RISKAFRICA Issue 6

Issue 06 October | November 2012 ISSN 1812-5964

AIG looks to Africa When life happens

Hidden protection: kidnap and ransom insurance

Dear Reader It’s hard to believe that this is the penultimate issue of RISKAFRICA in 2012. The year has flown by at breakneck speed and has certainly been an eventful one for the African insurance industry. In this issue we throw a spotlight on the Southern African Insurance Industry Conference that took place in Botswana in August. The conference was the first of its kind on the continent and saw delegates from the SADC region and Europe descend on Gaborone. Feedback has been positive and it’s encouraging to see so many individuals and organisations taking ownership of the future of insurance in Africa.

THE RISKAFRICA MAGAZINE PUBLISHER CC 10 Old Power Station Building Cnr of Nobel & Armstrong Street Southern Industrial Area Windhoek Namibia Editorial enquiries info@riskafrica.com Advertising and sales Michael Kaufmann | michaelk@comms.co.za Tel: +2721 555 3577 | Fax: +2721 555 3569 Tel: +264 61 400 717

This month’s feature article on Namibia’s retirement fund industry was written after we received e-mails from industry commentators that raised some serious concerns and difficult questions about the sector. As the FIM Bill’s implementation draws near, it seems that many have grown disillusioned with the protection offered to members of retirement funds in our country. This has been highlighted recently by the ongoing court case involving a prominent retirement fund and fund administrator.

RISKAFRICA is published by

In an uncertain world, the protection and provision offered by insurers for unforeseen events and future realities is invaluable. The integrity of this should be fiercely protected and we look forward to bringing you more on this story as new developments unfold. If you’d like to share your thoughts on the matter, please e-mail editor@comms.co.za.

Enjoy the read.

Ground floor, Manhattan Tower, Esplanade Road Century City, 7441, Cape Town, South Africa www.comms.co.za

Andy Mark Andy Mark - publisher

Publisher & editor in chief Andy Mark Managing editor Nicky Mark Copy editor Margy Beves-Gibson Feature writers Bianca Wright Hanna Barry Nicholas Krige Art director Gareth Grey Design and layout Herman Dorfling Vicki Felix

Copyright THE RISKAFRICA MAGAZINE PUBLISHER CC 2012. All rights reserved.

Opinions expressed in this publication are those of the authors and do not necessarily reflect those of the Publisher, Cosa Communications (Pty) Ltd, COSA Media, and or THE RISKAFRICA MAGAZINE PUBLISHER CC. The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised.

While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication.

Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or pro-ducts or the reliance of any information contained in this publication.

CONTENTS 4

Vulnerable investors? Namibia’s retirement fund members

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When life happens

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Hidden protection: kidnap and ransom insurance

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AIG looks to Africa

Profile: Quinton van Rooyen, MD, Trustco Group Holdings

More of the same or something different?

Medical schemes in the SADC region

Insurers target Africa for growth and margins News Country profile: Mozambique riskAFRICA

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• Retirement funds

Namibia’s retirement fund members

Vulnerable investors?

Hanna Barry

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The Financial Institutions and Markets (FIM) Bill has received much coverage in the Namibian press over the past year or so. A revised legislative framework, the FIM Bill aims to enhance prudential standards in the financial services industry and address certain weaknesses in the current laws.

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n a recent press release, the Namibia Financial Institutions Supervisory Authority (NAMFISA) states that, “Through these prudential standards, NAMFISA aims to promote prudent behaviour by financial institutions and ensure that the risk they take is within reasonable bounds, clearly identified and well managed.”

The question that immediately springs to mind is which financial institutions and sectors require the most significant enhancement of their prudential standards? Well, the retirement fund industry has come under fire recently, especially the lack of protection that exists for members of the system. The ongoing saga of one particular retirement fund has been reported on in Namibia over the past few years and is just one example of potential ill-protection.

While the jury is still out on this specific case, it nonetheless raises some difficult questions and dangerous possibilities.

Are members protected?

Currently engaged in forensic investigations of the retirement fund industry, forensic investigators, ISG Risk Services, say that a substantial lack of member protection exists and will continue to exist when the FIM Bill is implemented.

According to the company, the laws that restrict members’ access to information place them at substantial risk of not being able to look after their own interests. As it stands, members can access rules and financial statements only. Additional information, such as fund performance data, is inaccessible to members and improved access to information will not be entrenched in the FIM Bill. A qualified lawyer, certified financial planner and partner at ISG, Eben de Klerk, says that without this data, there is no way that members can know whether their benefit calculations are correct, therefore ensuring that their rights are properly protected. “In instances where service providers have made mistakes, resulting in damages to members, members are excluded from the minimum information required to assess whether legal action is appropriate,” notes De Klerk, referring to a case in which it was found

that the retirement benefits of fund members were incorrectly calculated.

In this instance, it appears that there was an incorrect calculation of the actuarial reserve values (ARV), which entailed the mistaken exclusion of fund members’ 13th cheques, when the fund switched from a defined benefit to a defined contribution fund in January 2000. If proven, this error has caused the fund to suffer damages of an estimated N$50 million. The fund’s administrator denies the allegations and after conducting an independent investigation, NAMFISA was satisfied that no such mistake occurred. However, after additional information was provided to the regulator, it has since undertaken to conduct further investigations.

“NAMFISA refused to provide us with its initial report, even after we approached the ombudsman, who subsequently requested the report from NAMFISA. What’s more, during the investigation, neither NAMFISA nor the investigators made any attempt to obtain from ISG any of the source documents or explanations on which our calculations and conclusions are based,” explains De Klerk.

“This reflects an obviously one-sided approach because the investigators were provided with information by the retirement fund or the fund administrator only, without the complainants or their legal practitioners, ISG, having any opportunity to provide evidence, input or explanations as to how we arrived at the conclusion that members’ benefit calculations were wrong.”

Section five states that after completing their inspection, an inspector shall submit a report to the registrar, who will then submit a copy to the financial institution concerned.

“NAMFISA interprets this as meaning that they are prohibited from providing a copy to the consumer. This is true even in cases where members have complained and the information in question was obtained by the regulator as a result. NAMFISA is aware that members are unable to make benefit calculations if not provided with their member data. Refusing such information disables members to look after their own interests and enforce their own rights, especially when the report is given to the exact same trustees who could be infringing on these rights. In the case of one retirement fund, the

In instances where service providers have made mistakes, resulting in damages to members, members are excluded from the minimum information required to assess whether legal action is appropriate.

De Klerk feels that instead of assisting members, NAMFISA has in many cases proven to be an additional obstacle to member protection.

And he doesn’t foresee this changing under the proposed FIM Bill. “The current section 30 (proposed section 49) of the NAMFISA Act has in the past been interpreted by NAMFISA as stipulating that it can provide no information to a member of a fund, other than the rules and financial statements. This is also based on a misinterpretation of section five of the Inspection of Financial Institutions Act 38 of 1984,” he notes.

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members are not privy to NAMFISA’s report, which was commissioned on the basis of their complaints. We don’t even know what the scope was of what was investigated, which is why we are now taking the investigated parties to court.”

Pressure from the regulator led the fund in this matter to eventually provide the NAMFISA report to ISG. However, it contains none of the data or information upon which the report’s findings are based. And De Klerk says that judging from the report, the scope of NAMFISA’s investigation was not well-managed and sufficiently focused. For instance, the conversion values that would indicate whether a benefit miscalculation was in fact made are not included.

This information has been refused to ISG and NAMFISA from day one. “Despite this being a criminal offense, NAMFISA is not taking any steps to address this and didn’t reply to a letter we sent them on the matter in June last year,” says De Klerk. It is not known or understood why the trustees would refuse even the regulator the conversion values.

ISG is currently acting on behalf of 160 members of this fund, who are taking the risk upon themselves in taking this matter to court, as they will be liable for any charges if ISG does not win the case. The defendants have raised numerous interlocutory applications and their

strategy is clear. “NAMFISA does not understand the vacuum they create for consumers in this regulatory regime. It simply does not get involved, despite having massive investigative powers,” remarks De Klerk. “Our concerns are around access to information. Most people have no financial means to enforce their constitutional rights should they want to access information in the hands of the institutions created for that purpose, one of these being NAMFISA.” If it insists on withholding information for reasons of the protection of personal information or intellectual property rights, De Klerk says that it must then be accountable for errors.

However, he adds that in terms of the proposed legislation, it cannot be. “New regulatory laws remain futile if members are refused access to information by funds, service providers and NAMFISA alike, while a blind eye is turned to possible misdealing by the regulated funds and administrators. If it insists on claiming that it has no locus standi in a matter, as is often the case, then it must be established who does in fact have locus standi and is able to resolve matters on behalf of consumers.”

He adds that another major problem is instances in which a fund administrator acts as both administrator or actuary and consultant to the fund’s trustees. This exhibits a clear conflict of interest and could lead to smeared information

New regulatory laws remain futile if members are refused access to information by funds, service providers and NAMFISA alike, while a blind eye is turned to possible misdealing by the regulated funds and administrators.

being provided to the trustees. ISG has tried in vain to hold a meeting with the trustees of one particular fund to discuss its findings and explain the importance of receiving the original figures and information from the service provider that was responsible for the fund at the time of conversion. In fact, one of the reasons it asked NAMFISA to investigate was because after approaching the trustees of the fund with its concerns and findings, they did nothing meaningful to protect their members.

This raises further uncomfortable questions about the role of trustees and service providers, and not only the regulator, in our retirement fund industry. De Klerk is not the only person involved in the sector who is concerned about the protection afforded fund members. Tilman Friedrich, managing director of Retirement Fund Solutions (RFS), a leading Namibian pension fund administrator, says that retirement fund members may be worse off today than they were before the switch from defined benefits to defined contributions.

Compromised advice Before the switch from defined benefit to defined contribution funds, funds were not required to be audited or prepare annual financial statements and were not managed by a board of trustees. “Those were the good old days for insurers, who had the market wrapped up and could do whatever they wanted without fear of being questioned. Namibia’s impending independence provided a convincing argument to advisers to have the insurers’ shackles broken,” says Friedrich.

At independence, most funds were liquidated and members could either take their money or transfer it into one of the new funds. These were established as defined contribution funds, with boards of trustees placed in charge of the

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business of their fund. “Funds had to prepare audited annual financial statements and were free to choose all of their service providers. The risk of poor investment returns was transferred from the sponsoring employer to the member,” continues Friedrich. He is sceptical of whether the newly appointed boards of trustees were capable of managing the affairs of their fund, both then and now. In fact, since many of them are so burdened by running their own businesses, he thinks that advisers have quietly taken control of these funds. “Advisers have since done a great job of continuously developing and inventing new products and services, in an attempt to broaden their product offering and build their business,” he remarks. This has created an environment prone to conflicts of interest and dubious practices, fundamentally questioning the integrity of the industry.

“What complicates matters is that even the regulator has to get to grips with the technicalities of many of these products and services and the hidden interests of their sponsors,” he continues. “The regulator needs to critically assess whether practices are in the best interests of members, but reacts by imposing increasingly onerous requirements on the industry, accelerating a move towards umbrella funds.” This does not solve the issue around

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the control that product providers maintain over funds, which often leads to unnecessarily complex arrangements in pension funds, akin to retail arrangements. These arrangements do not have enough of a positive impact on members’ returns to justify the incumbent costs.

“I suspect that members today in many instances are significantly worse off in terms of benefits received for every Dollar invested in the system, as the result of the self-interest of their advisers,” concludes Friedrich.

Ombudsman the solution?

The complaints adjudicator has been removed from the FIM Bill and renamed the Financial Services Ombudsman. According to a statement from NAMFISA, “The functions of the complaints adjudicator, as an adjudicator for consumer complaints from regulated financial institutions, may be expanded to include complaints from non-regulated financial institutions (other parastatals providing financial services). The development of the legal framework for the complaints adjudicator, now renamed the Financial Services Ombudsman, will be co-lead with the Bank of Namibia.” Based on this statement it seems that the ombudsman could provide greater regulatory rigour. However, the industry has not yet seen the Financial Services Ombudsman Bill.

The regulator needs to critically assess whether practices are in the best interests of members.

A lack of consumer protection is a concern in any society. And it does seem that we have some way to go to ensuring that our retirement fund members enjoy the protection that must accompany affairs as serious as these. While some of the issues raised in this article have been posed to NAMFISA, it was unable to respond before our print deadline. We hope to bring you a response from the regulator in an upcoming issue.

2011/10/07 1:49 PM

• Life

When life happens Anton Pretorius and Hanna Barry

Critical illness, such as cancer, can touch even the healthiest of people. When life happens, insurance can carry the astronomical medical costs and provide support for the aftermath.

However, deciding which type of critical illness cover is most suitable for your client and ensuring that the insurance company has no grounds on which to void a claim, can prove challenging.

T

he first critical illness insurance product was launched in 1983 in South Africa and is now used worldwide.

Dr Marius Barnard, brother of world-renowned heart surgeon Christiaan Barnard, became frustrated watching patients’ financial struggles and designed a product that provides a lump sum payment to a policyholder facing cancer, a heart attack, stroke and a range of other diseases that vary by contract. It can also provide the financial means to pay for the trauma counselling that so many patients face as a result of battling a critical illness.

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According to the South African Depression and Anxiety Group, between 20 and 30 per cent of all cancer patients are diagnosed with depression. This makes it twice as hard to cope with performing everyday tasks. It is times like these that a risk benefit, which gives patients access to excellent medical assistance, can prove invaluable. Major expenses are an added weight on your client’s shoulders and make recovery that much harder.

Beyond the big four Ian van der Walt, broker manager at Momentum Namibia, says that the insurer does not focus only on the ‘big four’, i.e. cancer, heart attacks, strokes and coronary artery by-pass grafts (CABG), but believes in breadth of cover.

“Our studies reveal that 40 per cent of claims in Southern Africa are outside the big four, so that is the reason why Momentum offers a broader spectrum of cover,” says Van der Walt.

These include illnesses such as connective tissue disease; musculoskeletal, gastrointestinal and respiratory disorders; accidental HIV/Aids; major burns; visual impairment; and trauma.

However, figures quote the big four as making up between 70 and 90 per cent of all critical illness claims in Africa. In 2008, these illnesses made up 93 per cent of Old Mutual Namibia’s critical illness claims. Gim Victor, chief executive officer of Old Mutual Life Assurance Company in Namibia, says that the insurer’s Greenlight Care 4U risk product does not differentiate between mild and more severe illnesses, acknowledging that any critical illness needs 100 per cent cover. Accordingly, this risk product pays out 100 per cent at all severity levels for the four core illnesses.

Old Mutual’s Greenlight offers core and comprehensive options on its severe illness benefit. The severe illness (core) benefit covers the most common severe illnesses at 100 per cent of the cover amount. The severe illness (comprehensive) benefit covers the core events, plus a comprehensive list of severe illnesses at 100 per cent of the cover amount.

In addition, it offers support centres that connect clients with a network of assistance.

Tiered vs. comprehensive cover There is an ongoing debate over whether tiered or comprehensive critical illness cover is preferable. Many life insurance companies argue that it’s important to have 100 per cent cover at mild severity levels of the critical illness. If your client suffers from cancer for instance, it is often when the most aggressive chemotherapy treatment is applied to the

mildest form of the disease that the chance of survival is greatest. Comprehensive treatment of the disease in the early stages is more likely to prevent it from progressing further.

However, the flipside of this is that tiered cover may be more affordable and offers at least some cover, rather than none at all.

In Old Mutual’s case, while comprehensive cover is generally preferred by clients, affordability considerations do make some customers prefer the core cover option. Both offer 100 per cent cover at all times, but the core option covers the big four only. Victor says, “It is interesting to note that the illnesses covered under the core benefit collectively account for 89 per cent of all Greenlight severe illness claims, which ensures that even under a tiered benefit, a customer is covered for most of the severe illness events.”

Rather than paying out 100 per cent of the cover on diagnosis and allowing the client to invest the money as they choose, tiered cover leaves the client’s money with the insurer.

Tiered benefits typically pay between 25 and 100 per cent, depending on the severity level of the illness. For example, most tiered benefits pay 25 per cent for a level D heart attack, cancer and stroke; level D being the least severe level of illness.

Momentum’s benefits are structured as tiered.

Van der Walt says that from a cost perspective, tiered cover makes more sense to both the policyholder and the insurer. “Tiered benefits mean that the claim amount paid is based on the severity of the event. Benefits do not necessarily fall away after the first critical illness claim. Multiple claims are therefore possible,” says Van der Walt.

Should your client develop an early stage of disease, a benefit commensurate with the effect on their lifestyle would be paid out, leaving the remainder of the benefit intact.

Should the illness worsen, a further benefit would be payable. This allows for further claims for more serious illnesses rather than paying out the whole benefit immediately and leaving nothing should another claim arise.

The remaining benefit is therefore intact and continues to grow with benefit increases every year. The upside of this is that lower pay outs for lower severity illnesses prevent an incident in which large pay outs are made for an illness from which a person may make a full recovery and therefore not require such a large lump sum on diagnosis.

Our studies reveal that 40 per cent of claims in Southern Africa are outside the big four, so that is the reason why Momentum offers a broader spectrum of cover.

However, it could be argued that comprehensive cover offers clients greater peace of mind and significant resource when they need it most.

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The best of both worlds?

A client may fail to reveal something about their medical history or their family’s medical history.

Rejected claims and the adviser’s role To recommend the right cover, a broker or financial adviser must assess their client carefully, as risks vary from consumer to consumer. If your client has a family history of heart disease, for instance, look at what is covered for heart attacks. In terms of lifestyle, if your client is overweight, a smoker and unfit, they are at risk of heart disease and a stroke. It is all about establishing where your client’s main risk lies and what cover is available for that.

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When it comes to claiming, exclusion and non-disclosure are the two primary reasons for non-payment by insurance companies. A client may try to claim for a benefit that was excluded upfront at the underwriting stage. For instance, if the client has had cancer before taking out critical illness cover, cancer may be excluded in their particular policy. Advisers must make their clients aware of this.

Illnesses causing functional impairment, such as Parkinson’s and Alzheimer’s, can also cause non-payment. The diagnosis

Momentum gives clients the option of elevating the 50 and 75 per cent claim event of a comprehensive critical illness benefit to a 100 per cent payout. This could avoid a situation where a client cannot afford comprehensive treatment at a milder stage of an illness’s progression, resulting in a more aggressive form of the illness developing. While the premium is slightly more expensive than a benefit option that does not offer this flexibility, this does give the consumer the choice to elevate cover, which is valuable.

of such illnesses is made only once the condition is viewed as permanent and irreversible, which is often at an advanced stage of the disease. The problem is that functional impairment cannot be measured before the condition has been optimally treated and stabilised and it can be said without doubt that no further improvement is expected. However, many patients realise this only at claims stage and have to wait until their functional impairment has reached the level as defined in their particular critical illness policy before they are paid out.

Non-disclosure is one of the most common reasons for nonpayment. A client may fail to reveal something about their medical history or their family’s medical history. Alternatively, clients may not think that a seemingly banal piece of information, such as that they are taking blood pressure tablets for instance, can make a big difference to how their potential risk is assessed. It is critical that financial advisers ask as many of the right questions as they need to, and ensure that clients understand the questions clearly and answer them truthfully.

• Profile

Quinton van Rooyen, MD Trustco Group Holdings In 1992, Quinton van Rooyen bought an indebted company for N$100. He has since transformed the company into a successful and expanding enterprise. Now managing director of Trustco Group Holdings, Quinton shares his unique outlook on business, his passion for family and his dreams for the future of Trustco Group Holdings.

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What made you decide to buy Trustco in 1992?

I wanted to make a difference in my life and the lives of others. As I progressed through my education, I learnt that while it pays to work for institutions and others, it is important to always hold your life in your own hands. Being independent thinkers, my family and I often think outside conventional business models.

We bought Trustco in 1992 because we saw an opportunity for business calling, and we were confident that our ideas would pay off. Now, we have to sustain that level of thinking.

You exited the legal sector shortly after completing your law studies. Have you found your law degree useful since then?

Yes, I have found my legal studies extremely helpful in whatever I do, whether it is in my private or formal life. Law is an intriguing field of study. It applies to everyone and everything.

However, as I progressed through life and got exposed to global economic interactions and trends, I realised that there is more to life than the legal profession. In fact, the legal profession depends largely on economic prosperity to thrive.

Since 1992, Trustco has managed to maintain growth in difficult economic circumstances. To what would you attribute the group’s success?

Our growth has been a function of determination, clarity of thought and hard work, but also our capacity to invent non-conventional methods of conducting business. For instance, we do not believe that having huge office space, regimenting status or staff wearing expensive attire has any progressive bearing on the balance sheet. We have a lean model of organisational management that is performance driven, with all employees subscribing to the growth of the company by meeting targets.

This is what drives us and makes us tick: the self-conscious capacity to understand the need for objectives, the wisdom of setting targets and the benefits of meeting those targets to help the company grow. Our growth as a company has been driven by these principles, and all our employees understand the meaning of targets and the relationship between targets and predictable income at the end of the working period.

What about your own success? You were voted Business Communicator of the Year 2003 and second Most Admired Business Personality of the Year 2007 and, have certainly built an impressive profile.

I have always appreciated what others say about me, be it negative or positive, for I have learnt much from this exposure. However, my ability to leave a positive impression in the public eye has resulted from a collective effort by fellow travellers in the journey of building our business.

I am therefore highly indebted to all whom I have worked with at Trustco.

Listed on the JSE Africa Board in 2009, Trustco has major plans for its Africa expansion. How has the listing aided these plans and what African countries has the group set its sights on next?

We were the first company to list on the JSE Africa Board, and we did not regret the decision, as it was rooted in foresight. Our move to the JSE Main Board was the culmination of the realisation that African companies cannot function in isolation, but should compete with South African and global companies on a world-class platform, the JSE. We are proud to have made these strides.

The listing served as a shot in the arm as we were able to rub shoulders with the best in business the world has to offer. This further expanded our horizons and enhanced our capacity to move forward with our plans to the centre of Africa and beyond. As we speak, we are expanding our services to African countries like Ghana, Nigeria, Kenya and others. Africa has its own rhythm and we must move along or lag behind. This trend has taken root on the horizon of new business developments and we intend to stay on course.

At the end of March 2011, Trustco Mobile boasted 1.6 million registered customers across Zimbabwe. What are some of the challenges of distributing through mobile?

How would you describe your management style?

I guess I would say unconventional and peoplefocused. We are not managing institutions driven by public policy manifestations, but rather business projects driven for results. Our methods are tailored to achieve our results as articulated in our objectives, the targets we set and the extent to which we reach our targets. This unconventional model in corporate management sustains open-mindedness in the company and creates complex awareness among stakeholders.

Being the MD of a large company can be taxing on an individual’s personal and family life. How do you maintain a balance?

It is indeed taxing and challenging and you are under pressure to strike a balance at all times.

We are fortunate in that this is largely a family company and everyone feels the obligation to get involved and understands the pressure on others.

This pulls us together as a family, and we strike a balance by sticking together as a family. This has been a blessing.

Do you encourage your kids to follow a career in the insurance industry?

My eldest son graduated from university and is already sucked into the throes of the company, being exposed inter alia to the insurance industry and all its manifestations. Does he like it? I want to believe that he does, because I believe that he understands why.

If you weren’t MD of Trustco Group Holdings, what would you be doing?

I guess I would have been caught up in the narrow confines of the corridors of the judiciary.

There are so many opportunities in Africa and the world, more so if one can read and write. The challenge is to be enterprising.

Zimbabwe was a learning curve and we regard it as a success in terms of speed of uptake and commercialisation aspects. The contract expired in March 2012, at its peak with 1.8 million customers. The positive side is that our experience in Zimbabwe lead us to modify the product offering for simplicity.

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• Kidnap and ransom

Hidden

Nick Krige

protection

kidnap and ransom insurance

Kidnap, ransom and extortion (KRE) insurance has become a growth industry round the world because of increasing incidents related to this field. RISKAFRICA takes a look at this intricate insurance policy and discusses the benefits it can provide.

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Who needs KRE? KRE insurance is often thought of as an extra security measure, required only by high-powered businessmen and people who travel to high-risk areas. This is no longer the case and companies are seeing it as a necessity for all of their employees.

“Corporates are beginning to recognise that kidnap, ransom and extortion insurance is not a standalone nice-tohave cover, but a component of their comprehensive duty of care corporate policy for employees,” says Dani Ettridge, crisis management, Aon South Africa.

employee cannot know that the cover exists for them, or the corporation, or it will void the policy. The reason for this is that allowing a third party knowledge of such a policy would open up many doors for exploitation. “It is a firm condition of KRE policies that the existence of the policy cannot be revealed to a third party.

KRE is a reimbursive insurance policy, which means the insurance company will reimburse a policyholder after a ransom is paid. The insurance company is not directly involved until an insured event occurs, so there is no reason for any third party to be aware the policy exists,” Ettridge explains.

Something else to consider when preparing a kidnap and ransom policy for a client is whether the policy coverage will be void in circumstances in which employees or representatives of the company collude in the kidnapping, such as a driver, even if the kidnapped has no part in the collusion. So be certain that any condition or exclusion in the policy is clear and understood in terms of the circumstances in which collusion is excluded.

Kidnappings and extortion are not confined to millionaires and their families, business executives or celebrities, although they are often targeted and those are the most high-profile cases.

Sometimes however, it is just a case of an ordinary person being in the wrong place, at the wrong time. Increasing incidents of victims being briefly held and forced to withdraw money from an ATM, or getting abducted by pirates while on a holiday cruise have made kidnapping a very real danger for everyone. Even companies need protection from extortion. “KRE insurance extends beyond cover for individuals, but also protects the company from threats by means of extortion to their reputation or intellectual capital,” explains Ettridge. An example of this might be a disgruntled former employee threatening to reveal trade secrets to an opposition company unless their demands are met.

There is a worry that kidnap and ransom insurance encourages the business of kidnapping and extortion. If a kidnapper finds out that a potential target is insured against kidnapping, they will expect and ask for exorbitant ransom fees, and the insured’s company or family might be inclined to pay whatever is asked because of the available cover. However, according to Ettridge, that is not the issue.

“KRE insurance does not perpetuate the business of kidnapping and extortion, because these are criminal acts directed at companies, which it is believed will pay up irrespective of an insurance policy.”

KRE insurance extends beyond cover for individuals, but also protects the company from threats by means of extortion to their reputation or intellectual capital.

Benefits The numerous subtleties of kidnap and ransom insurance make it an incredibly complex cover to have, but the reason for this is that it is susceptible to fraud. Imagine how easy a kidnapping would be to pull off if the person being kidnapped, or the company they work for, is involved in the plot to scam the insurance company.

For those who can get past all the complexities and find themselves in a position where they need KRE insurance, it can provide valuable services and guidance in a troubling time. It is important to consider the individual needs of the client when negotiating what to include in the policy. Policies may include the following cover and benefits: Ransom reimbursement: Ransoms paid for the safe return of a covered employee or family member in a covered event will be reimbursed by the insurer.

Personal accident: A lump sum benefit will be paid out in the event of a loss of limbs, loss of sight, loss of extremity, permanent total disablement or death of the insured, solely and directly as a result of a covered event.

The paradox Some may have KRE insurance and not even know it; it can often come as part of a corporate insurance portfolio, especially if the company operates in a high-risk area or its employees travel extensively. Unfortunately, a covered

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Loss of ransom during delivery: The loss in transit of a ransom by confiscation, destruction, disappearance, seizure or theft while it is being transported.

Financial losses: Personal financial loss, suffered by an insured person as a direct result of being unable to attend to financial matters because of the kidnapping.

Crisis team: Expenses related to deploying an independent and experienced crisis response team to help everyone involved get through the ordeal. “KRE insurance provides the financial security that ransom paid following an insured event will be reimbursed. But the real value behind having KRE insurance is not the money.

Most KRE insurance policies provide unlimited funding for an experienced crisis response team to assist in dealing with an insured incident that could lead to a claim,” says Ettridge.

Loss of income: The kidnapped’s gross salary will be reimbursed for the duration of captivity. Some policies include bonuses, commissions and pension contributions.

Travel expenses: Travel and accommodation costs incurred as a direct result of a covered incident.

Psychiatric expenses: Often people who are kidnapped require extensive psychiatric, medical and legal advice.

Reward payments: Rewards can be offered by a policyholder in exchange for information that contributes to the resolution of the covered event.

Asset protection: This benefit is to cover interest on loans taken specifically to meet a ransom.

Security coverage: Expenses for security guards hired for the purpose of protecting members of the family and crisis response team that visit the location of the covered event.

Specialised equipment: Costs of communication equipment, recording equipment and advertising to help resolve an insured event.

Rehabilitation benefit: Rest and rehabilitation expenses that occur directly following the release of a kidnap victim.

Funeral expenses: Cost of repatriation of the body of the kidnap victim in the event of death during a covered event.

This will typically include the costs of burial or cremation.

Most KRE insurance policies provide unlimited funding for an experienced crisis response team to assist in dealing with an insured incident that could lead to a claim.

Risk mitigation Even if a client has kidnap and ransom insurance, prevention is far preferable to having to go through the ordeal of being abducted. To this end, it is vital that clients are educated about the risks of kidnapping and how best to avoid them.

It is important to understand the local environment that a client is visiting or operating their business in. Obviously, employing aggressive tactics such as employing ex-military professionals for security or using armoured patrols will decrease risk, but understanding the local environment can be just as beneficial.

Most insurers that offer KRE insurance will have travel information available for travel to high risk areas and how to mitigate the risk of kidnapping. Some even offer training. There are many measures that are both simple and practical, and on the surface seem obvious, but often do not occur to people unless they feel threatened. “Arranging the cover further protects people because most insurers offer safe travel and crisis management guidelines and training for their policyholders to make them more aware of the risk and the practical measures that can be taken to safeguard themselves,” explains Ettridge.

A few risk mitigation techniques to advise clients of are: to not travel the same route every day, even if they are going to the same destination; travelling at different times to avoid falling into any sort of routine that a potential extortionist could learn and exploit; when travelling it is important that your client doesn’t appear like a wealthy businessman, as this immediately highlights them as a potential target and they should avoid wearing suits and carrying businesslike briefcases. Advise clients to not take the first taxi offered, but rather arrange transport prior to arrival and confirm their driver’s name, and preferably car license number, so as to be sure that they are getting into the right vehicle.

Constantly being aware and double checking facts and details is a great way to mitigate risk, but the sad truth is that there is no guarantee of safety and criminals will continue to kidnap and extort whether KRE insurance exists or not. “Unfortunately kidnappings will happen with or without the existence of the cover,” concludes Ettridge.

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riskAFRICA

• Health

By far the majority of the medical scheme spend is on hospitals. It is probably accurate to say that many of the medical scheme products on offer are hospital-based products.

More of the same or

something different?

Examining the South African Development Community region’s approach to medical schemes can sometimes feel like looking in a mirror of South Africa and at other times, like staring into an alien world. While there are similarities in the way medical schemes are approached and in the challenges they face, there are also differences.

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riskAFRICA

medical schemes in the SADC region

Bianca Wright Extending outwards Metropolitan Health Group, Medscheme, Sovereign, MSO and EOH all have interests outside of South Africa in the SADC region. “Stringent regulations and the relative saturation of the market in SA have prompted companies to seek opportunities outside of South Africa,” says Heidi Kruger, head of corporate communications at the Board of Healthcare Funders of Southern Africa, adding that outside of SA, the private healthcare sector is relatively unregulated.

South Africa, Zimbabwe, Botswana, Namibia and Mauritius all have 10 per cent or more of the population covered by private healthcare. In Mauritius, medical insurance falls under general insurance.

Show me the money Affordability remains the overriding challenge, according to Kruger. In Zimbabwe, 93 per cent of the population are either self-employed or unemployed and 87 per cent live below the poverty datum line.

Kruger says that the issues facing funders in SA’s neighbouring countries are all similar. Lack of regulated tariffs means it is difficult to contain costs. High hospital costs are another issue, she says. “By far the majority of the medical scheme spend is on hospitals. It is probably accurate to say that many of the medical scheme products on offer are hospital-based products. Zimbabwe reports that many people go to India and Malawi for hospital procedures as the costs are lower.”

For instance, a hip replacement in Zimbabwe costs US$22 000 (excluding the hospital stay), while in India the cost is R13 000 (all inclusive, including flights, accommodation and so on for an accompanying person).

Non-healthcare costs are also an issue. Kruger cites the example of Zimbabwe, where these costs account for around 21 per cent of the total costs, in comparison to South Africa where the average is around 13 per cent.

It is well-known that one of the open medical aid funds operates at a very low solvency ratio.

Another challenge is that health IT systems are time-dependent and real time and on-line benefit and payment systems cause difficulties.

The case of Namibia In Namibia, one of the challenges is the fact that insurance companies are competing with medical aids for business. Medical aid funds are regulated in terms of the Medical Aid Funds Act No. 23 of 1995, while medical insurance is regulated in terms of the Short-term Insurance Act No. 4 of 1998.

According to Hester Spangenberg, executive director at Investmed Namibia, both are basically short-term entities, implying that benefits are vested annually including the general annual increases, although during the past few years the medical aid funds had various interim increases during the course of the year.

Spangenberg differentiates between the two, explaining that a medical aid scheme is legally a not-for-profit entity, managed on behalf of the members by a board of trustees while an insurance company is a limited company, owned by shareholders. “The medical aid funds are quick to point this difference out to prospective members and say that all the profits in the insurance companies goes to the shareholders and are not to the benefit of the policyholders,” she says, but adds that what they fail to mention is that both medical aid funds and insurance companies are required to maintain a certain minimum level of reserves to protect the members or policyholders.

“For insurance companies the level of reserve is a statutory requirement while for medical aid funds it is specified that the scheme surpluses belongs to the members and members could be at risk when the funds are depleted,” she says. “It is well-known that one of the open medical aid funds operates at a very low solvency ratio.”

Lacking in consistency The Medical Aid Funds Act clearly stipulates that no portion of any surplus realised in the fund in any financial year may be distributed to its members, while no such restrictions exist on insurance companies. “Thus, insurance companies may offer roll-over benefits, no-claim and low-claim bonuses while none of the medical aid funds may offer any bonuses or roll-over benefits. Some of the medical aid funds offer certain roll-over benefits,” she says.

The act also stipulates that the dependants of a member are entitled to the same benefits as the member, however most of the funds restrict the benefits of the dependants and the main members enjoy higher benefits. An investigation into medical insurance available in Namibia revealed that the insurance benefits are based on the family as a unit and that the insurance companies do not differentiate between the benefits of the policyholder or that of the dependants.

Medical aid funds contract with companies operating on a for-profit basis to provide administration services to the funds while the insurance companies are responsible for their own administration. Currently administrators of medical aid funds are being paid a certain percentage of the contributions in lieu of the services they execute.

“In principle, this should not be a problem, however the administrators are being paid immaterial of their performance,” says Spangenberg. “The fact that the functions of

the administrators are not regulated by a body like NAMFISA, creates a problem due to the fact that the trustees of the funds, who should actually control and manage the administrators, do not fulfil their functions in this regard.” She adds that the funds and administrators are pricing aggressively and are using the reserves of the funds to do so; they will eventually need to increase contributions or decrease benefits to maintain solvency ratios.

On a personal note, I believe that there are many opportunities that could be exploited on a regional level.

In accordance with the Short-term Act, brokers can be appointed to market the products of the insurance companies. These brokers are also being regulated in terms of the act. The Medical Aid Funds Act does not allow for any person to market any fund although this has become a standard practice in the industry and it appears that NAMFISA is doing nothing about it, according to Spangenberg. In addition, she says, certain individual and employer groups receive discounts on their contributions from the funds in order to prevent such individuals or groups from leaving one fund to join another fund or insurance companies. Thus, based on the structure of the funds where certain groups of members must enjoy the same benefits for similar costs, certain individuals and groups are being benefited by paying less, all to the detriment of the other members.

A challenging environment Corruption is also an issue in the SADC regions.

Recently, for example, the Zimbabwean newspaper reported that the Harare Municipal Medical Aid Society is facing collapse with the 14-member board being accused of massive corruption and abuse of funds.

Despite these many challenges, however, there is much that is attractive about the broader SADC region in terms of medical schemes. Kruger says, “On a personal note, I believe that there are many opportunities that could be exploited on a regional level. For instance, there could be centres of excellence for the region, geo-mapping of providers, quality standards across the region and so on.” Understanding and being able to leverage both the differences and similarities and the challenges of the region will ultimately dictate which medical schemes will prevail in an increasingly competitive environment.

riskAFRICA

19

• Profile

AIG looks to

Africa Hanna Barry

On his recent visit to South Africa, RISKAFRICA had the opportunity of interviewing Peter Hancock, CEO of Chartis, American International Group’s (AIG) property-casualty businesses. He told us about his decision to join AIG after the 2008 bailout, how the company has been successfully rebuilt and plans to rebrand Chartis under the AIG name.

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riskAFRICA

It would be an understatement to say that AIG’s need for a $182 billion bailout from the 2008 financial crisis made headlines. Media reports have described it as “arguably the most shocking event during the financial crisis” and “the most loathed of the rescues”.

Joining AIG in early 2010 to oversee finance, risk and investments, including the insurer’s money-losing credit-default-swap unit, Peter Hancock arrived with 20 years of experience at J.P. Morgan under his belt, where he served as the firm’s chief financial officer and chief risk officer.

“It was a unique opportunity. A company that is a leader in its industry, with enormous breadth and scope of operations, that needed to be refocused,” was Hancock’s cool reply to an incredulous: what were you thinking? “I hit it off with the CEO, Robert Benmosche, whom I’d not met before.” Benmosche wanted to turn the company around. The initial strategy had been to dismantle AIG under the prior CEO, Ed Liddy, but when Benmosche took over in the summer of 2009 he came on the condition that the company was not to be dismantled, but rebuilt. “The premise under which I joined was that this was a going concern; that the company was worth a lot more together than broken into pieces,” continues Hancock.

Much of his first year at AIG was spent recapitalising the company in a way that was sustainable. Some two years on, and the US Government, including the Federal Reserve Bank and the Treasury, has fully recovered its $182 billion commitment to AIG, plus a profit. Grateful to US taxpayers for their assistance, Hancock feels that AIG has fulfilled its promise, not only to repay the assistance, but to rebuild the company in

a way that is valued by the marketplace. He says that from a market practice point of view, AIG is proud of the way it treats its customers, but welcomes regulators who can validate this. “We welcome greater oversight and the transparency and rigour it brings to our operating processes.

The events of 2008 are a good reminder that there needs to be a commitment to a real openness about enterprise risk. All companies of any scale and complexity need to demonstrate to all stakeholders, policyholders, investors and customers that they can deliver on their longterm promises.”

Hancock was appointed CEO of Chartis in March 2011. With operations in 90 countries, Chartis was fairly fragmented at the time and his strategy has been to unify the company culture around common themes; most notably, focusing on value over volume. “This centres on understanding our customers and what they value most about what we do for them. We are not trying to do everything for everybody, but rather focusing on those lines of business where we feel that the scale of our operations brings something significant.” A broad geographic network means that Chartis can bring particular value to clients who are looking to operate globally. It plans to target areas in which its customers have growing needs, for example, emerging economies and specialist lines of business.

Technology, data and the chief science officer In an increasingly uncertain world, Hancock believes that the insurance industry needs to be agile and flexible, using technology to minimise fixed costs and focus on meeting clients’ needs.

Technology, along with the best talent and analytical tools, are the keys to success. “In a low-interest-rate environment, the industry can no longer rely on its investments and will have to make money through excellence in underwriting. This involves underwriting discipline, but also means investing in technology to understand the risks you are taking,” he explains. In this regard, the important role that data plays cannot be overstated. “At the end of the day, insurance is all about understanding what the data can tell you about risk and the relative riskiness of different insureds.

Appointed in January this year, Murli Buluswar reports directly to Hancock and has recruited a sizeable team in the short time he has been in this role. Hailing from a range of scientific backgrounds, including medicine, statistics, psychology and seismology, their work feeds into product design and underwriting. It also extends to understanding certain structural drivers of loss. For example, working with scientists from the John Hopkins School of Public Health to analyse over 10 million claims records, Chartis has understood some of the underlying drivers of the long-term medical costs of returning injured workers to work.

As patterns emerge, claims can be more efficiently processed, reserves more prudently set and underwriting improved. “We have one of the largest workers’ compensation insurance businesses in the US and over $20 billion in reserves set aside for future claims,” says Hancock. “We have tried to recruit individuals in the science office who have excellent listening skills and not quantitative skills only, so that they are able to work together with skilled underwriters. This produces the best outcomes, which is a blend of art and science,” he adds, quoting Mark Twain’s famous line: “History doesn’t repeat itself, but it does rhyme.”

The decision was reached with feedback from customers, distribution partners and brokers, who jointly feel that it is the better recognised brand for Chartis’s products. Hancock is confident that the AIG brand is well-known in the African market. “Those who are knowledgeable about insurance recognise our global standing and longstanding commitment to the local markets.”

Having operated profitably in South Africa for 50 years and in Kenya and Uganda for almost as long, Chartis will continue looking at growth in the sub-Saharan region with some interest.

It will be expanding its reinsurance business and exploring opportunities in the energy and construction sectors. Where appropriate local partners can be found, or where local regulations allow the company to operate as fully controlled, Chartis will consider launching further primary insurance operations on the continent.

With plans to target profitable market share and expand its African footprint, it appears this is just the beginning of AIG rising.

Rebranding Chartis Successfully rebuilt, last month The Wall Street Journal ran a story titled, ‘AIG’s record-breaking stock sale’. Having sold $38.2 billion of stock, US taxpayers have received a $15 billion positive return to date from the AIG bailout, which is being described as a success. In this light, Chartis will be rebranded AIG in October. “The Chartis brand was successful in unifying different antipodes in the property and casualty business, but as we simplified the company we believe that AIG is the right brand to operate under going forward,” says Hancock.

Those who are knowledgeable about insurance recognise our global standing and longstanding commitment to the local markets.

If we are trying to grow value as opposed to volume of business, then this ability to use new technology and new sources of data provides room for plenty of adaptation and optimism. The availability of data today was unimaginable five or 10 years ago.” Hancock believes that traditional actuarial techniques have their limitation because they tend to just extrapolate the past. In fact, so passionate is he about the opportunities around understanding, analysing and integrating data into business practices, that he created the position of chief science officer at Chartis.

riskAFRICA

21

• KPMG Insurance Survey

Insurers

The South African life and short-term insurance markets are relatively mature, with few obvious merger and acquisition opportunities.

While some regard the African continent as a risky investment, KPMG’s Insurance Industry Survey 2012 revealed that Africa is on course to be a global investment sweet spot. Focus on infrastructure, direct foreign investments, improved banking supervision and policy uptakes have all resulted in Africa showing a potential GDP growth figure of $2.6 trillion by 2020.

In its annual review, the South African Insurance Industry Survey 2012, professional services company KPMG released 54 of the 164-page document for comment towards reviewing insurance in other African countries.

KPMG partner and national head of insurance

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target Africa for growth and margins

Gerdus Dixon says, “The South African life and short-term insurance markets are relatively mature, with few obvious merger and acquisition opportunities. It is also competitive, well regulated and, in all likelihood, facing ongoing challenges regarding regulation such as SAM, IFRS Phase II and Treating Customers Fairly.”

KPMG’s head of transactions and restructuring, John Geel, noted several new investments into and across Africa, especially from multi-nationals and larger listed African companies. However, an increased number of smaller companies are also investing due to the improved growth opportunities, as well as regulatory and tax regimes. “This means that companies are now

seeking out the right entity to transact with, negotiate details of collaboration and sign legal contracts,” says Geel.

African countries present insurers with new, untapped markets with massive potential customer populations and burgeoning economic growth, which was forecast by the International Monetary Fund to be 5.5 per cent this year. “Nigeria, Ghana and Angola’s growth rates are already in excess of this,” says Dixon.

He believes that referring to these African countries as the new frontier is inaccurate, as most of the major players have already flown the coop and are actively positioning themselves for dominance in Africa.

2361 SSP RiskSA3.pdf

However, Dixon warns insurers against expecting African countries to provide them with short-term growth solutions.

He says that it is essential that each African country is understood and assessed on its own merits and that the diversity and subtle nuances play a critical role in unlocking the secrets to business success.

“Africa’s gross domestic product is expected to reach $2.6 trillion by 2020, but expanding into African countries is not a short-term growth fix, it will take deep pockets and committed sustainable long-term business plans to develop the insurance market in these African countries, particularly the much vaunted retail or individual life insurance markets,” says Dixon.

He adds that it is important for shareholders to understand the return profile of expanding into Africa, as those companies that do unlock the potential, stand to benefit from improved margins on products coming from the fastest-growing employed population on the planet. “There are 500 million people of working age in Africa and the expectation is that this will outnumber China and India by 2040.”

Distribution channels remain a major challenge in Africa. Insurers will have to embrace modern and alternative models that are able to connect products with insurers in a reliable and cost-effective manner.

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CM

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The extensive African section of the report provides some three to four pages of detail on each of 13 African countries, highlighted by the insurance team at KPMG as significant to the industry.

“Exploring expansion opportunities on a generic African template is not advisable and will probably result in expensive ‘school fees’ for companies if they do,” says Dixon. “Africa is simply too big and growing too rapidly for insurers and investor to ignore.” Naturally, the underdeveloped formal economy and infrastructure will demand more inventive solutions with regard to strategy, product design and distribution.

Experts at the sixth KPGM Africa Conversations Series on transacting in Africa held in Johannesburg earlier this year reckon that discussions around the realities of conducting business on the African continent are now at a critical stage and support is needed to boost this development.

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2361 TheCheeseHasMoved

Apart from this increased appetite for investment, KPMG has noticed a hunger for consolidation and expansion and a rapid improvement in the banking sector on the continent. KPMG Africa released the Africa Banking Survey in May to provide a better understanding of regulatory frameworks.

Fourteen countries were analysed in the region, providing information in several areas including the commercial, legal and tax and banking environments, as well as governance and reporting issues.

Despite the financial crisis of 2008, there is now more private equity available in Africa. Insurance giants Leapfrog, Sanlam and Old Mutual recently announced insurance acquisitions into African markets.

But many challenges to doing business in Africa still exist, including the short-term insurance market, which is spread across 55 countries, many of which do not have large-scale business present in them. Also, due to a surplus of industry players in some countries (like Nigeria and Kenya), premium is fragmented.

2012/07/11

Business evolution is paramount

Distribution channels remain a major challenge in Africa. Insurers will have to embrace modern and alternative models that are able to connect products with insurers in a reliable and cost-effective manner.

Africa has appetite to thrive, but is no short-term solution

1

10:15 A

NEWS Social health protection must be a focus for African governments In an attempt to improve universal access to health services, the East African Community (EAC) is pushing for a social health protection programme across all member states, the New Times in Rwanda reported. However, the World Health Organisation’s co-ordinator of health financing policy, Joe Kutzin, says that universal health coverage is a direction more than a destination.

“What this means is that you want to move towards universal coverage. You want to improve access, financial protection and quality. And in that sense, those are goals for every country in the world,” Kutzin told over 200 participants at the opening of a threeday regional conference on social health protection, which took place in Kigali, Rwanda in September. The aim of the conference was to consider various approaches to providing

universal health coverage in Rwanda, Uganda, Kenya and Burundi. Universal coverage is the subject of a new study that reviewed health systems in 12 African and Asian countries.

Kutzin alluded to the fact that African countries have not fulfilled the Abuja Declaration, which requires EAC members to allocate 15 per cent of their annual budgets to the health sector.

money because health ministries have not given full accountability of the funds. This was disputed

by Rwanda’s Minister of Health, Dr Agnes Binagwaho, who said that “all governments are capable of doing what Rwanda has done by giving priority to the health sector”. Rwanda allocates 16 per cent of its national budget to the health sector.

“In order to become a middle-income economy, a need for regional collaboration and co-ordination of social health protection mechanisms must be targeted.” This was according to Ambassador Richard Sezibera, secretary general for the EAC. “More countries are looking for ways to develop financing systems so everyone has equitable and affordable access to health services. Each country can take immediate steps toward universal coverage despite its levels of economic development,” Sezibera explains.

However, Kutzin adds that some finance ministries are skeptical about disbursing such

Allegations of embezzling haunt FIS The gloves are off between shareholders within the Financial Insurance Services (FIS), a company that was accused by the Namibia Financial Institutions Supervisory Authority (NAMFISA) of not paying out beneficiaries’ claims, news site allafrica.com reported.

Rob Menzel, the company’s chairperson and majority shareholder, has come under fire after allegedly embezzling millions of Namibian Dollars. However, Menzel has denied any wrongdoing. His lawyer, Dave Nezar, says that Menzel is prepared to co-operate with the Anti-Corruption Commission (ACC) should an investigation be launched.

Nezar wrote to Richard Metcalfe, the lawyer of former FIS managing director Indila Edward, saying that he may accept his client rejects these allegations with the contempt which they deserve.

According to allegations, Menzel withdrew N$3.25 million from the company’s account between 1 February and 15 August this year. Edward’s lawyer, Metcalfe, accused Menzel of continuing to strip the company and its life reserve fund for his own benefit and/or the Menzel family trust.

Erna van der Merwe, the deputy director of the Anti-Corruption Commission (ACC), says, “It was agreed that Metcalfe would furnish us with certain documentation.

Once we are in possession of such documentation, the matter will be submitted to the director [Paulus Noa] for a decision on whether a formal investigation should be conducted.”

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New package cover for low-income earners

AML regimes needed to curb insurance crime According to The Monitor in Botswana, Africa’s insurance industry has not been as exposed to white-collar crime as other industries, yet stakeholders are still advised to partner with financial institutions to expose criminals and prevent the problem from intensifying.

Following the launch of a triple package insurance cover by CIC Insurance Group, Kenyans living in fire-prone informal settlements (slums) can now insure their household goods for as little as KES480 (Kenyan Shilling). The product, known as Nuru ya Jamii, is the country’s first policy targeting low-income earners, combining property insurance and life assurance as a package. This was according to a report on the allAfrica.com website.

The policy has three benefits, which include cover for household goods in the event of fire, family disability due to death and family life. CIC Insurance Group CEO, Nelson Kuria, says the policy would spread insurance awareness and services to low-income earners who have been locked out by conventional insurance products.

Speaking at the Southern African Insurance Regional Conference held in Botswana (15 – 16 August), director of the country’s Financial Intelligence Agency in the Ministry of Finance and Development Planning, Jackson Madzima, said, “Stakeholders need to establish Anti-Money Laundering (AML) regimes as it will help curb crime in the industry.”

Although money laundering is not as prevalent in the insurance industry as in non-banking financial institutions, the risks are increasing. “Institutions that handle value should install strong AML regimes and more effective AML sensitisation and training critical to such institutions,” said Madzima.

Madzima highlighted that international vehicle crime is becoming a growing issue across borders and is of major concern in the insurance market. He detailed how cloned vehicles are smuggled between countries and registered in more than one country.

“Between May and July this year, 25 foreign vehicles were impounded because they were tampered with or suspected, and in some cases used, to transport dagga,” Madzima added.

Stakeholders need to establish Anti-Money Laundering (AML) regimes as it will help curb crime in the industry.

ARC to manage drought risks in Africa The African Risk Capacity (ARC), which was established in Ethiopia last month, is a project of the African Union (AU), designed to improve current responses to drought food security emergencies and to build capacity within AU member states to manage drought risks.

While foreign aid usually takes several months to arrive, the AU says this specialised agency will develop an agreement on a pooled risk insurance facility for droughts, floods, earthquakes and cyclones in Africa. This is according to a report by Zimbabwe’s Herald Online.

The AU also asked the African Union Commission to convene a meeting of government experts in 2013 to consider and adopt the ARC establishment agreement.

The UN International Strategy for Disaster Reduction says the ARC is a welcome development, which will speed up the distribution of aid to affected regions in Africa.

riskAFRICA

25

Mauritius Africa’s insurance market still vibrant and growing, hears AIO With the focus on insurance and reinsurance in Africa over the next decade, the 18th annual Reinsurance Forum of the African Insurance Organisation (AIO) was a good networking platform for key players within the insurance arena to unearth opportunities on the African continent. Five hundred delegates,

representing insurers, reinsurers and brokers from 65 countries gathered at the picturesque Intercontinental Hotel and Resort in Balaclava, Mauritius for the annual event, which coincided with the AIO’s 40th anniversary. The forum, held from 30 September to 3 October, was concluded with an awards presentation.

of the African insurance sector, Martin Ziguele, manager of Exact Conseil, said, “Africa’s insurance industry is making small steps, despite historical issues that were not necessarily inherent only to this continent. With a production of $50 billion in 2006 to $67 billion in 2010, it showed a growth of 34 per cent in five years.”

In his formal address to the delegates, Hassan El Sayed Mohammed, the president of the AIO, stated, “The massive attendance at this dual event is a clear manifestation of the firm commitment to support the growth of a vibrant insurance industry on the African continent, capable of facing the challenges provoked by economic mutations from outside Africa.” Speaking about the evolution

At the awards presentation, accolades were given to Africa Re in the category for best insurance organisation while UNCTAD claimed top honours in the category for international organisation. In the individual category, Albert Nduna received the award for his efforts in establishing the first reinsurance company in Zimbabwe.

Only handful of insurance firms known to Nigerian public Only 15 insurance companies out of 50 firms operating in Nigeria are known to the public, according to a study conducted by German agency for sustainable development, GIZ and Riskguard Africa Limited, reports allAfrica.com. The survey shows that the few insurers known to Nigerians are Aiico Insurance, PLC, Niger Insurance, Industrial and General Insurance (IGI), Leadway Assurance, NICON, LASACO, Oasis, Mutual Benefits, Royal Exchange and Crusader. Other companies identified as underwriting firms include Savana Insurance, Gateway Insurance, Quality Insurance, Liberty Insurance, CBN Agric Insurance Limited and Access Insurance.

Concerned by this development, commissioner of insurance Fola Daniel says the national insurance commission in Nigeria developed a draft guideline for the entrenchment and development of insurance at grassroots. He says the guideline on microinsurance is being exposed to the industry, experts and other stakeholders before a final draft will be released to the market. He adds that the commission intends on collaborating with other relevant regulatory agencies in implementing the plan.

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riskAFRICA

• Microinsurance in Africa

Opportunities rife for microinsurance in Africa Millions of Africans find themselves trapped in dire circumstances due to short-term strategies used to eke out an existence. Microinsurance is set to effect real change on the continent. Through knowing the market, developing innovative products and educating consumers, insurers can capitalise on the opportunities presented in the African market.

Candidate attorney, Siba Jonas, and associate, Lauren Kent, from Norton Rose South Africa, provide us with microinsurance lessons from Africa.

Market overview • T he African microinsurance market is largely untapped. The International Labour Organisation (ILO) reports that 14.7 million lives were microinsured, out of a potential 700 million, representing 2.6 per cent of the target population.

• T he combined annual income of lowincome African households is around $500 billion, according to the World Bank, meaning there is significant potential for growth.

Health insurance • H ealth insurance, arguably the most needed cover in Africa, has been taken up by a mere 0.3 per cent of the market.

Healthcare is financed by individuals in countries like Guinea, Burundi, Cameroon, Cote d’Ivoire and Nigeria. In Nigeria, 63 per cent of healthcare needs come from individuals’ pockets. In Guinea, out-ofpocket expenditure accounts for up to 88 per cent.

Consumer education • A successful microinsurance regime requires clear communication. The ILO found that the microinsured often claim their premiums if the product was not needed, signifying a fundamental lack of understanding of the product.

• I n Ghana, an awareness campaign backed by government and private institutions has been rolled out, together with various industry workshops and training programmes. A policy paper is being developed as a result.

• I n Egypt, Uganda and West Africa, national and regional workshops have been held as an introductory step.

• I n Ethiopia and Zambia, governments are developing microinsurance strategies to encourage wider deliberation and capacitybuilding initiatives.

spouse and all dependants for hospital expenses, loss of income, disability benefits, accidental death and funeral expenses for an annual premium of $50.

Challenges • L ack of understanding and trust in microinsurers and their products.

• L ack of financial means to pay premiums regularly, on time, or at all.

• D ifficulties with technological infrastructure, which hinder insurers in their development and rolling out of products.

Premium collection and payment • I n Burkina Faso, agents who collect premiums are recruited and trained from the local community, lending credibility and trust. While this is costly and timeconsuming, with potential for fraud, issuing the insureds with smart cards and agents with handheld computers at the collection points is helping mitigate these risks.

• U sing existing retailers’ infrastructure and customer loyalty to distribute products and collect premiums is successful in South Africa. In Kenya, mobile technology is used to pay for anything from taxi to insurance premiums, which is deducted from available airtime.

• T o overcome challenges of affordability, insurance mistrust, poor delivery infrastructure and insufficient regulations, one insurer introduced a comprehensive product for low-income Kenyan families.

In conjunction with the National Health Insurance Fund, the family insurance product provided cover to a policyholder,

• H igh administrative costs, especially in remote rural areas where transportation and communication channels are limited.

• L ack of suitably qualified staff to develop and market products and administer processes.

• R eligious and cultural considerations may limit the demand for traditional insurance products, particularly in North Africa, where Islam, the predominant religion, considers commercial insurance objectionable.

• D ifficulties with premium payment and collection.

• T he desperate need for consumer education to impart basic reading and mathematical skills, as well as an understanding of microinsurance.

While opportunities abound, insurers should study their chosen African market(s) carefully before committing to significant investment.

riskAFRICA

27

• Events

Regional conference tackles industry issues The Southern African insurance industry held its first regional conference in Gaborone from 15 to 16 August. Opening up new market possibilities, improving communication among industry bodies and the role of the insurance industry in sustainable economic development were all topics on the agenda.

The conference, hosted by Sisco and the SADC (Southern African Development Community) Secretariat saw delegates from almost every SADC country convene at the Gaborone Sun Hotel in Botswana. Delegates from Switzerland and the United Kingdom were present, too. It was the first of its kind on the African continent.

Delegates included representatives of insurance associations, institutes and regulators from each country.

Conference co-ordinator, Tshepiso Mphahlane, says the event provided a platform for insurance bodies and supervisors to interact at regional level. He adds that it provided an opportunity for the SADC’s Committee of Insurance, Security and Non-Banking Financial Authorities (CISNA) to give feedback to the industry regarding the harmonisation of insurance laws of SADC member states.

The move towards making cross-border insurance trade possible through enabling legislation opens up new market opportunities.

Above from left: Riana Gous, Insurance Institute of Namibia; Ndjoura Tjozongoro, CEO of National Special Risks Insurance Association; Debbie Donaldson, general manager: Strategy and Planning for the South African Insurance Association.

Molefe Phirinyane, policy analyst, Botswana Institute of Development Policy Analysis.

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Thembi Langa, senior programme officer, SADC, addresses delegates.

It is important for the shortterm industry to offer products and solutions that will promote our industry and not harm our environment and communities.

Tshepiso Mphahlane, conference co-ordinator and CEO of Sisco Corporate Advisors.

Building relationships between bodies CISNA is part of the Trade, Industry, Finance and Investment Directorate of SADC and reports to the Committee of Ministers of Finance and Investment. CISNA’s vision is to facilitate the development of a harmonised, risk-based regulatory framework for SADC member states. “The move towards making cross-border insurance trade possible through enabling legislation opens up new market opportunities,” said speaker Marcelina !Gaoses, managing director of Mutual & Federal Namibia.

At the conference, it was agreed that dialogue between the insurance industry and SADC should improve. In light of the request, SADC’s Directorate of Trade, Industry, Finance and Investment informed delegates that SADC will establish a business desk which will facilitate communication between SADC committees and the regional insurance industry.

Delegates acknowledged that regional economic integration also calls for improved communication among industry bodies.

Delegates welcomed the South African Insurance Association’s (SAIA) plans to establish a communication hub to facilitate information sharing. The conference also requested the SAIA to facilitate the development of a framework for collaboration of insurance associations.

Sustainable insurance limits risk Chief executive officer of the Insurance Institute of South Africa (IISA) David Harpur’s paper, ‘The Importance of a Common Framework for Insurance Educational Standards’, proposes the development of education standards and products that can be transportable across borders. The paper covered the common approach to continuous professional development and the

Marcelina !Gaoses, MD of Mutual & Federal Namibia discussed cross-border insurance. establishment of common standards of local value with international acceptability.

The conference discussed the role of the insurance industry in sustainable economic development. Programme leader at United Nations’ environmental initiative, Butch Bacani, told delegates that the insurance industry, with world premium volume of $4.5 trillion, was uniquely positioned to tackle environmental, social and governance issues.

General manager of strategy and planning at the SAIA, Debbie Donaldson, told delegates that the South African insurance industry has indeed responded to some of these sustainability issues, in particular energy security (home owners’ insurance), food security (agriculture insurance) and community risk management (community risk insurance). “It is important for the shortterm industry to offer products and solutions that will promote our industry and not harm our environment and communities.”

“Sustainable insurance is about reducing risk, developing innovative solutions and improving business performance with a view to contributing to environmental, social and economic sustainability,” says Bacani.

Overall consensus at the conference was that Gaborone hosted a successful event. President of the Insurance Institute of Mauritius, Sansjiv C. Nuckchady commented, saying it was wellorganised and of a high standard.

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Asia AIR opens Singapore office to expand in Asia-Pacific AIR Worldwide, provider of risk modelling software and consulting services, is opening a new office in Singapore to meet the expanding needs of clients in the Asian insurance market. “AIR has kept pace with the fast-growing markets and our equally fast-growing client base in Asia by opening offices in India (2000), China (2005) and Japan (2008),” explains Uday Virkud, executive vice-president at AIR Worldwide. “The new office in Singapore ensures our ability to maintain and indeed enhance the high quality of service our clients in the region have come to expect from AIR.”

Europe EU insurers’ capital charges may be cut to boost loans Reuters recently reported that capital charges for insurers in the European Union could be cut to encourage lending for long-term projects and help boost the flagging economy. The news agency was reporting on an announcement by the bloc’s executive body in a highprofile policy shift.

The European Commission has written to the European Insurance and Occupational Pensions Authority (EIOPA) to look at cutting the amount of capital that insurers

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must set aside to cover some types of investments. “European insurers are a potentially powerful financing channel for long-term investment in growth- and job-enhancing areas,” says Jonathan Faull, head of the commission’s internal market unit in a letter published on the executive body’s website.

Banks welcomed the review, saying lower capital charges for insurers would help kick-start securitisation.

Cash-strapped governments have pinned their hopes on the insurance sector to fund long-term economic development, as banks curtail their lending for big projects in response to tighter bank capital rules.

its share is down by two per cent on last year, interest has picked up again over the past three months as falling property prices entice buyers back. Turkey, Italy, USA, Australia, Canada, New Zealand and Ireland make up the rest of the top 10 list.

Clare Nessling, Conti’s operations director, says, “Buyers have increasingly been sticking to locations they know and trust, which is why France and Spain are out on their own at the moment and Portugal is starting to rise in popularity again, too.”

USA Berkshire invests millions in Torus

United Kingdom

France still property investment hot spot

Business bank on the cards for Britain

According to the latest overseas property hot spot report, compiled

by Conti Financial Services, France is still the number one choice for Britons buying property abroad. Investmentinternational. com reported that for the fourth consecutive year, France has topped the list, accounting for 45 per cent of mortgage enquiries received so far this year. This is the country’s biggest share achieved to date, compared to the 39 per cent last year, and just 15 per cent back in 2008. Spain came in second with 33 per cent of enquiries, thanks to excellent buying conditions and signs that the market is starting to bottom out.

British business minister Vince Cable has launched plans to inject £1 billion ($1.6 billion) into a new business bank in a bid to cut borrowing costs for firms. Cable announced the initiative at the annual conference of junior coalition partners, the Liberal Democrats, reported Finance24.

Portugal, accounting for 10 per cent of enquiries, is in third position for the second year running. Although

billion) of finance for small and medium-sized British companies that are struggling to get access to credit. The new bank will lend the cash via existing financial institutions and start within 12 to 18 months. It will be funded from existing budgets and not require any additional state borrowing. The Conservative-led government hopes that it will attract more than £1 billion of capital from the private sector.

Looking to fund its ongoing expansion efforts, Torus Insurance Holdings Ltd received a capital infusion of $100 million from Berkshire Hathaway Inc. The specialty insurer says that it has received funding from National Indemnity Co., a commercial insurance unit of Nebraska-based Berkshire Hathaway, according to Businessinsurance.com.

“We need a British business bank with a clean balance sheet and a mandate to expand lending rapidly and we are now going to get it,” Cable said at the conference in Brighton on the coast of southeast England. “Alongside the private sector, the bank will get the market lending to manufacturers, exporters and growth companies that so desperately need support.”

The Berkshire outlay coincided with an additional round of funding provided by existing shareholders and private equity firms, First Reserve Corp. and Corsair Capital LLC, a Torus spokeswoman says.

While terms of the transaction were not released, sources confirmed that the Berkshire infusion ranged from $80 million to $100 million.

Torus began operations in 2008 with $720 million in equity funding from First Reserve.

Cable says the new wholesale bank will open up about £10 billion ($16

“We are delighted that Berkshire Hathaway has invested in Torus,”

Group CEO Clive Tobin said in a statement. “This is part of an expanding relationship with one of the most respected companies in our industry.” He adds the investment affirmed the specialty insurer and reinsurer’s global development goal.

Torus has substantially repositioned its business in the past two years.

In September 2011, Torus said it would acquire Lloyd’s of London syndicate 1301, which underwrites direct and facultative property, accident and health business. In December 2011, Torus acquired the renewal rights to CV Starr & Co.’s continental European business. Torus also sold its renewal rights of its property catastrophe reinsurance book of business and entered the US surety market during 2011.

US CEO confidence lowest in three years Finance24 reports that US chief executives’ view of the economy deteriorated sharply in the third quarter and is now as bleak as it was in the immediate aftermath of the last recession, with more planning to cut jobs over the next six months, according to a survey released by the Business Roundtable.

when the US had just emerged from its worst recession in 80 years, but remained above the 50 mark, separating growth from decline.

Among US CEOs, 34 per cent expect to cut jobs in the United States over the next six months, up from 20 per cent a quarter ago.

Thirty per cent plan to raise capital spending, down from 43 per cent.

Over that time period, 58 per cent expect their sales to rise 34 per cent, down from the previous survey’s 75 per cent.

The weak economy and stubbornly high unemployment are shaping up to be key elements in voters’ choice between incumbent Democratic President Barack Obama and Republican challenger Mitt Romney.

The survey comes less than two months ahead of the US presidential election, in which the weak economy and stubbornly high unemployment are shaping up to be key elements in voters’ choice between incumbent Democratic President Barack Obama and Republican challenger Mitt Romney.

Investors will get a more detailed look at corporate confidence next month when top US companies including Alcoa, JPMorgan Chase and General Electric report quarterly results. The survey of 138 CEOs was conducted from 30 August to 14 September.

The group’s CEO Economic Outlook Index tumbled to 66 per cent in the third quarter from 89.1 per cent in the second, in the sharpest drop recorded in the survey’s decade-long history.

Confidence fell to its lowest point since the third quarter of 2009,

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• Mozambique

Absa wants to recreate the insurance and financial services offers it has in South Africa in other markets in Africa, and the Mozambique purchase is in line with that goal.

Inside Mozambique Bianca Wright

Mozambique is quickly gaining recognition as an attractive investment destination for insurers from neighbouring countries.

According to Jaco Moritz of the website, How We Made It in Africa, “Mozambique has transformed from a basket case to one of the world’s most rapidly expanding economies, with growth expected to average around eight per cent a year between 2012 and 2016.” The stable political and economic conditions in the former Portuguese colony have made it a possible idyll for insurers looking to expand. South Africa already has a foothold in the region and is starting to compete with the already established local and Portuguese industry. According to Marsh Africa, there are 10 major insurers operating in Mozambique with the top four being EMOSE, IMPAR, Global Alliance and Hollard. There is one reinsurer, Mozambique Re and growing interest from a variety of insurers in the region.

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Reflecting the past Mozambique’s insurance industry reflects its colonial history. In 1987, insurance was monopolised by the State through the establishment of (EMOSE) Empresa Moçambicana de Seguros; but in 1991, this monopoly was broken and the market was liberalised. IMPAR and Global Alliance were founded in 1992. IMPAR is now Seguradora Internacional de Moçambique and Global Alliance is the new name of Companhia Geral de Seguros de Moçambique, which was recently bought out by Absa.

The regulatory environment has evolved over time. Decree No. 42/99 of July 1999 established the (IGS) Inspecção Geral de Seguros (the Inspector General of Insurance)

or the Commissioner of Insurance which controls insurance activities on behalf of the Ministry of Finance in Mozambique. George Mathonsi, managing director of Alexander Forbes Moçambique, says that following this decree, in 2003 Law No.3/2003 set new parameters for the conduct of insurance business in Mozambique. Decree 41/2003 went on to provide the regulations in support of Law No. 3/2003 and the Decree No. 42/2003 established the new requirements in respect of technical reserves and solvency margins.

Mathonsi adds that it is fairly easy to enter the insurance industry in Mozambique provided the investor complies with specific requirements as per the Insurance Decree-law No. 1 /2010 of 31 December. The decree is essentially the main legislation regulating the operation of the

insurance sector. This law sets the parameters for the conduct of insurance business in Mozambique. Issues dealt with include licensing of insurance sector organisations, restrictions on non-admitted insurance, operating requirements, supervision levy, operating criteria for intermediaries and the penalties for noncompliance with the act.

Similar to the South African environment, insurance-related laws are drafted by the IGS. The draft law is submitted to the Ministry of Finance for approval and, on approval, is forwarded to the cabinet. If the draft law meets with the consent of the cabinet it is placed before parliament. If it is found to be acceptable it is signed off by the president and published in the government gazette. These similarities make it an attractive option for insurers in other countries.

Meticais 1.218 million total premium income reached in December 2010

Creating the future The interest in the region from South African insurers was perhaps best highlighted by Absa’s recent acquisition of Mozambique’s Global Alliance Seguras, which, in 2010, generated income of over $25 million, according to the Absa Group. Absa already has a presence in the country through its majority stake in Barclays Bank Mozambique. The bank is majority owned

by Barclays PLC (BCS). Absa CEO Willie Lategan told Dow Jones Newswires, “Absa wants to recreate the insurance and financial services offers it has in South Africa in other markets in Africa, and the Mozambique purchase is in line with that goal.” It is not alone; there are other SA insurers already active in the market and still others are eyeing the possibilities.

According to Mathonsi, Mozambique’s non-life market continues to grow at a good rate with

an annual growth in US Dollars of more than 12.5 per cent from 2007. The non-life sector, he adds, is dominated by the motor insurance class, accounting for about 46.5 per cent gross premium written. “The growth of the insurance industry remains inextricably linked with economic performance. All indications are that if political and macroeconomic stability is maintained, the non-life market will continue to grow well.” Seguradora Internacional de Moçambique SA (Impar), one of the largest private insurance companies in Mozambique has a market share of 34 per cent. In December 2010, its total premium income reached around Meticais 1.218 million (equivalent to US$37 million) on life and non-life businesses.

earned. “The return on capital for the industry as a whole is around 13.6 per cent with the three top companies reporting rates of return in excess of 25 per cent in 2008 and 2009,” he says.

The growth of the insurance industry remains inextricably linked with economic performance.

All indications are that if political and macroeconomic stability is maintained, the non-life market will continue to grow well.

In terms of loss ratio performance, Mozambique’s non-life sector has had a ratio of not more than 38.7 per cent for a number of years, incurred claims to net premiums

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the market. Life and non-life business is written by composite insurers and the life business is very insignificant accounting for approximately 2.5 per cent of GPI.” South African-owned Absa bought the Global Alliance insurance company and Alexander Forbes Insurance Brokers. Both have majority direct foreign investments and are very successful.

Mathonsi adds: “There is no Namibian investment in the insurance industry but countries like Kenya, Malawi and Zimbabwe also have successful insurance investment in Mozambique.”

A growing market The market size is valued at approximately US$ 95 million, ranked as follows: Composite insurers 1. 28.4 per cent – Impar 2. 26.1 per cent – Emose – State insurer 3. 21.9 per cent – Hollard 4. 19.40 per cent – Global Alliance Non-life 5. 02.5 per cent – MCS 6. 01.7 per cent – Austral Seguros 7. 00.0 per cent – Real Seguros – started 1 August 2010 The only reinsurer registered in the country is Moz Re, a subsidiary of the ZimRe. “Local insurers cede a substantial amount of facultative business to the South African market, principally Munich Re and Swiss Re. Business is also placed with regional reinsurers, for example Africa Re, Kenya Re and PTA Re,” Mathonsi says. “Specialist markets are used for particular classes or risks; the aviation sector, tourist lodges, liabilities and the London market is often used for the specialist facilities it can provide. There is no single insurer writing life business or life insurance companies in

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In another interview with the How we made it in Africa website, Lategan says, “If you look at the Mozambican market, it is still very lightly penetrated with insurance, although it has been growing in significant double-digits over the last three to five years. We think this growth is going to continue, and we want to participate in that growth.” He adds that Global Alliance is the number three player in the Mozambican landscape. “The top four players are all significant players in the Mozambican context, and then there are a number of smaller players.

Competition is heating up, but the overall insurance penetration is still less than one per cent of GDP.” Absa does not intend to rebrand Global Alliance as the company already enjoys a good foothold in the market and has very good relationships with the brokers.

As a percentage of GDP and expenditure on a per capita basis expressed in USD in the year 2008, life represents 0.11 per cent; and non-life represents 0.69 per cent. “Most of Mozambique’s population works in the informal sector, a substantial amount of which comprises of subsistence farming. These people have no involvement at all with the insurance sector and an improvement in insurance penetration hinges on the growth of formal sector employment and the economy in general,” Mathonsi says.

Diversifying options There are currently 33 insurance brokers licensed in Mozambique, a number of these with Portuguese or South African shareholders.

The largest insurance brokers according to IGS statistics released in 2008 are: • • • • • •

26.5 21.3 15.7 12.1 11.3 13.1

per per per per per per

cent cent cent cent cent cent

– – – – – –

Aon Alexander Forbes National brokers PoliSeguros MSeguros All other brokers

Although no official statistics are available, brokers are now believed to be the most important distribution channel in the Mozambique market, certainly in terms of the business-related insurances with more than 50 per cent market share.

Increasingly insurers are diversifying product offerings to keep in line with client needs. In August, for example, Hollard Mozambique announced its new travel insurance product.

Henri Mittermayer, managing director of Hollard Mozambique, says: “We are delighted to announce the launch of the Hollard travel insurance product in a move that will revolutionise travel insurance in Mozambique.

Until now, travel insurance in this market wasn’t necessarily an appealing proposition.

Hollard Travel Insurance will redefine the travel insurance landscape by providing consumers with an innovative, affordable and convenient solution.”

Mozambique remains a relatively untapped market for insurers and South African and Namibian insurers are set to take advantage of the possibilities and leverage the experiences they have had in their own markets to extend into this growing target market.