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Liberty customers demand value for money, says CEO

Insurer elects to discontinue its rewards programme.

JOHANNESBURG – Insurer Liberty’s primary customers are less concerned about price and more concerned about value for money, says CEO, Thabo Dloti of its predominantly retail affluent client base. Discussing Liberty’s decision to discontinue its Own Your Life (OYL) Rewards programme, Dloti emphasises that if members are paying a premium for something it has to demonstrate sufficient value to warrant the cost.

The move, effective March 31 next year, has elicited complaints from irate members on, whose frustrations seem to centre mostly on the cancellation of the gym benefit, which will cease from April 30 this year dependent on the contract status with the gym.

Liberty plans to refund OYL Rewards members 15% of the total subscriptions paid since joining the programme up until February 29.

“Following a comprehensive review of the programme, the rewards landscape, and most importantly, what customers are looking for, we have opted for a clean break from these over-traded offerings,” Liberty said in a communication to members, describing benefits associated with rewards programmes as “increasingly commoditised and therefore fast losing their value as a point of differentiation”.

In an interview with Moneyweb, Dloti explained that too few people were actively using OYL rewards to make it sustainable in the long term. “Those few enjoying the benefits made a killing, while the rest were just funding them. Three years from now we would’ve had to hike the premium quite phenomenally… whittling away the benefit belonging to it,” Dloti said.

Out of a qualifying member base of “a few million”, OYL had some 56 000 members, roughly 10-25% of who were highly active on the programme, Dloti said.

While he would not be drawn on details, he noted, “We are doing something different inside the existing core business to give similar benefits to our members without them having to pay for them”.

Results resilient in tough environment

Dloti said that earnings growth of 11% to R1.9 billion in its individual arrangements business in South Africa is “something to smile about, particularly in the environment we’re in” 

He added that Liberty would continue to focus on the affluent market and leverage the strength of its distribution channels and product innovation.

Indexed new business in Liberty’s long-term insurance operations fell 4% to R7.5 billion for the 12 months to December, impacted by the absence of any large single transactions in its corporate business.

New business in long-term insurance group arrangements was down 23%, while individual arrangements grew 1% to R6.4 billion, “off a high base”, Dloti said.

The group’s value of new business (VNB), which fell 23% to R729 million, came under pressure as a function of an increase in the risk discount rate (fuelled by rising interest rates) and lower overall volumes on a sizeable cost base.

The group’s net customer cash flows were substantially higher at R13.9 billion (2014: R2.billion), largely a function of improved flows to its asset manager, Stanlib. Stanlib’s money market funds lost R13.7 billion the prior year, as customers withdrew money following the failure of African Bank Investments Limited (Abil) and the consequent negative sentiment surrounding money market investments.

Over the year, Liberty rationalised its head office by between 200 and 250 individuals. Although there were some retrenchments, Dloti said that freezing new hires for vacated positions and transferring employees to business partners primarily accounted for the drop.

Bullish on Africa

Liberty is looking to build a business of scale in Nigeria, which will act as a hub to support growth in West Africa, in the same way that Kenya is the its hub supporting East Africa. It currently has an asset management business in Ghana.

“Until we have a business of substance in Nigeria we really cannot grow as we would like to in that region,” Dloti said. Having already bought the remaining non-controlling interest in Total Health Trust Limited in Nigeria for R142 million, Dloti said Liberty would continue to look for insurance and asset management opportunities, while also partnering with parent, Standard Bank to grow clients.

Liberty has a R1 billion war chest for acquisitions.

“We will continue operating efficiently in the South African market as things slow down and invest for growth in markets where we believe growth will come from in the long-term,” Dloti said of Liberty’s expansion plans on the continent.

Liberty reported growth in BEE normalised operating earnings of R4.1 billion, up 7% to R2.8 billion on the prior period. The group’s share price ended 5% higher on Friday at R120.01. The JSE’s Life Insurance Index ended the week 1.83% higher.


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Caveat emptor :
“Dloti emphasises that if members are paying a premium for something it has to demonstrate sufficient value to warrant the cost.”
My ex-broker chose a Liberty Lifestyle Protector life policy for me 3 years ago.
The policy value increased by 7 % per annum, whilst the “age-related premiums” increased by 16 – 18 % per annum.
In other words, in 3 years Liberty increased the cost per R 1 000 000 cover from R 363 to R 478.
Disclosure : I am a middle aged non-smoker in good health.
Sadly it took me a year too long to do the math, but I have the consolation of having paid for much of my broker’s kid’s high school fees through the (undisclosed) commission – my understanding was that it exceeded R 120 K.
No-one to blame by myself , for not asking the right questions, but hope that this story might prompt readers to look carefully at how much value for money their life policies offer.

Your broker couldn’t possibly have earned R120k on R363 a month policy. He earned approx R3,200 in the first year and R1,200 in the second.

He didn’t say he had a R363pm policy. He said that’s what it cost per million of cover. We don’t know the extent of his cover.

Cover was high – enough for my wife & kids for the next 40 years, based on reasonable living expenses and future education needs. The premium exceeded 12 K per month at the outset ; it sounds crazy, until you work out the lump sum needed to keep a family going for decades, assuming a 4 % draw-down on capital per month, and a CPI of 8 %.
My point was that Liberty added 10 % to my premiums every year, for no additional benefit, as an ” age-related risk” cost. I am not sure that my risk of dying increases by 10 % per annum . Perhaps an actuary can shed some light on this ?

Did they not offer the alternative of a level premium? One of the main problems with age-related premiums is that the rate of increase in premium gets so high it becomes unaffordable. If you get to (say) 60 or 65 the premiums will increase on a hyperbolic scale. Also, normal practice is for the intermediary to get extra commission on the increase in premiums each year. I’m not saying your broker did, just that it is or used to be an industry standard to pay brokers on premium increases. Probably too late now, but the broker or Liberty is bound by regulations to disclose the quantum of commission. Having said that, however, the level premium alternative would have called for a massive premium from outset which could possibly have resulted in an even larger commission, but it’s unlikely that you would have agreed to such a large premium, and the adviser knew this. Just thinking aloud here….

I still want to meet anyone who has achieved the expected end results achieving the final figures claimed by any insurer.
I still want to meet a broker who is NOT in the business for his own interests and to fill his own pocket.
I still want to hear of any cases where the FSB successfully prosecuted any company or brother who overstepped the mark by being dishonest.

From figures shown to me and horror stories told to me by friends and family, Liberty are far and away the worst of the bunch. Starting with their sickening ads, they have a slick operation honed over many years with only one objective, which is to ruthlessly enrich themselves at the expense of the poor suckers who have been taken in by their pitch. Wishful thinking I know, but definitely an organization, and industry, that our citizenry needs more effective protection against.

Liberty i believe desperately need an overhaul ,especially in their investment philosophies and costing attached therein.Their smoke and mirrors on Evolve and Agile products is laughable and top people need a kick up the ….. for lack of transparency.As far as commission goes,unless your premium was R12000 pm ,i doubt the commission could have been anywhere close to R120 000

Would you rather have standard, vanilla products that you can get anywhere else?

Cost efficient flexible vanilla products should go well down with the consumer.So you not debating the smoke and mirrors part?

Not going to debate something that’s a foregone conclusion to you. I get Evolve and I get Agile. There’s a place for both of them in the market. In SA, it costs 2% a year to invest if you want to advice and active asset management. Anything less, has less advice, and less asset management.

You sound like a Liberty agent…
It’s a pity that standard bank have to sell liberty products to their clients and liberty agents and franchise’s have boo choice I the matter… Selling products that are only created to enrich shareholders at the expense on investors…
Do yourself a favor look at hidden costs in evolve and agile… Evolve capped returns in a low interest, bull market environment, while agile commits capital to a life annuity find which sees its value decreasing as interest rates go up… Now ask yourself where are we in the interest rate cycle and do these products really offer real tangible value at the correct time and place? It’s a real pity that some advisors don’t look further than commission when selling a product and companies like liberty rely on this to push these massive profit products at the expense of policy holders…

What about Evolve and Agile do you get? Because it seems like you clearly don’t understand that these products are designed to enrich shareholders…
Evolve came at a time when interest rates were at all time lows and offered a capping on Top40 upside growth which translated to massive profit for shareholders as investors gave up any upside above 14%/13% in a market that gave between 18%-26% over a three year period… Liberty are now back with Agile which commits present value capital to a future Life Annuity pool… This pool’s (income fund) growth depends mainly on interest rates… If rates are going up then the pool becomes less and shareholders pocket the difference… Its like Evolve in reverse… What surprises me is that you seem to miss this detail…?

Haha I’m anything but a Liberty agent. You’ve obviously made up your mind and seem reluctant to see that there is a space in the market for products like Evolve and Agile. If you don’t believe in them, that’s okay, but your view doesn’t have to be shared by everyone.

It’s a real pity that you think your opinion is the only one that counts. Give advisers more credit.

Good to know, I hope you lead by example then and have your own money in these products… I wish you and your colleagues at Liberty well…

Hey clearly works for Liberty or belongs to a franchise as a Agent and is forced to sell these products… you wont get any honesty out of him… Agile and Evolve represent everything that is wrong with this industry…

As I said, a foregone conclusion. ‘Vanilla’ products charge 2% a year and upfront fees no matter what — Evolve doesn’t. ‘Vanilla’ products wouldn’t think of putting their own capital on the line to promise you an income in retirement — Agile does. If you believe vanilla products are the holy grail, then by all means invest in them. Not everyone wants to drive a Citi Golf.

Evolve came when interest rates were at their lowest and capped upside on the Top40 index – Agile comes when interest rates are rising and dampens any growth in the life annuity fund every time rates rise… Shareholders Win / Policy Holders Lose

I walked into their swanky building in Century City, Cape Town. Lots of employees dashing around luxury, modern interiors.I asked myself where they get the money to build such a magnificent, expensive building. Then I added-up the premiums that I’d paid to them vs the actual monthly annuity that I (now) get from them, and understood where they found the money to build this.

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