Just a few years ago, many insurers were positioning themselves as a one-stop shop to capture as much of the disposable income their clients were willing to fork out on insurance. But fast-forward to 2018 and insurers’ strategy documents are far more muted, riddled with words such as "refocus", "reset" and "refresh".
Liberty, 54% owned by Standard Bank, is one of those insurers undergoing what polite company might refer to as a "strategy refresh". Under CEO David Munro, the group is now aiming to refocus its attention on the mass affluent market, and grow its risk and investment businesses.
The decision to "refocus" on the mass affluent market is an interesting one given that everyone else, except for Discovery, is trying to expand their business in the low-income mass market. The irony, perhaps, is that Liberty’s investors would probably be pretty happy if the company were to steer entirely clear of the low-income market, as it has made almost no inroads into that sector until now, according to one analyst who did not want to be named.
But, then, Liberty hasn’t exactly distinguished itself in any particular area in recent years. Research from UBS shows that between 2005 and 2017, Liberty’s market share for life insurance products fell from 29% to 25%. It appears this was snapped up by Sanlam, whose share rose from 14% to 21%, and Discovery, which doubled its share from 4% to 9%.
This trajectory fed through to the share price. Over the past three years, Liberty’s share has shed 11%, while Sanlam’s stock has climbed 38.5% and Discovery’s 18.7%. The good news, perhaps, is that analysts sense a turnaround, and now consider Liberty a "buy".
But it hasn’t helped Liberty that just when it seems to be getting a few things right, it gets slammed from left field. In June its IT systems were breached, which raised fears among clients over just how safe their personal information was. Last Friday Liberty said the hack is still part of a "criminal investigation", but provided no further illumination.
A central pillar of its strategic overhaul is to scale down its investment unit and sell simpler products, which could go a mile to arrest its decline. Last month Liberty launched its "global portfolio" product, which gives clients exposure to stocks in the US and Europe. That is the first of many initiatives it has up its sleeve.
"What we are now doing in the Liberty stable is we are having a holistic look at all the investment products that we have," says Vimal Chagan, director of Liberty’s investment propositions division.
Chagan is relatively new at Liberty, having joined nearly two years ago to revive its structured products. He seems to be pinning the recovery plan on simplicity, a refreshing change from the past. He plans to reduce Liberty’s investment portfolio from 21 products to just eight over the next few years.
Even when it comes to retirement annuities — the lifeblood of SA’s insurers for years — Chagan is thinking of just offering a single product. "Right now, I have four retirement annuities. Each one is doing something very different. But I don’t need four — I need one. But it’s a multi-year journey that will probably take about four to five years. It’s one of those things that you do slowly."
It seems Chagan has recognised a truth that customers have been saying for years but which the companies have been loath to heed: the investment products life insurers offer are too complex. "We’d say: ‘Invest in this policy — if you stay for five years we’ll give you a portion of your fees back and if you get a certain status in a loyalty programme, we’ll give you this and that.’ So things become quite complex," he says.
It’s a good start. But time will tell whether simplicity and refocusing on its traditional target market will be enough for Liberty to regain the ground it has lost to savvier rivals.
For one thing, Liberty has had a far harder time than most keeping a lid on costs. For example, its asset management operations under Stanlib lifted its cost-to-income ratio from 55% in 2015 to 79% at the end of 2017. By contrast, competitors like Coronation, while facing the same pressures, have contained their cost-to-income ratio at under 50%. But Liberty has struggled to contain the cost of writing new business in its life insurance arm: its margin for new business dropped as low as 0.4% last year, before recovering slightly to 0.7% at the end of June.
And of course, there is also the tricky question of its business in the rest of Africa, which is still clocking up losses. In the six months to June, the Africa Insurance division was R5m in the red. At least the turnaround strategy for Stanlib’s East African business has arrested operational losses in that division. But it still has to get the rest of the African business right.
That’s a difficult task, considering the problems back home. For now, Munro’s focus is on fixing the SA Retail and Stanlib SA business. Liberty says it is "actively pursuing various options, such as strategic partnerships". But for long-suffering investors, it will need to show progress sooner rather than later.
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