On the up: Schalk Malan on BrightRock’s Sanlam deal, disrupting insurance

JOHANNESBURG — From a customer base of zero in 2012 to over 850 000 this year, BrightRock has been on a tear in recent years, becoming one of the fastest growing players in the sector. A deal by Sanlam to acquire a 53% stake in BrightRock for R721m has also just been approved by shareholders while the business has further reported a 62% year-on-year new business growth. BrightRock CEO Schalk Malan gives us an update. – Gareth van Zyl

It’s been some time since we last chatted to the guys at BrightRock but I’ve now got the CEO, Schalk Malan, with me on the line from Johannesburg. Schalk, BrightRock on the up and up it seems. New business growth of 62% year on year. You’ve also come a long way since starting back in 2012.

Yes, Gareth, like you say, it’s quite a journey. It’s been an amazing story to tell. Amid a relatively tough economic environment, BrightRock has managed to grow at those numbers of 62%. I think it underlines BrightRock’s product philosophy of being able to provide clients with as much as 40% additional cover for the same premium. Innovation is starting to really bear fantastic fruit so, yes, we’re very pleased with our results. We really see some amazing stories around our clients as well. Some unique case studies and claims where BrightRock has really delivered results for that individual and that’s really what’s it all about, at the end of the day.

You guys obviously provide unique cover almost on an individual type basis for policy holders. How has that model evolved over the last 5 years?

Yes, in short, BrightRock has taken advantage of the consumerism around looking at individualised products, individualised services, and being able to have a product for the first times that says, ‘let’s go and understand your needs and craft a product to match those needs exactly.’ By doing that, we remove wastage from that premium that other providers don’t offer. That story has really evolved where we’re now in a space where we’re partnering our advisors to say, ‘if you’re advised you have to pay off your debt – you have pay your future or cover your future pay cheques in event of death or permanent injury or illness’. A product now, for the first time, really matches that advice all the way and that story has evolved to partnering our advisors. We’ve introduced a number of additional features over the last couple of years and that often has been a result from our learning from our advisors. We have great benefits such as the Trauma IQ Benefit that discerns for those traumatic events. I’ll give you an example, falling off your mountain bike or your motorbike. Where there’s not a definition that necessarily covers that in life insurance, we’ve developed and designed products to make sure that there’s some form of pay-out. There’s a lot of focus on product development but also there’s a big focus around making sure our business is robust, from a servicing perspective, and delivering on that promise of a product that can change as your needs change. That’s been a big focus for us, it’s still a focus for us. Then, also very importantly Gareth, making sure the business has got a sufficient level of capital, and sufficient structures in place to deliver on all our financial requirements. In the industry, we are facing and moving onto a new regulation regime in the form of SAN. We’ve been very active on that front as well so, yes, a lot of things have been happening over the last couple years.

What does that regulatory regime entail exactly?

Gareth, in short, life insurance. I think what really affects us is the Twin Peaks Regulation and where we’ll be regulated under a provincial market conduct basis and working much more closer with Treasury. I think part of that is what we call the SAN, (Solvency Assessment) regulation, where individual organisations are being looked at much more closely from what their individual risk is and making it effectively more robust for our consumers and our clients out there to make sure that the risks are being understood well, and that there’s sufficient capital to protect against those risks. For me, that’s a very exciting step forward for life assurers to really focus and understand the risk. At the end of the day, our jobs are to manage our clients’ risks on their balance sheets and we need to make sure we do that on our side as well. That’s the important part. If I go down to the consumer. Life insurance is there to protect that family in their balance sheet if something happens, that is unplanned, that death or disability. And making sure that you optimise that Rand spend is such a critical part of building your balance sheet. We find it so many times, we still see it in gap studies that’s been done shows that South Africans are so underinsured by as much as 45% – 50%. Us, as product providers should really try and address that problem. That’s why I think where BrightRock is really trying to focus and say, we’ve always known that affordability will be a constraint for the consumer but can we design a product to really try and breach that gap. By eliminating out wastage in terms of focusing on the needs and covering your results or your future pay cheques exactly (as opposed to just a block of cover that grows at an arbitrary growth rate) it liberates significant savings for us. We’ve seen that, in combination with the advice from the advisor, this can really build a better balance sheet for their clients and protect them and their families much better than other, more traditional solutions. Yes, a very exciting time for BrightRock and I think; also, for the industry.

Schalk, just a quick one on Twin Peaks. There’s obviously been a lot of criticism around that particular regulation and you’ve mentioned it briefly in our discussion today. What do you make of some of the criticism that it’s going to add an extra layer of bureaucracy, that is going to cost a lot and that it’s really not that widely adopted? Only 4 or 5 countries in the world that have actually moved to adopt Twin Peaks.

Gareth, I’m not an expert on all the criticism. All that I can say is that Treasury has done fantastic work. If you think about the banking sector and the regulation of the banking sector so, we look forward to that. We’re excited about it. We think increased prudence, increased focus, from a regulator that’s purely very active is a very positive thing. For us, we look at it as a good thing. I’m very excited also to see the plan implementation and how we will… It will be a much clearer picture for the market and for the investors, alike. For me it’s all positive, I must tell you.

Read also: Twin Peaks now law – ‘sad day’ for SA financial services consumers – FMF

Just to get back to BrightRock. Obviously, Sanlam moved to acquire a 53% stake in your company earlier this year, at R721m. That deal has now just got the green light from regulators.

Yes, we announced the transaction towards the end of January this year with obviously, the provider that we had to get regulatory approval and our engagement with the FSB. Albeit it took a couple of months, it was a positive engagement. As we stand today, it’s been approved. The transaction has been closed and we, as BrightRock, see that as just the next step in our evolution. Sanlam has shown to be a fantastic partner in terms of sharing our vision. Looking at the stuff that I spoke about earlier, about our products, our thinking where we want to take the business is well aligned. For us, it’s exceptionally positive. We can now really get down to the job at hand and to firstly, make our investors proud, I think, and deliver on our business plan.

I also think as Sanlam coming in as an investor, creates that next step, that next gear change for us, as a business, to continue on our growth plans. In fact, accelerate our growth plans, not just internally but also in the market so, yes, we’re delighted with the outcome and having Sanlam as an investment partner into our business.

Sanlam is a very interesting investment partner to have on board because they’ve also just moved to acquire a stake in EasyEquities as well.

Schalk Malan, chief executive, BrightRock

That’s definitely an interesting one. I think Sanlam has become well known, and not just in the SA market but also abroad in other emerging markets, as a fantastic investment partner where they come in, they make an investment. They then aim to enable the management team, they look towards growth opportunities and I think they found they were well aligned with BrightRock. I can’t speak too much around the EasyEquities transaction, other than what we’ve read in the press but I think Sanlam has got a clear vision around looking to invest entrepreneurially based businesses with unique set of values, with unique sets of skills and technology. They definitely found that in BrightRock. I can also add the view around them coming in as an investor saying to an executive team, we buy into your strategy. We’re here to enable your strategy. It’s for us, a very positive outcome as an executive team, who started the business in 2011.

They’ve obviously got quite a biggish stake in your business, 53%. Are they still going to have a very big voice in your business or are you going to retain control and still make decisions on your own?

If I look at how the structure works; obviously, they will have board representation, they will also represent some of the board’s supporting committees from a governance perspective. But the day-to-day running, the executive management of the business, sits effectively, with our four founding partners. In fact, I think that was the key consideration for this transaction that the executive team runs the business, executes on the strategy because as the result that we spoke about, 860 000 insource premiums, within our short space of launching from 2012, it’s quite a significant achievement from a standstill position. That ability of management to continue on that is for them obviously, critical. We’ll obviously look to them for guidance in some aspects and support where we need it, but the day-to-day running of the business remains as is.

From when you launched in 2012, from ground-zero, you’ve gone up to 860 000 signups. Is this growth sustainable moving forward?

Gareth, obviously if you look at the market as a whole, the growth numbers as an industry, from that perspective if you look with that lens, the answer is probably no. But if you look at where BrightRock is – it’s obviously got quite a substantial base now, but we believe there’s significant growth opportunities in a very sizeable market in SA. We believe, for a number of years to come, we can continue on a significant growth trajectory. Maybe at the level that we started out at, it will be slightly less and obviously our business plans reflect that but we do expect still significant growth in the years to come. I think it’s all based on a drive towards to bringing that needs match change to our clients and seeing that we can add value to those clients, to their portfolios to managing their risk. I think provided that we continue in that mindset, growth can still continue for a significant period of time. I think the other thing is also, Gareth, BrightRock is very clearly a player that’s made an impact into the market and our ambition is also to be a financial services provider. That will entail in time, going into other products, and making sure that we can continue to grow to add value into the markets that we enter.

Back row: Hubert Brody (Chief Executive, Sanlam Personal Finance), James Orford (CEO, Lombard Insurance), Jaco Marx (a Director at Correlation)
Front row: Leopold Malan (BrightRock), Sean Hanlon (BrightRock), Suzanne Stevens (BrightRock) and Schalk Malan (CEO, BrightRock)

Schalk so, what other products are you looking to branch out into?

Well, there’s no specific plan but if I look at our vision around us, as a business. It is to be a fully-fledged financial services business. Our focus at the moment is very much embedding our current product offering. Making sure that from a servicing platform from that, we made good on those ambitions that we have with our current products. But definitely, our vision for us as a business, is to become a fully-fledged financial services provider. That’s very exciting and that’s a vision that we all share and that will obviously, in time, also drive further growth opportunities for us, as a business.

Just as a final question. The last 5 years have been a runaway success for you. What do you envisage for the next 5 years?

Well, I think it ties into my earlier response. We obviously, want to grow our product range. I think the other aspect is we want to be a significant player in the financial services space in our current product rage so, I think we’ve still got a significant growth opportunity in our current space that we operate and we want to make good on that. Then obviously, with Sanlam coming in as an investor that opens a number of avenues for us. For example, we will also be looking to distribute the BrightRock product to the Sanlam financial advisors, which will be a BrightRock product but opening up that additional distribution channel for us, which is obviously, exciting for further growth in the business on that front so, we want to grow that. I think one should also keep an eye on the regulatory changed, RDR as well, SAN as I said, but very much checking the existing product, making sure we maximise the opportunities of the existing product and then look towards that great provision of building out the financial services offering in our business, as BrightRock.

Schalk Milan, it’s been an absolute pleasure talking to you today, again.

Thanks Gareth, thanks for your time.

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