South Africa's insurance industry is in for a shake-up

Patrice Motsepe's new insurance firm is on the prowl for partnerships and potential acquisitions. 

It isn’t often that a new insurer comes on the market, especially in South Africa’s notoriously competitive financial services industry. 

However, South African billionaire Patrice Motsepe has taken the bold move to start an insurance entity that is set to compete with the country’s largest insurers.   Through his investment holding company African Rainbow Capital, Patrice launched a long-term insurance company in partnership with Sanlam called African Rainbow Life, which aims to offer a suite of insurance products to South Africa’s low-to-middle income consumers. 

For African Rainbow Capital, the launch of African Rainbow Life marks its first leap into the retail insurance market, as it focused on the mainstream financial services industry with investments in insurer Sanlam, pension fund administrator Alexander Forbes, new stock exchange platform A2X and others. 

In building African Rainbow Capital, a black-owned and controlled financial services company, Patrice has so far opted to acquire existing companies rather than building companies from scratch. 

With African Rainbow Life, he is building an entity from scratch. The new entity’s mission is to offer a suite of long-term insurance, from underwritten life insurance (death, dread disease, and disability cover) to investments, savings, and retirement products. 

To build African Rainbow Life, Patrice has roped in Bongani Madikiza (pictured) to lead the new company. Bongani is no lightweight as he has more than 20 years of experience in South Africa’s insurance industry, having been the MD of Old Mutual’s Mass & Corporate businesses and CEO of the now defunct Lion of Africa Insurance.

Building scale 

Bongani says African Rainbow Life is on the prowl to build scale and its client base possibly through acquisitions.

“We are open to buying existing entities. However, we are looking at complementing our distribution strategy and partnering with someone else or an insurance entity,” he told M&A Africa. For now, Bongani is keeping his cards close to his chest about entities African Rainbow Life is looking to partner with or even acquire to build scale. 

He has ambitions of building African Rainbow Life to command a net asset value of R4 billion in the next seven years. “We can even get to R10 billion in the next few years if the South African economy behaves. We need Cyril Ramaphosa [South Africa’s president] and his people to ensure that the economy works,” he says. 

For now, it has sizable players in its corner that will support its growth ambitions, mainly Sanlam and African Rainbow Capital Financial Services, which holds a 51 percent and 26 percent shareholding respectively in African Rainbow Life after a more than R300-million capital injection. The balance in African Rainbow Life is held by Siyakhula Consortium (a consortium that includes a staff, community and management trust).

Asked why African Rainbow Life is working with Sanlam, which also offers insurance products to low-to-middle income consumers through its subsidiary Sanlam Sky, effectively becoming its competitor, Bongani says partnerships are important in the insurance industry. 

“It will be foolhardy of us to think that we can build a business without the innovation and support of institutions like Sanlam and African Rainbow Capital. The idea that there is no space for more competition in the insurance industry is wrong.”

Bongani believes that African Rainbow Life’s growth targets are realistic because low-to-income consumers are the majority consumer category in South Africa.

It’s not about reinventing the wheel or getting consumers to sign up for insurance products, as consumers that African Rainbow Life is targeting already have insurance products. 

“We are targeting people with five or six funeral policies, but don’t have life cover, disability cover or a savings plan. These consumers are already spending that money. We want to ensure that they spend their premium in other financial services areas.

“The pool of clients is wide.  There are a lot of people who don’t have a life and disability cover. There are a lot of customers who don’t save for a period of 10, 15 or 20 years. We do need to get those customers saving,” he adds. 

African Rainbow Life is also targeting low-income consumers in black communities, especially individuals who have financial obligations to their extended family members and high incidents of being diagnosed with dread diseases. 

“I still have a father who is alive and one day I will need to bury him. I have a funeral cover, life cover, disability cover, dread disease cover and a savings cover. The low end of the market only gets sold funeral covers. We are saying there is a space for us because not many people can afford dread disease cover. If I get sick my wife can apply for an access bond at the bank, get a million rand and it can sustain our family for another year. The low end of the market does not have these instruments. So, they need to cover that allows them to do that.”

African Rainbow Life’s proposition is based on offering consumers an affordable cover, as for as little as R160 per month, consumers can get life cover of about R250 000.

With its foray into the insurance industry, African Rainbow Life becomes one of the few insurers with a black management team. Other firms with a black-management team include Hollard and the financial service firm Sithega Holdings, which was recently launched by former Liberty CEO Thabo Dloti.