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Thursday Aug 16, 2012

Santam plans property insurance for poorer people

Short-term insurer Santam intends penetrating the lower-income market to grow its local operations and is developing a model to insure houses and cars for the segment.

The country's biggest short-term insurer told journalists yesterday that it was basing its model on a pilot scheme in five rural municipalities, which would be duplicated on a full scale if it was successful.

The company envisaged insuring Reconstruction and Development Programme houses as other short-term insurers had achieved nowhere near the penetration they should have done in the low-income market.

"As an industry, we are not there in times of need because of the cost of insurance. We have to come up with better products," Santam chief executive Ian Kirk said.

Santam will meet with the National Treasury at the end of this month to discuss developing a motor insurance product that will be affordable to low-income consumers amid efforts to make it compulsory to insure vehicles in South Africa.

Only about 35 percent of motorists in the country have car insurance and short-term insurers have been tasked to design a product that would suit the other 65 percent, who cannot afford cover under the current entry-level insurance priced at R400 to R600 a month.

"The latest position by the Treasury is that it is prepared to put the issue back on the table if we are prepared to come up with a product that will suit the remaining 65 percent," Kirk said.

He estimated that this cover could cost between R250 and R300 a month and although it would not be comprehensive, it would cover third party and passenger liability, and not just theft and hijacking.

"You have to cover these and you still [have] to fix the car," said Kirk. He compared this product to medical schemes' hospital cover products.

He said there was hope that this could happen in the next two to three years given that the Treasury was dealing with other issues, such as urban tolling, at the moment.

Kirk said Santam was also eager to take good risks in other African countries beyond Namibia and Botswana, where it already had a footprint. Santam was also eyeing markets such as Nigeria, Ghana, Mozambique and Kenya.

The products that it hoped to sell were commercial property and motor insurance and sales would be broker driven.

Jean Pierre Verster, an analyst at 36One Asset Management, said it made sense that Santam would create products that were more affordable for the lower end of the market because there was a need that was not being fully addressed.

However, he said short-term insurers had found it difficult in the past to service this market because of the manner in which they attempted to access it. Having the ability to sell products directly through MiWay rather than through commission-earning brokers gave Santam a good platform to tap this market, Verster said.

He said the company's intention to expand to other parts of Africa was expected. With parent Sanlam's previous experience in Africa, Santam would be spared the risk of making the mistakes that many companies made when they first expanded to the continent.

"If they are successful in Africa, the next destination they can expand to is India, seeing that Sanlam recently entered this market via Shriram."

Santam shares fell 1.42 percent to R173.50 yesterday.

Business Report

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