South African insurer makes Australian Play

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South African insurance giant PPS is wading into Australia’s $7.5 billion retail life risk market,  wooing professionals such as doctors and engineers onto its books.

PPS Mutual, which will adopt its parent company’s members-focused business model, will sell life insurance products such as trauma, death and income protection cover to more than 500,000 Australian workers across 13 professions.

These professionals include doctors, accountants, lawyers and engineers. The company, which will sell its products through financial advisers, will roll out its services over the next few weeks.

Michael Pillemer, the former chief executive and founder of listed insurer CentricWealth, is the Australian boss of PPS Mutual.

“We think the timing is perfect because a lot of the vertically integrated organisations (owned by banks) are struggling with having made multiple acquisitions over the last decade,” Mr Pillemer toldFairfax Media.

“They have legacy systems, we’ll start with a clean slate, and there’s a complete lack of innovation in the market,” he sad.

The company is in talks with more than 50 non-bank aligned financial advisers to sell its products. Mr Pillemer has spoken with bosses of advice groups including Ray Miles, executive chairman of Fortnum Financial Group, Glenn Kerr, director of Complete Risk Analysis, Aaron Zelman, managing director of Medibroker, Ron Geffin, director of Core Private Wealth and James McFarland, director of insurance at Stanford Brown.

The company’s risk will be underwritten by reinsurance behemoth Swiss Re and NobleOak Life, which is regulated by the Australian Prudential Regulation Authority.

The business model will also see the group’s profits – over the long term – return to members who stick with the company. Its South African counterpart returned $2.2 billion back to its members in the past 10 years.

“As long as you retain your membership and one policy with the company, then after a certain period of time, you get access to those profits,” Mr Pillemer said.

Turbulence in sector

PPS is entering the market at a turbulent time in the life industry, whose performance in recent years has been hampered by low investment returns, a surge in white-collar claims and lawyers encouraging clients to sue insurers for payouts.

The industry is also battling high lapse rates, which happens when customers opt not to renew their policies as household budgets tighten. Meanwhile, the industry is also adjusting to a barrage of regulatory change,  including adviser-remuneration structures from commissions to more fee-for-service models.

The top eight life insurers including players such as CommInsure and MLC control more than 90 per cent market share of the retail life risk sector. Some life company owners, such as National Australia Bank, are jumping ship from the industry and selling their life businesses.

Despite the challenges, Mr Pillemer remains optimistic about the insurer’s entry into the local market.

The insurer has appointed PPS South Africa’s chief executive, Mike Jackson, as non-executive chairman of PPS Mutual in Australia.

“We believe the timing is right for the re-emergence of a well-constructed mutual model within the highly competitive retail life risk insurance sector in Australia,” Mr Pillemer said.

Clarification: The story “South African insurer makes Australian play” published on February 18 said Swiss Re and NobleOak Life were underwriters of PPS Mutual’s risk. This is incorrect. Swiss Re is reinsurance partner to PPS Mutual. 

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February 18, 2016
Sydney Morning Herald