PPS takes its mutual insurance model to the broader SA market

The Professional Provident Society (PPS), which caters to graduate professionals, has launched a new division called “glu” to extend its mutuality-driven insurance model to a broader market.

Mutuality is a business model where the insurer’s policyholders (or members) collectively own the company and share in its benefits. Unlike traditional for-profit insurers, which distribute profits to external shareholders, mutual insurers reinvest earnings or return surplus funds to policyholders.

PPS, established in 1941 by a group of dentists who wanted to protect their ability to earn an income, is one of the few remaining mutual insurers in South Africa. It has evolved into a financial services group that provides insurance, investment, and financial solutions exclusively to graduate professionals.

“glu was conceived from a simple yet powerful idea within PPS: to extend the benefits of mutuality to even more South Africans. With glu, we’re building on PPS’s legacy of helping individuals lay a firm foundation for their financial futures. It’s about offering more people the opportunity to share in mutual success, while creating a community where financial planning feels less overwhelming and more empowering,” Izak Smit (pictured), the chief executive of PPS Group, said in a statement.

The statement explained that glu’s market focus is middle-to-upper income individuals between the ages of 25 and 55 with a minimum household income of R30 000 a month, ideally with a diploma or degree, or a connection to an existing PPS member. Despite this core focus, anyone in South Africa can become a member of glu by buying one of its products.

Product offering

glu’s long-term insurance products currently consist of life, critical illness, disability, and income protection cover. On the non-life side, it has home and car insurance. glu also offers fiduciary services, including will drafting and custodial services, trust drafting and administration, and estate administration.

glu does not currently offer investment products but aims to launch them April. The products will include investment accounts, tax-free savings accounts, and retirement annuities, Michele Jennings (pictured), the chief executive of glu, told Moonstone.

Jennings explained that glu is an entirely new business with a different target market from PPS. As such, new products, underwriting philosophy, pricing, and processes were developed for it.

“glu products have been developed with our target market in mind, focusing on simple yet impactful product features designed to meet the real needs of members. We’ve been intentional about this; every feature is needed to provide value to our members.

“The construct is not overly complex. We want our members to know exactly what they are covered for, from the start of the policy all the way through to claim stage. Our terms and conditions are written in clear, simple language and don’t span over hundreds of pages.”

glu members have access to holistic financial planning, while qualifying glu members (those who earn at least R2 million a year or have R5m in investable assets) can access PPS’s boutique wealth advisory service.

glu’s value proposition is not trying to be the cheapest insurer in the market.

“Instead, we committed to charging premiums that are fair and accurate based on the risk profile of the individual member. We look at various factors, like age, gender, lifestyle, health history and current occupation, etc. This robust risk evaluation process is important for two reasons: first, the premiums charged are appropriate to the risk, and second, to ensure future sustainability, so we are able to meet our future obligations to our members,” Jennings said.

How the Profit-Share works

In terms of PPS’s mutuality model, when the group earns profits from insurance premiums, investment returns, or other business activities, these profits are allocated to members’ Profit-Share Accounts rather than external investors. Each member’s Profit-Share Account grows over time, depending on their contributions and the overall profitability of PPS. When members retire at or after the age of 60, the allocations accumulated in their Profit-Share Accounts become available for their use through a Vested PPS Profit-Share Account.

glu’s Profit-Share model is largely the same as PPS’s, with the key difference that glu provides for early accessibility and vesting.

The Profit-Share will vest and become accessible in stages: 20% after the policy reaches its 10-year anniversary and an additional 20% every five years thereafter. Once the policy has been active for 25 years, or when the member turns age 65 (whichever happens first), all unvested Profit-Share balances will vest and become available for the member to withdraw, Jennings explained.

Members do not have to withdraw the accessible (or vested) portion at the intervals specified. In this case, the funds will continue to earn investment returns within the chosen investment fund.

It should be noted that members must purchase a life insurance product to participate in the Profit-Share. They must also be below the age 60 when the life insurance policy commences to qualify.

The glu website explains the Profit-Share model as follows: “The profit that gets shared is based on the operating and investment returns generated (after the allowance of expenses and capital requirements as required by regulation). Your annual notional bonuses are based on the premiums paid by you relative to the total value of premiums received by glu in the year.”

Jennings provide an example to illustrate how this works for an individual member.

glu receives premium income of R1m for the year. After paying claims, allowing for expenses and reserve requirements, and factoring in investment returns, the profit for the financial year is R100 000.

If Member A pays a premium of R1 250 a month, glu will have received R15 000 from the member during the year.

Member A’s total annual premium (R15 000) expressed as a percentage of glu’s premium income (R1m) is used to determine the proportion of profit that is allocated to Member A.

Member A will receive R1 500 (1.5% x R100 000) as a notional bonus allocation for that year. This notional bonus allocation is added to Member A’s Profit-Share balance, which may have grown, depending on whether the investment returns were positive or negative over the past year.

The profits of PPS and glu are managed separately and are available for sharing to their respective members only.

glu members also qualify for a Profit-Share Cross-Holdings Booster, where more products held with glu across its range of life, short-term, investment and fiduciary offerings will translate into more Profit-Share bonus allocations.

Distribution via advisers

glu is being distributed via PPS’s own advisers and independent financial advisers, but glu will be setting up its own broker and adviser force, Jennings said.

At this stage, prospective clients cannot join glu on their own; the application process must be done via a PPS/glu adviser or an IFA.

“Our business and products are new, so we are leaning on our distribution partners to help take our message to the market accurately. This also provides us with an opportunity to get input from the industry experts to iron out any bugs or challenges and ensure that by the time we have a direct journey ready for those individuals who really want to go at it alone, it will be seamless,” Jenning said.

Will it take with consumers?

Moonstone asked glu whether it believes South Africans will take to its mutuality model, considering that consumers have become used to insurers offering them incentives such as cash-backs and loyalty programmes.

“Sharing in the profits of glu is more like being a shareholder in the business, where the profit possibility is not capped and is directly linked to the performance of the business. This can be far more rewarding than cash-backs or loyalty programmes,” Jennings said.

“The mutual model is so much more than the sharing of profits. It’s about being part of a community that has a common goal of caring for and protecting its members.”