BrightRock loving life in the Sanlam family, growing strongly – CEO Schalk Malan

South Africa’s disruptive life assurer BrightRock appears to be confirming the wisdom of a ‘two horses in the race’ approach by holding company Sanlam, which acquired 100% of the business in February after six years its the majority shareholder. In this interview, Brightrock CEO Schalk Malan talks about the former start-up’s performance in the corporate family and why Sanlam relationship has supported the founding team’s growth ambitions. The qualified actuary also shares hard facts about COVID-19’s mortality impact on South Africans, putting to bed claims that the virus was little more than “a bad flu”. He spoke to BizNews editor Alec Hogg.

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Edited transcript of the Interview between Alec Hogg and BrightRock CEO Schalk Malan

Alec Hogg: Well, every six months or so I have the chance to talk to one of our longest partners, in fact, our oldest partner here at BizNews, BrightRock. And boy, have we been proud of the way that they have delivered over many years. Schalk Malan, who’s the chief executive of the disruptive life assurer is with us today, we’ll be talking in just a moment about progress. Schalk, when I think about life assurance, I’ve got to think about the pandemic. And I know a heck of a lot’s been happening at BrightRock recently, but maybe we could start there and just how are you today when you look back on the pandemic? Can you quantify how much it cost? Or I suppose that’s the first thing. And then secondly, are you guys back to where you were before the pandemic arrived?

Schalk: Yeah. Yes, good day, Alec. I mean, I think firstly, thank you for that intro. I mean, and we’ve valued our partnerships over the years as much as well. Yeah. So if I look at the pandemic, I think it is a good place to start. I mean, at that point, BrightRock was pretty much seven years in the market. You know, we were very much in off just development stages of the business. And it was severe. I mean, to give you a sense that 2020 year, that first year of that hard lockdown events, I mean, Brightrock paid out more claims than the preceding seven years, which just really puts that into context. And if you want to look at that, the impact was obviously on claims in and across our products. We saw, you know, especially when that was hard lockdown, we saw a funeral book really taking strain and really that was driven by people that couldn’t necessarily work in that hard lockdown, were still pretty much active in their communities. And then, you know, Delta and Wave 2 and 3 resulted in quite a significant impact across the various product ranges. So yeah, it’s been severe. And the impact wasn’t just on the claims; it was also on just business activity. I mean, Bright Rock was in a very fortunate position at that stage where we could do a lot of our work digitally. We could move our people digitally very quickly. Most all our platforms operate digitally with our advisors. So that really helped us a lot. And in fact, you know, if I look back now, 2021 was Bright Rock’s best-performing year that we saw from a new business, from just growing our market share point of view.

So if I look now where we are, yes, I mean, the business is significantly in a stronger position than what we were obviously during COVID, but we also much stronger that we were pre-COVID. I mean, to just qualify that a little bit for you. In our new business levels are at pre-COVID levels and higher. Our market share has picked up from that pre-COVID level. So I mean, we’re sitting now at a 12.4 odd percent market share, which is unbelievable in such a short space of time in the IFA market. And then I think the place where we’ve been much stronger, Alec, is we had to re-engineer certain capabilities of the business. You know, if you think about our claims process and our claims teams, I mean, that’s been completely re-engineered now better for it. We’ve seen significant improvements in every single element of the business from a processing point of view, all the way from our new business and as I said to your claims position. And then, you know, I think the team, the people’s thoughts also stronger. You know, something like that, it’s been obviously devastating to most families, to most South Africans out there, but you know, you take heart from what you learn from there and grow stronger. And that’s been a fact with the Bright Rock team, you know, the gasket. We often talk about it if we’ve managed to work through that as a very small business. Imagine what else we can face in challenges. I mean, and that brings in a sense of inherent confidence that problems coming our way we can solve and that’s for me very, very positive.

Alec Hogg: That’s an interesting way of looking at it. But if we just go back because of your funeral area, with your funeral policies, which is a significant impact that you have there, maybe we can just solve this argument for once and for all. If you consider a life assurer would be impacted heavily because you ensure people’s lives by something that comes along and kills people, and just to be blunt on it. And of course, on the funeral side, there are more people having funerals because they’re dying. Could you, is there any way you could just share that with us? Because there are still people around today who believe that the, that COVID-19 wasn’t such a big deal. It was no more than just a, you know, a bad flu.

Schalk: Yeah, so to give you stats offhand is a bit difficult. I think the COVID pandemic, there’s no doubt that the excess claims that South African life insurance companies paid were multiples in some cases. You know, and I can talk just on personal experience in the funeral space. I mean, that hard lockdown period that we saw, even into June, July 2020, it’s now a few years back. But I mean, we saw more than double your normal claims experience in some of the areas, Alec, you know, and the impact was absolutely devastating. I mean, I had the privilege or the horror to go and visit some of our funeral parlors during that time, you know, and they simply just couldn’t keep up with people having to be buried. And I do believe a lot of the funeral parlors still battle to this day to really just recover from that point in time. You know, they saw their businesses just decimated away. So, you know, I think the funeral industry is a great example to illustrate that this was a real pandemic. You know, the impact on this was absolutely horrific. I mean, South Africa, I think I read a stat somewhere as well, and now we’re talking relative to what your normal claims curve is, was just second to India globally in impact on death claims. And I don’t think the story stops there.

We are still in pretty much an aftermath of COVID. I mean, we are not meaningful yet, but there’s definitely evidence that suggests that there’s a tick up in longer-term disability, more your mental type of conditions. But these are things we monitor very closely. And I think even things like cancers and heart conditions have not been as actively managed as they would have been pre-COVID. And we’ve seen those conditions also ticking up more than what one would have expected in these conditions. And keep in mind, Alec, you know, there is a selection effect of COVID. You know, you would think that your claims experience now would have recovered dramatically and in fact have improved, you know, given that of that selection effect. The industry sometimes, which is not a very sensitive term, might talk even about a hurting situation, unfortunately. And that’s not happening. Insurers are seeing recovery, but they’re not seeing claims experience being weighed down. And that’s also for me evidence that the aftermath hasn’t really been completely understood or felt.

Alec Hogg: Wow. Well, thanks for unpacking all of that. But I guess, as you said earlier, within the business itself, within Bright Rock itself, it did unify the troops.

Schalk: Yep. There’s no doubt, Alec, I mean, it’s quite unbelievable. I mean, you know, the founder team is pretty much still the team in place, you know, and if you look at that, that doesn’t stop just with the founders. It’s really the core executive team and the senior management team of Bright Rock. And that really working through starting a new business, building up the business, and then being hit by COVID, and being able to really step up and protect our clients in a way that we probably never imagined we would do in our lifetimes. There’s no doubt that galvanizes and brings together a group of people that believe in the same objective. Was it tough? Absolutely. But things that I’m very proud of, Alec, I mean, we didn’t have to lay off anybody, there weren’t any retrenchments. I mean, and we protected everybody. In fact, we grew during that time, as I said earlier. And it’s those things that I think are valuable. The other thing is also we were very open in our communication, you know, and as a group of people, we are typically culturally, we’re quite open in our communication.

So we shared the challenges, you know, I’ll never forget. I think it was through Delta Wave, what was that? 2021, end of 2020 We saw a very tough claims experience and because it rushed upon us, we weren’t prepared for the sudden dramatic increase in claims. Just to give you a sense, our number of claims that we were dealing with were a multiple of three times what we were used to, literally overnight, and we had to pull in multidisciplinary people to support our claims team to make sure we solve that problem. And these things are, you might say, should we have done things differently, planning differently, but you couldn’t. And the best imagination, best preparation, you couldn’t. But what was for me so special was us coming together as a team saying, okay, we need X, Y, and Z. We need to stand together. And the people came out and we solved that problem to resolve it. So a lot of those stories and I think it bodes well for the future, you know, in facing new problems. And you know, South African and the life insurance industry is, you know, hasn’t been a growing industry in real terms. I mean, it’s been relatively stagnant. So it is an industry that’s tough, and consumers clearly are under severe financial strain. And it’s our job to make sure that we can offer our clients a better deal through the product that we have, through our efficiency. You know, we’ve spoken about that many times where for the same premium, they can get more cover or even save some premiums on the same cover amounts by buying what they need. It’s all of those things that really are important now, you know, and engaging with our advisors to say if your clients are under strain, maybe there’s a better house for them in the Bright Rock product solution. And these are things that we’re looking at and building out.

Alec Hogg: Needs matched, yeah. It’s now pretty well known within the industry the way that you can tailor products, which was not possible before Bright Rock’s disruptive impact on the industry. But what about SanLam? They’re now your owners. The founders are still together. What are they like working for rather than working for yourself?

Schalk: Yeah, Alec, I mean, when the deal was announced, I mean, I remember you and me had a chat, and I think a lot of people want to know, kind of, how’s it going now? You know, and I think that’s more the interesting part, probably, than the original decision, because I think skeptics would think, yeah, Sanlam would want to try and paint us blue. And that can’t be further from the truth. You know, Alec, we did a very interesting study a while back through NMG consulting, you know, that independent consulting, an actuarial consulting firm. And we asked them the question, what’s the overlap between BrightRock and the Sanlam competing product, which is Matrix on their side? It’s called Matrix. What’s the overlap in support from brokers? You know, and the result was not unsurprising, but it was still a surprise how little overlap there is between our two products and companies. And it’s less than 10%, Alec. It’s at 9% where we see an overlap in broker support. And then collectively, we cover close to 60% of the IFA independent financial advisory market. So for Sanlam, that was really evidence that this idea of two horses in one race model is working.

We appeal to different clients, we appeal to different advisors. And that supports also the fact that we’ve got to maintain very much the BrightRock business model, the BrightRock culture, the BrightRock way of operating because that’s delivering results not just for BrightRock, but obviously also for the Sanlam Group. And I think that underlines the intent and what was key to our partnership with them was to say, you know, Brightrock is that being an independent challenger, as you say, also a disruptive player in the market and let’s continue building on that. So it’s been, it’s been the dust has pretty much settled. I mean, we, you know, and that partnership is basically business as usual, Alec. You know, people, I think, forget that we’ve had Sanlam as a majority shareholder for now, the good part of six years. And they’re pretty good with that. You know, I think there’s a lot of trust that’s been built up and obviously certain processes, policies, governance must align. But that I think is a good thing because that also helps us maturing in a way to very much meet our objectives of a very mature and fully grown LifeOffice financial services business.

Alec Hogg: So can you accelerate now that you’ve got this big daddy?

Schalk: Yeah, I mean, that’s definitely the plan. I mean, if I look at, you know, some of our discussions, I mean, we’ve got quite a pipeline at the moment still of development work that we need to complete. Obviously, COVID has delayed some of those plans, and we are accelerated on those plans. I mean, we’ve got basically a two-, three-year determined objective, and additional funding was secured, you know, to allocate on developing out our capability, things like what we call our extra cover buy up account, being able for clients to buy up to 10 million rands worth of additional cover to make it so seamless and easy for brokers, because we are seeing advisors use it. We activate it over 2.4 billion rands worth of just additional cover through that mechanism on existing clients’ policies, you know, and it’s literally a phone call for the broker and for the client. So those capabilities we want to build out, we want to make it easier, and we believe that can add a significant amount of new business to the product and quite often.

which is fantastic for the whole industry. Those cover amounts are what I would like to refer to as virgin new business. It’s not replacing existing policies. It’s additional cover to breach a client’s gap. So those things we’re looking at, we’re looking to continue to grow our distribution channel as we always do. And then we’ve done quite a detailed analysis. Is it time now to look at additional product lines, etc. The time is not 100% right at the current environment, in the current economy. And also, as I said, we’ve got a very strong pipeline of things that we still need to deliver. So those things we’ll be focusing on in the next year or two.

Alec Hogg: So it’s a bit like clean house or at least maintain the home. Um, and then move into other areas. Uh, one of the questions I had down here was what about investments? What about asset management? Life assurers are, they love that area. The annuity income that comes with it. Is it something for you?

Schalk: Yeah, it is. I mean, it is something that we would look at. And we’ve spoken about it before as well. The product really is taking care of that. What if something goes wrong, you know, impact on your balance sheet? And, you know, it’s not really complete if you don’t have the other side of building your balance sheet and helping a client build their balance sheet. And similarly, that efficiency, you know, that gets made available or is being made available from our risk product could very easily be channeled into that savings product. So that need is there. For me, it’s about the timing. For me, it’s about making sure that it’s right for us as a business. Other things that’s important on that is with the Sanlam partnership, I mean, we can really comfortably leverage their underlying infrastructure, which I think is also giving us a leg up if we and when we go down that channel. So that’s on the radar. You know, I think also what’s quite important is to realize, I mean if I look at our market share, yes, we’re lying in that third, fourth position in the IFA space, but you know

I think we still got room to grow there, quite a lot of room to grow on a risk product, 12 odd market share, percentage market share is good, but it means that there’s still a huge scope for growth in that space. And I would really want to solidify that position even more. And those are things that I wanna concentrate for the immediate future, because those are, let’s say low hanging fruit Alec, but that bird in your hand and really let’s maximize that venture to additional things, but that table is set for growing our product range very much so.

Alec Hogg: Interesting you say bird in the hand. That is Warren Buffett’s advice to anyone in investments. And I guess in business as well is the core theory is a bird in the hand is worth two in the bush. So sometimes look after what you’ve got. Schalk Malan is the chief executive of the disruptive life assure a BrightRock. And I’m Alec Hogg from

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