Sustainable development report 2015 | Annual report 2015

Responsible products and services



Responsible products and services

Wealth is a journey. As Wealthsmiths™ we have a deep respect for that journey and the different needs that arise along the way. It’s why we are committed to truly understanding our clients’ ever-changing needs, so we can treat them fairly and provide affordable solutions that deliver on their expectations. In this way, we are able to offer a highly considered and diverse portfolio of responsible financial products and services designed to build wealth and transform lives.

Saving and investing for the future are an essential requirement for a prosperous society. Sanlam is committed to creating and distributing savings products that build and grow wealth for more South Africans, and in the process, securing our future as a financial services provider.

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The global financial services industry is continually striving for higher ethical standards and business behaviour. Similarly, in South Africa, the transition to an increasingly strict regulatory environment is placing pressure on our industry to lower costs while maintaining standards and continuing to treat customers fairly.

Delivering on these demands requires innovative products and services to drive client-centricity and efficient delivery, which in turn are imperative in driving the development of our business model. As Wealthsmiths™, we are committed to understanding the different needs of our various client segments, treating them fairly and constantly working to provide affordable solutions that address their financial needs.

In addition, as a large institutional investor, Sanlam Investments has sizeable interests in most of South Africa’s companies, and corresponding influence over governance and sustainable business behaviour. Our aim is to use our influence to encourage good governance, not only as responsible investors, but because it makes long-term investment sense.



Key Performance Indicators



Responsible products and services material issues


We focus on the following material issues:

Client-centricity, satisfaction and retention

Rated a leading insurer for overall customer satisfaction in SAcsi survey. No significant TCF risks or compliance issues. Complaints under control.

Product development

Underwriting models simplified, with clearer value proposition for clients. Sales growing in affluent, growth and entry-level markets.


Distribution network

Retail Distribution Review (RDR) legislation and retirement industry reform proposals increasing the level of uncertainty in the industry. Initiatives aimed at improving value and efficiencies within the broker model.


Providing access to financial services

Strong emphasis on growth in funeral policy market. Over 3 400 tied agents in 62 sales branches, 280 independent brokers and 29 Ubuntu service points within communities across the country.

Embracing technology

In 2015, we launched our mobile app for intermediaries, InterAct.

Responsible investment

Improved quality of environmental, social and governance (ESG) research.

Empowerment financing and infrastructure development

In 2015 Sanlam enabled UB to pay a special dividend of R830 million to its shareholders. UB has acquired 51% of Indwe (a leading black-controlled insurance brokerage firm in South Africa), with Sanlam at 24% and Santam at 25%.



Client-centricity, satisfaction and retention

Developing client insights


We use a number of ways to gain insight into client needs and to keep abreast of changing market trends. Market insight teams within each business cluster conduct market research throughout the year.

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Our annual Consumer Tracking Study, involving 1 200 participants, helps us understand the financial needs, behaviour and engagement preferences of consumers in markets we target. It also benchmarks consumer perceptions of Sanlam against key competitors.

Engagement with Sanlam clients is measured through client experience research in the course of client transaction processes throughout all stages of the product life cycle.

We interact with our institutional clients and the intermediaries serving our retail clients. We hold a number of annual regional forums and conferences to engage our intermediaries.

We interact with the TCF framework and we review government discussion documents, assisting the Association for Savings and Investment South Africa (ASISA) in formulating coherent responses to the Financial Services Board (FSB). Once new regulations are gazetted, we develop formal policies and management frameworks to ensure compliance.

Performance


According to the 2015 South African Customer Satisfaction Index (SAcsi) study, Sanlam and one other insurer were sector leaders while the other four large insurers were statistically on par with the industry average in terms of overall customer satisfaction.

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The international life insurance industry benchmark is set by the United States of America, and South Africa scored second internationally. Sanlam scores well in terms of customer satisfaction compared to the leading international insurers – we are in the top five internationally.

The 2015 client experience survey involved more than 6 000 clients and intermediaries across our different business units and market segments. Overall, we are satisfied with the results of the surveys, as we have met standards across all elements and consistently perform in the top quartile across the various areas, the business and market segments.

From 2015 we have included an evaluation of our clients’ experience when transacting on new products with Sanlam in order to meet their financial needs. The results of this research reveal that overall, a large percentage of clients are delighted (score of 9 or 10 out of 10) with their experience.

Not only did the client survey reveal that we continue to offer our clients and intermediaries an excellent experience, but also that independent brokers (intermediaries who also support other financial services providers) declare a better service experience at Sanlam with regard to new business process compared to our competitors. However, we are cognisant of the increased pressure from competitors, and the constantly raised service levels within our industry.

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Resolving complaints


We have a strong internal complaints management process. This is governed by a Group complaints policy and the internal complaints processes provide Sanlam clients with the opportunity to lodge complaints with the Sanlam arbitrator.

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We further subscribe to the Long Term Ombudsman Scheme (OLTI). Any of our long-term insurance policyholders can lodge a complaint at the independent ombudsman of long-term insurance to have their complaint resolved. The OLTI publishes industry complaints data for all subscribers with the publication of their annual report. This information is available at www.ombud.co.za





Product development



Our goal is to develop solutions that promote financial wellbeing within the communities we serve, by promoting a savings culture and providing protection. We design products that clients can easily understand and we build on our strong product legacy to foster trust and confidence in our solutions.

The Sanlam Group provides tailor-made financial solutions to meet a broad range of needs in different market segments, from entry-level to high net worth clients. We are committed to promoting access to financial services to all South Africans, especially in rural areas.

Our actuarial team has access to the database of Sanlam Personal Finance (SPF) of over six million clients, enabling them to develop more accurate models of future trends, and better understand the changing client profile. Using a value-mapping tool, we check the accuracy of this predictive modelling against the amount of new business signed against our client profiles.

Key insights informing product development


The following key insights have informed our product development activities:






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  • Tough economic conditions and low economic growth are eroding particularly low- and middle-income clients’ wealth and their ability to spend.
  • There is a growing trend of affluent clients taking their money offshore, driven by the depreciation of the rand and the sluggish performance of the South African economy.
  • Products are increasingly at risk of being commoditised, particularly in the savings and investment sector. Brand and service differentiation continue to be key to avoid margin erosion.
  • Market and regulatory pressure continues to drive down fees, exerting further pressure on margins. We need to provide clients with bespoke value and improve business efficiencies.
  • Technology (robo-advice) is enabling clients to obtain more advice online and is changing the nature of the intermediary engagement.
  • The entry-level market is a growing segment with tough competition in the funeral space.
  • There is growing appetite for simple savings in the entry-level market.

View Key Performance Indicators

Product development activities in 2015



Retail Distribution Review

In November 2014, the Financial Services Board (FSB) released the Retail Distribution Review (RDR) discussion paper, which could have far-reaching effects on our industry and clients.

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It proposes a set of structural changes to incentives, relationships and business models in an effort to support fair client experience. The RDR covers 55 proposals to improve client confidence in the retail financial services market. Through the Association for Savings and Investment South Africa (ASISA), Sanlam has provided feedback on each of the proposals relevant to the business. We will continue to engage with and support efforts by the FSB to improve the financial service sector’s conduct, which will ultimately improve client confidence.

In April 2015, Sanlam launched a tax-free savings account product in line with National Treasury’s guidelines on simple savings.

The Sanlam Emerging Market client and product team

Sanlam Emerging Markets (SEM) has established a new team dedicated to driving and supporting growth through appropriate client distribution and product strategies across the cluster. It aims to provide innovative solutions and support for addressing gaps in our client and product offerings and in the models supporting them, and promotes the sharing of concepts and the re-use of product models across the cluster.

The SEM minimum governance standards that were developed in 2014 have been expanded to include a separate section on Treating Customers Fairly (TCF) and each of our businesses will be assessed against these standards. Meanwhile, a client interest statement and policy, and a client interest risk escalation process are minimum TCF standards for all SEM entities.

Sanlam Sky Solutions

Sanlam Sky Solutions has developed solutions aimed specifically at meeting the demand for funeral policies. Our flagship products allow the flexibility to pay either a premium per life covered or a single premium covering the immediate family.

After extensive market research, the Sanlam My Choice Family Funeral Plans were launched in October 2015. This range of funeral plans was designed to offer an affordable funeral cover package for the whole family.

Sanlam Glacier

Sanlam Glacier has over the last two years rewritten its online client and intermediary interface. The final switch-over to the new interface will take place during the first quarter of 2016. At the same time Glacier is rewriting a new business acquisition portal, enabling intermediaries and clients to interface with Glacier without having to use either verbal communication or paper documentation. This initiative is due for launch during the first quarter of 2017.

Sanlam Individual Life Segment Solutions

At the end of the first quarter of 2016, we will enhance our product range further with the following additions and changes:

    • A competitive cash back structure to risk products
    • Integration with Reality to offer members premium discounts on savings and risk business
    • A simplified underwriting model, which will not only give us better entry into part of the lower income market, but potentially also revolutionise the ease of doing business in some of the upper segments looking for far larger cover sizes on a wider product set
    • A comprehensive rate review to reflect changes to the tax dispensation of risk business, while ensuring that we remain as competitive as possible in the market.
    The recent income protection review showed the results which can be achieved through a comprehensive review and re-packaging of product benefits. We have identified the need for a similar review to ensure our dread disease benefits remain best of breed. We are working towards the possible implementation of new dread disease benefits in the third quarter of 2016.







Distribution network



Sanlam makes use of an intermediated distribution model to generate around 90% of all new business. The intermediary channel is therefore crucial to our business model. We support the development of a network of intermediaries across multiple distribution channels that are aligned with the needs of our clients for different market segments. We strive to ensure that our intermediaries are professional, well-informed and up-to-date regarding all legislative and regulatory compliance aspects.

Sanlam’s three distribution channels


Sanlam’s distribution channels can be broadly classified into three general categories that align with our three market segments: entry-level, growth and affluent. The largest of these are Sanlam Financial Advisers (SFA) and Sanlam Broker Distribution.

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Advisers/tied agents
  • Sanlam Financial Advisers (SFA) services the growth and affluent markets via two adviser categories: those who are only accredited to sell Sanlam products, and those accredited to sell a wider product range.
  • The Sanlam Sky agency distribution channel services the entry-level market, as well as the lower part of the growth market, via advisers who sell Sanlam products exclusively.
  • Sanlam affiliated intermediaries also service the entry-level market, selling Sanlam products exclusively, but operate with a greater degree of autonomy.


Brokers/independent intermediaries

Independent brokers service individual clients across the market segments and are supported by dedicated broker service units in Sanlam Sky, Glacier and Sanlam Broker Distribution.

Direct

The Sanlam Direct unit markets Sanlam products directly to clients using an outbound call centre. The various market segments also have a direct client offering for certain products, via an online platform.

Financial advisers


The growth in new clients and retention of existing clients is very much dependent on the success of our intermediated distribution and sales strategy.


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It is important that, given changes in the market place and regulatory reform interventions, intermediaries have businesses that operate in a sustainable way.

To achieve this, Sanlam Personal Finance (SPF) has conducted thought leadership engagements with various industry stakeholders, informing new design and implementation changes. In particular, we have invested significantly in providing comprehensive financial advice to our clients, training advisers to communicate knowledgeably, and providing transparent statements quickly and efficiently.

Looking forward, we will have to simplify business processes and bring costs down through improvements in technology. The aim is to continue retaining clients in 20 years’ time and to continue being able to provide outstanding service at competitive cost.

New legislation driving change

We provide various levels of support to our intermediaries to help them adapt to the changing legislative environment, supporting them in adapting to new distribution models such as Sanlam BlueStar Succession and the Sanlam Affiliated Intermediary (SAI) network. Furthermore, Sanlam participates in the RDR consultative process of the Financial Services Board (FSB) via ASISA, with the objective of providing a balanced view of implications to all industry stakeholders.

Engagement in the distribution channel

We regularly engage with our intermediaries. Our distribution leaders participate in regular workshops, unit meetings and many other formal and informal sessions. The general manager of SFA and senior managers in the channel hold quarterly Sanlam Adviser Forum (SAF) meetings with the national committee, which consists of elected representatives from specific regional adviser constituencies. This year, SFA also held workshops with the national committee around the RDR proposals.

View Key Performance Indicators

Growth in the distribution network


While adviser numbers in the growth and affluent markets have increased modestly, the number of BlueStar businesses has doubled, with close to 50% of the middle and affluent tied agents now being part of a BlueStar business.

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In the entry-level market, the prohibitive costs associated with regulatory compliance for independent brokers prompted us to endorse a new model – the affiliated intermediary model. This model provides sole proprietors and other one-person brokerages whose licences have lapsed the opportunity to operate under Sanlam’s licence through a contractual agreement.

In support of our transformation agenda, we have maintained a 99% black adviser staff complement, with 67% female, in the entry-level intermediary network.

Strategy to improve performance
  • Adapt to legislative requirements
  • Grow our footprint
  • Improve efficiencies to achieve profitable growth
  • Diversify our offering in a sensible way
  • Find synergies, for example with SFA, to collectively increase growth and market share
  • Support intermediaries with efficient IT systems
  • Secure and train the right people
  • Enhance systems to improve agility and flexibility.

Key initiatives for the middle and affluent markets

On-going client relationships are secured through the BlueStar and Succession models of delivering services and advice by the business and not by individual advisers. We take cognisance of client preference and employ direct marketing principles to actively target certain segments of our client base. During 2015 we launched an online offering aimed at the self-directed consumer. This capability is also available on BlueStar websites as part of a larger digital strategy.

Two new variants of BlueStar models are currently being rolled out. These provide further aspirational focus for existing BlueStar businesses while also expanding the SFA offering to intermediaries and groups of intermediaries still not part of Sanlam.

Key strategic initiatives for the entry-level market

We are focusing on empowering our distribution force to meet client needs by creating a pool of advisers who can provide a wider range of products, by putting referral arrangements within the Sanlam Affiliated Intermediary (SAI) network and between Sanlam Sky Solutions and SFA in place, and by seeking other mechanisms for cross- and up-sell with the Group.

Sanlam Direct


As we are faced with more demanding and empowered clients, we need to ensure that we provide relevant mechanisms in order to engage with us. Our clients are ‘always on’ and this makes them ‘channel agnostic’.

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The channel derives value from four distinct sources:

  • Traditional direct marketing aimed at clients in the Sanlam Life database. These promotions mostly involve up-sell and cross-sell invitations across the long and short-term insurance spectrums.
  • The acquisition of brand-new clients with the help of external databases. These promotions involve invitations to clients that echo that of Sanlam Life.
  • Online sales via www.sanlam.co.za: This initiative launched in 2015 with the self-directed client in mind.
  • Collaboration with Sanlam’s advisers with the view to act as an extension of their selling capacity.





Providing access to financial services



There is as yet no national strategy that addresses the unique needs of low-income and economically vulnerable consumers. The challenge for the industry is to provide financial access, while eradicating exploitative lending practices. In line with our brand promise, Sanlam focuses on offering wealth-building products that offer sustained value.

Sanlam Sky Solutions


Sanlam Sky Solutions, a business unit within the Sanlam Personal Finance (SPF) cluster, is responsible for growing our footprint in this market. Sanlam Sky focuses on individual and group solutions that efficiently meet the needs of the entry-level market.

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Sanlam Sky has strong distribution channels to make sure these solutions reach the different market segments. Sanlam Sky conducts business through:
  • 90 client care offices
  • More than 280 independent brokers and over 360 Sanlam affiliated intermediaries
  • Over 3 400 tied agents in 62 sales branches across the country
  • 29 Ubuntu service points within communities
  • Affinity groups: churches, burial societies, retailers, unions and funeral parlours.

Expanding our footprint through funeral policies

Increasing our distribution footprint is key to expanding into the lower income market. Funeral policies remain a priority for this market and also serve as a savings tool. The SPF cluster has been active in developing appropriate products and expanding our distribution footprint in the communities where our clients live. A significant development in 2015 was the expansion of Sanlam funeral parlours in KwaZulu-Natal.

Sanlam roadshow


The Sanlam roadshow, a partnership between Sanlam and SABC Education’s Takalani Sesame, travelled to seven towns in five provinces to host free events for children and adults. The aim of the 2015 roadshow was to help South African families ‘make every rand count’ and educate adults on the importance of saving.





Financial education


Sanlam again partnered with leading skills training provider Avocado Vision to empower communities, state-owned entities and corporates countrywide with basic financial skills. In 2015, the Money fo Sho! financial education programme reached more than 15 551 people in six provinces.




Measuring performance against the FSC


We subscribe to the Financial Sector Code (FSC), which measures the extent to which we provide access to financial services to the entry-level market.

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We will continue working towards closing the gap between our products and the FSC’s product standards, while looking for new distribution channels and opportunities to develop product solutions that address the needs of the entry-level market.

View access to financial services indicators





Embracing technology

There is as yet no national strategy that addresses the unique needs of low-income and economically vulnerable consumers. The challenge for the industry is to provide financial access, while eradicating exploitative lending practices. In line with our brand promise, Sanlam focuses on offering wealth-building products that offer sustained value.

Sanlam continues to harness the power of increasingly powerful digital technology to make our products and services more accessible to the market. Our approach to embracing technology focuses on four key areas:

  • Improving strategic planning through data analytics
  • Operational efficiency solutions
  • Intermediary software support systems
  • Mobile and online technology solutions.


In the intermediary space we are putting quotation functionality for SILSS products on our website. We are currently piloting with risk products and will do a full roll-out to intermediaries and support staff in 2016. Thereafter we will add retirement annuities and savings products.

Glacier has also started a project to provide an integrated online system for quotes, applications and submission of new business, aimed at making it easier for intermediaries to do business.

Intermediary software support systems


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SanFin

SanFin, an online financial planning, client management and practice management system, was launched in 2013 to help intermediaries to provide appropriate advice and run their practices more efficiently. The roll-out of SanFin was staggered throughout 2014 and 2015. In 2015, more than 800 advisers had been trained on SanFin.

InterAct

In December 2015, we launched our mobile app for intermediaries, InterAct. Its principal benefit is to improve the efficiency and productivity of face-to-face meetings between intermediaries, brokers as well as advisers, and their clients. Early feedback indicates that the app is already achieving its objectives and over 500 intermediaries have downloaded it. Drawing on their feedback, we will improve and fine-tune InterAct during 2016.


View Key Performance Indicators





Responsible investment

Our investment philosophy


As value investors, we make use of the opportunities created when prices differ from their fair value.


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Generally, we invest in assets that are trading below our fair value estimate and disinvest from assets that are trading above our fair value estimate. This means that our team of analysts conducts in-depth research to gain insights into what an asset is truly worth, as opposed to what investors are willing to pay because of greed or fear.

Given this investment philosophy, we look to embed sustainability as a core process that can result in more insightful research and a better understanding of the potential for companies to deliver sustainable cash flows into the future. By taking the long-term view, non-financial issues may play a greater role in our valuations. These issues are typically related to the quality of companies’ relationships with their broader stakeholders and their responsible stewardship of natural resources, as well as their own governance.

Responsible investment policy


Sanlam Investments became a signatory to the United Nations Principles for Responsible Investments (UNPRI) and in addition subscribes to the Code for Responsible Investing in South Africa (CRISA).

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In doing so, we aim to comply with international best governance practice, in particular to promote a relationship of trust between all relevant stakeholders and to contribute to the ongoing and long-term sustainability of listed companies.

Each year, Sanlam's policy framework and implementation is assessed by the UNPRI against its six principles. By comparing our performance against that of international peers, we are able to continuously improve our approach to responsible investing.

In compliance with CRISA principles we continue to incorporate environmental, social and governance (ESG) principles and data into our investment processes.

  • In May 2012, the Sanlam Investments management board approved a policy document which guides our approach to environmental sustainability, and in June 2015, the board approved a document guiding our approach to social sustainability.
  • In December 2015 the Sanlam Investments management fixed interest team obtained approval from the Sanlam Central Credit comittee to incorporate ESG factors into the credit approval process.




Empowerment financing and infrastructure development



Empowering the people of South Africa is embedded in the history of Sanlam – our first black empowerment transaction saw the sale of the then Metropolitan Holdings to a majority black consortium in 1994. Our Ubuntu-Botho broad-based black economic empowerment (BBBEE) transaction matured in December 2013, and remains one of South Africa’s most successful empowerment transactions to date. It continues to add value to both its shareholders and Sanlam.

Financing BEE transactions


We provide empowerment finance to both unlisted and JSE-listed entities.



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All empowerment and infrastructure transactions are subject to a detailed risk and credit assessment and transactions are concluded only once the relevant risk committees have approved the transaction.

Our investments in BBBEE transactions allow black South Africans to either gain direct ownership in existing or new entities, or to facilitate joint ventures and equity investments in BBBEE companies.

Targeted investments


In the course of our normal business we invest in infrastructure investments either directly, by financing specific projects in underdeveloped areas, or indirectly, by investing in government bonds.

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The guarantee that these investment instruments hold, as well as the social impact, creates a mutually beneficial return for both parties.

All transactions must meet our investment criteria and our credit analyst team reviews all investment decisions before seeking approval from our Board’s Credit committee. At the end of December 2015 we had a total of R14,2 billion (2013: R15,9 billion) in empowerment finance and targeted investment assets. This includes government bonds and is arrived at after applying FSC weightings.

Ubuntu-Botho BBBEE transaction


Sanlam’s Ubuntu-Botho (UB) transaction, which matured in December 2013, was one of the first significant BBBEE transactions in the financial services sector.

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Ubuntu-Botho, our empowerment partner led by Patrice Motsepe, initially acquired 226 million Sanlam shares at the beginning of 2004.

At the end of December 2013, UB held around 292 million Sanlam shares, worth R15,2 billion. After deducting the initial R200 million capital investment by Mr Motsepe, the total value created was about R15 billion.

The Sanlam Group continues to align with Ubuntu-Botho Investments as part of its sustainability strategy and the two parties concluded an agreement in terms of which:

  • Ubuntu-Botho Investments has agreed to retain a core shareholding in Sanlam for a further 10 years, thereby ensuring a sustained empowerment shareholding for the Group. Sanlam will also retain the valued involvement of the Ubuntu-Botho representatives on the Sanlam Board.
  • Both parties will jointly explore and pursue opportunities of common interest, while Sanlam will assist Ubuntu-Botho in its strategy to establish an independent financial services business.
  • The Sanlam Ubuntu-Botho Community Development Trust, having benefited from the value created in the transaction over the past 10 years, will now actively contribute to the initiatives of both Sanlam and Ubuntu-Botho Investments, aimed at supporting poor and disadvantaged communities.

Ubuntu-Botho and Indwe Risk Services

In a bid to bolster independent brokerage firm Indwe Risk Services’ distribution and expansion opportunities in the future, Santam agreed to sell its controlling stake in the company to Ubuntu-Botho Investments and Sanlam. The transaction will see Ubuntu-Botho Investments acquire 51% of the Indwe shareholding through its wholly owned subsidiary African Rainbow Capital, while Sanlam will acquire 25%. Santam will retain 24% of Indwe.

The proposed transaction, which is subject to regulatory approval, will establish Indwe as a leading black-controlled insurance brokerage firm in South Africa with direct ties to Sanlam, thus further improving the distribution and expansion opportunities for its business both in South Africa and Africa.