth.

This is especially relevant to congenital birth defects and issues at birth – one of the reasons why we offer cover for the first three months of the child’s life as long as the parents had cover for additional expense needs for the nine months leading up to the child’s birth. Many other products in the market exclude this cover for the first three years of a child’s life.

About BrightRock: BrightRock (Pty) Ltd was started in 2011 to offer truly individualised life insurance cover that’s built around your specific needs, at the outset, and changes with you as your life changes.

Read the original All4Women-article here.

 

 

 

Avoid that credit score downgrade

24 October 2014. iAfrica.com.

Schalk Malan, executive director of BrightRock, shares some tips to help you avoid a downgrade in your own financial rating.

The recent decision by Moody’s Investors Service to downgrade the credit rating of South Africa’s four biggest banks, has once again brought that ugliest of four-letter words – “debt” – to everyone’s lips. The decision to downgrade Absa, Firstrand, Nedbank and Standard Bank came shortly after the collapse of African Bank, the largest provider of unsecured loans in South Africa.

This has raised the question whether consumer lending is getting out of hand, and banks are under increasing pressure to scrutinise credit records and reduce the amount of money they lend to consumers.

A sound credit record will be helpful when it really matters – like when you would like to buy a house. Achieving this will be impossible if you don’t have a squeaky clean credit history.

Check your credit score

Knowledge is power. Don’t be taken by surprise with a financial consultant or future employer flagging your credit score – check it yourself. All South Africans are entitled to obtain information on their credit scores for free once a year. You can do this through a variety of online services or ask your financial adviser for assistance.

Pay your bills on time

Credit cards, retail accounts, instalment loan accounts and vehicle and bond repayments are all forms of debt that influence your credit record. The more you miss your repayments, the stronger the likelihood that your credit record will reflect this. If you can’t pay your bills on time, negotiate new payment deadlines with your bank or creditors – they might be more understanding than you think.

Put a cap on your debt

Whilst owing a substantial amount of money may not necessarily affect your credit score, it might deter institutions from granting you any further credit as they might feel you are too far in the red. You need to make an obvious effort to show that you are managing your debt, and this can be done by budgeting and making the necessary cuts in your expenses.

The earlier you start, the better

As a rule of thumb, your credit score is affected by the length of your credit history. Consider applying for a loan or a credit card if you’ve never had any debt before. We’re not saying pile on loads of debt, but create a footprint of good debt management that will give financial institutions reasons to loan you more funds when you really need it.

Don’t try to cheat the system

Opening and closing credit and retail accounts on a regular basis won’t improve your credit score. Nor will paying old debt with new debt. If you’re not happy with your credit score, focus on existing accounts or institutions affecting it by ensuring you meet the required payment deadlines and honouring your debt in full.

* Written by BrightRock exeuctive director Schalk Malan.

** First published in iAfrica.com

 

 

Using life insurance to leave a legacy

1 June 2014. By Maya Fisher-French.

One way to kick-start intergenerational wealth is through the use of a life policy, writes Maya Fisher-French.

What parent in the world would not like to leave a family legacy to help educate the future generations, help their offspring buy a house, start a business or create an investment for wealth creation in the family?

Craig Gradidge of Gradidge Mahura Investments says this is a very desirable financial goal among his clients, especially for many black families who are only starting asset accumulation. One way to kick-start intergenerational wealth is through the use of a life policy.

“As a parent myself, I certainly do not want my kids to walk the path I did. All the hard work and sacrifices that I made were with the aim of creating a better life for my children and my children’s children.

“However, for most, building wealth takes time, especially if you are working for an employer. And an unexpected death could derail those ambitions and plans in a moment.

“This is where life cover comes to the fore and ensures that the dream lives on,” says Gradidge.

Many parents are aware of the need for life insurance to provide an income for their family should they die – but many cancel these policies once the children leave home. By maintaining that life cover, one could leave an inheritance for future generations.

If one is taking out life cover with the view to maintaining it into retirement, it is very important to ensure you take the correct type of cover so that it remains affordable.

If you have an existing policy, there is also the option to transfer the premiums to one’s children to continue to pay once you retire. They, after all, are the ones who are going to benefit.

Life policy as a retirement fund

The idea of children paying for a parent’s life cover raises another interesting dimension – one that is perhaps more difficult to discuss culturally but certainly something worth considering.

Many South Africans are finding themselves in the “Sandwich Generation”, where they are supporting both their elderly parents and their older children.

This generation of 40- and 50- year-olds is finding it increasingly difficult to provide for their retirement while meeting family obligations such as elderly parents who do not have sufficient retirement savings and children who are studying for longer or who are unable to find work.

Taking out life insurance on a parent who you are supporting is one way to ensure that you break the cycle of the Sandwich Generation so that your children do not have to support you in retirement.

According to Liberty, a R1million life insurance policy for a 70-year-old, female, nonsmoker would cost in the region of R1640 a month. Assuming premium increases of 8.5% a year, she would have paid about R300000 in premiums by the time she is 80 years old.

If you have a parent who already has a life policy in place, one could simply take over the premium payments. If, however, one is taking out a new policy, it is something that would have to be handled very sensitively – you don’t want your parent to think you want them dead.

Gradidge, who supports his mother, has taken out life insurance for her.

“The key decision to insure was based on the fact that certain liabilities and expenses would fall on my brothers and myself in the event of her passing.

“We had a very open and frank discussion before taking out the policy, and she agreed to it and was comfortable with the idea.

“We also pay for her medical cover, so she knows we want her to live for as long as possible,” says Gradidge.

It may be easier to have this discussion in light of leaving a legacy. Through taking out life cover, your parent can ensure the education and financial stability of generations to come.

Originally published in City Press.