“A tough working environment forces you to innovate and come up with new ideas,” says Hennie Nel, CFO of South Africa’s biggest short-term insurer Santam. After a career at PriceWaterhouseCoopers (PwC) that began in 1993, Nel moved to Santam last year for a new challenge. In this interview he sheds some light on the switch from consultant to Chief Financial Officer.
Nel did not choose the easiest moment to move to a short term insurance firm, but he says that doing good work in a rough economic climate is actually one of the things he has valued the most so far. "The last quarter of 2012 and the first half of 2013 were very tough for the short term insurance industry, so they were also for Santam. We had to be there for our policyholders during tough times while results were also not going our way. To learn and to contribute in that type of environment, was something I really found rewarding."
It can also have benefits for a company to experience some headwind, says Nel. "Often, in months under pressure, you discover things about your company you would not have found out if it was just plain sailing." In Nel's experience, a CFO has a different level of accountability than a consultant has. "That is challenging, but enjoyable. You can't walk away from something after giving your advice. It is a different type of responsibility. What I enjoy about the CFO role is that I am quite involved with a number of operational issues."
For seven years Nel ran the financial services practice for PwC in Cape Town. "I was heavily involved in the Momentum/Metropolitan merger. With the compulsory client rotation within audit firms, it meant I had to go back to clients I had worked with before.. Before this role, I had done quite a few different things. It's good to keep changing to keep growing. At PwC I still had many opportunities to grow, but then this opportunity at Santam came up."
Nel emphasises that he is not stuck in Cape Town, although he does enjoy living there. "But I also enjoy working in Johannesburg. I still travel quite a bit in my current job. The trade-off for anybody that choses to live outside of Johannesburg, is that you need to travel more." Nel had worked with Santam before and was familiar with the management team. "I have always enjoyed the short term insurance business. We all need to have insurance, but we don't always enjoy the experience of it . It is interesting to see how you can create value."
He calls Santam "almost two businesses". The most visible part of the group is the underwriting business, almost half of which is motor vehicle insurance. "There we obviously have to make sure that the incoming premiums are always more than the claims and the commissions for our agents. There are a number of operational people involved in this, but as CFO I am also part of this process." The second part of Santam is its investments, which are managed by sister company Sanlam Investment Management. "It has to work as a total. Currently the South African short term insurance industry is under severe pressure, so we have to prevent starting to incur losses in our investments by building in some extra security."
While Santam is aiming to diversify its business and move into emerging markets in Africa and South East Asia, one of the trickiest aspects affecting the daily business is the exchange rate of the rand. "We have significant exposure to the rand. A big portion of our claims are impacted by the rand exchange rate, for example imported motor parts. As a management team you have to make as good as possible decisions with all the uncertainties. You can hedge or reduce the effect of the volatile rand. The rand has lost 40 to 50 percent against the dollar over the last two years, you can't pass that on to your policy holders. But there are also some positives: if the rand bounces back, it helps us a lot."
Nel explains that about 70 percent of all motor claims are not thefts or total losses, but repairs. "That is why we look carefully at what we buy and where we buy it. That is quite a delicate process. Because it is such a big part of our business, we do quite a lot of work in that area. I believe we are good at this and that it is one of our competitive advantages."
Santam doesn't only look at saving costs by smart procurement, but also wants to incentivize repair shops to work quicker, so claimants have a better experience when claims are settled. We are trying to take the noise out of the repair process. More and more, for example, we do assessments based on pictures that our clients send us."