FIA Insight April 2011 by Henriette Wagener

1st Quarter Edition 2008 2011 R19.95 (incl)

INSIGHT

Under Scrutiny: Conflict of Interests

Website: www.fia.org.za S A’s PREMIER INTERMEDIARY MAGAZINE 36647575797597359738765-0

Industry Awards 9 June 2011 The FIA's Awards Evening has become a prestigious, much anticipated annual occasion on the Insurance Industry's Calendar, to be held this year at the Sandton Convention Centre

The Highlight of the banquet will be the presentation of the Prestigiuos FIA Awards to Financial Service Providers judged by the members of the FIA for providing exceptional quality of products and service levels to FIA Members, and are highly regarded by the industry as a whole and set a benchmark of service excellence all strive to achieve. The Awards this year are in the following categories: • Long Term Insurer of the Year – Risk Products • Long Term Insurer of the Year – Recurring Savings Products • Investment Product Supplier of the Year • Health Care Product Supplier of the Year – open schemes only • Short-term Personal Lines Insurer of the Year • Short-Term Commercial Insurer of the Year • Short-Term Corporate Insurer of the Year • Employee Benefits Supplier of the Year • Underwriting Managers of the Year

Reservation form available on FIA website: www.fia.org.za For more information, email miekie@fia.org.za

Editorâ&#x20AC;&#x2122;s Soapbox

Presidents Message

From the Desk of the CEO

Financial Planning

Company Profile - Riaan Geldenhuys

Dangers of Facebook

The Floods in Perspective

Short - Term Exco

SAM

Pitfalls involved when Changing Insurers

Life Insurance Confidence Levels

Conflict of Interests

Inseta & Wits Partnership

Life, Critical Illness & Disability Cover

Managing Political Risk

Toll Roads

Focus on Brokers

Peter Todd New M&F MD

Appointments

Budget 2011

Pledge towards Good Governance

Organisational Wellness

Time to Adjust Potfolios

Regulations & the Intermediaries

Snippets

Women in Healthcare

The Stalking Black Swan

Insurance Confidence Outlook

Concessions for CO2 Emissions Tax

Humour

Please visit our website: www.fia.org.za

FIA Insight The official mouthpiece of the Financial Intermediaries Association of Southern Africa P O Box 11901 Centurion 0046 Tel: 012 665 0085 Fax: 012 665 0534 Email: info@fia.org.za Website: www.fia.org.za Publisher Financial Intermediaries Association of Southern Africa Chief Executive Officer Manie Booysen manie@fia.org.za Chief Operating Officer Justus van Pletzen justus@fia.org.za President Seamus Casserly seamusc@firstequity.co.za Editor & Media Manager Clive Franks Fax: 086 642 4540 Cell: 082 306 9158 clive@fia.org.za Graphic Design Streak Design cc Cell: 083 447 2010 Editorial Contributors Seamus Casserly, Manie Booysen, Justus van Pletzen, Mike Stoker, Gareth Stokes Chris Busschau, Linza van Aswegen, Marco Passero, Prof Tobias Doyer, Pieter Erasmus, Lance Moroney, Gari Dombo, Tim Rutherford, Craig Harding, Tracy de Kok, Mandy Barrett, Carel Nolte, Terry Booysen, Dr Lerato Motshudi,Craig Pheiffer, Barry Taylor, Jonjon Smit, Lourens Joubert Subscription Rate: R79.80 inclusive of VAT per annum FIA national office has the name of an independent practitioner near you. The views expressed in this magazine are not necessarily those of the FIA. Readers following any advice contained in the magazine, do so at their own risk The FIA does not endorse any product supplier or any advertisers products.

EDITOR’S SOAPBOX

Editor’s Soapbox 2011 has arrived and there are very challenging times ahead for the FIA and the Industry. First and foremost on everybody’s minds will be the regulatory exams, the FIA’s Joe Kotze has been preparing and keeping members up-to-date with the latest developments and requirements and visiting some of the branches with road shows that will conclude at the end of April. The Insurance Industry Conference will be held once again at Sun City from 24-27 July 2011 which will once again see close collaboration between the FIA, IISA and SAIA the theme being ‘Promoting Sustainable Development’. The Prestigious FIA Awards the benchmark for the Insurance Industry will take place Thursday 9th June 2011 at Sandton Convention Centre in Johannesburg. The first quarter got off to a turbulent start with all the rain and floods not only nationally but internationally as well, resulting in huge claims that will have to be settled not a good start at all for our industry. A highly important factor that will influence the industry this year will also be Treating Customers Fairly. The principal behind TCF is the fair and ethical treatment of customers. To quote Justus van Pletzen COO of the FIA “It is an organisation’s senior management that is ultimately responsible for the implementation of a TCF culture, as top leadership buy-in is key to ensuring that it becomes an entrenched component of the company’s value system.” The year will also see the implementation of Conflict of Interests legislation. This will entail vigorous debate with legislators and scrutiny of contracts between service providers and intermediaries and careful definition as to what is considered as conflict of interests. Legislation will also be coming into effect over The Solvency Assessment and Management (SAM) to ensure the local insurance industry is in line with international standards. It must be formally implemented by January 2014, but considerable work has to be completed before then. The FIA will have a huge influence on the input with regard to the proposed legislation due to our interaction with the FSB. The floods and natural disasters that have occurred over the last few months have not only created havoc to the farming community and infrastructure, but will also have a knock-on effect on insurance and

by Clive Franks

insurance premiums in the foreseeable future. A highly sensitive situation will be faced by those farmers that have underinsured their farms and property. The fact that government will not be bailing out the farmers exacerbates the impact on them and on the economy as a whole. Seamus Casserly President of the FIA & Justus Van Pletzen COO represented South Africa and Africa at the recent WFII (World Federation of Insurance Intermediaries) Executive CSE Committee and the WFII World Council meetings on 27-28 March 2011 in Rome. The main topics that were under discussion at the meetings were global regulatory developments for insurance intermediaries and the complications surrounding multinational placements. In this respect, the World Council were addressed by speakers from the IAIS (International Association of Insurance Supervisors), the IMF (International Monetary Fund) and from the TMF-Group on a global ITP database. There will be feedback from this conference in the following edition of the FIA INSIGHT. Thursday 9th June is set for the prestigious FIA Awards to be held at the Sandton Convention Centre in Johannesburg. The Awards this year are in the following categories: • Long Term Insurer of the Year – Risk Products • Long Term Insurer of the Year – Recurring Savings Products • Investment Product Supplier of the Year • Health Care Product Supplier of the Year – open schemes only • Short-term Personal Lines Insurer of the Year • Short-Term Commercial Insurer of the Year • Short-Term Corporate Insurer of the Year • Employee Benefits Supplier of the Year • Underwriting Managers of the Year Members will be contacted by Bluestream Consulting in order to conduct the FIA’s members needs research. We request that members please give up a few moments of their valuable time in order to respond to their research in order to understand exactly what is of utmost importance to you. The first two Anton Swanepoel workshops on the regulatory exams have been completed. It was attended by more than 550 delegates in Pretoria and Johannesburg and immediate feedback about the value that the workshops bring was extremely positive.

FIA PRESIDENT

Message from the President of the FIA Dear Colleagues These are rapidly changing times for the insurance industry and, while some of these changes will require much hard work, there are many benefits and we can expect the insurance industry to emerge stronger and more focused this year. A trend that was set in 2010 and that will be continued in 2011 is the number of regulations expected to be promulgated including the Insurance Laws Amendment Act, The Consumer Protection Act and the Treating Customers Fairly initiative. For us the intermediaries, the Insurance Laws Amendment Act regulations will mean a change in our business models. However, we do expect these changes to be a positive development as they should actually assist advisers in earning fees rather than restricting this practice. The Consumer Protection Act, which was delayed from its original October implementation date, will also be introduced during the first half of this year. This will have far-reaching consequences for our industry and while we expect a relatively limited impact on intermediaries it is likely to put insurers under pressure. For us as the FIA, one of the more interesting developments for 2011 will be the “Treating Customers Fairly” guidelines. This initiative is expected to have a serious impact on direct insurers who continue to make exotic claims of savings, performance and efficiency without any challenge. This new initiative will completely change the insurance landscape and hopefully put direct competitors under the spotlight. The automatic exchange of Short-Term insurance policy data between brokers, who are binder-holders, and insurers, is set to become a reality for personal and commercial business. This is a watershed moment for the industry and, while there is still some work to do, we foresee this resulting in improved accuracy, with cost savings both for insurers and brokers. As part of the second phase of this project in 2011, we will also be including claims processes. The biggest development this year is the introduction of the new regulatory examinations by the FSB, a reality that all FSP’s will be required to complete successfully. Whether or not the FSB will relax their December deadline remains to be seen, but it is essential that intermediaries and all parties affected aim to complete these examinations as early as possible, as the consequence of non-completion is extremely serious

Direct Insurance Offerings As many of you are no doubt aware, the direct insurance market has become an increasingly crowded and competitive space, with new product offerings frequently cropping up. The latest, Frank.net, was recently launched by Liberty in the Life assurance sector and follows the news last year that Sanlam sold its majority stake in MiWay the Short Term Direct Insurer to Santam. While we echo the concern that broker members may have about the emergence of new direct players, particularly those launched or managed by partners with whom we conduct our business, direct competitors are a reality and a separate distinct distribution channel. It is also pretty certain that this channel is permanent and will remain a competitor to intermediation. Despite protests from Brokers and traditional distribution channels, product providers are creating these channels to broaden their business base and if one wants to protest against a product provider launching a direct competitor then as brokers you need to do so with your feet by switching your allegiance to other providers. The bottom line is however that we cannot dictate to suppliers how to run their business other than by shifting our allegiance which is the ultimate protest. If consumers too are also choosing to go direct then we must be mindful of the fact that they value price over value or service, and that is their choice. It is up to Brokers to prove their value as no one else will. Having said that, my opinion is that the more crowded the direct space becomes, the more confusion among consumers and the greater the need for intermediary advice to differentiate between the various options. For example, the UK motor sector has such a proliferation of direct insurers that in the end it has resulted in brokers beginning to offer a service to clients to assist them in choosing which direct insurer is correct for their needs. Talk about unintended consequences! While we can’t promise that the future will see us negotiating the various direct offerings on our client’s behalf, we need to accept that direct insurance is a part of our industry. Providing our clients with the best service possible is the best tool an adviser has at their disposal against the threat of direct competitors. Regards Seamus.

CEO

From the Desk of the CEO - Manie Booysen Natural disasters have been a major focal point across the world so far this year with devastating flash floods having hit Australia and Sri Lanka, and closer to home we also saw the impact of severe flooding as many of our rivers burst their banks.

instance, small actions like not printing email unless essential or by replacing incandescent light bulbs at home and at the office, with low energy bulbs. Cumulatively, such actions by a carbon footprint aware nation become significant.

While the debate about the validity of climate change continues to rumble on there is very little doubt that we are seeing the effects of a changing climate. In fact, the Department of Environmental Affairs recently announced a massive climate awareness programme would be rolled out to educate South Africans on climate change. This can only be a good thing. The more we educate ourselves about this threat, the more seriously it can be dealt with.

Intermediaries are also in a position to help spread the message to their clients and we can play our part in making sure that our clients are as informed as possible, as to how they can effectively manage the associated risks, in order to mitigate any damage.

At the FIA we are also concerned about the impact of climate change not only on the people of our country but also on our business. Our industry relies on accurate forecasts of how likely such disasters may be in order to properly price for the risk, yet the effect of climate change is throwing some of these forecasts out of the window. In Australia, the government warned that it would need to make budget cuts after a cyclone exacerbated the damage caused by the flooding with economists predicting it could reach as much as $20bn. In South Africa, we have also seen the cost of flooding impact massively on our industries with AgriSA estimating that R2bn will have been wiped out of the agricultural and farming industry. With such damage having occurred already this year, it is crucial we focus our combined efforts with industry partners and stakeholders to work together to combat the effects of climate change. Ultimately the impact on the insurance and reinsurance industry is likely to be huge and this will have a knock-on effect on the intermediary industry. As a consequence, the FIA has been invited to attend a regional consultation meeting for Africa, hosted by Santam and SAIA, as part of the United Nations Environment Programme Finance Initiative (UNEP FI), a strategic partnership that aims to establish a United Nations-backed global initiative of insurance companies who are proactively addressing environmental, social and governance risks. Each and every one of us can play a role in mitigating the impact of climate change by becoming more aware of our carbon footprints. For

For instance, given the increasing severity of thunderstorms, for those operating in the personal lines market it may be advisable to remind clients prior to the rainy season, to clear their gutters in the event of heavy rains or to attend to maintenance problems when they first arise rather than leaving them to build up. This can have a significant impact by reducing the number of claims submitted and may also prevent problems at claims stage, in cases where the insurers may allege that the insured has not taken reasonable care to prevent losses. Intermediaries will also have a role to play in educating the consumer with regard to the anticipated shift towards a more granular underwriting approach by insurers, which is likely to have a pricing effect on affected risks. Higher levels of excesses can also be expected and in severe cases, risk improvements such as the construction of retaining walls, culverts and other flood prevention measures, may be a requirement before cover can be obtained. For those operating in the corporate and commercial insurance market, advice becomes even more paramount. There are multiple options available to clients whether it be insurance against traditional disasters such as floods and heavy rain, or insurance against issues such as business interruption caused by natural events like the Volcano in Iceland last year. There are many factors that intermediaries need to take into account when assessing the risk profile of their clients and with an ever evolving issue such as climate change it is vital that we all work together to ensure the sustainability and affordability of cover for clients.

FINANCIAL PLANNING

The Financial Planning/Long Term Industry and the Financial Intermediaries – by Chris Busschau Chairperson Financial Planning Exco of the FIA. I have been in the long term industry since 1972. I was initially in an administration role, but entered the sales side at the beginning of 1974. The 37 years since then have been filled with change, excitement, at times confusion, and sometimes even a little fear! And that is still the way that it is! One of the things that I learned during the 1970’s was that it was far better to have the support of other people and to have a forum in which I could air my concerns. I joined LUASA and my employer was a member of SAIBA, and both provided me with the community, camaraderie and support that enabled me to survive and flourish. As time went by, SAIBA became SAFSIA, and SAFSIA merged with the IBC and also with LUASA to form the FIA. The FIA brings all of the strengths and resources of those other two bodies together into a support structure that enables every intermediary to perform better without having to spend their time l0ooking over their shoulders. The FIA removes the loneliness of the life of an intermediary, and replaces it with the strength of support, professional advice, muscle power in dealing with the authorities and the product houses, and a community of other people who also put their ego’s on the line every day when they set out to earn a living by selling financial security. I’d like to look at the key things I mentioned in the first paragraph, and how the FIA addresses them. 1. CHANGE Market place: 37 years ago we dealt with about 25 different life offices – now we have a mere handful. However, our clients still expect us to provide them with good advice, the best deal and excellent service. The FIA interacts with the product houses through the ASISA Distribution Affairs committee and is able to influence them. Economy: The socio / economic environment has changed more than any of us could have foreseen. The FIA Branch Structure affords every member the opportunity to interact with other intermediaries and to pool experience. Regulations and Laws: Probably the biggest impact on intermediaries in the last few years has been the promulgation of FAIS, FICA and the host of other regulatory changes. The FIA conducts careful research into all such changes and distribute thorough information on how to cope with these. Even more important, the FIA has developed real status with the Financial Services Board, National Treasury and Parliament and has frequently intervened to ensure that the interests of intermediaries and their clients are protected. In fact, the FSB always consults with the FIA as a matter of course on all proposed new developments. Products: The emergence of LISPS, off-shore players, “buy term and invest the rest”, the impact of HIV / AIDS, the blurring of boundaries between long term products, short term insurance, medical packages and

employee benefits – all of this needs a “big brother” to provide opportunities to co-ordinate the insights, new developments and future direction of product houses, and the FIA Divisional and Branch structure is the most effective way for this to be done for the 15 000 intermediaries who are either members or employees of members of the FIA. 2. EXCITEMENT Excitement over the freeing up of our economy in 1994, the relaxation of foreign exchange and offshore investment rules that started in 1997, the emergence of South Africa as a world player rather than a world pariah, the recent invitation to become the new add-on to BRIC that would lead to a new BRICSA centre of influence in the world. All of these provide opportunities for us to do more and more sophisticated financial planning and advising to our clients. Research, communications and road-shows from the FIA all keep us informed of how we can capitalise on these opportunities. 3. CONFUSION All of the above have often seen intermediaries confused. I sometimes find myself wondering whether we are dealing with investment matters, risk management, or a medical scheme only to find that it is in reality an employee benefits issue! The forum provided by the FIA and the expert resources available to members, and most importantly the accessibility of the senior people in the FIA secretariat and on the various FIA Executive Committee provides the most valuable resource for resolving this confusion. 4. FEAR My experience over a long working life has been that fear is almost always caused by the unknown. The network of FIA Branches, Division, Executive Committees and the professional in the secretariat go a long way to neutralising the unknown. Could the FIA do things better? I’m sure it could. Does any other organisation come close to providing intermediaries with the support that we need? Not a chance. The long term industry has always been populated with independentminded, highly driven people. Some would even call us “mavericks”. We don’t like to be told what to do, and we love nothing better than a gripe session about poor service from product houses, other intermediaries who churn the business we have written, unreasonable education requirements coming out of the FSB, lousy investment returns, banks that return debit orders, clients who avoid us. But we do deliver the goods, we have done for a hundred years, and I’m sure we’ll go on doing so for the next hundred. We’ll just do it better and with a lot less stress as members of the FIA!

PROFILE

Company Profile: Interview with Riaan Geldenhuys Vice-chairperson of the Western Cape Division and CEO of Charis Brokers. By Clive Franks

Preamble: With the desire of finding out more about what the FIA members do besides devoting their valuable time to the FIA; FIA INSGHT will be conducting interviews with them in each quarter. Our ninth interview is with Riaan Geldenhuys Vice- chairperson of the Western Cape Division and CEO of Charis Brokers. FIA: In what way do you feel that you are making the most contribution to the FIA? I think first of all that time is currently one of our most precious commodities. I am currently also the Boland Branch chairperson, and from a branch point of view we try to make the FIA a recognized organization in the communities that we as a branch operate in. We use our annual golf day to raise funds for different NPO organizations, such as child care and rape crises centres. We also contributed towards a school in need last year. I believe that in the Western Cape division, we have a unique structure. We get the all of our branch committees included on divisional level. Because our chairperson operates in the life- and investment side and I specialise with short-term, I look after the short-term on divisional level, this includes the short-term Technical personal lines. Together with 3 other members from our division, I was also involved in the establishment of the Insurance Boot camp. FIA: What issues are you currently involved in? On a quarterly basis we meet with Santam on an ad hoc basis, we also meet with Mutual & Federal and Auto & General to discuss member issues with them and what we generally pickup on in the market. The purpose of the meetings is to sort out difficulties and problems experienced by our members. This is not always reactive; some of the meetings are very proactive. We do not deal with individual problems, but if one picks up on the same individual problem in 5 different areas, it becomes an issue that we need to address. In the Western Cape, strategic planning and intermediary enhancements are very high up on the agenda. As the rest of the country most probably knows by now, the people in the Cape are very vocal and make a strong case for what they believe in. We have had a few meetings in this regard to keep our members happy and to get an input of new ideas that can be escalated to National Office. Apart from always keeping your mind fresh and thinking of ideas on how to work smarter rather than harder with new working procedures and still to

keep the FSB happy by complying with FIAS, there are not a lot of current issues. FIA: How do you think The Insurance Boot Camp is helping members? The whole idea of the Insurance Boot camps was never to be a qualification school. The idea was to create something where our members and their personnel can get trained in a very relaxed environment for practical day to day activities and issues and to understand and interpret policy wording. There are many people in our industry do not understand the policy wording and what the original intent of the wording was meant to be. When you are working for a corporate company you get in-house training. In a way, Insurance Boot camp is a FIA initiative as in-house training for our members. Fortunately Risk SA and Insurance Institute of Cape of Good Hope joined the party which gave us more exposure. The course material is very practical and will definitely help those who need to sharpen their skills. What is interesting is that some of the underwriting managers, insurance companies and every independent assessor's are all attending. That is a clear indication for us that we are on the right track. Yes, we are experiencing some teething problems as with any venture. This is a work-in-progress and therefore we will endeavour to roll out something on similar lines for our life- and investment members and ultimately for the rest of the country. FIA: Do you think that we have reached the turnaround in the financial crisis in South Africa? As I am not an economist, it will be difficult to for me to predict if we have, but I certainly hope so. What I can tell you is that 2011 definitely started off better than 2010. That said, I still see the after affects and a lot of people are struggling financially. They cut back on what they think is unnecessary expenses. I think that the interest rate cuts that we had helped a lot of people to hold on to their properties, if it was not for that, we would have had a major disaster. I only hope that there is no increase in the foreseeable future. With the promise that 2011 has brought us, increase in car sales, some estate agents are smiling again, yes I think we have turned the corner, but the recovery will not be a fast one, it will take a while before we see a major improvement. Continued on page 12

PROFILE Continued from page 10

FIA: What incentives are there for young people to join our industry and how do you think we will be able to attract them? I am a firm believer that you rather keep someone happy than to get him happy. The whole industry has changed so much over the past 5 years or so. The traditional intermediary driven insures are changing their strategy, the direct insurers become more prominent, even on the life side. We see more and more legislation being written that the intermediary has to cope with. New demands that we are constantly being required to deal with. The only certainty we can bet our life on is change. How we can keep our members happy with additional enhancements as member’s benefits is so important, we have to change with our industry. Even if this means that we have to employ more permanent staff on a divisional level. Keep our members happy! FIA: What is the most important message that you have for the members? Get involved with your branch. You do not have to be on a committee to support them. We hear of so many intermediaries who just feel that they can resign from the FIA. This is not an option. Get involved, stay focused and let our mutual voice be heard where it matters most. Somebody once said “we cannot determine or change the direction of the wind, but we can adjust our sails so that we reach our destination”. FIA: What is your feeling with regards to the RE1 & RE2 Level Examinations? I personally think that the RE1 examination is a good thing; it will force the entire industry to learn and understand the intention of the law. The way it was steam rolled, the timeframe and the negative implication if the exams is not passed is a total different story. I reckon the cut off date should have been extended seeing that there were delays before implementation. RE2 should seriously be reconsidered; some people have been in this industry for years. We all had to write the UNISA exams. RE2 is not a tool for, but a way to test your knowledge of the product you are dealing with for years. Yes, I am against the RE2 if it is going to be in the form of another exam. If we allow the RE2 to go on, are we going to write another exam in 5 years time to test our product knowledge again? RE2 should be scraped and replaced with a continuous development program. I am all for that. FIA: How do you feel about the FIA’s interaction with the regulators such as the FSB? It is good to know that the FIA have a good relationship with the FSB. That said, sometimes the diplomatic way is not always the correct way to deal with certain issues. I therefore believe in a more head on approach, because it is sometime the best way to deal with issues, as long as you deal with it in a dignified manner. The one thing that distinguishes us as the FIA from a normal corporate company is that we are entirely a member’s driven organization and our member’s needs and wishes should always be considered above anything else and should also be reflected in any negotiations.

FIA: What words of advice do you have for the consumer particularly in light of the recent global economic downturn? Use a FIA intermediary, speak to your intermediary and follow their advice! The average person does not self-medicate, they consult the specialist

in its field to do the job. Why does a consumer want to “self medicate” his own insurance if there are fully trained specialist financial advisors? It is a totally wrong conception that by dealing with a direct insurer, you save money. It will cost you in the long-run! We all know what John Ruskin wrote before 1900. ‘Even in this tough economical time, it is better to speak to your broker to help you manage your finances and assets.’ FIA: Are you willing to share a brief CV and a glimpse in to the private life of Riaan Geldenhuys when you are not involved with the business of the FIA I was born and grew up in the Helderberg, 50 km from Cape Town and matriculated in 1983. I am married and have with two kids, a son 23 and daughter 20. I was employed by Santam for a period of 10 years before starting up Charis Brokers in the Strand in October 1995. I have a National certificate in architectural drafting. A National certificate in short term insurance. Charis Brokers is currently one of the largest short term intermediaries in the Helderberg area with a large client base. I love sport and am a regular visitor at Newlands rugby stadium. You can guess where my support lies. I play golf, cycle to keep fit (doing my 15th Argus after a 5 year sabbatical), have to, but hate the gym and just love to do water skiing whenever I get the time. The nice thing about skiing is that I can enjoy it with the family. I am also interested in the building industry, and together with my brother have built 10 houses. We are planning 3 more this year.

SOCIAL NETWORKING

Don’t get caught out on FaceBook By Pieter Erasmus Head of Marketing, Sales and Distribution: Momentum Short-Term Insurance.

South Africans don’t ever need to be reminded about being mindful of security. Electric fences are activated, security companies patrol our streets, our houses are sealed up tightly with burglar bars and security gates and we are constantly alert. If we go away we of course remember to cancel the newspaper deliveries and activate light timer switches. But what if you or your chatty teenagers are unwittingly alerting all and sundry, including burglars and criminals, to where you live, what you got for a birthday and when you’ll be away or at a party. Insurers in the UK have pinpointed information available and activities posted on social networking sites such as Facebook or Twitter as potentially dangerous, as criminals hack in to find out all they need about potential victims. Some insurance experts are even predicting that users of social websites could face higher insurance premiums, as their risk exposure is increased. These warnings follow a report called “The Digital Criminal”, commissioned by a top UK insurance company and compiled by a reformed thief, Michael Fraser. Say Pieter Erasmus, head of Marketing, Sales and Distribution Momentum Short-term Insurance, “In the South African environment, it’s highly unlikely that your internet usage can be used to influence your premiums, but it certainly bears keeping in mind what information you are giving out and to whom. Car-jacking syndicates are known to be sophisticated and organised and to boast about your new Porsche, with pictures or inviting friends over for the rugby because you have the biggest flat-screen plasma TV is just irresponsible.” Fraser says: 'There is no doubt in my mind that burglars are using social networks to identify likely targets. 'They gain confidence by learning more about them, what they are likely to own and when they are likely to be out of the house. I call it "internet shopping for burglars". Users unwittingly post details about where they live and what they do and give countless clues via photographs and personal details. Particularly helpful are status updates - “only one more day until our weekend in Cape Town” or real-time Twitters – “Beaches in Mauritius great – can’t believe we’re here for two whole weeks”. With your date of birth, where you work or even a home

address, it wouldn’t take a master criminal or a dubious friend-of-a-friend long to work out the necessary details. Research for the report found that four out of ten users admit to posting details about their holidays and one in seven have their home addresses listed. Most alarming was the amount of strangers that were being allowed access. In an experiment 100 friend requests were sent to randomly selected strangers – on Twitter 92% and on Facebook 13% accepted a complete stranger as a friend, enabling them full access to their information and updates. Teenagers have been pinpointed as the worst culprits in sharing information indiscriminately. Even if you don’t give out personal particulars or allow access to strangers, joining an online group, event or social cause, or responding to an online party invitation gives anyone in that group information about what you’re going to be doing at a particular time and where. Another popular application is the uploading of photographs. Besides presenting a ‘shopping catalogue’ of what you own, photographs can show security systems, external spotlights, house layout and access points and if the family pooch is likely to be a nuisance. More than 2 billion photos are uploaded onto Facebook every month The insurance company that commissioned the report is considering questioning customers on whether they or any family members belong to any social networking site. “We don’t foresee that happening here, as there is no way to determine if Facebook or Twitter details actually cause burglaries or car-jackings. Irrespective of overseas trends, I think the most important point is, to make people aware of the possible dangers and to be more careful with the sharing of online information. As in SA, UK statistics indicate that there is a rise in house-break-ins, so it makes sense to be more careful with the information you give out, either knowingly, or unwittingly”, concludes Erasmus.

Additional Info about Facebook General Growth • More than 300 million active users (logged in within the last month) • 50% of our active users log on to Facebook in any given day • The fastest growing demographic is those 35 years old and older User Engagement • Average user has 130 friends on the site • More than 6 billion minutes are spent on Facebook each day (worldwide) • More than 40 million status updates each day

Applications • More than 2 billion photos uploaded to the site each month • More than 14 million videos uploaded each month • More than 3 million events created each month • More than 45 million active user-groups exist on the site International Growth • More than 65 translations available on the site • About 70% of Facebook users are outside the United States

Twitter Info • Twitter does not release the number of active accounts. • In November 2008, it was estimated that there are between 4–5 million regular users and over 6 million unique users. • In February 2009 Twitter had a monthly growth of 1382%.

A G R I C U LT U R A L I N S U R A N C E

The Floods in Perspective By Prof Tobias Doyer Head of Santam Agriculture

Every year in agriculture has its challenges and 2011 has proved no different thus far. The year kicked off with farmers having to clean up after the heavy rainfall and calculating the costs of flood damage to crops and infrastructure. The issue of underinsurance Everyone is talking about how farmers will be compensated for losses and whether farmers are adequately insured. Tobias Doyer, head of Santam Agriculture says underinsurance is a concern in Agriculture and can be unintentional or deliberate. Sometimes, farmers only realise at the point of claim that they are underinsured. This usually happens when assets have not been valued properly, or not insured altogether. “The solution is to make a list of all assets and value them accurately,” Doyer says. Ideally, clients should also increase the value of insured assets by 6% - 7% every year.

on food prices, Doyer doesn’t anticipate that the recent floods will have an impact on food prices. He points out that the floods should be seen in context. “We must remember that the floods occurred in what is a very good year for agriculture, in production terms,” he explains. Furthermore, the area impacted by flooding was also relatively small, in comparison with the total number of hectares planted in South Africa. However, he says if the country were in the grip of a drought, the effects would have been much greater. “This would make the situation entirely different. Unlike the limited impact of the flood, a drought would cause food prices to increase significantly as a larger section of the total hectares planted would be affected,” he explains. It is also important to consider how much hectares of grain is planted under dryland or irrigation. Compensation for farmers

He says farmers can avoid under insurance through proper administration of assets, particularly in tough financial times. “Recent trends show that farmers are reducing their cover or cancelling their policies to reduce their insurance costs as part of cost management initiatives in their businesses,” he says. Farmers do this as a result of declining farm income, lower profits and difficulty to make ends meet. However, he warns that such actions are short sighted and can be highly detrimental to the farmer. “The biggest problem with this practice is that farmers are reducing their cover in times when their margins are lower. Their capacity to recover from an adverse event is compromised due to lower cash flow,” he says. Farmers should rather review their excess structure to save costs. Will insurance premiums go up? Doyer explains that, although flooding caused many farmers to suffer substantial losses, it is unlikely that the floods will have a major effect on insurance premiums. “We are aware that these types of risks are expected in the areas where the flooding occurred and for this reason, insurers have already priced this risk into the premium,” he explains. However, he adds that there will be an impact on underwriting rules and insurers will become more cautious of which risks to accept. “In future we will, for example, tell farmers that the risk of building close to a river is guaranteed to lead to a claim at some stage and is therefore not unexpected,” he says. Food prices He says that the floods again highlighted the important role that weather plays in the economy. When it comes to flooding and the possible effect

The question that remains is how farmers will be compensated. Government says it will assist with damage to infrastructure, but for flood-damaged crops, farmers have to claim from their insurers. Usually, insurance is an effective pooling instrument where farmers jointly carry risk for the unexpected. The difficulty comes in with occurrences such as the recent floods. “Farmers can only get cover for insurable risks from insurance companies,” he says. Certain risks, such theft of sheep, are either too small or too widespread to be insured and these have to be managed by the farmer. On the other hand, the impacts of large-scale natural disasters are typically too large for insurers and reinsurers to underwrite. This is where government intervention is necessary. A World Bank report on government support for agricultural insurance points out that governments tend to alleviate the effects of crop failures or other disasters by providing post disaster direct compensation as a relief measure. However, this creates a “Samaritan’s dilemma,” whereby post disaster aid discourages programs such as insurance, which provide more efficient financial solutions and reduce the magnitude of losses from future events. The floods have again put the spotlight on Government’s approach to disaster aid and the Department of Agriculture, Forestry and Fisheries’ National Disaster Management Act. Doyer says the Department has made some progress in implementing the Act, but what is needed now is a clearer framework of how this kind of support will work, and clarity about government’s participation thresholds. This would help the industry in terms of products, insurance and reinsurance capacity to adequately protect farmers.

S H O R T- T E R M

Challenge of Change By Marco Passero FIA Short-Term Exco Rep KZN and Director RSW Risk Managers

We are heading for times that will cause Product Providers and Service Providers to think differently in several ways. Take, for example, the interpretation of Reasonable Precautions, typically found in the policy wording under General Conditions, which may read “The Insured shall take all reasonable steps and precautions to prevent accident or losses”. With tougher trading conditions and Motor Books not operating favorably, we have seen Insurers increasingly looking to use the General Conditions for the repudiation of claims. Recently an Insurer repudiated a claim where the insured had a bag containing car keys and towel taken while swimming and surfing and, as a result, the motor vehicle was stolen. The Insurer used General Condition item 5 – reasonable precaution to repudiate although, later agreed to settle once case evidence was argued. Whilst most policies require the insured to take “reasonable precautions to prevent loss” it is well established that the clause does not mean that when the insured is negligent no cover is provided. A ruling of The Cape Provincial Division in Santam Ltd v/s CC Designing CC, 1999(4) SA 199(CPA) which has been widely published and quoted found that: • The reasonable precaution clause had to be interpreted in the light of the policy as a whole; • The policy cover was widely stated and included any loss or damage to the insured vehicle; • The cover was wide enough to include loss or damage caused by negligence of the insured or someone acting on his behalf; • The important purpose of motor insurance is to procure cover in respect of the insured’s own negligence; • To construe the condition as an exclusion of liability for negligence of an insured would take away a significant part of the cover afforded by the definition of the risk.

Looking forward to 1 April 2011, which is when the Consumer Protection Act (CPA) comes into effect, one perhaps needs to ask “What are the implications of this act on the General Conditions and Exclusions of a Personal Lines policy?” Although we have the Short-Term Insurance Act, Providers will still have to ensure that their products meet the requirements of the CPA, in particular the consumer protection measures which include things like contracts will have to be ‘reader – focused’ to ensure that the reader has complete understanding of the terms and conditions of the contract or policy in plain and understandable language. The section of the CPA that is titled ‘Plain and Understandable Language’ does not restrict itself merely to grammar and wording. General Conditions and Exclusions will have to be more definite in insurance policies. The CPA makes it mandatory for a contract to set out any notice or provision of an agreement entered into with a consumer, that aims to limit the risk or liability of the supplier / provider must be written in plain language and must be drawn to the attention of the consumer in a conspicuous manner. For us as Brokers and Intermediaries, the FAIS Act makes it our duty to explain, explain and explain. For the product providers and the industry as a whole, will we see a start of changes to policy wordings and the move to easier to read and laid out policies or will we see the path

Looking forward to 1 April 2011, which is when the Consumer Protection Act (CPA) comes into effect, one perhaps needs to ask “What are the implications of this act on the General

The court correctly pointed out that the “taking of reasonable precautions” is not necessarily the same thing for both insured and insurer. For the insurer to have been successful it had to show that the insured acted recklessly, must have recognized the dangers to which he was exposed and then deliberately continued by taking measures which he himself knew were inadequate to avert the loss, or he simply did not care about the adequacy of the measures.

Conditions and Exclusions of a Personal Lines policy?”

A D V E RTO R I A L

An Introduction to Emerald from Gary Corke Now 12 years old, and despite a significant change of shareholding, and a ‘minor’ change in name, Emerald Risk Transfer (Emerald) is still fundamentally dealing with the same product in the same manner. Emerald underwrites Corporate Property and Engineering business throughout the African continent on behalf of Santam. Originally established in 1999 in a small office in Sandton, Emerald currently offers solutions to over 500 clients in the African Continent, all through intermediaries, and 75 of them are within South Africa’s top 100 Companies. NEW DISTRIBUTION CHANNELS Looking forward to 1 April 2011, which is when the Consumer Protection Act (CPA) comes into effect, one perhaps needs to ask “What are the implications of this act on the General Conditions and Exclusions of a Personal Lines policy?”We consider our broker relationships to be one of our core strengths, and we continue to promote these as a channel of choice to our clients. We are looking to deal with new intermediaries, and the members of FIA can be assured that we are keen to expand upon our current base of “preferred business partners”. This might mean new individuals in new broking houses, or, it might mean new individuals that work within intermediaries that already have business with us. OUR SECURITY AND BRAND With assets in excess of R17 billion, 91 years in the industry, a thriving intermediary network and more than 650 000 policy holders, Santam is South Africa's leading short-term insurer. Santam also holds business interests in Zimbabwe, Malawi, Uganda, Tanzania and Zambia, and hold strategic investments in various companies within the insurance industry, including the subsidiary Santam Namibia Ltd. With a South African market share exceeding 22%, Santam focuses on corporate, commercial and personal markets, and was voted the Best Corporate Insurer by the FIA in 2009 and 2010. Global Credit Rating (GCR) gave Santam a AAA claims paying ability rating, which is the highest that can be attained by an insurance company, and in the Markinor Top Brands survey, Santam was named the number one brand for business insurance.

OUR PEOPLE With 45 people based in our office in Fourways, we believe we offer the best technical support structure, and the most innovative oppor tunities to any intermediary looking for Corporate Proper ty and Engineering Insurance solutions within our Continent. Our Senior Team has considerable experience, and we would like to think that between us we have seen most risks in South Africa in one form or another. Certainly the rest of Continental Africa presents other challenges, in terms of regulations, access to information, exchange controls, etc, but we are certainly motivated to become the Insurer / Reinsurer of choice in other countries in Africa, whether via current Santam shareholding interests, or other distribution channels. OUR PURPOSE ‘To create sustainable Corporate Property and Engineering Insurance solutions throughout Africa for our preferred business partners.’ OUR MISSION STATEMENT ‘To be the insurer of choice in our chosen areas of business by offering innovative solutions and quality capacity, while maximizing returns to all stakeholders, and providing an enriching and rewarding environment for all employees.’ UNDERWRITING ETHOS ‘Correct understanding and measurement of risk, appropriate reinsurance placement and accounting and effective claims management are all key to our underwriting approach.’

OPERATIONAL ETHOS Our Aim at Emerald is not to be the cheapest by cutting corners, but to be the best by offering expertise and skill. www.emeraldsa.co.za www.santam.com

‘Every Emerald employee must be motivated, enthusiastic, professional and effective. They must understand their goals, be empowered and be encouraged to utilize their initiative and intellect.’

A D V E RTO R I A L

THE MARKET The major challenges for Insurers, Reinsurers and Intermediaries within our market include: i. ii.

Quality of information, or sometimes, the lack thereof. Risk management expertise and risk management budget constraints. iii. Variable exchange rates. iv. Variable mineral prices. v. Power supply concerns. vi. The ‘role’ of the major reinsurers on the continent is not always aligned to our own. vii. Access to capacity in mining and rolling stock accounts. viii. Naïve capacity and security offered by some competitors. CORPORATE PROPERTY AND ENGINEERING BUSINESS DEFINED • • • • • •

Multi National Companies Petrochemical Risk Mining Risk Municipalities with Power Generation plants Metro Councils Risk with a combined MD/BI TSI above R1 bn and/or MPL above R250m in South Africa and TSI above $100m and/or MPL above $20m in Continental Africa.

WHAT INFORMATION DO WE NEED TO QUOTE ON? • • • • • •

List of premises and individual values Detailed information regarding business and process Risk Management surveys / programmes / applications (NB. Quality of information drives our capacity!) Detailed 3 to 5 year claims experience Letter of Appointment if existing Santam client Letter of authority if client to another Insurer

AND FINALLY I have tried to give a ‘snapshot’ of the niche within which we operate. Ours is not the kind of model where we ‘cold call’ intermediaries to see who controls what, but rather to facilitate intermediaries clients that fall within our product definition. If you require our assistance, we can be accessed via our website, emails, telephone or fax, and in this regard, providing you already have any agency with Emerald or Santam, you may contact Hans Schollenberger (hans.schollenberger@emeraldsa.co.za). Alternatively, if you do not have an agency, you may apply for one with our Paula do Roque (paulad@emeraldsa.co.za). Either way, we are ready to try to assist you with Corporate Property and Engineering client needs.

S.A.M.

SA insurers Urged to Prepare for New Solvency Requirements Lance Moroney, Non-Life consulting actuary at Aon South Africa

South Africa’s insurers must ensure that they fully participate in upcoming quantitative impact studies (QIS) regarding the implementation of the FSB’s new risk-based regulatory regime, Solvency Assessment and Management (SAM), as this new framework will have far reaching consequences for their businesses and the wider industry. According to Lance Moroney, Non-Life consulting actuary at Aon South Africa, it is essential for insurers to take part in the process in order to fully understand what impact SAM may have on their business. “It is important that insurers understand what preparations are required in order to comply with SAM and these quantitative impact studies provide the perfect opportunity. However, perhaps even more importantly, these forums might raise the need to voice any concerns over the new regime within the FSB’s SAM project.” Moroney says that given the likely similarities between SAM and Europe’s Solvency II model, South African insurance companies should start familiarizing themselves with the structure of the European QIS5 standard model now to adequately prepare themselves. “We would recommend that insurers start investigating the Solvency II QIS5 standard model, as this implies a recalculation of liabilities and capital requirements. “Insurers who perform a Solvency II QIS5 study will gain insight into how they will be required to calculate solvency capital under SAM. They will also be better prepared to influence, within the SAM project task groups, the content of the South African study to be launched later this year.”

“As a result many insurers may rely on their consultants to keep them updated, carry out any assessments and to present each insurer’s views in the task groups.” The FSB has announced that SAM will be implemented in 2014. However, interim measures for Non-Life insurers are to be implemented much earlier in 2012. Moroney says short-term insurers must therefore ensure that they are fully prepared for these interim requirements from next year. “It is anticipated that these requirements will not impact the overall capital requirement of the industry. However, the impact on an individual insurer could be more pronounced.” He says, however, that transition mechanisms are likely to be put in place for insurers that are significantly impacted by the new measures.

The FSB announced in November 2010, following the launch of its SAM Roadmap, that it intends to launch the first South African Quantitative Impact Study (SA QIS1) in July 2011, which will be based on the initial proposals of the various SAM task groups.

“Insurers who perform a Solvency II

Moroney says that while much about SAM is yet to be finalised, it is expected to be based on the Solvency II approach. SAM will be based on an economic balance sheet and the same three pillar structure of capital adequacy (Pillar 1), systems of governance (Pillar 2), and reporting requirements (Pillar 3).

they will be required to calculate

He says there are some key areas that insurers should start working on now with regards to the requirements involved. “Firstly insurers must aim to raise awareness and understanding of the requirements of the SAM regime among their own organisations, particularly with regards to the responsibilities of directors and senior managers. However, it is also important to filter this down through the company including arranging internal presentations, attending workshops hosted by the FSB and allocating internal resources to develop awareness of the changes.”

He says, however, that the approach taken by each insurer will vary depending on the company’s resources. “In practice it is difficult for smaller insurers to allocate resources to the numerous SAM project committees that exist. Most of the Pillar 1 task groups have mainly actuarial representation and some insurers will not have sufficient internal actuarial resources to be able to participate.”

QIS5 study will gain insight into how

solvency capital under SAM. They will also be better prepared to influence, within the SAM project task groups, the content of the South African study to be launched later this year.”

ADVICE

Beware of Traps when changing Insurance Cover By Gari Dombo Managing Director of Alexander Forbes Insurance a member of the FIA

If you are not happy with the service and cover you are getting from your insurer, shop around for a policy that best meets your needs.

when will cover terminate. • How long the new cover will take to activate, and when the first debit will take place.

Consumers should, however, be aware of the pitfalls involved in changing insurers warns Gari Dombo, Managing Director of Alexander Forbes Insurance. Many insurers will do their utmost to prevent clients from terminating their monthly payments and moving to a competing insurer.

• What is covered by the new cover that wasn’t covered by the old cover, or visa versa? This is found in the small print. “The exclusion detail is very important to read as policies can vary greatly” warns Dombo.

For example, “many insurers offer cheaper premiums for a specific period, often attracting new clients, only to return premiums to their standard rating model a few months later” warns Dombo.

• Who is covered? Is this stated clearly in the policy? Some policies only cover the owner-driver, others nominate other parties, some specifically exclude other parties.

Some insurers even continue to debit a clients’ account after they have changed insurers. To protect yourself against this practice, personally provide written instructions to cancel, as some insurers will ignore instructions from a new broker or insurer.

• What the excess is? Some excesses are expressed as a percentage of value, while others as a percentage of loss. Some will be a flat monetary amount while others will be a percentage of value. In many cases you can buy the excess, a concept called excess buy-back.

Most consumers change insurers because they have been offered a cheaper premium elsewhere. Yet it makes far more sense to change your insurer for better quality of cover and service.

• What the vehicle is insured for? Retail value, market value, trade in value, or a combination? “These all have very different cost and payout implications and purchasers of insurance should understand what they are buying” says Dombo.

As such, policy holders need to understand the detail of the cover differences before they decide to move. “Merely paying a cheaper premium does not mean you’re getting a better deal” says Dombo. So, before changing insurers it is essential that consumers establish:

• What the insurers’ repair philosophy is? Does the insurer believe in repairing vehicles with new parts or second hand parts? Will the insurer insist that repairs are done by manufacturer- approved repairers to avoid loss of manufacturers’ warranty?

• The new insurance provider’s reputation for service excellence. Check especially the claims paying history of your prospective insurer. Sometimes friends or other clients refer you and are able to provide firsthand experience of a company’s track record in this regard. It is important to find out.

• To what extent will you be personally liable? For example, “what are you not covered for? What are the exclusions? What are the limits of cover? Regarding liability cover look out especially for; firearms exclusion, wrongful arrest extension, and security company liability extension” explains Dombo.

• The termination procedure of their current cover, how long it will take, when will debits cease and

Once you have established that the cover suits your needs, only then should you look at price - and only then decide if you still want to change insurers. “Failing to understand and engage with the details of cover before changing insurers is how most people fall prey to the common traps involved in changing insurers” concludes Dombo. an study to be launched later this year.”

LIFE INSURANCE

Life Insurance confidence slows to just below pre-crisis levels

By Tim Rutherford, Life Insurance spokesperson at Ernst & Young

Life Insurance confidence slipped again in the 4th quarter, despite a strong positive turnaround in investment income. Despite stronger overall income levels, life insurers reported contracting profits, after a largely strong profit performance through most of 2010. In a quarterly survey, the results of which were released today, Ernst & Young reports that life insurance confidence fell from 91 index points in the 2nd quarter to 83 in the 3rd quar ter, and 78 currently. This means that just less than eight out of ten life insurers were satisfied with business conditions in the 4th quarter of 2010. Tim Rutherford, Life Insurance spokesperson at Ernst & Young comments that these levels are still stronger than the position of one year ago, when seven out of ten life insurers were satisfied. This is the 30th quarterly survey measuring confidence in the life insurance industry. The research is conducted by the Bureau for Economic Research in Stellenbosch. Tim Rutherford continues, ‘The 4th quarter of 2010 was a bit of an anomaly in that life insurer earnings and hence confidence levels, are strongly correlated with stock markets. The 4th quarter of 2010 saw a strong turnaround in stock exchange earnings, which resulted in strong gains in investment income earnings. However, this did not feed through to the bottom-line earnings of life insurers. Rutherford points out that declining risk profitability are at least partly to blame for the weaker profits. In contrast to the previous two years, 2010 saw continual declines in risk profitability, and in the fourth quarter of 2010, the profitability actually contracted sharply. He notes that ‘Risk profits have become more important to life insurers, especially because investment product related premiums have increasingly become subject to more and more competitors across various financial services providers.’ He adds, ‘Even through the severe global liquidity crisis, which had its greatest impact in the middle of 2008, risk profitability largely held stable, and in 2009, actually grew quite noticeably. The delayed impact of continually squeezed

household income, coupled with declining employment levels have probably resulted in the much reduced growth in risk profitability through 2010. This trading environment is not dissimilar to that of the banking market. Retail banks have been hard pressed to grow revenue streams and earnings in an environment where household debt-to-disposable income ratios remain high, albeit gradually improving. Despite the stronger income growth, supported by strong investment income and surging investment premiums, growth in outflows proved to be even higher. In large part this was caused by considerably higher benefit payments, but in addition, costs continue to pressure bottom-line earnings’. Once again, similar to other financial services sectors, and in line with growing regulatory pressures across the globe, life insurers continue to absorb the costs of mounting regulations. Solvency II is due to be implemented in South Africa within the next two years, and planning to ensure compliance and readiness with this accord is going to be costly. As a result, it has proved difficult for life insurers to reduce their administration ratio, and any improvements have proved to be short-lived.’ ‘We expect cost pressures to become even more pertinent into 2011, as life insurers need to maintain and grow their market share, and at the same time, ensure their readiness for Solvency II and the myriad of other global regulatory requirements which they are likely going to need to comply with.’ Rutherford concludes, ‘Provided equity markets remain strong, there should be continued strong upside in investment income growth. This in turn is likely to support higher confidence, particularly if premium and new business volumes remain relatively buoyant, as they have recently (albeit with a change in business mix from business to investment business). Although confidence is weaker, it is not far below its long-term average readings, and provided the weaker profits prove to be temporary in nature, the prospects for life companies remain reasonable, given the current ‘fragile economic recovery.’

Life Insurance confidence slows again to just below pre-crisis levels

CONFLICT OF INTEREST

COO of the FIA, Justus van Conflict of Interest legislation, which was first introduced by the FSB last year, was established in order to address concerns regarding conflicts of interest between financial services providers, representatives and clients. The regulator was concerned that there was not a level playing field in the sale of financial services products, with the result that some consumers were being bullied into purchasing certain products that may not be in their best interest. It was suggested that these products were actually in the interest of the financial intermediary, rather than the client, due to non-regulated advantages that they might benefit from in the process such as inducements, enticements, kick-backs, hand-backs, overseas trips, free benefits, free compliance, free practice management, additional remuneration or anything else of this ilk. The well known and respected editor of Personal Finance, Bruce Cameron, describes conflicts of interests as: “Abhorrent practice of financial service companies incentivising so called financial advisors” However, in order to understand the reasoning of the act one needs to review the history of how the conflict of interest evolved. The intention of BN58 of 2010 was to ensure better management of conflicts of interest due to the inherent non-compliance culture in South Africa, in addition to highlighting management responsibility in managing conflict of interests by prohibiting certain financial interests. The broad view in the financial services industry is that with the introduction of these amendments to the General Code of Conduct (GCC), South Africa is not only following international best practice, but is also seeking to eliminate certain practices, such as the awarding of undue preference to certain product suppliers or products created by a particular product supplier. FSPs need to know that limitations will be placed in respect of what they will receive from third parties and also in respect of that which they may themselves provide to third parties The new rules stipulate that companies must ensure they seek to avoid any conflict of interest as provided for in section 3 of the GCC act in the best interest of their client with due care and diligence. With this in mind, the following points must be kept uppermost in the intermediaries mind: The definition of “conflict of interest" means you should always ask yourself the following:

• When you sell a financial product or service to a client are you in a situation where any commission or incentive motivates you to present biased and unfair product recommendations, or hide certain facts that would otherwise negatively influence that client’s decision? If such an incident arises, then there is a conflict of interest, and in the spirit of the law, this must be appropriately managed and disclosed. One of the key definitions is: “Immaterial financial interests” which means any interest with a determinable monetary value, the aggregate of which does not exceed R1000 in any calendar year from that same third party in that calendar year. The following increased disclosure requirements must be strictly adhered to: • Any conflict in respect of that client (remember “conflict” always includes potential conflict) • Measures taken to avoid or mitigate that conflict, that conflict , per your conflicts policy • Any ownership interest or financial interest (unless immaterial) that you may be or become eligible for • Any relationship/arrangement with any third party that gives rise to a conflict, in sufficient detail to understand the nature of the relationship and the conflict • The existence of and where to access your conflicts policy

What is “a financial interest”? This is defined as any cash, cash equivalent, voucher, gift, service, advantage, benefit, and discount, domestic or foreign travel. The intermediary must always keep the following in mind: Every FSP must adopt, implement and maintain a Conflict of Interest Policy that complies with the provisions required. This policy must be easily accessible for public inspection It must also manage conflicts of interest by adopting the following principles: • Ensure mechanisms are in place for identifying conflicts of interest. • Build procedures and business rules that ensure avoidance of conflicts by providing suitable documentation to clients that make the disclosure. • Adopt controls that will identify reasons for non-compliance and prescribe mitigating actions. • Implement suitable risk management processes to that will facilitate compliance with the policy through adequate monitoring review and reporting. • Awareness and understanding by all Representatives of the consequences of non-compliance, e.g. suspension of licence, and to provide relevant training as required. • Contain a list of all associates of the FSP

CONFLICT OF INTEREST

Pletzen on Conflict of Interests Types of financial interest The type of financial interest, or recompense, that a provider or its representatives may receive or offer, is limited to: • Financial interest which a FSP may receive from or pay to a third party A new section is introduced into the Code, section 3A , entitled financial interest and conflict of interest management policy. Section 3A(1)(a), which takes effect on 19 October 2010, sets out the financial interest which a FSP may receive from or pay to a third party, restricting it principally to commissions and fees authorized under the Long Term Insurance Act, the Short Term Insurance Act and the Medical Schemes Act. Provision is made for fees earned or paid in terms of any other legislation. • No financial interest to a representative for giving preference Section 3A(1)(b), which takes effect on 19 April 2011, prohibits a FSP from offering a financial interest to a representative for giving preference to the quantity of business secured to the exclusion of quality, or for giving preference to a specific product supplier, where the client has a choice of more than one product provider, or for giving preference to a specific product of a supplier, where more than one product from the same provider is available to the client. Section 3A(1)(c), which takes effect on 19 October 2010, applies to entities which are both product providers and financial services providers. • Conflict of interest management policy Section 3A(2), which takes effect on 19 April 2011, requires all FSP’s to adopt, maintain and implement a conflict of interest management policy that complies with the provisions of the Act. Section 3A(2)(b) details the contents of such a policy, whilst section 3A(2)(c) to (f) provide for measures of adoption, employee and representative education on the policy, monitoring procedures and the appropriate publishing of such a policy. The stated aim is to have it accessible for public inspection at all reasonable times. • Anti-avoidance Section 3A(3), which takes effect on 19 October 2010, prohibits any FSP or representative from attempting to collude with any associate in an attempt to avoid, limit or circumvent compliance with Section 3 of the Code. • Reporting duty Section 3A(4), which takes effect on 19 July 2010, requires the compliance officer of a FSP (or the FSP, if a compliance officer is not required by law) to report on the provider’s conflict of interest management policy, to the Registrar. The aspects which should be reported on include implementation, monitoring, compliance with and accessibility of the conflict of interest management policy. • The changing landscape for incentives It can be anticipated that many of the incentives provided by suppliers to FSPs will fall away as a result of the implementation of the amendments to the Code and that relationships between product suppliers and providers and their intermediaries will change. The question is whether those changes will be for the better and whether clients of FSPs stand to benefit from the changes.

Points to note This debate is likely to continue for some time. In the interim, all financial services providers need to begin work on their financial interest and conflict of interest management policies and should take due note of the following points:

• Commission authorised under the Long-term Insurance, Short-term Insurance and Medical Schemes Acts. • Fees authorised under these Acts, if those fees are reasonably commensurate to a service being rendered. • If the above fees are not paid, then fees that have specifically been agreed to by a client in writing and which may be stopped at the discretion of that client are allowed. • Fees or remuneration for the rendering of a service to a third party, which can be considered reasonably appropriate to the service being rendered or reasonably proportionate to the value of the financial interest. • An immaterial financial interest that is subject to any other law. However, a provider may not offer any financial interest to Representatives • For giving preference to a specific product supplier or product (if that Rep is able to recommend other products or suppliers) • For bringing in high volumes of sales without any consideration to the quality of that service.

Looking ahead Under the definition of a financial interest we find, among others, such terms as advantage, benefit, sponsorship, other incentive and valuable consideration. Providers are therefore being urged to take the broadest possible interpretation of such terms to frame their policies to avoid any conflict of interest to ensure that the Code is not inadvertently infringed. The definition of third party is also broad and encompasses product suppliers, other providers, associates of a product supplier or a provider, a distribution channel or any person who, in terms of an agreement or arrangement with a person referred to, provides a financial interest to a provider or its representatives. The mere task of establishing who is related to who, or has relationships with a third party to identify potential conflict(s) of interest before entering into any relationship poses a daunting challenge to a FSP. The conflict of interest is firstly a living document with obvious unintended consequences that have to be shared and thrashed out with the regulator as some of these unintended consequences could potentially lead to onerous policing, with costly administrative processes. These all result in costs that will ultimately be borne by the consumer, including minor issues such as drinking a coffee with a broker. Surely the intention was not to police minor issues but rather the major problems with regards to conflicts of interest? The FIA has made a number of suggestions that have been incorporated into the Act and while we realise there are some ongoing concerns, it is important that the industry is not seen as endorsing any bad practices by members. We are all striving for a level playing fields and an environment where good advice can survive. The ultimate goal is for the consumer to be in a situation where they are able to make an informed decision. The FIA will constantly be seeking clarity where there are complications in interpretations and will challenge the regulator to ascertain the true intention of wordings when necessary.

LEADERSHIP DEVELOPMENT

INSETA and Wits partner to develop SMME leaders Wits Business School and the Insurance SETA (INSETA) have partnered to design and launch a new programme aimed at advancing business and leadership skills in insurance sector small, medium and micro-sized enterprises (SMMEs).

sector from being driven by talented individuals, to one that is led by cohesive teams of professional strategic leaders who are not only strong individually, but can also work exceptionally well with their staff and create successful businesses,” said Cairns.

The Certified Programme in Leadership Development (CLPD) is a first of its kind programme for the sector and will give SMME leaders the important skills to deal with the many challenges they face. The overall objectives are to give managers a broad exposure to the fundamental nature and process of management and human behaviour within organisations, and to facilitate the transition from management to leadership.

Sandra Dunn, Chief Executive Officer at INSETA, echoed these sentiments and explained that the programme is an important new training initiative for the SETA.

The programme is designed for people in leadership positions in SMMEs in the sector and for high-potential employees who have been identified by the organisation as potential leaders. Previous tertiary level academic qualifications are preferable although not essential to apply; the programme thus opens doors to many people who many not yet have the qualifications, but do have experience and leadership potential. It is also run on a part-time basis. Doug Cairns, the programme’s director at Wits Business School, says that the programme is designed to develop management and leadership skills across a broad range of disciplines required in SMMEs. “We looked at three particular objectives when outlining the skills to teach in this course. Firstly, these leaders should be able to systematically explore opportunities and threats, appraise strengths and weaknesses and evaluate alternative courses of action. In this regard, they need to develop an increased awareness of the economic, political and social factors which affect business management in South Africa. “Secondly, we impart the importance of the ability to innovate, which is a fundamental element for success in highly competitive environments, such as the insurance industry. And thirdly, we position leaders in a larger context; leaders need to be more than just effective individuals, they should also demonstrate a superior ability when interacting with team members and in getting the best out of people,” explained Cairns. The programme content is ultimately designed to show leaders and managers in SMME environments how they can run their own small businesses more effectively and efficiently. “The overall aim driving the programme is to develop the insurance industry as a whole. Part of achieving this will come from transitioning the SMME

“INSETA is excited about this initiative. There is a great need for training of this nature in the insurance sector; small businesses and entrepreneurial ability are key ingredients for growth and development in South Africa and with this programme we aim to develop leaders who can put their organisations on the path of sustainable success, who can innovate and create new products and services, and who can create jobs,” she said. Programme participants all receive a bursary from INSETA covering all tuition and material costs. Visit www.inseta.org.za/ for details or call 0861 130 013.

LIFE COVER

Life, Critical Illness and Disability Cover Should be a Financial Planning - Priority for Younger Clients By Craig Harding Managing Director of Altrisk

I’m young and healthy so do I really need all this life and critical illness insurance cover? It’s a question that many younger individuals often grapple with, and for the most part, many leave getting their finances in order too late. This is according to Craig Harding, Managing Director of Altrisk. This view is further highlighted in the 2010 Life and Disability Insurance Gap Study which shows that South Africans remain seriously underinsured. The 2010 study commissioned by the Association of Savings and Investments South Africa (ASISA) and conducted by True South Actuaries & Consultants warns that South Africa's income earners aged 16 to 35 would not be able to sustain their standard of living even remotely based on their current insurance cover. "There’s a tendency to think that life, disability and critical illness cover is something you worry about when you’re older - not when you’re in your 20s and bolstered by superhero bravado. The reality is, the sooner you consider life cover the better as the costs of insurance products increase as you get older. If you’re unlucky and suffer poor health the cost of your cover will be even more expensive. There’s every reason for single people to have a life policy in place if they want to be certain that their parents or any dependents are looked after,” says Craig. “Equally important, if not more so, is cover for critical illness and disability. Few individuals enjoy contemplating the emotional and financial consequences for themselves and their family if they were to contract a serious illness or become permanently disabled. What is often overlooked is the repercussions of an impairment or disability. Will you and your family be in a position to financially provide for ongoing healthcare, therapy and other necessary lifestyle changes? The case for cover for anyone who is self-employed is even more crucial. How will a person's death or illness affect his business? Is the business dependent upon him financially? A business owner's death, illness or disability can have far-reaching consequences for many other people,” says Craig.

Wally Bodin, an independent financial advisor and planner adds to the debate. “Critical illness or dread disease cover has evolved since the 90s to a modern day ‘must have’ in financial planning. Planners no longer wait for their clients to reach a ‘mature’ age to put critical illness cover in place. The fact that a client in their early thirties is healthy is no reason to not cover them for critical illness. This wasn’t always common practice, but when one looks at statistics for cancer claims, people are being diagnosed at far younger ages than they were 20 years ago, due to medical advances and greater awareness. Recent industry claims statistics reveal that cancer is responsible for 50% of all dread disease claims. Sadly, cancer knows no age. Women are the most neglected market, and ironically, they have almost double the number of claims than men,” explains Wally. In terms of the type of cover and how much cover is needed, Wally offers the following advice: “An ideal structure would be a level premium pattern. This means that the premiums do not change for the duration of the policy. You might pay more per month when you are younger but you pay a lot less as you get older. By taking level cover your insurance premium will stay the same, so in your later years when you need the cover the most, you will still be able to afford it. “Should your budget allow, take the longest guarantee term available. Long-term planning is essential as this is the last bit of life assurance you are still going to have well into your 70s. Having no cover means you’ll have to find the cash shortfall to supplement your loss of income. In terms of how much cover, I believe a good starting point for any cover is a thorough financial needs analysis,” explains Wally. Still not convinced? Based on actual experiences in 2010, True South estimates there’ll be 159 034 deaths in South Africa this year and 52 481 disability events. That’s 435 deaths and 144 disabilities every day. “The bottom line is most people believe in insurance — some are just not happy to pay for it. Sadly, their families end up paying for it by suffering financially after the death of their loved one, or from the repercussions of the onerous care requirements and costs after an accident, illness or disability,” concludes Craig Harding, Altrisk.

POLITICAL RISK

Managing Political Risk Key to Investment in Africa By Tracy de Kock Manager - New Business, Credit and Political Risks, Alexander Forbes a member of the FIA.

With the South African construction industry having hit a wall following 2010 and government’s nationalisation debate steering new mining investment abroad, political risk experts report a rush of South African businesses into Africa, seen as offering greater returns on investment with comparatively manageable risk. For example, “the current iron ore rush in Liberia, Sierra Leone and Guinea is seeing South African companies pouring idle plant and machinery into the region” says Tracy de Kock, Manager – New Business, Credit and Political Risks, Alexander Forbes. Yet with elections underway in two of these countries and just having been cancelled for fear of violence in a third, the possibility of political instability or even war remains very real. Since competition for resources in developing economies is intense and civil institutions and the rule of law weak, power contests provide opportunities for unrest and violence. In these conditions contract and property rights are easily violated, abrogated, confiscated or stolen. Political risk cover makes business possible in unstable or unpredictable countries and is critical in helping investment reach parts of the world that it would normally avoid. As South African business’ appetite for African investment grows de Kock and her team are seeing a noticeable expansion in their African political risk book. Yet it remains a hard story to tell as “businesses can’t really talk about political risk. It’s a bit like telling people you have kidnap and ransom cover” warns de Kock. If host government’s find out that an investor’s plant and machinery is covered for political risk the temptation to take back, nationalise or cancel the concession can become overwhelming. While this is becoming less of a problem in Africa it is certainly the case in countries like Venezuela as well as a number of central Asian republics where political risk cover has become increasingly expensive. Much of the risk faced by South African businesses in Africa, especially in construction and mining, involves redundant and as yet unpaid for World

Cup plant and machinery being moved to various opportunities in Africa. If this is stolen, nationalised or destroyed in war or political unrest the owners still need to pay it off “making political risk cover key to delivering returns on 2010 plant and machinery - and surviving the recession in South Africa” explains de Kock. The important thing is to have the right political risk cover in place before anything goes wrong. It is too late to try and get cover after the event. “Even if you think a country is safe, things can go wrong very quickly in developing economies” warns de Kock. In Africa, the most risky investment destination remains the Democratic Republic of Congo where many South African businesses have nonetheless been investing successfully for a while. This “demonstrates the effectiveness of political risk cover in making investment possible even in volatile situations” says de Kock. This year’s somewhat unexpected political riots in Mozambique also emphasised its fragility despite, and perhaps because of, good investment and growth rates. As such “many South African tourism, freight and agricultural businesses in Mozambique have this year, somewhat belatedly, recognised the importance of political risk cover” adds de Kock. Madagascar too has recently run in to electoral difficulties and violence “causing the many South African businesses involved in titanium mining ventures there to clamor for political risk cover” reports de Kock. And even in Zimbabwe which continues to buck the more investmentfriendly African trend, political risk cover remains the only cover that you can still secure “with, ironically, the London market more willing to write Zimbabwe risk than the South African” concludes de Kock.

Political risk cover makes business possible in unstable or unpredictable countries and is critical in helping investment reach parts of the world that it would normally avoid.

INSURANCE NIGHTMARE

“NIGHTMARISH” Insurance Risk posed by Toll Road Inspired Lift Clubs By Mandy Barrett, Glenrand M.I.B’s Manager Marketing and Sales Personal Product Solutions.

Insurance brokers Glenrand M.I.B. have issued an advisory that lift clubs, sparked off by rising motoring costs and the shock toll road tariffs proposals, are a potential insurance nightmare. Among the reasons for a likely increase in lift club numbers, the company cites two recent petrol prices adjustments and the expectation that, with oil prices on the rise, possibly accompanied by a further weakening of the Rand exchange rate, there could be further increases, while motoring costs including insurance rates are on the increase as insurance policy renewal season arrives. Moreover, with dozens of toll gates planned across Gauteng's freeways from June, motoring costs in the province in particular are under pressure and the temptation to join a lift club to commute to work and schools is seductive the company points out in a statement. And therein lies major insurance risk says Mandy Barrett, Glenrand M.I.B’s Manager Marketing and Sales Personal Product Solutions.

“Looking at the Gauteng scenario in particular, the implications of the toll roads for motoring costs are clearly significant with various organisations warning that the toll fees proposed by the SA National Roads Agency Limited (Sanral) would be crippling. “The further expansion of the Gautrain rapid rail service between Johannesburg and Tshwane, when it opens, will no doubt help matters, although at a cost, but there’s speculation that lift clubs will nonetheless mushroom as commuters look for cheaper transport alternatives. “The key risk aspect in this scenario is whether the driver of a vehicle in such a club is driving for reward, i.e. charging passengers and we urge the motoring public to exercise caution, as in this case, passenger liability cover may be excluded under their personal motor insurance policies. “The driver in this scenario needs to register under Chapter 6 of the Road Traffic Act as a taxi operator, subject to all the rules and regulations of that legislation, including holding a professional driving permit and with commercial passenger liability cover in place. “As the driver in a lift scenario without such cover in place, you could be open to crippling claims if your passengers were to be injured due to your negligence. It’s all to do with the purpose of providing the transportation and if that purpose is for profit, even indirectly. “Take a worst case scenario where, say, half a dozen people are injured in an accident while you were transporting them. You could be faced with multiple claims running into millions of Rands for everything from pain and suffering to loss of future earnings and the claimants could sue you in your personal capacity. “It would also be advisable not to breach other legislation. For example, have a Professional Driving Permit in addition to a taxi licence where this is required. “On the other hand, just as drivers should be clear on where they stand in terms of insurance cover for transporting passengers, passengers in lift clubs should establish whether the driver to whom they entrust themselves, is indeed properly covered to avoid a potentially scenario where they are injured or worse and there is no insurance cover in place, possibly resulting in long drawn out legal battles with no certainty about the outcome.”

BROKER-CENTRIC

100% Focus on Brokers and Local Eye-to-Eye Contact is Key By Carel Nolte, Head of Etana People and Brand Etana’s broker-only dedication with localised quick decision-making and no direct selling of any kind are three keys to Etana’s success.

client. It can and does happen. Who wants your insurer to be your biggest competitor?

Carel Nolte, head of People and Brand at Etana explains: “You can’t divide yourself and give equal loyalty to two diametrically opposing distribution channels … and still retain the trust of your brokers.

“We appreciate that Etana has made a stand loyal to brokers as well as against centralising – a techno phenomenon that means you don’t know, or speak, to decision makers anymore. You get hold of a stranger who says ‘the computer says it’s not covered’. I believe to serve our clients a broker has to fight, especially when a claim is borderline.

“We deliver vital competitiveness and specialist products including many unique benefits. This is backed by cutting edge electronic risk management that virtually eliminates human error through our matchless Advanced Risk Questionnaire (ARQ). “Etana has done what brokers asked and not gone direct in any way. Our goal is to set brokers apart in the business insurance arena and not go into business against them. They are Etana’s sales force and our job is to empower them as they deliver priceless personal guidance to our mutual clients nationwide.” East London’s Paul Reeves of Reeves Insurance Brokers says “Etana’s stand against direct selling is brilliant. It’s uncomfortable and embarrassing to be undercut by the same insurer you include in a quote to a

“But now you have to write to frustrating combinations of people. Then invariably when you finally reach the decision maker you’re told that person is on leave! It was great in the old days when a rep came along, with understanding and power, to make on-the-spot decisions. “That’s what we’ve got with Etana’s Local is Lekker branch here in East London. We visit back and forth and in seconds I can be chatting to the right person. The decision making power is local and around the corner and it streamlines underwriting and claims in a big way,” say Reeves.

C E L E B R AT I N G 1 8 0 Y E A R S

M&F New Managing Director, Peter Todd Mutual & Federal has announced the appointment of its new Managing Director, Peter Todd, who took over the reins leadership of one of South Africa’s leading short-term insurers from outgoing Managing Director Keith Kennedy on 1 February 2011. “I am delighted with the appointment of a new MD of Peter’s calibre,” says Kennedy. “I have absolute confidence that he has the right credentials to lead Mutual & Federal to new heights. He also has the support of an experienced and capable executive team.” Todd, 41, has an extensive industry network and strong working relationships with the brokerages, a distinct advantage considering that broker relationships account for over 95% of business at Mutual & Federal. He also boasts over 15 years of solid financial services industry experience, both in South Africa and abroad, having held a variety of top positions, most recently as Distribution head for ABSA Financial Services and Managing Director for ABSA Insurance and Financial Advisers, where he led a sales team of over 2,600 people and was instrumental in launching a training and development academy. With a BCom in Accounting and a Law degree (LLB), both from the University of Cape Town, Todd has also worked at Alexander Forbes, PSG Investment Bank and AIG. “I believe the greatest contribution I bring to this role is my enthusiasm and passion for the short-term insurance industry, and my belief in the vital role Mutual & Federal has to play in a sector that is so important to the South African economy,” says Todd. “My first-hand experience of the different strategies being adopted by insurers will enable me to contribute significantly to the implementation of the growth strategy at Mutual & Federal.” During the breakfast hosted by Todd and Mutual & Federal at the Grace hotel in Rosebank, he emphasized the importance of the FIA to Mutual and Federal and the intermediary and the Industry in general. Obviously M & F would not be able to deal with the intermediaries on a one to one basis, but rather with a representative body like the FIA. The Financial Intermediaries Association of Southern Africa (FIA), as an intermediary organisation, plays a key role in positioning the value of intermediation. He was of the opinion that the FIA had a hugely important role to play in the educating the consumer in that the intermediary adds a value added service that needs to be paid for. The consumer will always have the choice of going direct or using an intermediary. March 14 is an important day in the history of Mutual & Federal, a member of the Old Mutual Group, and for the entire South African insurance industry. On

that day, in 1831, the first indigenous South African insurance company was established in Cape Town. The driving force behind its formation was Britishborn Thomas Le Breton, who convinced prominent Cape Town citizens to invest in a new company, the South African Fire & Life Assurance Company. The South African Fire & Life Assurance Company is one of the companies which forms part of the lineage of Mutual & Federal. March 14, 2011, thus marks the 180th year of continuous involvement from Mutual & Federal in the South African insurance market. As Mutual & Federal celebrates its history and birthday, the company is also celebrating its latest financial results, announced recently. 2010 was a good year for the company, with profits up 27% and a strong underwriting performance. Professor Vivian outlines the history of Mutual & Federal as follows: • The life operation of the SA Fire & Life was placed into run-off in 1881, but the company continued to trade with pride as South Africa’s first short-term insurer. • The SA Fire & Life company was acquired in April 1894 by one of the great Victorian insurers, the London & Lancashire Fire Company, but continued to trade under its own name. • At the time of the takeover, Robert Brydone was a member of the South African Board of Directors of the London & Lancashire. He left shortly thereafter to form another South African insurance company, this time in the Transvaal, the Federal Insurance Corporation. In 1911, Brydone returned to the fold and sold the Federal to London & Lancashire, with the Federal continuing to trade under its own name into the late 1960s. The London & Lancashire was eventually taken over by the Royal Insurance Group in the UK, becoming part of the Royal Group. • In the 1960s South Africa had become a republic and the government made it clear it was unhappy with foreign insurance companies operating in South Africa via branches. It indicated that all branches should be registered as South African companies and trade on the Johannesburg Stock Exchange. This conversion became known as the ‘domestication of foreign companies’. • As a result, the Royal’s many companies in South Africa therefore merged with Old Mutual’s short-term company, the SA Mutual Fire & General Insurance company, in 1970. • However, in order to be known as an overtly South African insurance company, a suitable name was needed. The Mutual part was easy, reflecting the Old Mutual’s involvement (The Old Mutual was established in South Africa in 1845). As the names ‘Royal’ or ‘London’ would reflect a British heritage, it was then decided to use the name ‘Federal’, from the Federal Insurance Corporation. And so the Mutual & Federal Insurance Company was born and the rest they say –is history. “Poised to improve performance even further in 2011, Mutual & Federal can look back on a proud history, being part of the start of the local South African insurance market,” says Peter Todd, Managing Director of Mutual & Federal. “We will continue to lead the short-term insurance sector, embracing innovation and providing value to all our customers. We are certainly looking forward to another 180 years.”

APPOINTMENTS

Glacier Marcel Bradshaw (1) appointed to Glacier by Sanlam's executive committee Marcel Bradshaw, head of Glacier International (a division of Glacier by Sanlam), has been appointed to the Glacier executive committee with effect from January 2011. Bradshaw is a qualified attorney with over 10 years’ experience in international investments. Glacier International was launched in 2010 as part of Glacier’s strategy to continuously expand its solution set to meet the needs of its client base.

AUM Appointments Drew Schnehage (2) has been appointed as Managing Director. Frans van Niekerk (3), who currently fills the role of Financial Manager and is a shareholder, will be joining the Board of Directors. Pieter Bezuidenhout (4) also joins the board in a non-executive capacity. Pieter is currently Chief Financial Officer of Zurich South Africa, and has a wealth of industry knowledge, having previously worked for Mutual & Federal as Chief Financial Officer for 10 years. Steven Rimmer (5), our UK shareholder and nonexecutive director in the last 3 years, will take up the position of non-executive Chairman.

Lion of Africa Lion of Africa Insurance has strengthened their senior management team by appointing Mashudu Mamathuba (6) as Senior Manager: Planning and Strategy to enhance the organisation's operating strategy. Mashudu joins the company from ABSA Insurance Company (AIC) where he took up the position as Process Custodian. With more than five years experience in the shortterm insurance industry, Mashudu began his career as Assistant Manager in the Claims Innovations department at Mutual & Federal (M&F).

Centriq Insurance Nischal Ramcharan (7) Client Accountant Nischal, a BCom student at Unisa, worked for eight years at a retail company in Durban before joining Constantia Insurance Co Ltd and moving to Johannesburg in 2009, where he gained twelve years experience in the insurance sector before joining Centriq Insurance as a client service accountant this year. Lebohang Mokoena (8) Client Servicing & Operations Lebo, a BCom Accounting student at the University of Johannesburg, worked part time at Tile Africa as a sales consultant. Lebo gained experience as a vac student at PWC & Ernest & Young. In 2009, she began work at ABSA Capital as a settlement agent in Money market shares where after she joined Centriq in December 2010.

RENASA Harry Coetzer (9)– Regional Manager Mpumalanga Harry started his insurance career with Sentrakas as a motor underwriter in 1964. In May 1988 he joined S A Eagle in Nelspruit as Claims Manager after which he held various positions with Zurich until 2010 when he was Zurich’s Nelspruit Branch manager. Harry joined Renasa as Regional Manager Mpumalanga in December 2010. Frank Jordaan (10) – Regional Manager Free State Frank started his career in the industry in 1975 at Santam. In 1982 he joined SA Eagle as claims manager East Rand. In 2003 he became Area Sales Manager Free State and Northern Cape where he managed all classes of business underwritten by Zurich. After 28 years with Zurich, in 2010, Frank joined the Renasa team where he remains committed to high service levels and strong relationships. RENASA’S SPECIALIST CONSULTANT Nick Beyer (11) ACII A.M.P (Harvard) Development Manager Nick began his career with Royal Insurance Company (now M & F) in 1969. In 1971 Nick moved to SA Eagle as claims superintendant from where he was promoted through the ranks to become a branch manager in 1967, a regional manager in 1991, the General Manager Operations in 1995 and CEO in 1998 which post he held until he retired in 2009. Nick has a wealth of experience, is well known throughout the industry and above all is liked and trusted by the broker fraternity.

B U D G E T 2 0 11 / 1 2

No surprises here… Budget 2011/12 hardly makes a splash as Gordhan holds back the NHI bomb By Gareth Stokes online editor for FA News

Will he or wont he? The big debate in the run up to Finance Minister Pravin Gordhan’s 2011/12 Budget Speech was whether he would make public how much taxpayers would contribute to government’s National Health Insurance (NHI) funding. He chose to defer the announcement until next year… Budget 2011/12 was a rather pedestrian affair. Gordhan announced the usual changes to sin taxes, fuel levies and income tax brackets. He made small adjustments to primary rebates and interest rate and retirement annuity deductions too. But the feeling after scrutinising the minister’s 48-page speech is that significant changes will only take place next year. That’s when the minister will announce changes to the tax laws to fund NHI, most likely by way of an additional payroll tax, an increase in Value Added Tax (VAT) or a combination of the two. Financial intermediaries can breathe a sigh of relief this year, because aside from your duties as individual and corporate taxpayer there wasn’t much of concern in the latest budget. The biggest change – something which will have an impact on your high income clients – relates to deductions from income for retirement contributions!

(R195 652) of your retirement-funding employment income to a provident fund and you contribute 7.5% (R97 826) to a pension fund. The taxable income under the proposed legislation is significantly higher than that under the current legislation and although a total contribution of 22.5% of earnings is made, you cannot “claim” the full R285 326 contributed as a deduction! Taxable income would come to R1.3 million (under the new legislation) versus R1.206 million under the old, or R37 600 more tax at the top marginal rate! Anyone earning more than R888 000 per annum could be worse off thane before. Gordhan made other tweaks to the retirement and savings environment. The tax-free lump sum benefit upon retirement increases from R300 000 to R315 000. And the interest and foreign dividend exemption lifts from R22 300 to R22 800 (under 65s) and from R32 000 to R33 000 (over 65s). Deductions for contributions to medical schemes were largely unchanged. An individual (under 65) can deduct R720 per month for the first two beneficiaries and R440 per month for additional dependants. Other medical schemes payments and qualifying medical expenses can be deducted once they exceed 7.5% of the taxpayer’s taxable income. Other “big” announcements include the changes to transfer duties (houses up to R600 000 will be zero rated and a new 8% rate applies to transfers exceeding R1.5 million) and an effective date for the replacement of secondary tax on companies with a withholding tax on dividends was set at 1 April 2012.

Financial intermediaries can breathe a sigh of relief this year, because aside from

From March 2012 employer contributions towards an employee’s retirement funding will be treated as a taxable fringe benefit. While employees will still be able to “deduct” up to 22.5% of their taxable income for contributions to pension, provident and retirement annuity funds, the deduction limit is set to a maximum of R200 000 per year. This change could force a rethink of the popular employee benefit structure where the employer contributes 15% to a non-contributory provident fund and the employee contributes 7.5% to a pension fund, to take up the full 22.5% limit. If you earn R1.5 million per annum then the limit is going to make a difference to your take-home pay. Let’s say your employer contributes 15%

your duties as individual and corporate taxpayer there wasn’t much of concern in the latest budget. The biggest change – something which will have an impact on your high income clients – relates to deductions from income for retirement contributions!

GOVERNANCE

Individuals Pledge towards Good Governance By Terry Booysen CEO of CFG

Good Governance Pledge Increasingly, individuals hear so much about the values of good governance, yet most often never know what this really means and the manner in which to achieve good governance. Simply put, good governance is about upholding the principles of self discipline and ethical behaviour. Sadly, many individuals are 'ignorant' of this simple truth and have possibly believed that the term 'corporate governance' is only attached to the functions and behaviour of a board and its directors. Of course this belief is quite misguided. There is a distinctive role that each of us can fulfil to ensure that the businesses in which we work -- and spend so much of our time in -- become positively influenced by our individual attitudes and behaviour. Therefore, it goes without saying that good governance is not singularly dependent upon a board and its directors, but indeed is greatly enhanced by the support each company employee contributes towards the company becoming a better, disciplined and sustainable organisation. It is in this regard that CGF Research Institute believes each small change in positive behaviour found within concerned and responsible individuals - who support this notion - can have a radical influence upon not only their fellow colleagues, but also the entire organisation. Accordingly, CGF Research Institute has embarked upon the necessary actions which would be required to assist individuals to cause "change for good". We also believe that the chain is only as strong as its weakest link. By equipping individuals to visibly show their commitment to good governance, so too will others become motivated to follow similar behaviour which ultimately affects the society in which we live. Through this initiative, CGF Research Institute would like to encourage and motivate tens of thousands of individual employees -- locally and internationally - to show their individual support for good governance practices by visibly displaying their CGF Pledge Certificate for Good Governance and acting on their commitment to positive change. We believe, together with all our constituents, that the employees who become members of CGF Research Institute's drive for good governance will influence the change necessary within business, its supply chain and overall customer satisfaction. Start the change by committing to good governance practice in your daily routines; at home, work and among friends. Show your support by taking the CGF Research Institute's Good Governance Pledge.

There is a distinctive role that each of us can fulfil to ensure that the businesses in which we work - and spend so much of our time in - become positively influenced by our individual attitudes and behaviour.

ABSENTEEISM

Organisational Wellness should Contribute a Healthy Bottom Line By Dr Lerato Motshudi, Medical Advisor at Health Management Solutions, Alexander Forbes Health a member of the FIA.

Most South African organisations have a host of separate employee

mental and social aspects of health. For example, “structures can be put

wellness initiatives, all meaning well but very seldom amounting to a

in place to support employees who are going through divorce, legal

coherent wellness programme supporting the business.

battles, drug and alcohol addiction and so forth. These same facilities can also lend support to managers needing guidance in handling

Dr Lerato Motshudi, Medical Advisor at Health Management Solutions,

subordinates or coping with change” explains Motshudi.

Alexander Forbes Health says “most companies have employee wellness programmes which include

employee assistance

Key to rolling out programmes of this nature is communication –

programmes (EAP), HIV management programmes and wellness days -

employees should know what programs are available to them as well as

all generally administered as stand-alone initiatives on separate budgets

how they can access them while being confident of impartiality and

with different reports and reporting structures.”

confidentiality.

Since there is seldom one person who receives and co-ordinates all

Getting all this right, however, needs to start with a single person or team

reports, organisations do not develop an overall view of wellness,

collating all wellness data – and developing a holistic view of health

making it impossible to develop a holistic wellness strategy. The result is

management across the organisation.

that companies struggle to improve overall employee health and wellness with absenteeism remaining high.

As such Motshudi strongly recommends that “organisations develop a

The first step in turning this around is to conduct a survey of those areas

perspective, get a clear picture of what’s going on or what’s missing, and

wellness coordinator role - to review all data from a wellness of the business affected by poor employee health. This will provide a

then address needs with practical

good picture of where wellness in the organisation is and where it needs

programmes.”

to be. The next step is to identify goals and then design and implement a wellness programme with clear steps, precise allocation of

If organisations feel they lack this

responsibilities and measurable deliverables directly supporting

expertise or would be unsure of how to

business goals.

hire for the role, the function can be

“Absenteeism costs companies a lot of money each year. Investing in a

These provide not just an organisational

outsourced to wellness specialists. well-managed employee wellness programme has been proven to

overview, but are able to advise on how

reduce absenteeism, improve staff morale and increase productivity.

internal wellness practices benchmark

Employees also tend to be more positive when they have employers who

against similar organisations within the

respond to their needs making them more likely to stay with a company

industry.

for longer” says Motshudi. While most organisations medical aids already provide employees with support for their physical illnesses, there is also a need to address the

INVESTMENTS

Time to Adjust Portfolios for Rising Rates

By Craig Pheiffer, GM, Investments at ABSA a member of the FIA

Best guesses from economists about the expected uptick in interest

(municipal fees and power) are negating rental growth. The category

rates have one thing in common – they are moving closer in rather than

offers steady income and warrants a place in a balanced portfolio,

further out. This should tell investors that portfolio alignment for a rising

though profit-taking after 30% growth is understandable. A spread of

interest rate climate can’t be put off much longer.

listed property counters is always recommended to diversify risk across geographies and property sectors.

The tip comes from Absa Investments, Absa banking group’s investment arm and a long-term advocate of timely asset allocation adjustments.

4. AVOID fixing your money market investments for very long periods of time. Rates for different deposit periods do include the expectation of

Craig Pheiffer, GM, Investments, comments: “Inflation expectations are

future interest rate movements, but consider these rates against

rising and the Reserve Bank’s recent upward revision to its inflation

investments in shorter-dated deposits which are more flexible and

forecast is a strong hint that the next move in rates will be up.

potentially allow you to optimise each successive rate hike.

“GDP forecasts have been rising and the recent 4.4% GDP growth rate in

5. MOVE offshore: If you have little or no international exposure, review

the fourth quarter beat market expectations. Food, fuel, utility costs and

your strategy. A faster pace of inflation domestically relative to our

road tolls will push up the CPI. A softer rand will also encourage a rate

trading partners would tend to weaken the rand. That would make the

rise.”

investment opportunities in some developed equity markets even more attractive for a balanced portfolio.

How should investors react? 6. BEEF up exposure to rand-hedge stocks: Opportunities can still be “Fine tune your portfolio” is the advice from Absa Investments. Pheiffer

found in domestic equities, with rand-hedge counters becoming a focus

believes at least six responses are appropriate …

area. Some resource companies look promising as do Richemont, BAT and SABMiller. Retailers like Shoprite are not traditional rand-hedge

1. STAY diversified: don’t simply dump all holdings in asset classes

stocks, but they and others have increased cross-border earnings on the

that could be impacted by rising rates.

back of into-Africa growth. They could attract increasing attention.

2. REDUCE long-dated bond exposure: rising yields at the long end of

“Those belonging to the Rip van Winkle school of

the yield curve are softening prices and suggest rising inflation

long-term investing might ride things out

expectations. Bonds do deliver steady income, however, and investors

as rates change through the cycle,”

may be better served in shorter dated issues where capital volatility is

notes Pheiffer. “Most, however,

lower. Tradable corporate and parastatal paper can add a yield-

see value in timely asset

sweetener.

allocation changes. The time to look at those changes

3. RETAIN some listed property exposure: this class was up nearly 30% last year, but shed 6,2% in the first two months of 2011. Like bonds, listed property is vulnerable to forward expectations of higher rates. Some property company distributions have been disappointing as costs

would be about now.”

R E G U L AT I O N S

Regulations Shape the Changing Role of Intermediaries in 2011 By Barry Taylor Chairman of the Short Term Exco and Director at the Financial Intermediaries Association of Southern Africa

Regulatory developments will remain a key focus for intermediaries in 2011, as ongoing legislative changes within the insurance space are set to further define the changing role of the insurance intermediary. This follows an eventful 2010 for insurance intermediaries, who participated in the processes involved with the draft regulations of the Insurance Laws Amendment Act (ILAA), the set up of the Data Sharing project (STRIDE) and Treating Customers Fairly (TCF) initiatives. With the promulgation of the ILAA Binder regulations as well as the full implementation of the FAIS General Code of Conduct, Conflict of Interest regulations and the Consumer Protection Act going live, 2011 is set to be another eventful and defining year for insurance intermediaries. It is important not to underestimate the time, effort and cost that the implementation of such issues will have on the industry. Management and all responsible staff will need to apply themselves to ensuring that sound and good practice, as well as a common sense approach, continues to be adopted as the various regulations come into force. The new Treating Customers Fairly (TCF) guidelines, which are currently being thrashed out by the FSB and other related industry bodies, will be a milestone not only for insurance intermediary sector but for the Insurance Industry as a whole. This is an important piece of legislation that aims to ensure the fair treatment of customers, primarily by product providers. It also seeks to promote consumer confidence in service providers by ensuring they, the consumer, are provided with clear information before and after a transaction; that all advice is appropriate to their circumstances; and that they do not face unreasonable barriers when it comes to the changing of products. There is a clear trend for greater consumer protection and intermediaries will need to adapt to this changing face of regulation. There needs to be a far more professional approach regarding how business is transacted. This will involve not only a closer look at education and skills development but also greater scrutiny on how this

is done. Aside from regulation, a further challenge that is certainly being faced by the intermediary industry is the need for skilled practitioners. The industry is crying out for new talent and the time has come for a real and concerted effort into designing an education and development programme to elevate the all-round skills of our members. In particular with the imminent RE1 examinations that are being introduced for all financial services representatives, the FIA is in the process of negotiating an advantageous learning package for our members to assist them in this process. The role of the intermediary is challenging, with new direct insurers as well as retailers now venturing into insurance. However, there is a place for the intermediary in a market that has become saturated with â&#x20AC;&#x153;otherâ&#x20AC;? players which can only lead to confusion amongst consumers who are no longer receiving advice and are instead buying a commoditised product without knowing whether it is right for them. Intermediaries need to continue honing their skills, understand their clientâ&#x20AC;&#x2122;s needs and offer a range of innovative and cost effective products backed up by good service. There is nothing new in this but it is these basics that underline the value of the insurance intermediary.

There is a clear trend for greater consumer protection and intermediaries will need to adapt to this changing face of regulation. There needs to be a far more professional approach regarding how business is transacted.

SNIPPETS Peninsula Branch The FIA Peninsula hosted their first member meeting of 2011 on Friday, 11 February. It was once again held at The Hussar Grill in Camps Bay and was extremely well attended. A reason for the excellent turn-out probably had to do with the special guest speaker the chairman invited, i.e. Jonathan Kaplan, local and international rugby referee. Jonathan brought a refereeâ&#x20AC;&#x2122;s jersey which was raffled and the winner was Larry Marcus. The money for the raffle was once again donated towards the Ruyterwacht Preparatory School, where 500 children gets fed on a daily basis.

Platinum Branch The FIA Platinum Branch held a very well attended meeting by member on 25 February 2011. The meeting was addressed by among others Eugene Kemp renowned physcologist with a program on RSG on Saturday mornings and the MD of Innovations Maven.

Mid-Free State Branch

Hatchling Corner The FIA would like to congratulate Priscilla Moagi of National Office Empire Road on the birth of her baby Thando. We also offer heartiest congratulations to Trudie van Vuuren of Free State Division on the birth of her son Matthys Willem van Vuuren born 02/03/2011. We would also like to express our thanks to Eskom and the cold winter experienced in the birth of these bundles of joy. 42

continued on page 47

H E A LT H C A R E

Linza van Aswegen talks to Prominent Women in Healthcare - Dr Nerina Wilkinson FIA: As one of South Africaâ&#x20AC;&#x2122;s small minority of expert female cosmetic surgeons, what would your personal opinion be on the role of women within the healthcare profession and therefore the industry?

Association of Plastic and Reconstructive Surgeons SA. How valuable is it for any profession to have an organisation whereby one should join as a member?

I believe that the need for woman doctors today is recognised and can be seen by the fact that woman comprise a large portion of entrants into medical schools in a large range of countries, including USA (Harvard, Yale) to South Africa. For many years specialists training has been dominated by male doctors due to the simple fact that personal and family life does encroach upon a womanâ&#x20AC;&#x2122; s professional career. Most of the times, specialist training and childbearing usually coincide. However, an increasing number of female doctors have been able to juggle these responsibilities with a resultant visible increase in the number of female specialists.

I think it is crucial for any professional person to be part of a professional organisation. In the plastic surgery field the mission of the Association is to support the members in their efforts to provide the highest quality patient care and to attain/ maintain professional and ethical standards. To qualify for membership, plastic surgeons must undergo certifying examinations and be committed to highest standards of ethics and patient safety. I personally believe that by being a member of a specific Association encourages me as a member to maintain the highest level in training, expertise and ethics.

It is clear that women physicians often have a practice style that differs from that of men with longer visits, more patient-physician communication/ inspiration rather than a more controlling/ commanding style from men. As a female cosmetic surgeon, I am also able to understand my female patientâ&#x20AC;&#x2122;s insecurities and develop a closer understanding of what their expectations of cosmetic surgery may be. FIA: Was entering the healthcare industry what you had expected after you had completed 12 years of rigorous training? The health care industry as a whole can be seen as a large corporation consisting of many smaller individually run companies. As a cosmetic surgeon, I have entered a very small, exclusive part of this corporation. In the first few years of qualifying, I trained future plastic surgeons in the government sector. Due to minimal funding and resources this was challenging and trying at times. I now practice from a very exclusive private cosmetic surgery clinic where I do not need to deal with the stressors that are experienced by other colleagues working at large private and state hospitals. So for me entering the health care industry has been what I expected and I am privileged to be working under the best conditions. FIA: You are also a member of various associations including amongst others, the General Medical Council United Kingdom as well as the

FIA:Being an extremely successful career woman, what would the contribution towards future financial success be without having a financial advisor within your personal life as well as advising you regarding your practice finances? I am a successful career woman in the medical and aesthetics field. My interests are to improve my medical skills and knowledge. I would therefore need to admit to having limited interest and knowledge of financial investments. I therefore value input from my financial advisors in considering my resources, risk profile and helping me determine a balanced and realistic plan to meet my projected future financial goals. I would definitely not allow my financial advisor to perform surgery on me, in the same light I personally do not attempt to invest without financial advice. FIA: Compassionate care and a thorough knowledge of procedures and products are inclusive to the service offered to your patients. Would you regard this as a priority within a service that you would wish to receive from your financial advisor? As a medical professional I strive to treat my patients with the highest standard of patient care and innovative technology and up to date techniques. Conversely, I would expect my financial advisor to be aware of any new changes and movements in the financial field and to advise me of the best, but also safest financial investments.

H E A LT H C A R E FIA: Despite the ever-changing technology with its financial implications, procedures and legislation including CPD points, do you foresee yourself continually adapting to all of these and if so, why? The medical field is a living science with new scientific evidence being discovered daily and new technology entering the market at alarming rates. I do however think that it is of utmost importance for any specialist to keep abreast of new technology and to change with the times. This does not mean that as a professional we should embrace every new technique/ technology, as some may be short lived, but we should, once the technology has been proven by peers to be beneficial, that after thorough research the individual surgeon should be open to gain knowledge and experience in the new technology to provide their patients with the best possible treatment.

In contrast, I think that we can be proud of our private health care facilities that we have created, where we receive letters from patients abroad complementing us on the professional services and experience that they have received in our medical facility. The biggest challenge that we have today is not to allow these centres to be eroded by poor governance and not to accept staff that have not been adequately trained. The challenge would therefore be to continuously strive to improve the public sector health care as this is the feeding ground for the private sector. FIA: In which way does your family contribute towards your successful career? The biggest challenge many of us face is how to balance the demands of family, friends and career. Most medical professionals want happy and fulfilling lives outside work, but we have to make personal sacrifices in order to achieve our aspirations.

FIA: Where do you see Health Care in SA in 5 years time? Are we on the right track or do you think that there are specific priorities at this stage? What is Health Care South Africaâ&#x20AC;&#x2122;s biggest challenge in the short and long terms?

I am blessed to have a very close supporting group of family and friends, who understand the demands my career has on my life and my dedication to my patients.

I believe that restructuring of the public health care sector has achieved substantial improvements in terms of access to the general public. However, the public system is suffering by the weak health system management and low staff morals. This would need to be addressed to maintain an acceptable public health care sector.

I would therefore say that their continued support in the small things that count (like making me a nutritious fruit smoothie in the morning, or helping me find a special dress for an occasion, massaging my sore back at night). All the above help to make my personal life more pleasurable, so that I am able to give that little bit extra to my patients.

L E G I S L AT I O N

The stalking Black Swan By Michael E. Stoker Insurance Gateway® a division of Stoker Risk and ICT (Pty) Ltd www.insurancegateway.co.za

Futurists would have it that one should seek out “Black Swan” events as they represent both threats and opportunities. I would put it to you that instead of seeking this one out, there is a Black Swan stalking the financial services industry.

conduct, that have either come into effect recently, or will come into effect this year and within the next two to three years.

Shifting market dynamics Already there has been a major shif t in market dynamics. The Conflict of Interest Regulations have impacted on some of the largest financial services companies in the country, right down to the very core of their business model.

Much has been written about the individual pieces of legislation and codes, so I don’t intend to do that here, but one needs to step back and take a helicopter view of all this, to get the bigger picture. Looked at in bullet form, it should be clear that the impact of the recent and looming changes, will be nothing short of seismic.

We have seen mergers and acquisitions and re-alignment of principals in the underwriting management environment, a mega merger in the long term sector and predictions of further insurer mergers, which will be brought about by the onset of SAM.As an intermediary, how do these changing relationships affect your product supply chain?

Last year saw the introduction of the:

The dichotomy Now, last year and in the first month of this year, approaching 20% of FSP’s licenses were withdrawn due to a failure on the part of the provider to submit compliance reports, or financial statements, or to pay the annual levies. I can’t help wonder however, how many of them intended the license to lapse, but were unaware that there is a specific procedure to cancel an FSP license. Folks that is, who have reached the point where they have decided the regulatory burden does not justify the return. Are we facing the same situation as in the UK and Australia, where a regulatory big bang caused a huge decline in the number of intermediaries?

Black Swan events are characterized by the extreme impact they have and the Black Swan that I have in mind, is not a single event, but rather the convergence of general and industry specific legislation and codes of

• King III Code and Report on Corporate Governance - 1 March 2010 • Codes for Responsible Investing in SA - draft release Sept 2010 • Revised Association Codes of Conduct e.g. FIA; SAIA; CFA Institute This year sees the introduction of: • The new Companies Act – 1 April 2011 • The Consumer Protection Act – 1 April 2011 • FAIS - The final phase of the Conflict of Interest Regulations – 1 April 2011 - The commencement in earnest of the Regulatory Exams - Jan 2011 • The Insurance Laws Amendment Act–anticipated during 2011 The medium term will see the introduction of: • • • • •

Specific micro-insurance legislation Solvency Assessment and Management Treating Customers Fairly National Health Insurance Social Security and Pension Fund Reform

This list isn’t intended to be exhaustive, but is more than enough to demonstrate how wide ranging and far reaching the changes are, to the extent that in the next five years the insurance and financial services landscape in South Africa will be barely discernable, from that of today.

Whilst it is appreciated that the law is an evolving, living thing, regulatory certainty is a pre-requisite for business sustainability and the dichotomy is, the more that the regulatory burden causes experienced intermediaries to leave the industry, the less choice there is for consumers. Sadly, in many instance the loss of such talent to the industry, is irreplaceable. Is this simply collateral damage, or just an unintended consequence? Impact on risk profile It is vital, to consider the impact of all this legislation on your company’s risk profile, as brought together virtually simultaneously, the introduction of strict liability, greater awareness of the piercing of the corporate veil in terms personal liability attributable to directors and officers of companies, coupled with increased expectations in terms of corporate governance and responsible investing, these issues come together to create a perfect storm for the risk manager and never before has the role of the compliance officer been more important than it is now.

L E G I S L AT I O N Jettisoning decades old case law One little anticipated aspect on the impact of Consumer Protection Act, is the need for contracts to be in plain language. The rush by insurers to launch plain language insurance policies stands to jettison decades, if not centuries of case law, based on established wordings. Personally, I can’t wait to see the plain language war and nuclear exclusion clauses contained in short-term policies. On a serious note though, what are the implications for intermediaries of a spate of new plain language policy wordings? What is their responsibility when a client’s cover is switched to a new plain language wording? Will they have to do a word for word comparison, a legal analysis even, and advise the client on whether to go with the new wording or not? Granular underwriting New IT systems, which are also in part being driven by legislation such as ILAA and SAM, are giving rise to a more “granular” approach to underwriting as systems gain the ability to process disparate data. Telematics and the internet are playing an increasing role and alternate distribution channels continue to evolve. Opportunities As with any Black Swan (if you are willing to call a series of events a Black Swan), the convergence of all this regulation over such a short period brings threats and opportunities. New products are emerging or in some instances a heightened awareness of the need for cover, such as directors and officers liability insurance, has occurred. Moreover, as the apps are customized and costs come down, the new distribution channels should not be seen as precluding the intermediary.

And, as Justus van Pletzen, the COO of the Financial Intermediaries Association of Southern Africa points out, the bulk of the industry specific legislation which has a direct impact on intermediaries and financial planners has already been enabled, with virtually just the Regulatory Exams to go. When looked at positively, even the RE’s are an opportunity. Have you for instance thought of telling your clients about the exams? About how the authorities wish to ensure that financial services providers are competent? About what your company is doing about it and the investment it has taken? The industry has rolled out workshops and training material for RE 1 on an unprecedented scale and the best thing one can do with regard to RE 1 is get it behind you. Then, while those who are caught in action paralysis suffer the negative consequences, you can use this as a marketing tool to re-enforce the confidence of customers and prospects, in your business. One should also be mindful not to throw the baby out with the bath water. For instance there was a rash of negativity widely publicized in the media about the nitty gritty of the Conflict of Interest regulations. Without denigrating from these concerns, it should be borne in mind conflict of interest is only one aspect of business ethics, of which sustainability has become an important driver, within the risk management fraternity. For those who seek, it is often in times of upheaval that the greatest opportunities arise, however those intent on thriving in the new normal, will need to be sharply focused on the regulatory environment and those who persevere and get through it, will certainly emerge with robust businesses and will most certainly earn the right to call themselves, new age financial services providers.

CONFIDENCE

Survey Reveals New Confidence in 2011 By Jonjon Smit, Sales Director of CIB Insurance Solutions A recent survey amongst insurance brokers in South Africa has revealed that they are slowly gaining confidence in the South African economy once again. These levels are slightly more positive than the confidence levels recorded last year January. According to the CIB Broker Confidence Index Survey, which measures the confidence levels of insurance brokers on a number of issues, the results for the last quarter of 2010 showed that brokers have confidence levels of 66% for the economy in the next 12 months. According to Jonjon Smit, sales director of CIB Insurance Solutions, this is a very encouraging outlook for 2011. The survey did however reveal that brokers are continuing to lose confidence in their prospects of attracting new business over the next 12 months, an indication that South African consumers are still not out of trouble financially. The survey recorded confidence levels of 76%, down from the 79% recorded in January 2010. While brokers may be less confident of attaining new business this year, the survey revealed that they are more confident of maintaining their current customer book, with 78% expressing confidence in their ability to retain existing clients. Smit says that this is because brokers realise how valuable current clients are and make a more concerted effort to retain the business.

According to those surveyed, the biggest challenge facing brokers over the next 12 months will be complying with new legislation and regulations. Smit says that this is understandable as the Consumer Protection Act, which come into effect on 1 April 2011, and the Financial Services Board (FSB) regulatory exams are on everyone’s minds. “It is of the utmost importance that brokers familiarise themselves with their obligations in terms of these exams. They have been put into place to ensure that those operating in the financial services industry, including brokers, are both competent and knowledgeable.” The survey also showed that the confidence levels amongst brokers with regards to business conditions for the local insurance industry over the next 12 months fell marginally to 67% in the last quarter of 2010 in comparison with last year’s 68%. “The outlook for 2011 seems very positive amongst all respondents, which is a very encouraging sign for the South African economy and the growth of the insurance sector” concludes Smit.

E M I S S I O N S TA X

Santam creates Concession for Vehicles bought Prior to Introduction of CO2 Emissions Tax - Lourens Joubert, Head: Commercial Underwriting Following the introduction of the CO2 emissions tax this year, South Africa’s leading short-term insurer Santam has announced it will make special concession for insured vehicles bought prior to 1 September 2010. In cases where a vehicle qualifies for total replacement, the insured will not be penalised for any shortfall on insured value due to the introduction of the CO2 tax component. Emissions tax is aimed at encouraging vehicle owners to purchase more fuel efficient cars to lower CO2 emissions. The tax is calculated at R75 per g/km of CO2 emissions for every g/km above 120g/km. The tax translates roughly to between R5 000 and R10 000 increase on the overall price of a new vehicle. While the manufacturer is responsible for paying the tax to SARS the consumer ultimately carries the burden of the tax as it’s included in the cost of the vehicle. Lourens Joubert, Head: Commercial Underwriting says: “CO2 emissions tax has been introduced to combat and decrease the ever-increasing levels of greenhouse emissions across the globe by incentivising motorists to purchase vehicles that are more environmentally friendly. The increasing level of CO2 emissions is a big problem. Globally, there is an estimated 600 million vehicles that emit over 900 million metric tons of CO2 each year. Vehicles account for 15% of fossil fuel emissions and this figure is expected to triple by 2020.”

“The insurance concession by Santam is designed to ease the burden on the insured by including the tax value for vehicles bought prior to September 2010 as many insureds may be underinsured for the tax component which was not added to the value of a vehicle prior to implementation of this tax,” says Joubert. Vehicles bought after the introduction of the tax do not qualify for the concession as the purchase price will include the CO2 emissions tax component and policy holders should insure for this value. At inception, the tax will only be applicable to sedan vehicles but will apply to LDV (Light Duty Vehicle) models at a later stage. This incentive will be valid for both personal and for commercial vehicle owners. “Brokers are advised to verify with the concerned insurer the exact terms adopted after the introduction of CO2 tax, as most insurers may not compensate for the tax if it’s not included in the value of the vehicle. The broker is obliged to advise the client that, in case of total loss, not all insurers will be willing to fully compensate the insured unless the policy is adjusted accordingly,” explains Joubert Government is yet to announce the possible impact on pricing of secondhand vehicles. As standard procedure, Santam uses the Trans Union Auto Dealers Guide to determine the market value of vehicles. The impact of the tax on second-hand vehicles will therefore be correctly reflected in the Trans Union guide.

SNIPPETS Continued from page 42

Anton Swanepoel Workshop Pretoria 15-03-2011 & Johannesburg 16-03-2011. The first two Anton Swanepoel workshops on the regulatory exams have been completed. It was attended by more than 550 delegates in Pretoria and Johannesburg and immediate feedback about the value that the workshops bring was extremely positive. Above see photo’s from the workshop in Pretoria.Some of the comments from members were as follows: “I would just like to say that I found the presentation and content to be absolutely fantastic. It was well worthwhile and at the same time very entertaining. I will recommend to everyone that they attend the presentation” - Stuart Riley.“I would like to take this opportunity to thank the FIA for arranging the RE 1 course presented by Anton Swanepoel. Anton took all fear of the exams and the preparation thereof away from me. He made seemingly uninteresting topics such as Code of Conduct, FAIS and FICA so exciting and clear that you want to utilise it daily and, as he said, run your business based on these principles because that is what we would expect if we were the clients. The presentation was one of the best that I’ve ever attended, well presented, focused, knowledgeable and extremely entertaining at the same time. I was held

captive for the entire course and was quite disappointed when it was over. I have already visited the secret website and the shortened study material will be very useful as time is of the essence for everybody. Please extend my sincere thanks to Anton.” - Karen van Aswegen. “Soos jy weet is daar baie bekommernis in die makelaarsbedryf oor bogemelde eksamens en die moontlike gevolge indien van ons dit moontlik nie tydig slaag nie. Ek is ook baie bekommerd oor die moontlike gevolge as die eksamens nie geslaag word,want dit kan katastrofiese gevolge vir van ons hê. Verder is ek oortuig dat dit nooit die Wetgewer se gedagte was om van die eerbare adviseurs doelbewus uit die bedryf te weer nie, en ek is verder oortuig dat hierdie aspek aangespreek kan word deur die FIA in onderhandelinge met die FSB. Die kursus deur Anton Swanepoel aangebied, was so positief ontvang deur alle kursusgangers waarmee ek gepraat het, en ek dink dit was die regte motivering op die regte tyd,dit sal so goed wees as meeste van die wat die eksamen moet skryf so aanbieding kan bywoon.Hierdie is nie eenvoudige eksamens wat sonder die nodige insette geslaag gaan word nie.Die positiwiteit wat hieruit verkry kan word sal net waarde toevoeg tot enigeen se

onderneming en dit sal verder bydrae tot die selfvertroue van elkeen wat dit slaag in sy/haar werk omgewing. Ek het self gesê hierdie eksamens sal nie van my n beter adviseur maak nie, maar na ANTON se aanbieding en die voorbereiding en slaag van die eksamens is ek oortuig dat dit van ons baie beter adviseurs gaan maak wat baie vir ons kliente gaan beteken en gevolglik ook baie meer vir die adviseurs se inkomste gaan beteken. Ons kan net beter toegerus wees om ons rol en verantwoordelikheid in die bedryf te vervul. Hierdie is n wen wen situasie. Ek wil graag die FIA bedank vir hulle insette en rol wat hulle vertolk,ons moet positief en daadwerklik ons lede tal vergroot om ons liggaam, die FIA te versterk met groter verteenwoordiging uit die bedryf om nog beter namens ons lede en die bedryf te kan onderhandel . Ons moet daarteen waak om nie soos die Afrikaner politiek te versplinter en dan op te eindig met minderwaardige inspraak nie.-Groete.”,- Dolf Nel. Anton Swanepoel's seminar/lecture yesterday at the Ro o d e p o o r t C o u n t r y C l u b w a s a b s o l u t e l y brilliant...thanks to the FIA ! – Cyril Rabinowitz.

SNIPPETS Lowveld Branch The “ 2010 FIA LOWVELD LOYALTY AWARD “ trophy was awarded by the outgoing chairperson Louie Amorim to Jenny Ferreira ( Dressed in Blue ) and Pippa Schaeffer ( In Orange ) Previous recipients of the award were. Louie Amorim 2006, Joppie Lombard 2007, and Denis Paiva 2009. No award in 2008 due to merger. The award is presented by the Chairperson to an FIA member who has walked the extra mile during the year.

Jakaranda Branch The Jacaranda Branch Members meeting took place on 04 March 2011.

Willie Greyling (Magalies Division Chair) en Johan Ceronio (Jakaranda Branch – chair)

Jakaranda Branch Sponsors

Santam in full glory

Algoa Branch At the end of last year, the Algoa branch got involved in the Santa Shoebox Project and sponsored parties to two of the children homes, namely, Khayalethu Boys Home in North End and the Lelethu Baby Shelter in Westering. It was definitely an eye opener to see how these boys at Khayalethu appreciated the shoebox they received and also the party pack which contains juice, chips and some sweets. It was also amazing how a complete stranger

HUMOUR

could pick a name and sponsor a perfect Christmas box. So many of the kids received what they wanted or needed. At Lelethu, the babies were not older than a year and were either abandoned or removed from abusive homes. These kids touched our hearts. They too received beautiful gift boxes and party packs.

Manie Booysen – FIA CEO sharing information with the members at the Jacaranda Members’ Branch Meeting.