PERSONAL LINES
WHAT WE DO AND HOW WE DO IT
The Personal Lines business constitutes a significant and
strategic portion of Santam's overall premium income. Our core
product has evolved from the original Santam "MultiPlex" policy
that introduced comprehensive short-term insurance to the South
African market to a broad and sophisticated multiproduct and
multichannel distribution offering that provides household, motor,
personal accident and liability cover and that includes a wide
range of value-add products to our clients.
In partnership with our intermediaries, we
service our clients across South Africa and Namibia. Our products
and services are managed and distributed through:
-
our traditional intermediated Personal
Lines business in our Broker Services business unit;
-
an outsourced Portfolio Administration
business; and
-
through a direct business, MiWay.
In the traditional Personal Lines business we
have a very broad footprint in South Africa, partnering with an
over 4 000-strong nationwide network of intermediaries who promote
our range of products and ensure unparalleled reach and access to
expertise. We support our intermediaries by means of our two
dedicated contact centres which provide quotations, issue new
policies and handle the general policy maintenance and renewal
functions for existing policies. Our intermediaries comply with the
Financial Advisory and Intermediary Services Act (FAIS) as required
by law. For more information on how we interact with
intermediaries, please refer to material issue "A sustained
intermediary base" in the Sustainability Report available on our
website at www.santam.co.za.
Portfolio Administration is a differentiated
solution offered through identified intermediaries that allows the
white labelling of partner brands and the provision of
differentiated product and service offerings. With strong support
from national intermediaries and banking partners, Portfolio
Administration remains the largest single personal lines channel
within Santam. The tailored offerings to in excess of 300 000
clients remain supported by Santam's sophisticated web-based
pricing tools, and dedicated second-level underwriting support, as
well as leveraging from Santam's procurement efficiency.
MiWay is a direct insurer underwriting
predominantly personal lines short-term insurance business. It was
launched in 2008 and has reached critical mass in a relatively
short time given the subdued environment following the global
financial crisis. The company deploys state-of-the-art call centre
and information technology. Current services include short-term
insurance, motor warranty and credit life.
WHAT MAKES OUR OFFERING
RELEVANT?
We tailor our products to suit the particular needs of our
clients and challenge the market perception that short-term
insurance products are commoditised in the Personal Lines segment.
We are sensitive to the advantages that economies of scale allow,
but we are always aware that each client is an individual with
individual needs. Our core MultiPlex, MultiBonus, MultiMotor,
MultiMax and MultiHome policies each offers unique benefits to
their target segments and can themselves be tailored through
flexible excess structures and voluntary policy benefits to suit
each individual client's needs. The core Santam product suite is
further enhanced by in excess of 20 product and service solutions
offered through Portfolio Administration partners that ensure
unique flexibility and distribution reach for Santam. Our products
are backed by our superior claims handling and payment ability,
which our clients and intermediaries recognise as a core strength
of Santam's.
WHAT WE ACHIEVED IN 2011
The Personal Lines segment delivered improved growth in
2011 compared to 2010, as the benefits of the segmentation model
came through and the fundamentals of the market started to recover,
combined with the positive impact of growth achieved in MiWay.
Gross written premium income in the Broker
Services environment increased by 7%. Within Portfolio
Administration, gross premiums remained flat, although this was in
line with expectations given our ongoing focus on the profitability
of this business. MiWay growth continued to excel, achieving a net
growth of 67% for the year. Overall, Personal Lines showed net
growth of 15% in net premiums for the year. The claims ratios
achieved in the business unit were very good.
During the year, the segmentation model that
had been implemented in the previous year was further enhanced. The
aim is to give the best premium the first time. Accordingly,
low-risk clients enjoy lower premiums than their counterparts with
higher inherent risks.
The conversion rate for Broker Services showed
an improvement of 15% in 2011 over 2010.
At the same time, the lapse rate improved by
almost 4% from the previous year, which provides evidence that the
focused initiatives having been put in place to improve client
retention within the contact centres are paying off. The
segmentation model was extended during the year to align
adjustments with renewal premiums according to each client's
underlying risk and claims experience as opposed to applying the
same premium increases across all client segments. The average
premium increase on renewals for the year was less than 3% for
Personal Lines.
In line with continued investments to improve
the quality of the contact centre experience for intermediaries,
the Broker Services business unit has experienced an increase in
the number of quotes being generated. The workforce management
system is well entrenched and has led to improved intermediary
satisfaction as measured by surveys conducted during the year.
These improvements also reflect the continued efforts by Santam to
support its intermediaries.
The issues being addressed by the Client
Complaints business unit are analysed to address efficiency and
identify recurring issues. Once implemented, these service
improvements - with improved awareness and recognition following
the Santam brand repositioning - are making it easier for
intermediaries to sell and maintain client loyalty.
As mentioned in the Chief Executive Officer's
report, the 2010 acquisition of MiWay has been well embedded in the
business during 2011 as a way of strategically transitioning the
Santam group as a multichannel distributor. MiWay's unique client
experience offering resulted in continued aggressive growth, adding
significantly to Santam's overall personal lines growth despite
tough trading conditions as a result of new entrants and
competitive pricing from established competition. Just over 2% of
new policies originated from previous Santam clients. Key to its
success is a transparent online compliments and complaints forum -
the first of its kind in South Africa - where it actively
encourages clients to speak out about their service
experiences.
A number of exciting growth opportunities have
been identified during the course of the year. Significant
expansion of both physical infrastructure and employee numbers took
place in 2011 to support the growth strategy.
The fact that MiWay offers a different business
model, segmentation, risk profile, lapse percentages and churn
rates, offers lucrative support to Santam's strategy of growth
through diversification. We are confident that the business will
continue to co-exist well with, and complement, the intermediary
businesses model within the group.
WHAT WE WANT TO ACHIEVE IN
2012
We will continue to focus on the implementation of
enhanced processes and efficiencies to enable improved intermediary
and client interaction with the aim to further improve conversion
and lapse rates.
The Portfolio Administration business unit is
well positioned for 2012 as it maintained the benefits of its
turnaround in 2010 and 2011 and is now able through technology
developments to better manage and drive data sharing, validation
and pricing with outsourced partners.
Santam is implementing a full e-business
strategy that will improve service levels to both intermediaries
and clients.
We also aim to expand into the emerging market
in South Africa over the next few years through the identification
and development of appropriate affinity partnerships.
COMMERCIAL AND
AGRICULTURE
WHAT WE DO AND HOW WE DO IT
Our Commercial Lines business unit comprises our business
portfolio which services small to large enterprises and the
Commercial Portfolio Management unit. This unit services business
clients on Santam's systems and on an outsourced basis. We provide
flexible and unique commercial insurance solutions that are
tailored to suit the needs of entrepreneurs and businesses.
Our flagship products are marketed under the
Commercial MultiPlex and MultiMark brands which have add-ons
engineered for specific industries. Within our agricultural
offering Hail and MultiPeril Crop Insurance are the most important
covers. Santam Agriculture provides specialist insurance products
to farmers and the agricultural industry through our network of
intermediaries. We offer a total agricultural risk management
solution to agricultural producers and underwrite the specific
commercial risks facing our clients and agriculture businesses in
farming communities.
We collaborate closely with our Risk Services
team to design and price products to underwrite specific specialist
products.
We are represented throughout South Africa and
Namibia by our network of intermediaries and our commercial
portfolio management partners who effectively distribute our
products. Dedicated key account managers and relationship managers
ensure that we provide the highest quality service to our
intermediaries.
Commercial Lines
We follow a client-centric approach by rating commercial
risks according to a number of tailored risk profiles. Our key
account managers and relationship managers provide guidance and
advice to our distribution partners.
We continually engage in innovative processes
and we strive to continually improve our service. We believe that
this will enable us to maintain our leadership position in the
commercial insurance segment.
We have a well-established pricing model which
we continually refine to ensure that our results are more resilient
in negative underwriting cycles. Our underwriting and distribution
teams work closely together to enhance the effectiveness of our
underwriting processes.
The nature of the commercial risks that we
insure is quite diverse. Our ability to be flexible in a rapidly
changing environment is key and means that we are also more
resilient to withstand the impact of substantial losses such as
those resulting from the recent floods around the country.
Agriculture
Our Agriculture business unit focuses on agricultural
assets and crop insurance. The team responsible for agricultural
assets provides strategic guidance to those business units
responsible for the distribution and underwriting of our
agricultural products.
The crop team provides crop distribution,
policy administration, claims, finance and IT, risk and insurance
services as a stand-alone business unit. But they collaborate
closely with the agricultural assets team to co-ordinate marketing,
distribution and product development initiatives.
Adequate pricing of risk is important in
running a profitable crop insurance book in the longer term.
However, our ability to accurately and fairly assess crop losses
incurred has a greater impact on the reputation of our company and
the overall performance of the book. Our team is able to cover all
aspects of the life of a policy - from adequately covering the risk
of new business to assessing liability at the time of a claim
pay-out.
WHAT MAKES OUR OFFERING
RELEVANT
We continuously make investments to improve our employees'
commercial business acumen and their commercial skills and
competencies. We provide a broad range of services such as training
of and accreditation for our intermediaries.
Clients are improving their knowledge of
insurance and are increasingly demanding information and active
participation in the acquisition process. Our strong relationship
with our intermediaries enables us to address these demands.
Our segmentation models allow us to reflect the
specific risks associated with each client. We only take on risk
with a full understanding of the exposures. In the short-term
insurance industry the regulatory environment and market conditions
often change. We ensure and embed our relevance and competitive
edge in the marketplace by assisting our intermediaries to continue
adding value to their clients.
WHAT WE ACHIEVED IN 2011
Even though commercial insurance continued to come under
pressure off the back of the slow economic recovery, the Commercial
business unit showed premium growth of close to inflation (CPI) and
the Crop businesses showed positive premium growth of 34%. The
performance was underpinned by the strong fundamentals in our
business model:
-
Our aggregate number of policies in the
commercial and agriculture asset segment increased in 2011. This is
pleasing against the context of the market which was characterised
by cautious decision-making among corporates to purchase new assets
such as vehicles, plant and machinery.
-
Increasing commodity prices, including
maize prices at the beginning of the season, led to an increase in
the sums insured and an increase in the number of hectares covered,
both of which drive crop premium growth. However, this has led to
heightened levels of competition in the segment.
The business unit delivered a pleasing increase
in profitability which was underpinned by another year of improving
overall claims ratios. The low frequency of large flood and fire
claims in the commercial portfolio during the year contributed to
the strong performance. This reflected our conservative stance and
our careful selection, assessment and pricing of the risks that we
take onto our book. The business unit was relatively unaffected by
the severe floods in a number of regions, including the northern
Cape at the beginning of 2011, and the drought conditions that
occurred in other parts of the country.
While clients became increasingly sensitive to
pricing when renewing commercial products, we achieved a 3%
reduction in lapse rates during the year. We believe that this
demonstrates that our intermediated business model and the
specialist attention that we provide to our commercial clients had
a material impact, including the key account management structures
that we implemented in the previous year. To continue delivering on
our growth objective in the current market that is characterised by
pedestrian premium growth, Santam needs to secure new units of
business to grow the business. As a result of churn rates that tend
to be higher among new clients, we have a continual focus on
maximising our conversion rates. To this end, we have an ongoing
focus on understanding and measuring our conversion rates for new
policies across each of the risk segments. We prioritise the
conversion of quotes into policies in the lower-risk segments
although we price appropriately in the risk segments.
We have had pleasing successes in our
Commercial Lines as a result of refining our strategy to secure
business from large commercial clients by refining our approach to
closing opportunities in this segment. This initiative has already
delivered significant benefits as the success rate for clients in
this band increased substantially during the year. Santam was voted
as South Africa's leading short-term insurer by independent
intermediaries in both the Commercial and the Corporate Insurance
categories of the Financial Intermediaries Association (FIA) of
Southern Africa insurer of the year awards in June 2011 for the
third consecutive year. This is particularly pleasing as it shows
that our intermediaries, who are a vital component of our business,
have once again shown their confidence in Santam. We will continue
to make investments to support this crucial aspect of our business
proposition.
WHAT WE WANT TO ACHIEVE IN
2012
The Commercial and Agriculture business units are on a
solid footing for the year ahead, underpinned by the close
collaboration with the Claims Services and Risk Services business
units. The Claims and Risk Services business units are enablers of
the products and services that we sell through our intermediaries.
Facilitated by our extensive investments in systems, we are able to
track the performance virtually real time, and as a result we have
the ability to manage the businesses very tightly.
The key account managers are better equipped
than ever before to secure new business, following specific
initiatives to enhance their skills. This, together with the
segmentation model which is now well entrenched, positions the
business unit well for 2012, regardless of the tough market
conditions.
Service levels in the contact centre were
improved resulting in better turnaround times, and we are confident
that we will make further progress in this regard in 2012.
SPECIALIST BUSINESS
WHAT WE DO AND HOW WE DO IT
Specialist business provides a full insurance solution to
clients and intermediaries that includes the insurance of complex
and niche risks which require skilled resources to assess and
quantify the risk and exposure.
Our industry segments include, among others,
construction and engineering, travel insurance, motor, aviation,
marine, taxi, transport, corporate property, specialist liability,
bonds and guarantees, body corporate and sectional title levy
guarantee, hospitality, high net worth and personal accident.
To service the industry segments in which we
are active today, Santam created local underwriting capacity to
insure risks of a complex nature, some of which were insured in the
London and overseas markets. Today we have 14 unique businesses
that represent Santam either as outsourced underwriting specialists
or in-house purpose-built business units which source their
businesses via the intermediary. These businesses operate with the
appropriate reinsurance capacity which is sourced from local or
international markets and which contributes to our unique
capability to ensure a sustainable solution.
These unique businesses distribute our niche
products either under their own banner or directly as a specialist
Santam business. In both cases the policy of reference is always
underwritten on the Santam licence.
In this bespoke environment, product
development, pricing, underwriting and claims services are a key
competitive advantage.
We have a close and symbiotic relationship with
these specialist partners, where we design and price bespoke
products to underwrite the specific risk which is relevant and
competitive in the marketplace. Our products are specialist by
nature and require the skills and financial know-how to ensure a
sustainable solution to the client and Santam. Having the right
people to drive these ventures is paramount.
Our business unit operates in two segments:
namely: those businesses that require specialised underwriting
skills such as engineering, liability, aviation and marine; and
niche markets where we can provide specific products outside of the
commoditised products in sectors such as hospitality and leisure,
high net worth and sectional title.
We have a two-tiered approach of delivering a
combination of organic and acquisitive growth. We continually
evaluate the market to identify opportunities to grow our market
share, deliver increased profitability and continue enhancing the
specialist nature of our business. Achieving the right balance
between these factors is a function of ensuring that we select the
right risks to underwrite and then develop targeted and niche
products to insure these risks.
What makes our offering
relevant
Our value proposition is distinct and highly tailored to
the needs of each client. This is in stark contrast to the
traditional insurance solution that sells an end-to-end basket of
products. We have a single-minded focus to provide specialist
products which are client-driven. This focus allows us to extend
and diversify our business model.
Our ability to attract and develop the
necessary skills in our management and employees provides us with a
distinct differentiator from others in our field. The scope and
magnitude of our segments is unique in the South African context.
Our team has the know-how and experience to price, underwrite and
service the bespoke products that they bring to market.
Our financial strength underpins all
underwriting activities, and all policies are issued under a Santam
underwriting agreement. Our security and statement of financial
position offer our clients the peace of mind they require from an
insurance policy. We have stringent underwriting criteria to make
sure that each risk is appropriately underwritten. We have the
specialist skills in our target segments to underwrite the risks
that our clients bring to us. Combined with our well-established
reinsurance relationships, we offer wider cover to large companies
who need to manage specialist risks.
This ability is also based on our in-depth
understanding of each client - we are able to identify those
clients that better manage their risks. It is our duty to select,
influence and make the risks insurable for us and affordable for
our clients. This is possible with the assistance and
intermediation of our intermediaries who are partners in the
relationship with our clients.
WHAT WE ACHIEVED IN 2011
Our premium growth of 13% was within our targeted range,
with total premiums amounting to R3.5 billion. Although the market
was tight, particularly in terms of organic client growth, we
benefited from our highly diversified revenue streams coupled with
our growth strategy, which addressed both organic and acquisitive
growth.
The acquisition of Mirabilis Engineering
Underwriting Managers which took effect in March 2011, delivered on
our acquisitive growth objective. Other areas of the business,
including Emerald, our corporate property underwriter (acquired in
2010), started to gain traction. However, we were not completely
immune to the market, and our niche segments serving the
construction and hospitality and leisure were under pressure during
the year. The logistics sector, which targets import and export
clients, was also impacted by constrained global trade in line with
the state of the economy.
Reflecting the tough global economy,
competition has become more aggressive, resulting in pricing
pressures across all lines of business. The marine and liability
insurance segments were particularly affected.
A highlight of the year was the acquisition of
a majority stake in Mirabilis Engineering Underwriting Managers
(Mirabilis) that strengthened our existing capability and service
offering to the engineering sector and engineering insurance
industry nationally. The transaction was structured as a merger
between our Construction and Engineering Underwriters (CEU)
underwriting management business and Mirabilis. We own 55% of the
merged entity (Mirabilis Engineering Underwriting Managers) which
is the largest engineering underwriting business in the
country.
Leveraging off our new status as a leader in
the construction and engineering sector, we launched a new
performance guarantee offering, focusing on the construction
guarantee market. We brought on board external skills for this
start-up business.
The financial turnaround of the corporate
property business following the acquisition of Emerald in 2010
turned in another sound set of results. This demonstrates its
sustainable business model and the value brought to this business
since its acquisition.
We continue to benefit from our two-pronged
value proposition: the loyalty of our intermediaries to the
individual specialist brands remains strong and is leveraged by the
strength of Santam's paper that is underpinned by our excellent
credit rating which has remained unchanged despite tough economic
conditions. This has provided us with a competitive advantage in
the tough current market. Our individual specialist units have
gained a leading reputation for their specialist industry and
underwriting skills, which is backed by reliable service.
Although the claims ratio experience increased
from 2010, we continue to deliver attractive and above average
returns to Santam. In particular, improved returns in the corporate
property, travel and marine sectors during the year were dampened
by lower margins in the Liability and Engineering businesses.
Despite these impacts, our performance for 2011 was more than
satisfactory, having built a solid platform with the excellent
results in 2010.
Also housed in the Specialist business are
Santam's affinity business activities and Centriq Insurance
Company. Centriq specialises in risk finance, cell captives,
underwriting management agencies and affinity business. It
continues to operate as a stand-alone business.
During the year, we refocused our affinity
business. Our relationships with our major shareholder, Sanlam, and
wholly owned Centriq provide us with a tangible differentiator in
this segment as we have the capability to develop and distribute
lifestyle and white-labelled products that encompass the partner
brand requirements. We also have the structures to design these
products and services based either on Centriq's cell captive model
or by assuming the underwriting for the associated risks and paying
a fee to our partners. We have started to roll out initiatives for
selected retailers in South Africa, providing them with an
additional revenue stream and a mechanism to build affinity with
their clients.
WHAT WE WANT TO ACHIEVE IN
2012
We are confident that we are well positioned to maintain
our growth trajectory, underpinned by the acquisition of Mirabilis
which will be in effect for the full year in 2012. We have analysed
our offering and identified several opportunities to enter new
market segments which we will pursue selectively, either by
acquiring existing businesses or by recruiting the specialist
people to start up these new businesses.
We have also identified opportunities to
supplement our growth by taking greater underwriting exposures in
Africa, which should deliver further diversification benefits. Our
African initiatives will be aligned with the group's strategy to
grow its exposure in these markets while we will also provide
specialist underwriting to meet our existing clients' requirements
for specialist insurance in Africa. Our stance in relation to these
new initiatives will remain cautious, ensuring that we have a solid
understanding of the inherent risks and applying our South African
technical skills to ensure our success with these initiatives.
In 2012, we will also focus on ensuring that
our internal structures and capability are optimised. We are
reviewing our operating structures to provide our specialist focus
areas with solid support structures that enable them to focus on
their core businesses.
CLAIMS SERVICES
WHAT WE DO AND HOW WE DO IT
Claims Services administers the process of assessing and paying out
claims to policyholders. The experience during the claims process
is the biggest determinant of how our clients feel about being
insured with Santam.
Our priority is to ensure that our clients have
a pleasant experience when interacting with us at the time of a
claim. Our main objectives are to provide our clients with quick
turnaround times, quality client service and a fair settlement in
their time of need.
WHAT MAKES OUR OFFERING
RELEVANT

We are continually making investments to ensure that our
operating model is relevant and cost-effective. Our strategic
intent of delivering quality service to our clients is at the core
of our business and our claims service is currently a competitive
advantage for Santam.
A key element of client service is the
turnaround time on claims. We continuously introduce new mechanisms
to offer our clients a quick and efficient interaction with Santam.
We also have a constant focus on improving efficiencies by closely
overseeing the claims management and direct claims costs.
WHAT WE ACHIEVED IN 2011
Claims Services delivered against its target and
objectives for 2011.
-
We maintained agreed service
levels.
-
We contained our claims handling cost
within agreed targets.
-
The investment in the last three years
in the Insurance Services Transformation Project (ISTP) which will
conclude in early 2012, has been effective in helping to reduce the
average claims cost.
It is particularly pleasing that the systems
that we have implemented are world-class and create a tangible
differentiator for Santam. These achievements were underpinned by
solid progress on existing initiatives and on new projects that
were started during the year to transform our procurement
environment:
-
We introduced a claims card for
settlement of claims as an alternative to cash settlements. This is
a first for the insurance industry in South Africa. The Visa debit
card allows our clients to procure goods at any Visa-approved
vendor. When clients use preferred suppliers a discount is
available which has been negotiated for them by Santam, while
Santam benefits from volume rebates.
-
We launched Santam's Car Labs in Cape
Town and Pretoria. These motor body repair facilities have the dual
benefit of enabling us to research mechanisms to become more
efficient while curtailing our repair costs - both of which should
limit premium increases in the future. These facilities are
conveniently co-located with two of our drive-in assessment centres
and provide our clients with a drive-in service for damaged
vehicles.
-
We expanded our drive-in assessment
centre network from 6 to 15 and have revamped the look and feel to
fit in with our new corporate identity.
-
We implemented the Santam Glass Lab;
through this initiative we researched alternative sources for
quality motor vehicle glass. We initiated a pilot project whereby
alternative glass is offered to clients at one of our two Glass Lab
fitment centres. We incentivise clients to fit alternative glass by
discounting the excess payable
-
Predictive Analytics, a tool used to
classify claims based on inherent risk, has now been entrenched
throughout Claims Services While this has led to lower costs, it
has also enabled more consistent and accurate claims
assessments.
We continued to develop new mechanisms to
handle our salvaged motor vehicles which also had a positive impact
on motor claim costs during the year. The introduction of a new
assessment channel for claims with a high-merit risk to prevent
significant payouts on fraudulent claims has already started to
show benefit through savings in repudiation of fraudulent claims.
This effort supports an industry-wide drive to reduce the impact of
fraudulent claims, which are estimated by South African Insurance
Association (SAIA) to amount to approximately 15% of the total
premiums paid in South Africa. SAIA has established a database
where all such claims are recorded - the objective being to reduce
the prevalence of fraud in short-term insurance. Santam is
participating, not only in support of its commitment to good
corporate citizenship but also as a result of the longer-term
economic benefits that will result as these risks are filtered out
of its insurance book. This will result in deserving policyholders
being rewarded with lower premiums. Our ongoing efforts to continue
improving our core competencies and positioning have been
recognised by our business partners. During the year we won a
number of awards for a variety of achievements reflecting the
quality of our service, our ability to innovate and the strength of
our reputation:
-
The South African Motor Body Repairers
Association (SAMBRA) voted Santam the Insurer of the Year.
-
Santam claims card has won the category
for Best Corporate Prepaid Programme at the 2011 Global Prepaid
Awards in London for the innovative way in which we utilise prepaid
card technology to pay its claims.
-
Predictive Analytics has received
worldwide recognition by being selected to participate in the IBM
Smarter Planet initiative. It was showcased in the IBM Analytics
conference in Las Vegas 2011 and recognised as a reference site for
the software vendor worldwide.
WHAT WE WANT TO ACHIEVE IN
2012
We have completed our cycle of major investments to create
an efficient and high performance business platform. Therefore our
focus for the year ahead is on further cost savings relating to
claims management and direct claims costs. We also plan to continue
to fine-tune our operations to continually improve service
quality.
In our pursuit of these objectives, we started
engaging more actively with a number of suppliers in 2011, building
closer partnerships with our supplier network. With our centralised
procurement initiatives, we have substantially improved our ability
to direct our procurement spend. In 2012, we will bring this to
bear to further reduce costs.
We will maintain the pace of investment in our
people and we are also planning to bolster our contact centre
capability so that we can deliver further benefits to our clients
in the form of quick and effective claims processing.
RISK SERVICES
WHAT WE DO AND HOW WE DO IT
Santam's core business is to provide short-term insurance
products that meet our clients' needs. Risk Services is core to the
business and is responsible for:
-
the design, development and pricing of
existing and new products for all lines of business;
-
ensuring optimal underwriting processes
and margins;
-
the risk and capital management of
Santam's short-term insurance solutions;
-
oversight of the group's reinsurance
activities;
-
the management of the group's overall
risk pool by maintaining appropriate reinsurance and risk
diversification; and
-
developing and ensuring the adequacy
and relevance of measurement tools to assist the group in analysing
and understanding the risk pool in which it operates.
Risk Services also supports the distribution
environment through risk assessment and by developing underwriting
rules that ensure that Santam's products are suitable for the
segments in which they are sold.
WHAT MAKES OUR OFFERING
RELEVANT
We have an excellent track record of underwriting which
underpins our diverse product lines that fit a wide range of risks
covered by the short-term insurance industry. These products are
supported by specialised underwriting skills in the form of a team
comprising some of the best technical experts in the industry.
Santam's ability to make a profit from
underwriting activities depends on its ability to correctly price
risks, and this requires a detailed understanding of all the
associated exposures. Our success partly derives from identifying,
segmenting, measuring and ultimately pricing these risks correctly
in the market. It is vital that we understand which risks are over-
or underpriced in the market, or those that we should not be
insuring at all. In this way, we are able to balance growth and
profitability.
The integration of our reinsurance programme,
our risk appetite and our investment strategy enables us to
effectively manage the capital that we hold against our portfolio
of risks. As a result, we are in a position to optimise the capital
that we hold. This has also helped us to price risk more
effectively, which is critical in this highly price-sensitive
market.
We formally engage with our colleagues in
distribution and claims services at all times, allowing us to
combine the experience of these three core areas of our business to
obtain a consolidated view of the market.
WHAT WE ACHIEVED IN 2011
In support of our mandate of managing the risk exposures
of the group, Risk Services continued to strengthen its
underwriting processes with initiatives to evolve and improve its
approach to rating. While we prioritised initiatives that will
sustain our leadership position in the market, we maintained focus
on the group's strategic objective to pursue sustainable and
profitable growth. We also remained cognisant of our goal to
continually diversify our pool of risks to achieve consistent
underwriting profits over time.
Underwriting
We embarked on projects to expand on the risk segmentation
model that was implemented for pricing in 2010. This is now well
entrenched in all our lines of business. To continue delivering on
our growth objective in the current market characterised by flat
premium rates, Santam needs to secure new units of business on a
net basis to grow. As a result, we work towards maximising
conversion rates and minimising cancellation rates, while still
achieving the premium that we need to cover the risk and expenses.
Therefore, we have an ongoing focus on understanding and measuring
the drivers of conversion and cancellation rates for policies
across each of the risk segments, and then responding
appropriately.
I am pleased to report that conversion rates
improved in all our targeted risk segments in 2011, while
cancellation rates were reduced to the lowest levels in years. The
result was record increases in the net number of policies added to
our total book in both personal and commercial lines business.
Product development
Considerable progress was also made in the area of product
development. The launch of a new Personal Lines product -
MultiBonus - in the second quarter of 2011 generated significant
interest, and take-up was ahead of expectations. The product is
aimed at value-seeking clients and contains all the core personal
policy features and options together with a cashback of 20% of
premiums after two claim-free years. Ongoing effort went into the
management and refinement of our core personal and commercial
product suites. Adapting product options, limits, coverage and
pricing structures requires ongoing analysis and changes. Every
year our product and underwriting teams make extensive adjustments
to ensure that our product range remains up to date and continues
to meet the precise insurance needs of our large and diverse client
base.
A number of initiatives also saw new products
being launched in non-traditional channels, such as Incredible
Cover which is being distributed in Incredible Connection stores.
Considerable effort also went into a strategic project that will
see the transformation of our product management and rating
capability from an IT perspective. This will dramatically enhance
our ability to respond to market needs and reduce time-to-market
for new products.
SANTAM RE
Significant progress was made in establishing Santam Re as
a meaningful market participant in the reinsurance industry in
support of our strategy to diversify our premium base
geographically. Santam Re carried out the groundwork to build its
capabilities by increasing its expertise and skills pool, and
improving its IT infrastructure.
Santam Re has already leveraged extensive
opportunities within the group - from Santam, Sanlam Emerging
Markets, Centriq and MiWay, and more recently outside of the group
within South Africa. We plan to grow our International business
over the next five years to meet our growth and diversification
targets.
REINSURING OUR OWN RISKS
International catastrophe crises loomed large in the
global reinsurance market in 2011, with environmental tragedies
taking centre stage on a regular basis. This put upwards pressure
on reinsurance premiums. However, we are satisfied that we secured
adequate cover.
Managing the business within Santam's defined
risk appetite is fully embedded in our day-to-day operations and we
are confident that our controls and protections put our clients and
shareholders in a very secure position.
We conduct regular detailed reviews of Santam's
risk exposures relative to its defined risk appetite parameters,
and report these to the board every quarter. This enables us to
manage our risk exposures and solvency to within the agreed
parameters.
Solvency Assessment Management
(SAM) Project
The Financial Services Board (FSB) is in the process of
preparing to implement new prudential regulations (planned for
2015) that will bring about a principles-based, risk-sensitive
approach to regulating insurers' financial soundness and risk
management. This is referred to as the SAM framework and has
largely been driven by international developments, in particular
the European Union's Solvency II directive.
One of the big four audit firms recently
conducted a high-level gap analysis of our readiness to implement
the new framework and we are pleased to report that, based on their
findings, we are on track to comply well ahead of the planned
implementation date.
Santam has for a number of years made use of an
internal dynamic financial analysis model to help its strategic
decision-making in relation to capital, reinsurance, investments,
risk appetite, mergers and acquisitions, and so on. The new
regulatory framework will provide for the formal recognition of
such models for capital quantification purposes subject to a
rigorous approval process, as an alternative to the use of the
prescribed standard formula. The advantage of an internal model is
that it better enables the specific circumstances of a company like
Santam to be taken into account. To this end, we are pleased to
report that Santam is one of only a handful of companies that the
FSB has admitted to an internal model approval process that will be
conducted in the next 18 months, ahead of implementation in
2015.
Santam recently participated in a quantitative
impact study that was conducted by the FSB to test the impact of a
trial standard formula on the capital adequacy of South African
insurers. We completed this and also shared details of the
comparative results produced by our internal model at the same
date. In the course of preparing our responses for the study, we
were pleased to find that our results were as expected and that the
differences between the results produced by our internal model and
the FSB's standard formula were reconcilable, giving us comfort
that Santam understands its risks and is prepared for the
implementation
in 2015.
SUSTAINABILITY AND CLIMATE
CHANGE
Santam plays a leading role in the industry by
collaborating with a range of stakeholders to identify, research,
and understand systemic risks. Highlights of this process
include:
-
A project completed in the southern
Cape to understand flood risk in specific areas and using this to
improve underwriting practices.
-
Seconding a senior Santam manager to
the SAIA for six months to establish an industry-wide systemic risk
initiative. SAIA has subsequently appointed a general manager to
head up this function, and established a Strategic Risk Forum
(which is being chaired by Santam executive John Melville). The
focus of the latter is to identify key systemic risks that threaten
to raise the cost of insurance to unacceptable levels in future,
and collaborate with parties that can influence the drivers of
these risks to reduce the exposures.
-
Santam completed a study called the
Eden study (in partnership with the CSIR and UCT) into the key
systemic drivers of fire, flood and sea surge risk in the Eden
district in the southern Cape. This also included an assessment of
our sphere of potential influence and how we should collaborate
with relevant parties to reduce the drivers of risk over which
there is some control. The findings were published and presented at
a side event at COP17 in December 2011.
-
Santam became the first African member
of ClimateWise in 2009 and is currently a member of its managing
committee. ClimateWise is a global collaborative insurance
initiative through which members aim to work together to respond to
the myriad risks and opportunities of climate change.
The United Nations Environment Programme (UNEP)
Finance Initiative (FI) is a global partnership between UNEP and
the financial sector working together to understand the impacts of
environmental, social and governance (ESG) considerations on
financial performance. Santam joined the UNEP FI in 2010 and is
represented on its Insurance Commission which developed the
Principles for Sustainable Insurance (PSI). The PSI is a set of
globally applicable best practice principles for the insurance
industry, including actions to facilitate the systematic
consideration of ESG risks and opportunities in insurance
companies' business strategies and operations. Santam's internal
systemic risk forum, chaired by the head of enterprise risk
management, brings together all internal stakeholders to address
systemic risk for the company (see detailed risk report in the
Corporate Governance Report).
At the underwriting level, Santam continues to
encourage its clients to apply best practice risk management
principles to reduce their own risks.
WHAT WE WANT TO ACHIEVE IN
2012
Looking ahead, we are confident that the initiatives that
we have worked on in 2011, both in the underwriting and reinsurance
functions of Risk Services, will deliver benefits to support a
further year of delivery from an underwriting and premium growth
perspective.
The time and effort that we have invested in
developing our models is also paying off. This will further enhance
Santam's ability to price risks accurately to sustain and grow our
underwriting profits.
In 2012 we are also expecting to see further
progress on the transformation of our product management
capability, a process that was commenced in 2011. This will
dramatically enhance our flexibility and improve speed-to-market
for new products.
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