- Sanlam has decided to dissolve the African Rainbow Life business, less than two years after it was established.
- The insurer said its model, which has very high fixed costs, was challenged under Covid-19.
- African Rainbow Life's license and operations will be combined with the SAfrican business and the former's brand will cease to exist.
Sanlam has decided to can its youngest life insurance venture, African Rainbow Life, the group's CEO Paul Hanratty said during the presentation of the company's results on Thursday.
Hanratty said that the insurer decided to "rationalise" this life insurance operation into Sanlam's existing SA retail business that predominantly serves low-income earners, to drive efficiencies given the impact of Covid-19 in that market segment.
He said the African Rainbow Life license has been combined with the SAfrican license, one of Sanlam's businesses that underwrites products for the low-income market.
"Obviously a start-up business is always going to be more difficult in a difficult environment. But the other feature of this business is that because it is a salaried advice model, it has much higher overheads and fixed costs. That business model is particularly challenged in this environment," said Hanratty.
Sanlam in partnership with Patrice Motsepe's African Rainbow Capital (ARC) established African Rainbow Life in May 2019.
It was part of the multi-billion empowerment Rand empowerment deal that Motsepe's Ubuntu Botho (UB) concluded with Sanlam in October 2018. Sanlam provided R2 billion to establish African Rainbow Life paving a way to establish the only other completely black-managed life insurance company in the country after Hollard.
For Sanlam's outgoing CEO, Ian Kirk, this deal was an important instrument to help lift the group's position in the entry-level life insurance market using a new brand.
Sanlam's Life and Savings Cluster chief executive Jurie Strydom said on Thursday that African Rainbow Life was going to allow Sanlam to try a new model of selling insurance, using salaried staff as opposed to a broker-driven model that pays a commission.
He added that Sanlam had ambitions to open more worksites where it could sell its insurance products under the African Rainbow Life brand. But Strydom said he does not foresee the dissolution of African Rainbow Life severely impacting Sanlam's ability to open more worksites.
"But you saw the Covid-19 impact last year on the mass market... it was much more acute for a business that is a start-up business. It really does change the economics of trying to build up that growth curve to get a return on capital," said Strydom.
He said when Sanlam assessed the viability of having it as a standalone business, it became clear that its fixed costs and capital outlay were going to be "really problematic".
"So, the implication is that the African Rainbow Life brand will not be used going forward. It will be under the SAfrican brand. The operations, the salespeople there are some of the products that we've built will continue under the SAfrican brand," said Strydom.
In the year to December 2020, African Rainbow Life contributed a loss of R92 million to Sanlam compared to a loss of R87 million in 2019. Its new business sales contribution declines to R80 million compared to R13 million in 2019.