Is there still a place for a life insurance sector? More and more, what used to be called the life offices are calling themselves financial services groups. Even the role of the Life Offices Association (LOA) has been questioned.

To some extent, this has been driven by the reputation life products have for high charges and poor value for money after the bruising battles with the pension funds adjudicator, but it also reflects management changes in the industry.

Three of the CEOs of the big four life companies - Bruce Hemphill at Liberty, E B Nieuwoudt at Momentum and Johan van Zyl at Sanlam - did not grow up in the life industry and do not think of the industry in traditional life terms. Old Mutual's Paul Hanratty is an actuary who came through the ranks of the industry but he has proved that he can also take a more lateral approach to the industry than his predecessors.

Nieuwoudt says it is hard to find credible management information systems that reflect the full extent of business which comes into what he calls the nonbanking financial services companies - figures can be sourced from the LOA, the Association of Collective Investments and the Linked Investment Service Providers Association, but there is often a great deal of double counting.

For example, one of the fastest growing product lines for life offices are the investment-linked life annuities (ILLAs), which must legally be on a life licence but which are marketed through linked product companies and almost all of their underlying investment consists of unit trusts.

There was growth of 28% in ILLA sales in 2006 to R7,56bn, compared with just 3% growth in nonannuity single premium sales to R28,6bn.

Hemphill says there are still specific issues around risk products which do not apply to "competitive" industries such as unit trusts and private client asset management, but at the end of the day life insurance is used as a legal wrapper for savings products. "Can we justify selling a client a savings product through a life wrapper if it has exactly the same underlying features as a unit trust-based product?"

Hemphill says this is not necessarily a given. He say now that the true costs of unit trusts are being exposed in the new Total Expense Ratios, it's possible that low-margin life products such as Excelsior 1000 offer better value for money.

He says life offices have not done enough to exploit the unique features of life wrappers, which can be used for a much wider range of asset classes than unit trusts including private equity, hedge funds and unlisted property.

To look at creative ways of getting business, Hemphill has taken a number of top executives, such as former corporate benefits boss Ian Maron and former head of finance Deon de Klerk, into full-time strategy roles where they are encouraged to think out of the traditional life assurance box.

Clients have voted with their feet: research from Citigroup shows nonlife products such as direct unit trusts and unit trust linked products now outsell life products - even within the life groups themselves, by 1,7 to 1. This was the driving force for Liberty to buy out the other shareholders in the asset management and unit trust business Stanlib last year, valuing the business at R1,5bn.

Its competitors have already got substantially more integrated offerings between their life and nonlife businesses. Sanlam covers almost the full spectrum of financial needs with the recent introduction of the Sanlam Liquid product, which gives transactional capability and a debit card based on the Sanlam money market fund.

Sanlam CEO Johan van Zyl says until recently Sanlam was perceived as a middle-market brand, yet its biggest successes have been in the affluent market, with its Sanlam Private Investment stockbroking and Glacier-linked product businesses.

It realised it would take decades to grow organically in the entry level market. Ever since it sold Metropolitan to black empowerment investors in 1993, it has been speculated that Sanlam would buy its old subsidiary back. Instead it acquired the smaller African Life and Channel Life in 2005, giving it a solid platform in this area.

Health is a missing piece in Sanlam's armoury. It acquired a 50% holding in Resolution Health last year, but this was reversed after the regulator insisted medical aids pass discounts they received on to members.

Sanlam will have to tread carefully: it had an unhappy experience with health-care administration last year. There are few synergies between health administration and running life and pension portfolios. It is a claims-intensive business with more in common with short-term insurance.

Liberty has no regrets that it exited medical aid administration; health sales were a lowlight in the otherwise strong 2006 sales from Old Mutual. Its health sales were down 43% to R239m.

The only life group to make success of health (Discovery made the journey the other way) has been Metropolitan. Positioned as a low-cost administrator of large books, it won the contract for the administration of the Government Employees Medical Scheme (Gems) and also took over the Transnet pension fund administration. Perhaps it would have been less eager to bring the Transnet business into the fold had it known government would unveil its national pension scheme two months later.

This has serious implications for the life offices. Most obviously, a large proportion of the members under administration in their employee benefits' businesses will move to the national scheme. Sanlam expects more than a third of its members will leave.

Old Mutual's Hanratty says the new scheme could be good or bad news for life companies, but not neutral: "If, as in the UK and elsewhere, members of existing pension schemes have the opportunity to opt out of the scheme and stay with their funds it will be great news: because compulsory preservation is coming in, the cake will grow substantially. But if the fund is compulsory, it has serious implications not just for the employee benefits administration business but also for asset management, which will no longer manage these assets, or at best receive a small proportion of them at lower margins."

The national scheme will include group life cover, which could lead to a drop in demand for life and funeral products. If people are obliged to spend 15% of their income on the national scheme they might not be able to afford additional cover. Hanratty says that at the top end of the market much will depend on where government sets the cap for tax deductions into retirement annuities. "The tax break has stimulated savings. Many rich people will save anyway into discretionary products, and the tax saving is not the main driver, but for many people without the tax break it could mean additional savings will go to consumption and not be put away for the long term."

The industry is also waiting for the details of the new commission regulations. Much of the bad publicity over life products stems from high upfront commissions.

The new dispensation is likely to see a mix of upfront and spread commissions, which will make selling life insurance somewhat less attractive. The new rules might make it difficult for the life offices to repeat the solid 12% growth in sales achieved last year.