In Sanlam’s shadow or lighting its own spark? BrightRock has market leader ambitions

Posted on 12 Apr, 21 by BrightRock

BrightRock CEO Schalk Malan says the insurer is on its way to becoming the market leader in South Africa’s life insurance market.

• BrightRock will complete its first decade of existence as a life insurer this year.
• The company, in which Sanlam acquired a majority stake in 2017, has been taking market share from big insurers.
• But will its growth trajectory be different if it continues to fly solo?

When BrightRock came onto the insurance scene in 2011, it had no licence of its own; just a few ambitious individuals who gathered around the dinner table and wanted to come up with something different.

Ten years later, BrightRock has become the third-biggest life insurer in new business written by independent brokers in 2020, after Momentum and Discovery.

Insurance and banking are two industries that have one of the highest barriers to entry. But BrightRock CEO Schalk Malan and his co-founding team believe that their “needs-matched” model will become a hit with funders and customers.

After all, it will allow consumers to redirect their premiums to new benefits, without buying new cover, if they no longer need the cover they have and it promises to cut frills so that it an offer cover cheaper than the incumbents.

“Starting out, we didn’t have our own licence. We rented a life insurance licence from the Lombard Insurance Group,” Malan said.

Lombard also saw potential in BrightRock’s model and gave it the financial backing it needed to get its business off the ground. BrightRock launched in the intermediated, individual risk market in 2012.

Lombard was a different kind of investor to what BrightRock, which sold a 53% stake of its business to Sanlam in 2017, would later attract.

“We needed that venture capital funder where there’s an appreciation of the trials and challenges of a new business. To have corporate funders at the start, it’s very difficult for them because they have to be much more prescriptive,” Malan said.

Swallowed or enabled by Sanlam?

Just six years into BrightRock’s existence, Africa’s biggest life insurer, Sanlam, also saw the potential Lombard spotted. For Sanlam, the strategy was to seek profitable growth opportunities that would allow it to tap into markets it wasn’t reaching.

Malan said when BrightRock started the conversations about a possible deal with Sanlam, it made it clear that it wouldn’t compromise on its independence. It wanted to maintain its own brand and separate life insurance from Sanlam’s. It also wanted to continue running its own distribution channel through the independent broker network.

“If I look at how the exposure of the BrightRock brand has grown over the last five years, I would argue that the strength of the brand has been one of our biggest achievements,” said Malan, adding that its numbers show that it’s not living in Sanlam’s shadow.

He said Sanlam encourages this independence to have “two horses in the race”. The two companies compete directly with each other and with the rest of the industry.

Malan said he saw Sanlam as a shareholder investor and not that BrightRock was part of the Sanlam group.

Malan said Sanlam has been “an enabler” of its growth, keeping its distance and allowing the BrightRock team to steer the ship as it sees fit.

“They’ve enabled the business from a capital point of view and they played a significant role in maturing the business from a governance point of view,” he said.

He reckoned that acquiring a majority stake in BrightRock has proven to be a successful investment for Sanlam.

“Collectively, we’ve now ensured that Sanlam is the top new business writer in the broker market. From an investment point of view, it definitely hit the nail on the head,” said Malan.

The Paul Hanratty-led insurer has faced challenges with some of its other recent ventures. It had to write down the value of its Moroccan general insurance business, Saham Finance, which it acquired in 2018 by R5.8 billion in 2020.

It recently consolidated its African Rainbow Life venture into its existing businesses, saying odds were stacked against it because of the Covid-19 pandemic.

Mutually beneficial

Megna Makan, an equity analyst at Benguela Global Fund Managers, said the Sanlam-BrightRock marriage was probably mutually beneficial. When Sanlam bought Brightrock, it was still quite a young company that contributed operational losses in Sanlam’s books. But the blue insurer now gets to retain or gain market share with BrightRock’s innovative solutions, said Makan.

“BrightRock gets to scale up quicker with the expertise, distribution, and capital backing from Sanlam…Overall, it was probably a mutually beneficial relationship, with Sanlam being an enabler for Brightrock to continue growing and Brightrock bringing its innovation to Sanlam,” said Makan.

She added that although Sanlam does not disclose specifics, both parties have been reporting that BrightRock was growing well.

Market leader ambitions

In 2020, BrightRock increased its market share to 14.3% from 10.8% a year earlier after increasing its new business sales by 10.8%, while big insurers Old Mutual and Liberty recorded double-digit declines.

Even Sanlam, which grew its business volumes by 25% in 2020, was boosted by the investment inflows. Its life insurance operations only grew new business volumes by 4%.

Malan said BrightRock now insures 2.8 million people.

Malan, who began his career as an actuarial analyst at Discovery Life, might have taken a leaf out of Adrian Gore’s book on how to turn an entrepreneurial idea into your very own insurance company.

But when asked if BrightRock could have become the next Discovery if it continued at it alone, without Sanlam, Malan didn’t want to compare journeys because every entrepreneur works at his or her own pace.

“But do I think that BrightRock is on its way to become the market leader in South Africa from a life insurance point of view? Yes!

“If you look at how our market share has grown in the last year, while the industry as a whole shrank, it means BrightRock took market share from competitors, and significantly so,” said Malan.

This article was originally published in Fin24 on 11 March 2021. Click here to read the original online version.