Risk Frontiers—Southern Africa 2015—Botswana

African Risk & Insurance Management News

CRA EVENTS IN AFRICA —Watch this space!— As part of its programme of seminars across the continent, Commerical Risk Africa will be staging an event in Lagos, Nigeria

Time for risk managers to take a definitive lead Liz Booth news@commercialriskafrica.com

[gaborone]—Risk managers have a unique opportunity to become risk leaders and guide their organisations into successful futures, according to Julia Graham, President of the Federation of European Risk Management Associations (Ferma).

Speaking at the first Risk Frontiers— Southern Africa one day seminar, organised by Commercial Risk Africa, she said company boards have increasing responsibilities across the world and there is an opportunity for risk managers to help support them using their knowledge and experience. Ms Graham said: “To connect people across the organisation, risk managers need integrity and strong values. Risk managers have to be credible and to be able to show the organisation and stakeholders that you know your business.” chance to add value She believed there are plenty of opportunities for risk managers to show off their expertise and to add value to organisations but she said, the need for professional recognition was essential to evidence that value.

“We want to call ourselves professionals,” she said “and to do that we must have a career path supported by the evidence provided by exams along the way to ensure we are meeting those professional standards.”

Ferma will soon be launching a certification for its members, based on four pillars.

She explained that these will include the risk managers’ knowledge, experience, a programme of continuous professional development and adherence to a Code of Ethics.

“Professions typically have this type of structure,” she stressed, “whether it be doctors or accountants, for example.

We are trying to talk to people about professionalism.”

Certification has three component

Julia Graham

parts: certification for risk managers based on their level of knowledge and experience coupled with successful completion of an examination, accreditation for bodies providing further education, including risk management and insurance education, and continuous professional development (CPD) which ensures knowledge and experience are maintained to defined levels. Accreditation is about making sure that the organisation which you get further education from is credible.

Organisations which provide CPD, including Ferma member associations, will be licenced to an agreed standard.”

Ferma will be launching a two tier route to certification. The first stage will be for those people newer to risk management. Advanced certification will “take it to the next level”, according to Ms Graham. There will be choices along the Advanced route. For example, as part of the Advanced certification, professionals will be able to choose between insurable risk, enterprise and strategic risk management and financial risk management. “Not everyone will take exactly the same path and it is important that we acknowledge that and reflect it in certification,” said Ms Graham. “In large organisations these roles can be quite separate while in smaller organisations one person may perform all these roles.

Our certification will cater to all. The key is that our certification is developed by risk managers for risk managers,” she concluded”.

That same message came from Gillian le Cordeur, Chief Executive Officer of the Institute of Risk Management South

Africa (Irmsa), who spoke of the success of the first sitting of its board exams last month.

She described development of its qualifications as an exciting journey, saying the key had been working together to produce a credible and valued certification process. Irmsa also has a two tier qualification, combining knowledge and experience.

She explained Irmsa was registered as a professional body in 2012 as part of a drive to encourage higher education and raise standards. “We needed to ensure standards spoke to what we were doing,” she said.

Ms le Cordeur said: “Most risk managers are more likely to have come from audit or maybe the legal side of the business and have fallen into risk management. We need to make sure the journey towards risk management qualifications is valid and worthwhile.” high standards Both organisations place emphasis on continuous professional development (CPD), saying risk managers will need to continually maintain their standards much as other professions demand.

Ways in which CPD is maintained continue to be developed but the need to keep abreast of change was highlighted through the day’s seminar with speakers pointing to existing and potential challenges. They said risk managers need to show their value to organisations and, while passing the exams was a vital part of that, CPD was an equally important part of evidencing risk manager’s credibility to their senior managers.

Ms le Cordeur explained that Irmsa will be launching its second stage exam later this year, following the successful launch of the Stage 1 exam in June.

“We are aiming for about a 60% pass rate.

It was important that the exams are a true test of knowledge but it has also been important to reflect the many ways people came into the sector, their education and their experience. We need to be as inclusive as possible while maintaining the right standards.”

Butch Bacani

Insurers and risk managers crucial to UN’s 2030 sustainable development plans Gareth Stokes news@commercialriskafrica.com

[gaborone]—the risk and insurance communities have a key role to play in addressing environmental and social challenges across Sub Saharan Africa, according to a keynote address by a United Nations (UN) representative at the annual Risk Frontiers Southern Africa conference, held on 23 July, 2015 at the Cresta Lodge in Gaborone, Botswana.

Butch Bacani, Programme Leader, UN Environment Programme Financial Initiative (UNEP FI) for Sustainable Insurance, started his presentation by providing context for the UN’s participation in the risk management discussion. “We believe that the insurance industry [including risk managers] has a key role to play in addressing many of the environmental and social challenges that the world is facing today and into the future,” he said.

The insurance industry is the cornerstone of the global economy, acting both as a shock absorber when unfortunate events and losses occur and as an investor with assets under management totalling approximately $30tn globally. “The ‘investor’ role of the insurance industry is extremely relevant in terms of driving the global

development agenda,” said Mr Bacani.

The key risks facing the global insurance and risk management disciplines today include political risk, cyber risk and the risk posed by technological innovation alongside issues such as climate change, natural hazards and access to insurance.

“Our goal is for a framework that articulates the role of the insurance industry in sustainable economic, environmental and social development,” said Mr Bacani. This vision of a risk-aware world where the insurance industry better understands the magnitude and complexity of the global risk landscape culminated in the UNEP FI Principles for Sustainable Insurance (PSI).

The PSI programme was launched at the UN Conference on Sustainable Development (held in Brazil in June 2012) and is recognised as the largest collaborative initiative between the UN and insurance industry on sustainable development.

Mr Bacani observed insurer behaviour since the introduction of PSI confirms a widespread acceptance of its content.

“Swiss Re was the first firm to come out publicly with a sustainability risk management framework looking at how its insurance, reinsurance and investment

UN2030: Turn to page 3

A REFINED READ

COMMENT

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NEWS

Political risk remains top business concern [gaborone]—businesses

Stronger together

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olitical risk, credit risk, knowing

your customer, cyber risk and the risk of not having the right people in the right place at the right time were all on a packed agenda when Commercial Risk Africa held a one-day seminar for southern African risk managers in Botswana last week.

While there was a lot on the agenda, the day provided a true snapshot of the many issues facing risk managers today. Whether it is an external macro influence such as recession in the west, a local issue of a skills gap, or an emerging risk such as cyber, risk managers are expected to be able to properly brief their senior managers.

And while keeping on top of the current issues, another expectation is risk managers will be able to spend time thinking ahead and warning of potential difficulties on the horizon. No wonder then that risk managers are so busy but also that there is a strong need for training, education and a certified career path to follow.

Thinking ahead was the message from Butch Bacani, who outlined the very real prospects of a planet in crisis. His was a positive message, however, pointing out how much of a role risk managers can and should have in encouraging best practices throughout their organisation and suggesting while individuals may struggle to make a difference, coming together as a collective can have a major impact.

Working together was also the theme emerging from Tanzanian insurance commissioner Israel Kamuzora, who outlined the challenging role that regulators across Africa must play in balancing the needs of insureds against the ability of the insurance market to operate and innovate.

Advocating cohesion at a local, regional and even continental level, Mr Kamuzora suggested African markets need to carefully balance regulation

if they are to compete in a global marketplace.

The idea that Africa should be considered on some kind of second tier basis was roundly rejected by the panellists who all agreed that, although Africa should not be taken as a whole, the continent cannot succeed without competing at the same level as other parts of the world.

There are, of course, some challenges in meeting those standards and some problems are uniquely African. So, understanding more of the political risks and who you are in business with remain key issues for all risk managers. Cyber risk, however, is one of those truly global challenges. It does not matter where the crime originates from, everyone is at risk and there were clear warnings for anyone who chooses to bury their head in the sand.

So no wonder there is such a need for continuous professional development (CPD) to help risk managers keep abreast of changes. Both the Institute of Risk Management South Africa and the Federation of European Risk Management Associations have put CPD firmly onto the agenda and have included it as an ongoing requirement of their new qualifications.

Clearly it will never be enough to pass a single exam if risk managers are to deliver true value to their organisations.

All that remains now is for me to give an enormous thank you to all our speakers from both near and far our sponsors, without which the event would not have ben possible, and also to thank the risk managers who attended and made our first southern African event such a success.

I hope you all enjoy the read and that we will see more of you at our events later this year in either London, Lagos or Nairobi.

Editor Liz Booth +44 [0] 1263 861 676 [w] lizbooth@commercialriskafrica.com

Liz Booth Editor Commercial Risk Africa

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AfricAn risk & insurAnc e MAnAgeM ent new INDUSTRY s Falling prices FOCUS—Oil & Gas: may alread producing y be impac oil ting those parts of africa but what are the prospe where explor cts for those uncovered deposits worth ation has only just exploiting? ....................

20–21

Billie Mcte rnan

For commercial opportunities email hfoster@commercialriskafrica.com

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as a conseq uence of the kafrica.com low of extremist groups in Africa oil price. The effective [LonDon]— ness amplified in suB saharan of oil price afflicted countrie and the Middle East will the largest aFrica cOntinu uncertainty be absorb econom number of s that lack ed tO recOrd and political downgrades the resilienc ic shocks. map from Paul Domjan instability.” in the latest e to Aon for 2015, The map illustrate political risk Insights, added: , Managing Director, as econom increased. business environ Roubini Country s that 2015 ic and political challenging However, the will be a particul proud to continu “Roubini Global Econom year for oil risks picture with improve (Guinea, Liberia ment in the most affl producers ics (RGE) is already have ments in souther is mixed across the icted countrie in Africa, several arly During 2014, e its partnership with and Sierra high or very region, other weakne s Aon for its Leone). of which political risks high Tunisia and The report sses in parts n African countries offset clients. particularly found: “Institut in Morocco, which country risk ratings. of west Africa. by Aon has just supply chain in oil-exporting the emerging markets Egypt, ional quality benefit from should otherwi disruption rose, regions. and risk of cheaper oil which portrays unveiled its 2015 Political “The quarterl se stand to was already and the epidem imports, face risks because y updates to political risk high in these Risk ic the increase Map, of country the risk icon the list of political power in emergin countries d and put extreme has exacerbated these ratings g markets scores and Matthew Shires, vacuums in Iraq, Libya security risks facing vulnerabilities allowing investor highlight developing is the increasi emerging market . Topping and Syria.

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COUNTR Y REPORT With an electi —Nig is very much on on the horizo eria: foreign invest in a holding pattern, Nigeria n, with ors biding their time ............14–1 9

& Liz Booth news@comme corruption, with risk manag rcialriskafrica. kenya and com ers in nigeri south africa [LagoS & as an ongoin all citing corrup a, “The proble LonDo tion m is that politic aCROss africa n]—Risk mana only is it g risk to their busine al risk is so impacting sses. not broad.” geRs are increasingly by growin Peter mulwa concerned but also the appetite the daily operations g political kioko, Risk of investors. risks across saharan region africa, Terry east african manager at in south the sub .

CgF Resear Booysen, executive dynamics can Breweries, added: Commercial some civil Director, “Political Risk Africa society organi risk manag uncertainty ch institute, put that unpred change so quickly criticised govern has been ers across and it is sations ment for the region asking his list of and instability at thepolitical it can create ictability that causes views on a and urged risks, for their voters to not the postponement the range of risks. appear to have executive Offi while nico snyma top of or the fiscal uncertainty around regula risk. exercise their be discouraged Political n, Chief framework.” tion and list of concer remained at the top risks stressed that cer of Crest adviso were concer right to vote. Other in nigeria, risk ry africa, ns, with less of their analysts the problem ned that responding to nervou lead to tension the delay starts at the sness around managers admit saying the than 10% of those fraud would top. electio on the risk has not in the past there have factor the ns. adeba year or has changed been spurts ground. Though yo adebe impending decreased. in kenya manager at the campa of violence Political shin, Risk , ign areas, includi risks include a numbe for intern agnes mbaire, respon agitations mTn nigeria, saw elections has period, the road during al and politic to ng been audit, r of and the the risk al mainly calm. motivated Risk manag sible three concer terrorism as one of are concerned Compliance nigerians violence and of politicallyns and fears his top ement at Postbank, exchange risk remain see a concer about security and said fraud rising fast in the countr political risks are rates, sanctio riots, foreign s a major want ted effort to latory risks. manag y. to ensure it country. challen ns and The decisio for the regu- kirika ers operating in kenya ge for risk nigeri n in Februa goodluck however, ry During , head of Jonathan Risk manag , with Joan electio a’s presidential and to postpone risk manag uncertainty insurance haram has mr Jonathan’s tenure gubernatorial ement ns—one ers Regulatory made some , week ahead elections or caused by forthco say that it remain attacks, from authority, at the scheduled date— of its most Boko of their governorships. adding to horrific s a culture the risk ming change is 200 girls from the kidnapping of more problem. many observ did not come as a surpris gilbert The electio the main of governmental the town of than ns were e hotly Uncertainty cause Protecht, also mwalili, Risk manag independent ers and participants. state last Chibok set to be is impacting for concern. of er put electoral Comm The goodl contested race betwee a massac april to the mass destru in Borno ness of foreign his concerns. political risks at the at already behind the willing top import on the deliver ission was Demo uck Jonathan’s rulingn President Januar re of some 2,000 people ction and “in busine - very certain countr investors to comm y. President People’s ies it to Peoplequickly affected by politicss, people are the ed permanent voters’ y of newly from cratic Party (PDP) Jonathan’s in Baga in response to Political risk they say. and announ al will ex-mil noncha instabi cards opposi both events itary preside tion outcry, but muham lant also include organisation react in different ways. lity. were being cement that the caused a public s the risk nt genera madu elections postponed may see One of others l countr leading to protest all ProgressiveBuhari of the newly because of see it as a majorit as zero risk, while concerns was unexpe security Congress (aPC) formed these y calling on govern s across the now go to risk.

PDP cted. voters ment to addres threats. the polls on will governhad suffered five defecti. Last year, s presidential 28 Chief execut ors who crossed ons from vote, and on march for the ive of the LagosaPC— Financial Deriva the floor to 11 april for join the based the potent governors of states Rewane, said tives Company, Bismar that could ially split votes. the reason now government ck gave PoLiticaL: Liz Booth Turn to page 2 news@

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“A potential war will have a major influence on an oil-producing company, while the balance of payments situation in a country would have a major impact on risk for a whole industry,” he said, adding: “Within the same industry different firms that are exposed to the same political event or environment can be affected differently because of their specific strategic capabilities and resources, high level government connections or historical advantage.”

Mr Nazare stressed Africa is not a homogenous territory and risk exposures vary widely in different countries. However, he said, there are some distinct features that shape the economic, social and political landscape of many African countries and contribute to higher political risk levels. n Despite positive real growth rates during the past decade, the economies of many African countries are still underdeveloped and characterised by a weak private sector and heavy reliance on natural resources. n Despite a growing middle class, many African societies suffer from extreme poverty and poor social development and education levels. n Despite touting—in principle—multiparty politics, the political landscape of many countries is still shaped by political instability, corruption and weak state institutions, as well as political violence.

“Key political risk factors to look out for in Africa therefore include those influenced by sluggish economic and social development, corruption, political instability and political violence,” Mr Nazare said.

“Africa has experienced growth with non-inclusive economic development, scant economic diversification, little employment growth and sparse infrastructure development and slow implementation of measures for wealth sharing,” he warned.

A lack of economic development typically results in unstable local currencies, balance of payments and trade deficits, high inflation, high cost of living and social instability, according to Mr Nazare.

It is not necessarily good news for resourcerich countries either, with Mr Nazare adding: “The overdependence on resource income in many countries, for example Angola, Nigeria, Zambia and Sudan, makes these economies extremely vulnerable to price changes in one commodity, shocks in the world economy and domestic insecurities.”

—Liz Booth

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into Africa must be aware of the volatile political environment that exposes them to high political risk, according to Lawrence Nazare, Group Executive Director at Continental Reinsurance.

He said risk managers at inwardfacing businesses must remember to factor in the impact of unequal growth and GDP expansion with discriminatory economic and social development, resulting in high youth unemployment and a lack of access to resources.

Other risk concern the potential government fiscal response to global shocks and vulnerabilities as well as its possible response to environmental crises such as droughts and floods.

Food security is also a rising risk, while African countries face economic contagion from recession in the west and the risk of a social media revolution and the recurrence of the Arab Spring phenomenon.

He said: “Afro-optimism prevails but the continent suffers from some deep-seated problems—poverty has been reduced, but it remains pervasive and, despite its almost 800 million citizens, Sub Saharan Africa’s share of global GDP is just 1.1%.

“Although the world raves about African growth, economic development and social development challenges, political instability, corruption and political violence are realities that still shape the African political risk environment.”

Mr Nazare explained political risk may include international wars, economic sanctions, terrorism, government instability, state failure, creeping expropriation, breaches of contract, repatriation restrictions or subtle discrimination “Certain political events come as a surprise but I would like to surmise that political risk is normally a process rather than a sudden event,” he suggested. “Major political changes as a result of major events such as elections, revolts or wars pose political risk but the collective impact of smaller events should not be ignored, for example, corrupt behaviour over time having a major influence on a country’s political stability.”

He also warned political risk has interrelationships, with one form of risk creating other forms—for example, macroeconomic trends influencing political risk on the one hand, and on the other hand political decisions having economic consequences.

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Cresta LoDge, gaBoro a one-da ne, Bot y con sWana issues throug ference exa mining h a mix the fol of pre n talent sentati lowing , ons and key and devtraining roundt elo ables: n Cyb n reg er risk pment ulation and insu n pol n fina itical rance ncial risk risk n Cro insu ss-bor der tra rance n Cou sponso nterpa de reD By: rty risk

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NEWS Credit | Continued from p1

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Gareth Stokes on why market and credit risks go hand-in-hand with trusted business relationships

Know thy counterparty [gaborone]—credit is one of the cornerstones of 21st century cross-border trade and the availability of world class credit instruments is vital to facilitate inter-Africa trade as well as the export of the continent’s production to nonAfrican markets.

Before a bank issues a letter of credit or guarantee for a trade it must assess counterparty risk, with one popular measure of this risk being credit ratings. “A credit rating is an assessment of the willingness or ability of the counterparty (or issuer) to meet their financial obligations as well as a relative opinion on how likely that company is to default,” says Neil Gosrani, Director: Financial Services Ratings at ratings agency Standard & Poor’s.

A credit rating does not provide an indication of investment merit nor is it an absolute measure of default probability. “We cannot say with certainty that Company A is likely to default, but we can say based on our perceptions that Company A is more likely to default compared to Company B, C or D,” he says.

It is difficult to hold a frank discussion on counterparty risk in Africa without dwelling on the negative. Jef Vincent, Chief Underwriting Officer at ATI, told attendees at the 2015 Risk Frontiers— Southern Africa conference, held in Botswana last week, credit insurers faced unique challenges in providing solutions to firms conducting trade on the continent.

“The first issue is that global banks—which are important stakeholders in all commercial transactions—are more and more reluctant to take on risk exposures to African banks,” says Mr Vincent. African banks tend to be small, little known and often have equity of less than $5m and therefore pose huge risks on high value transactions.

International banks are also cautious when asked to confirm letters of credit that have been issued by African banks with the result that the costs incurred by both exporter and buyer escalate.

In more recent times large global banks have become even more reluctant to confirm letters of credit with small African banks due to the post-global financial crisis scrutiny of western regulators. They fear the reputation risk of being accused of doing business with banks that are involved in money laundering activities.

Wary of risk

Cross-border trade is hindered by the absolute lack of reliable information on African companies and country markets. “Global exporters selling into Africa are reluctant to take on African risk because they do not know the

counterparties and cannot rely on financials,” he says.

African companies looking to import goods find it difficult to secure good credit conditions and are pressed by their suppliers for pre-payment or cash on delivery (COD). These firms have to service exorbitant interest rates—upwards of 17% in Kenya—and take on additional ‘carry of trade’ risks.

Importers face risks due to the volatility of African currencies too. “If you buy in dollars and are selling in another

Improving the situation

Neil Gosrani

currency your survival depends on your ability to absorb ups and downs in currency crosses as well as your capacity to secure hedging facilities, assuming these are available,” says Mr Vincent.

Many of the stumbling blocks to African trade stem from a combination of poor compliance by rogue firms and lax enforcement by governments. “The impact of smuggling in the

UN2030: Risk managers crucial for sustainability CONTINUED FROM PAGE ONE transactions were involved in key issues and sectors around the world,” he said.

A key requirement of PSI is that insurers avoid transactions that further the systemic abuses of human rights, result in large scale environmental degradation or promote other negative outcomes. AXA is leading the way in this regard following a May 2014 decision to divest from coal to the tune of $500m and triple its investments in green technologies.

The AXA chief executive is on record saying climate change poses a real risk to the sustainability of the insurance sector.

Associations can play an important role in imparting PSI on their country markets. “The Brazilian Insurance Confederation encouraged its entire insurance industry to adopt basic principles and targets to better manage environmental and social risk,” said Mr Bacani.

As for risk management game-changers, the presentation singled out a desire by industry stakeholders to spend more on

informal economy is one such example,” says Mr Vincent, citing the decline in mobile phone sales suffered by ‘by-the-book’ distributors LG and Samsung following the introduction of a 30% import tariff by the Kenyan government.

These manufacturers reported an 80% decline in volumes allegedly due to smugglers moving handsets overland from Dubai, through Somalia and into Kenya to avoid paying duties.

This type of activity makes it difficult for companies that play by the rules to survive. It also becomes difficult for insurers and rating agencies to build such unnatural factors into their ratings models.

Fraud makes it difficult for banks and insurers to extend trading terms or assess counterparty risk too. “Half of the claims that ATI has paid on commercial risk in Africa have some form of fraud attached to them,” says Mr Vincent. He explains that while fraud occurs commonly worldwide, the level and extent to which it occurs in Africa is quite remarkable.

Fraud, political risk, corruption and transparency in tendering processes are all factors that impact on trade terms.

disaster reduction activities rather than relying on government and insurers to soak up the economic losses that follow.

In Australia natural disasters cost government in the region of $6bn in economic losses each year, with the number projected to grow to at least $20bn due to rapid urbanisation and population growth coupled with the impact of climate change. These amounts exceed those spent on disaster reduction by more than 10 times.

“The Insurance Australia Group realised that its government was allotting funds to postdisaster recovery instead of managing and reducing disaster risk through funding for better zoning, better land use management and better building codes,” said Mr Bacani.

This realisation led to the establishment of an Australian Business Round Table for Disaster Resilience to begin engaging with the Australian government on how it can better manage risk across the country. “If this can happen in Australia why can it not happen in other parts of the world?” asked Mr Bacani.

The global economic impact of natural disaster runs to approximately $200bn each year with most national governments spending far more money on recovery than risk prevention and reduction.

The UN is working with global insurance companies to better understand risk reduction measures that can be applied to devastating natural hazards including cyclones, floods or earthquakes. “Different insurance companies that are fierce competitors in their respective markets have worked with us to better communicate these risks to stakeholders around the world,” he said.

Mr Bacani observed 2015 was a big year for sustainable development: “When we look at sustainable development we cannot only look at government to provide an enabling policy framework—there has to be private sector leadership—but regulatory challenges will have to be tackled.

“Companies across the financial sector have a great deal of potential in terms of financing development, but they are also

It is clear stakeholders in the African insurance and risk management communities need to do more to improve both the risk ratings and terms of trade offered throughout the region.

“Ratings agencies look at a mix of qualitative and quantitative factors to include the environment that companies are operating in, the macroeconomic framework and the political and financial systems in place in a country market,” says Mr Gosrani.

Factors unique to different industries and peer comparisons are also important in determining the eventual risk rating. “Success hinges on tackling counterparty and counterparty risk assessments with clear and transparent rules and criteria—what we would like to see is that individuals in any industry can pick up our criteria and apply them to their unique companies and situations and come up with the same results give or take an adjustment here,” he says.

Mr Vincent says small and emerging companies in Africa will struggle to trade profitably in an environment where banks demand up to 200% collateral for letters of credit or other guarantees and where pre-payments and COD dominate trading terms.

“Credit is the grease of any economy and it is our job to add a bit of grease by making Africa more transparent, more reliable and more creditworthy,” he concludes.

THE FOUR PRINCIPLES Principle 1: We will embed in our decision-making environmental, social and governance issues relevant to our insurance business.

Principle 2: We will work together with our clients and business partners to raise awareness of environmental, social and governance issues, manage risk and develop solutions.

Principle 3: We will work together with governments, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues.

Principle 4: We will demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles.

n Read more about the Principles for Sustainable Insurance (PSI) here: http://www. unepfi.org/psi/commitments Source: UNEP Financial Initiative

subject to financial policy and regulatory frameworks that determine the rules of the game for insurance companies, for banks and for investors,” he said. The UN is therefore investigating solutions to ensure that the policy and regulatory frameworks that govern banks, insurers and investment companies are aligned to sustainable development.

Mr Bacani said the UN had, in consultation with the industry, developed a roadmap for the insurance industry from now until 2030 (a date that ties in with that of the UN’s sustainable development goals). This roadmap identifies

the need to convene an Insurance Network on Sustainable Development, establish a Sustainable Insurance Policy Forum and agree on a set of Insurance Development Goals to tie in with the 17 sustainable development goals that will be adopted by the UN member states in September 2015.

“We must make sure that whether the goal is energy for all, ending poverty, or taking urgent action on climate change, we are able to translate the goals into something relevant from an insurance and risk management context,” concluded Mr Bacani.

Regulation | Talent | Cyber

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Africa’s insurance regulators must cope with the increased speed of market development Liz Booth news@commercialriskafrica.com

[gaborone]—one of the major challenges faced by Africa’s insurance regulators is the pace of market developments. In his address to the 2015 Risk Frontiers Southern Africa conference Israel Kamuzora, Commissioner of Insurance at the Tanzania Insurance Regulatory Authority, says regulators are under continuous pressure to approve new insurance solutions at breakneck speed or risk being branded as ‘red light’ regulators.

Regulation can be defined in one of two ways. There are those who ascribe to the old school of regulation—‘red light’ regulation—wherein the regulator is seen to prevent companies from ‘running’ with their business plans. And then there is the so-called new school of regulation—‘green light’ regulation—which frees up the market to allow firms to drive to their respective business goals at the fastest pace possible.

GOOD REGULATION In practice, regulators apply a mix of ‘red light’ and ‘green light’ regulation to tie in with prevailing market conditions.

According to Mr Kamuzora the acid test for any regulator is to apply the following five characteristics of good regulation.

“The first characteristic of a good regulator is that its actions or regulatory regime be supported by legislative authority by, for example, each type of regulation

resulting from an Act of Parliament,” he says. The second is accountability.

The market should hold the regulator accountable for its actions because good regulation cannot exist without such oversight.

“Risk management provides insights into what might come in the future and helps boards to understand whether or not a business is on track—so it is important that the regulator acts with appropriate expertise,” says Mr Kamuzora, elaborating on the third feature of good regulation. In this regard the regulator’s office must be appropriately resourced to interrogate every aspect of the industry that it regulates.

FAIR & OPEN Characteristics four and five are that regulatory procedures must be fair, accessible and open and that the regulatory regime must be efficient. A ‘red light’ regulator cannot, for example, stymie a new entrant to a country market by making it wait four or more years for a licence.

“Bad regulation is characterised by red tape, regulatory overload and the bureaucratisation of economic and social life and is looked upon with disfavour by the benchmarking exercises such as the World Bank Global Competitiveness Survey,” says Mr Kamuzora. These negative traits can be difficult to avoid as regulators around the globe are seldom free from political influence.

“As regulators we have to make decisions that are in the best interest of the market and then be prepared to stand by

Israel Kamuzora

these decisions, safe in the knowledge that the law and systems will back us up,” he says.

Today’s regulators ply their trade in a world where risks and social and economic problems are controlled by networks of regulators and the challenge to achieve a better regulatory environment hinges on a cohesive approach across these stakeholders. For example, when operators started distributing insurance over the mobile phone network there were three or four regulators in play, each with varying power.

Thus for an insurance regulator to approve a product sold by a mobile

company it must also consider the governor of the central bank (re payment systems) and the regulator of mobile phone companies. “To navigate this mix of state controls with quasi-regulatory influences and constraints makes it extremely difficult for us to operate as ‘green light’ regulators and put in place policies at the speed the market desires,” says Mr Kamuzora.

SPEED BUMPS In the near term insurance regulators will have to meet myriad challenges head on.

Top among these is the fact that new risks are coming to market with increasing speed.

“Firms will arrive at our office and expect

us to approve a new cyber liability policy at the drop of a hat without considering that they are asking us to approve something that we know very little about—and if we fail to approve it quickly enough we are tarred as ‘red light’ regulators,” he says.

The changing frontiers of regulatory regimes due to the emergence of technology-linked innovation is also cause for concern. Regulators are often on the back foot as their offices do not necessarily have the knowledge, experience and expertise to identify risks and provide control procedures in this space. Another major challenge for African insurance regulators is the pressure placed on them by large insurers and reinsurers to consider methodologies that work in their home markets but may not necessarily be a best fit in the country they are entering.

In conclusion, Mr Kamuzora observes regulation is necessary for the functioning of the market economy and even more necessary when it comes to insurance business. “The main challenge faced by African insurance regulators is how to prepare for the increased speed of market development,” he says. To succeed regulators will have to create a single regulatory space wherein a cluster of regulatory issues, decisions and policies can be considered.

A quick look at developed world markets where regulators are backed by political will, appropriate skills and adequate capacity suggest that Africa’s insurance regulators will have to ‘run’ fast to catch up with the rest of the world.

Risks around a lack of talent continue to worry risk managers Having the right person in the right job at the right time is a juggling act for businesses across Africa, Gareth Stokes reports on how the risk is evolving [gaborone]—the risk posed to firms due to scarcity of talent and inadequate skills development remains top-of-mind among African risk practitioners. David Harpur, Chief Executive Officer of the Insurance Institute of South Africa (IISA), said the shortage of suitable insurance candidates for further development in insurance is an indictment on the education systems across a region where birth rates are high and the youth makes up the majority of populations.

Comments at the 2015

Risk Frontiers Southern Africa conference suggest industry associations and accreditation institutes have an important role to play in attracting young talent to the risk management profession as well as training new entrants and existing staff for advancement and leadership positions.

“The insurance industry offers tremendous career opportunities to those who are prepared to put in the effort to develop themselves through study,” said Mr Harpur.

The IISA—which administers the IISA Licentiate, Associate

and Fellow short-term insurance designations—is just one of the organisations hard at work to improve standards in the insurance and risk management sectors.

“We are part of a great industry that wants to call itself a profession, but we cannot be a profession unless we are academically qualified,” Mr Harpur added. While South Africa’s regulators are encouraging professionalism in financial services with the introduction of compulsory regulatory examinations in the advice space, real progress in this regard stems from industry-

led initiatives in the certification (and therefore professionalism) of practising risk managers.

Risk management institutes such as the Federation of European Risk Management Associations the Institute of Risk Management South Africa (Irmsa) and the UK’s Institute of Risk Management are working together to ensure that their accreditation and certification programmes deliver similar outcomes. “In the process of benchmarking our qualifications with other institutes around the world we are leading

the way in setting the standards for tomorrow’s risk management professionals,” concluded Gillian le Cordeur, Chief Executive Officer of Irmsa.

In his parting words to the 2015 conference, Mr Harpur singled out the challenge for stakeholders throughout the insurance and risk management industries as one of developing, documenting and implementing plans to attract new talent—and maximising the massive job creation opportunities that the broader financial services sector offers.

Risk practitioners ‘in dark’ when quantifying cyber liability following data breaches Gareth Stokes news@commercialriskafrica.com

[gaborone]—two days before the 2015 Risk Frontiers Southern Africa Conference news broke of the ‘hack’ of the online infidelity website, Ashley Madison.

The hackers acquired data from 37 million individual accounts including names, credit card details and the sordid fantasies of many of the site’s users.

A BIG DEAL “Ashley Madison is facing one of the greatest fears of any company operating online and their insurer could not even begin to quantify the risks due to this data compromise,” says Beza Belayneh, Managing Director at the African Cyber Risk Institute.

In the Ashley Madison case the hackers demanded that the website be taken down, failing which they would make the details they had obtained from it public.

Their actions, like the actions of hackers in other widely-publicised cyber-attacks, introduce unprecedented risks for today’s risk practitioners.

Most of these attacks involve unimaginable numbers. For example, in 2014, eBay’s 145 million users’ usernames and passwords were compromised while US-based Home Depot suffered an attack that saw 53 million customer email addresses being stolen.

Jonathan Healey, Divisional Executive: FINPRO PI at Marsh South Africa says that there are two broad churches of firms facing cyber risk. “Either you are a business that is providing a technology service or you are a business that is quite reliant on

Jonathan Healey

technology services,” he says.

Many of the risks posed in the provision or consumption of information technology services can be covered via traditional public liability, professional indemnity and business interruption policies. But cyber

risk creates potential liabilities or gaps that traditional insurance covers do not address.

“Threats around cyber are significant whether they stem from criminal activity, where hackers deliberately gain access to your system or are due to so-called ‘hacktivists’ who gain access to your information to derive leverage for their own ends,” says Mr. Healey.

There is also an alarming trend of terrorist groups launching cyber-attacks either to secure funds or to broadcast their contentious messages. Experts warn the liability that arises following such breaches may fall foul of the terrorism exclusions on traditional liability covers.

Mr Belayneh notes few companies are safe from the threat of cyber-attack. “The 6 July, 2015 was a tragic day for cyber security experts,” he says. On this day a

group known as the Hacking Team— which sells spyware to governments around the world—was itself hacked. A massive 400GB of client data was ‘stolen’ and subsequently made public via the website WikiLeaks.

‘NO SECRETS’ “We are conducting business in a world that has no secrets, where there is no confidentiality, no privacy and where whatever you send by email today will survive indefinitely,” he says.

Experts in insurance and risk management agree—firms must accept hacking, cyber-attack and cybercrime are now firmly entrenched in the business risk environment. And determining how and for how much cyber risk should be insured will dominate industry debates for years to come.

events: autumn/winter 2015 Risk Frontiers—London

Grange City Hotel, London, UK

29 October

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his one-day UK-based event identifies the main risks faced by international companies and investors in Sub Saharan Africa.

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Topics under the spotlight will be: Q Macro economic outlook & risk landscape Q Political risk & terrorism

Risk Frontiers—East Africa Windsor Golf Hotel & Country Club, Nairobi, Kenya

13 November

Q Infrastructure risk management Q Catastrophe risk Q Regulation & trade credit insurance

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isk For r ers* g Mana

*Standard delegate rate £299

Risk Frontiers—West Africa eko Hotel, Lagos, Nigeria

3 December

13 Nov/3 Dec events free to attend

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ith Africa’s rapid growth comes risk of all sorts—political, financial, legal, social and, of course, physical—and this risk needs to be managed if companies and individuals across the region are to derive maximum benefit from this growth.

Sessions include: Q Macro economic overview of insurance market in region Q Talent, training & development Q Cyber risk and insurance

Q Political risk Q Risk regulation Q Financial risk insurance Q Moving towards certification

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Key current issues examined • international speakers • topical workshops • networking • knowledge

For more information/to book your space:

www.commercialriskafrica.com/events

Workshops

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CONFERENCE

Risk managers at Commercial Risk Africa’s first Risk Frontiers—Southern Africa event spent the afternoon in a series of workshops, meeting the speakers and learning more of emerging qualifications across the world. Here Liz Booth gives an overview of the afternoon’s events

African risk table talk

Workshop 1: Counterparty risk

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nowing your customer is key to

avoiding potential pitfalls and managing risks, however risk managers say information is still not readily available.

Alex Aquereburu, Chief Risk Officer at Continental Re, who moderated a workshop on counterparty risk, said those around the table had concerns about the lack of information and also the quality of available information.

“Most of us still have issues with ‘knowing your customer’ and it is something that is getting more important as the world becomes increasingly interconnected,” he said. “Counterparty risks are often measured through guidelines but whether they are adequate is another question.

“It is not just a private sector issue but it is also important for the public sector too.”

Mr Aquereburu said delegates agreed “there is definitely a need to be more pre-emptive”.

He added: “Some organisations do some sort of analysis but it is often for their private use rather than publicly available, making it difficult for others to access the right information.”

He also said there is a need to interrogate information supplied by others to ensure its authenticity.

Workshop 2: ERM best practice

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risk management and that impacts on the ability of the risk managers to get processes implemented across organisations.

“Too often the role of the risk manager is completely underestimated within the organisation and sometimes there are real obstacles to the implementation of good risk management as a result.”

She said there is a firm belief risk managers needed to look both internally and externally as well as understanding the special needs of their industry sector if they are to succeed as an enterprise risk manager.

Despite the current hurdles, she concluded: “There is a belief that risk managers will have a key role in organisations going forward. It will almost be a condition for operating licences. We will have more responsibility and a much bigger role.”

he benefits of risk management

are not always tangible and it can be difficult to evidence value to senior management, according to delegates attending the workshop on enterprise risk management.

Moderated by Laura Mallabone, of Satarla Risk Management, the group discussed the benefits of using risk management frameworks and the pros and cons of ISO 31000 and COSO. Ms Mallabone said: “There was a general feeling that there is a shortage of experience in

Workshop 3: Cyber risk and insurance

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he challenge of quantifying risk

and identifying the maximum available cover from the insurance markets topped the agenda in the workshop on cyber risk.

Moderated by Beza Belayneh, Managing Director of the African Cyber Risk Institute, and Gezahegn Dugassa, Director of Awash Bank, the workshop looked at the potential impact of a cyber attack.

Mr Belayneh said: “Cyber risk is like an intelligent hurricane. If you look at a hurricane, it passes overhead and destroys everything in its path. A cyber attack is the same, it destroys everything in its path, but it is intelligent because it passes back over to make sure everything is destroyed and, if not, will destroy it then.”

The challenge, the workshop agreed, was in quantifying the risk and then finding the right level of cover. There was agreement that not everything can be insured and neither can everything be mitigated against.

“The best you can hope for is to reduce your risks, insure what you can but importantly to prepare yourself,” stressed Mr Belayneh.

Mr Dugassa agreed, adding: “Whenever you face a risk, we tend to spend time on pre-emptive measures and on detection but often we don’t spend time on recovery plans once something has happened and we need to do this more in the cyber risk space.” t is important to remember

‘‘I that one size does not fit all and that’s just as true for enterprise

risk management as it is for everything else...”

Julia Graham

Ferma President

Workshop 4: Talent and risk education

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he question of where to go to

find the right qualification and training was at the top of the agenda at the workshop focused on talent and education.

Moderated by Gillian le Cordeur, Chief Executive Officer (CEO) of the Institute of Risk Management South Africa, and David Harpur, CEO of the Insurance Institute of South Africa, attendees agreed the choice they make in terms of education is crucial for their future development as risk managers.

Mr Harpur said: “Risk managers have to choose between local qualifications and those further afield and to decide whether they are prepared to travel. The question is whether those local qualifications will allow risk managers to travel elsewhere and have those qualifications recognised in other countries.”

Getting students into companies and giving them a taste of the roles was seen as an important step and something that should continue to be encouraged alongside the development of more formal qualifications. Access to continuing professional development was also considered essential for those wanting to gain proper recognition of their value within organisations.

Mr Nganunu added: “For example, the country can suffer a rating downgrade and as a result your rating can be affected. Your reputation can go down and, as a result, investment opportunities can go down too.”

From an insurance perspective, Mr Nganunu said attendees believed insurance companies are not doing enough to develop their brands and to ensure their reputations are maintained.

He said this is evidenced in the way, among smaller, family-owned operations, children were no longer prepared to follow their parents into the family business because they did not consider insurance a worthwhile career.

Failure to pay claims has been damaging the reputation of insurance across the board, even if it is only a few offenders, he suggested.

Social media was also identified as a significant risk and there was debate about how companies can manage that exposure. Delegates agreed having a social media policy in the company was a good idea, with formal guidelines wherever possible.

However, it was agreed it is difficult to manage third-party risks in particular and these needed to be flagged to senior managers.

Workshop 6: Risk management as a global profession

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Workshop 5: Reputational risk

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eputational risk is a concern at

both a country level and a company level, according to those around the table for the reputational risk workshop.

Moderated by Fulufhelo Tshikhudo, Group Risk Manager at Airports Company South Africa, and Dziki Nganunu, Chairman of the Botswana Insurance Institute, the group agreed: “Even if your company does everything right, it can still have its reputation damaged because of something that happens at country level.”

isk managers across Africa should be making the most of freely

available sources of information, such as the World Economic Forum annual risk report, to keep abreast of changes and trends across the world.

Julia Graham, President of the Federation of European Risk Management Associations, who moderated this workshop, stressed: “Organisations need to be looking at all these types of information when they are considering doing business anywhere, not just in Africa.

“They need to pay particular attention to sector and regional reports because it shows how your peers view the sector.”

The pace of change was also highlighted as a risk for those who are not keeping up. Ms Graham said: “It is also important to remember that African countries have plenty to offer the wider world. Some developments in Africa are way ahead of elsewhere—it is not all a one-way street.”

Different cultures operate in different ways, which is something for risk managers to bear in mind and can prove to be a hurdle to doing business if those cultural niceties are not observed. A culture of not saying no or being too polite can be just as much of a block as a culture when everyone rushes headlong into things without thinking, for example.

CONFERENCE In pictures

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