Tarina Vlok, MD Elite Risk Acceptances
How has the increased pressure on our economy, the devastating crime statistics and the emigration trend affected the high net worth sector in South Africa? Is this sector shrinking or are we lowering the criteria for high net worth?
The realities of the South African economy for the high net-worth sector are highlighted in the 2022 Africa Wealth Report by Henley & Partners.
This report shows the stark reality relating to the declining size of the segment and the drivers behind it. However, it also includes the 2031 forecast, and it is not all bad news. The report clearly highlights to us that there is room for specialist insurers in the South African market to service the sector, and there are various growth opportunities for insurers and underwriters who specialise in the segment over the next 8 to 10 years.
Although private wealth in South Africa declined by 12% from 2011 to 2021, we’re still the country with the most millionaires on the continent with more than 50% of all HNWI in Africa. The factors that attract HNWI’s to South Africa, include our weather, fantastic high-end residential areas, the JSE, free media, and a well-developed banking system and wealth management sector.
The decline has been largely attributed to the depreciation of the Rand, a sluggish property market, a large number of businesses closing down in the period and the ongoing migration of wealthy people.
More than 4,500 HNWI’s left the country in the period 2011 to 2021. One of the main drivers of this migration according to the report, is the attraction of citizen investment programs, which are widely accepted wealth management and legacy planning tools. This trend is not unique to South Africa, however.
This trend is further supported by post-Covid working models, where people can work from anywhere in the world. This also created the trend of migration to smaller towns and more remote locations. The fastest growing areas for high-net-worth individuals in South Africa are the Cape Whale Coast (particularly the Hermanus area), the Cape Winelands and the Garden Route (especially Plettenberg Bay). These three areas represent a combined growth percentage in the HNW sector of 70%.
There is also a notable rising trend of estate living. About 48% of South African HNWI’s live in or have second homes on lifestyle estates.
When it comes to purchase preferences, luxury vehicles remain top of the list, especially luxury SUV’s (Range Rover, Porsche Cayenne), mostly because of high road clearance (think potholes), safety features, interior space, and off-road capabilities. Supercars as investments are also listed, specifically Bentley, Ferrari, Aston Martin, Rolls-Royce, Lamborghini, and McLaren).
Our high-net-worth clients still love their luxury clothing and accessory brands, like Louis Vuitton, Burberry, Gucci, and Rolex to name a few.
The report predicts an overall growth of 38% in the high-net-worth sector in Africa over the next 10 years. This indicates that, despite negative factors like crime, and poor economic performance, the HNW sector in South Africa is alive and well and the segment will continue to grow. The important insight is the changing living trends, and the opportunity for speciality insurers like Elite is to focus on the growth areas.
Whether insurers decide to lower their acceptance criteria, will depend on the appetite and other product suites associated with the insurer. We believe that there is much opportunity for profitable growth in the high-net-worth segment.
With most insurers having some form of dedicated team focusing on this sector, where does the differentiation lie and what role does the adviser play?
Product differentiation does not represent true differentiation, as it can be copied with ease, something we’ve seen across various product offerings. Service offerings are slightly more difficult to replicate, but not impossible.
True differentiation is threefold: Excellent service, Understanding the target market and Relationships. Ours is an industry that is built on relationships and herein the intermediary plays a pivotal role. Although usually financially savvy, HNWI’s still prefer to work via intermediaries. Understanding that these are the most valuable clients to the intermediary and building and maintaining the relationship with the broker is key to ensuring that these clients’ possessions are correctly insured.
A broker once told me that he does not do business with companies, but with people. This rings true for our business, and will stand us in good stead as we continue to service the growing HNWI market.