RISKAFRICA _Issue 18

RISKAFRICA THE THE RISK RISK MANAGER’S MANAGER’S RESOURCE RESOURCE

IIssue ssue 18 18 || 2014 2014 ISSN ISSN1812-5964 1812-5964

A COUNTRY CALLED

AFRICA

Wel to A come fric a

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A country called

Africa - hospitality, tourism and the risks of perception

The tourism industry across Africa constitutes an important pillar in the realisation of the continent’s economic potential. Revenues from tourism represent more than double the total received in donor aid, according to the African Development Bank Africa Tourism Monitor. But 2014 has been a tough year for the industry, and it seems possible that 2015 may follow suit.

By Sarah Bassett

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or 2014, the greatest risk and obstacle for tourism numbers across the continent has been the ongoing West African Ebola outbreak and the perception challenge it highlights. “The ongoing misperception that Africa is one homogenous country instead of 55 recognised and individual states with vastly different conditions is a perception that needs to be corrected for the sake of tourism to Southern and East Africa,” says David Pratt, specialist head of Hospitality and Tourism within Hollard Broker Markets.

“African tourism was severely impacted by the global recession that started around 2008. In 2013, we started seeing signs of a recovery, with the number of tourists increasing by over 5 per cent, or three million, over 2012,” Pratt continues.

This increase created a positive anticipation that 2014 would be the year for a return to normality for the tourism industry. The World Tourism Organisation had forecast up to a 6 per cent growth in the number of travellers, and the early signs were impressive. Many tour operators and booking agents experienced record sales in the early part of 2014.

Unfortunately, a recent survey of more than 500 safari operators by Safaribookings.com found that they had

experienced overall reductions of 20 per cent to 70 per cent when compared to 2013. The primary reason given for the sharp decline was ‘fear of contracting Ebola’.

Tourists’ misconceptions “Despite the fact that the countries affected

by Ebola – namely Sierra Leone, Liberia and Guinea – are closer to Europe than to Eastern and Southern Africa, there are geographical misconceptions of tourism regions by potential tourists. These false impressions will ensure that the number of tourists will remain low, even to countries not infected by Ebola, until the disease is contained or public perception changes,” Pratt notes.

regarding Kenya having a high ‘possibility’ of experiencing an outbreak, due to it being a major travel hub. However, to date, that country has not experienced a single incident. It is praiseworthy as well as noteworthy that international airports are highly vigilant in steps taken to prevent any spread across borders.

Ebola football disappointment Morocco was scheduled to host the African Cup of Nations Football tournament in January. Due to Ebola concerns linked to the large influx of supporters from West Africa and the difficulty in controlling such numbers, Morocco cancelled the tournament.

East Africa has been particularly impacted by tourists’ Ebola concerns, despite being more than 5 000 kilometres from the outbreak region. During August, the World Health Organisation issued a warning

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Although it is likely that another country will host the tournament, this decision will have an impact on the Moroccan tourism industry because many in the tourism industry have taken advance payments for bookings. They have also assumed greater levels of debt in improving the services offered by hotels and lodges. The employment expectations of locals have also been dealt a blow. The Cup of Nations event would have expected an opportunity of employment for at least the period of the competition and possibly even permanently, as sports tourists may elect to re-visit the country at a later date.

But those individuals are now unlikely to earn an income from tourism, which is a further impact of Ebola on individuals as well as on the Moroccan economy as a whole.

Ebola and insurance “Ebola has affected the travel insurance side of the business. With the recent outbreak in parts of West Africa, the cancellation of trips has become a huge issue, resulting in additional insurance claims,” says Lana Mizen, head of hospitality at Zurich South Africa. “In fact, the South African Government is currently only allowing essential travel to areas that have been affected by the crisis, with further restrictions expected from other countries (especially in the United States where cases have been reported). In these instances, cancellation and medical benefits would only apply as long as the policy was purchased prior to

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an official warning from the government regulation/World Health Organisation (WHO) body. Of course, its stands to reason that establishments in these countries would benefit from hospitality insurance that covers loss of revenue for when guests have to cancel their respective trips,” she continues.

“Insurance companies do provide an element of protection with respect to contagious disease being the cause of business interruption. However, this is generally limited to disease occurring within a specific radius to the affected business, lodge or hotel. It is highly likely that, should Ebola not be contained in the West African region and spreads further, reinsurers might consider either specifically excluding Ebola, or entirely remove the contagious disease clause. Treaties are being renewed for the 2015 calendar year, and there is little doubt that this specific extension will come under scrutiny,” adds Pratt.

The impact of terrorism While Ebola has had an impact on the number of tourists cancelling or postponing scheduled trips to Africa as a whole, the impact of terrorism has been more localised to those countries directly affected, says Pratt. “Nigeria, for example, has seen a decline in the number of visitors following the kidnapping of schoolgirls and that government’s perceived inability to adequately deal with that challenge.”

“The country which has been hardest hit is Kenya following the bombings in Nairobi and terrorist attacks along the Kenyan coast.

Although this has had an impact within the local economy, most tourists primarily visit Kenya for safaris. Those visitors who may have planned to visit Mombasa for the beach portion of their holiday are now switching to Zanzibar, the beautiful archipelago of islands off the coast of mainland Tanzania,” he adds.

“Fortunately, there have been no direct attacks on African hotels. However, the Taj Mahal hotel in Mumbai, India, was severely impacted by a terrorist attack during 2008. To put matters into context, this does not mean that a single incident in India makes that country any less safe to visit than ever before.

Equally, terrorism attacks in Africa merely demonstrate that there is no destination that can offer a guarantee of personal safety – and insurance needs to be carefully assessed in new and insightful ways.”

“In response, insurance does provide various products. For instance, Hollard Hospitality and Tourism provides war and terrorism cover, as well as kidnap and ransom, and we have partnerships and representatives throughout the African continent. From an insurance point of view, it is extremely important to have sources for local risks, as well as legislation and circumstances specific to each country,” says Pratt.

Although our colleagues in Africa originally experienced interest in war and terrorism as

2843 SSP Risk Africa Ad 02.pdf

well as kidnap and ransom cover, demand for this cover appears to have reduced.

This seems to be due to the Somali Pirates issue being largely addressed by a greater military presence in the region, including South African forces. There has also been a reduction in the number of kidnappings from oil bases in Nigeria.

function. This puts assets under greater risk and could mean that in some cases losses are not covered,” notes Halley.

For the present moment, this seems to suggest that the threat of terrorism within African countries is not viewed as an immediate priority by either hotel owners or the African insurance industry.

“A professional broker can add tremendous value in the advice process and guide you towards a thorough understanding of the terms and conditions of your cover, making sure that you are not compromised or prejudiced by unreasonable limitations on the cover. A broker would always point out terms in a policy that applies onerous or unreasonable limitations,” says Barrett, suggesting that policyholders check these limitations carefully and consult with a broker if they find they would not be covered should alarms fail as a result of power failure.

South Africa and the constraints of power For South Africa – the announcement of a further round of load shedding, a further delay on the construction of the long-awaited Medupi power station, along with the reality of parastatal power producer Eskom’s financial woes has left analysts suggesting that power insecurity is likely to hamper the country’s progress for another five years. With serious implications across every industry, the tourism industry is left with considerable risks too.

These constraints can present a number of challenges for bed and breakfast and guesthouse owners in particular, both Halley and Mizen agree, where large hotel chains are more likely to be able to afford generators to counter the challenge.

“The hospitality industry cannot survive without electricity. Ultimately, no guest is going to be comfortable without electricity and water. The ability of operators to provide key services such as cooked meals, cold drinks, WiFi and hot water is totally compromised,” notes Halley.

“It also means that the potential for injuries is also greater – guests falling down stairs in the dark and so on,” adds Mizen. “It could result in reputational damage – disgruntled guests who will turn to social media to complain. In addition, equipment and maintenance cover will be essential as a fluctuating electricity supply could result in equipment breaking or failing (power surges are also often covered in the property section of a hospitality policy),” she continues.

“Security and fire alarms may not function without electricity and cover is subject to these systems working and being able to

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For smaller establishments, all of these impacts can create knocks simply too great to sustain, with serious consequences for these businesses.

“Certain mitigation measures can be taken, fitment of solar geysers, for instance, but this only goes so far.

C Unless the entire operation is taken of the grid, these businesses remain in M trouble,” Halley warns. Solar geysers Y and systems to provide lighting for stairwells and exits is a good place to CM start, he suggests.

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Halley raises the state of South Africa’s K national carrier, South African Airways (SAA) as a further cause for concern.

“AA is critical to the tourism sector in South Africa and Africa more broadly.

Seventy per cent of South Africa’s visitors are from the African continent, so the ability to service these routes is critical to maintaining tourism numbers.”

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On this front, there is good news, with the recent announcement that from December of 2014, SAA was increasing the frequency of its African destination flights by 17 per cent.

Effective 1 December SAA increased frequencies between Johannesburg and Maputo by 19 per cent – from 17 to 21 weekly frequencies, flights between Johannesburg and Harare increased from 18 to 19 every week (5 per cent), between Johannesburg and Kinshasa from 6 to 7 a week (6 per cent) and Johannesburg and Mauritius from 9 to 10 weekly frequencies (9 per cent).

“The strengthening of these routes comes in the wake of positive load factors and increased traffic between the countries,” comments SAA acting chief executive officer, Nico Bezuidenhout.

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2843 TheCheeseHasMoved

“However, all specialist underwriters and experts within Hollard Broker Markets who cover all categories of insurance, including hospitality and tourism, encourage brokers to keep alert to changes which can happen in a flash. We believe our intermediary network, particularly those who guide clients in the ‘movement dependent’ tourism and hospitality arena, are faced with the challenge of keeping totally abreast of changes which can happen overnight,” Pratt notes.

According to Mandy Barrett of insurance brokerage and risk advisory Aon South Africa, this is where the help of a good broker can be critical.

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Holiday season

a time of tourism, hospitality and… insurance claims For Africa’s top tourism destinations, the summer brings bustle and business thick and fast. This can be a time of feast for the hospitality industry, but it is also a time of heightened risk. RISKAFRICA chats to insurance specialists to find out more about the annual seasonal claims spikes and what establishments and service providers can do to ensure they’ve got all the bases covered for a prosperous season.

By Sarah Bassett

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cross the continent, the seasonal weather and environmental challenges and risks differ dramatically at this time, observes Paul Halley, managing director of Ascent Underwriting Managers. Just across South Africa alone, the differences are significant.

In the Western Cape, the summer season brings strong winds that can cause damage to property and unprotected items. For in-land provinces and parts of the East Coast, the summer season brings lightning, thunderstorm and rainstorm-related claims.

The increasing frequency and severity of hailstorms across the country in the last few seasons has also had serious consequences for risk and weather-related claim trends.

In addition to these weather concerns, the summer season being the busy season brings another set of heightened risks by simple odds. With more people, there is more opportunity for things to go wrong.

“Hotels are busier, there are more guests and perhaps more and new staff; more servicing requirements. People’s minds are tired, both staff and guests, and guests are in holiday mode. Those from low-crime countries may be less security conscious and alert than they should be, and criminals

certainly take advantage of this. They may be less switched on to the risks around them than they would be in familiar surroundings or in their home country,” says Halley. And busy, stressed staff and hotel operators are sometimes also not as conscious as they should be of what is going on around them, rendering both soft targets to criminals.

Tourists often do make something of a target of themselves, he notes. “There is an annual seasonal increase in crime and tourists are often soft targets, carrying high-value goods of use to criminals. We do see an increase in crime towards December holidays particularly.

In the industry, we have a standing joke that the criminals also want Christmas presents.”

“For hotels and guesthouse establishments, this year particularly, we have also seen an increase specifically in employeeinfluenced criminal activities and on small, petty-level crime at guesthouses and bed and breakfasts which are a little more vulnerable than many hotels,” he continues. There has also been a noted increase in walk-in crime where there is theft of portable items such as an iPad, camera or credit card machine.

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nature that hospitality operators should have in their overall culture, with guest satisfaction and experience front and centre to the business. “Your guests’ safety and security is a critical component of this. You can’t service a guest and fulfil your service objectives to your guests if you aren’t taking their security seriously,” says Halley.

Insurance strategies “Often owners think that personal insurance is enough. However, this type of insurance does not include liability or business interruption cover,” warns Lana Mizen, head of hospitality, Zurich SA. “A guest could be injured or an event such as a storm or flood could prevent guests from arriving at an establishment, ultimately resulting in a loss of revenue.”

Of course, it’s not only guests that could suffer injury, she adds. Owners themselves could get injured or fall ill, leaving no one to run the business. “Bilking (leaving without paying) is also a common occurrence, negatively affecting profit margins. It is also advised that the policy extends to equipment as well, including maintenance cover.

But it’s not all opportunism. At the recent Southern Africa Tourism Services Association Conference, the chairman of the Tourism Business Council of South Africa (TBCSA) remarked that police had discovered a suspicious gang handing out complimentary ‘Welcome to South Africa’ key rings at various entry points to the country such as airports and stations which have a tracking chip in them which allows the criminal to target a specific guest and track them to their location in a very sophisticated way and then hold them up.

Risk response Where specific, seasonal weather patterns are expected such as high winds and storms, guest house and hotel operators need to inspect their premises and ensure that any required maintenance has been done. “If it wasn’t seen to during the quieter time, it should be done now.

Owners and operators need to ensure that roofs are in correct condition, that gutters are cleared and in good condition, that any waterproofing that may need attention

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is attended to and that any storm water drains in the vicinity, for example, were cleared and checked by the municipality to avoid potential flash flooding,” Halley recommends. “If you’re in-land and expecting a lot of lightning, ensure that any lighting protection devices that have been installed on your premises have been serviced, remain operational.”

He suggests that tourism and hospitality businesses run awareness campaigns with risk managements, security staff and broader staff in general to create awareness of what to look out for and what should be checked on a daily basis.

“It’s a busy time of year with many priorities, but you need to make people aware and regenerate an awareness at the right time for the additional increase in potential crime exposure, so that it is top of mind and staff have it drilled into them at every level of the operation.”

It’s about a risk culture, he says, but more than that, it’s about seeing it as an extension of the customer-centric

Guests who aren’t able to use the air-conditioning or washing machines may not return again and could potentially say negative things about the establishment, resulting in reputational damage and loss of business.”

In addition to these concerns, with the rising use of social media and online review platforms such as TripAdvisor, public risk management is essential, says Mizen.

“This is why policies with containment cover are a non-negotiable. Zurich offers this as an extension to its liability clause within hospitality policies at no extra cost. This comprises public relations or crisis consultant fees and ensures that crisis situations are dealt with in a timeous manner and that negative publicity is minimised.”

For risk managers, reminding and warning guests and particularly staff of these risks and the responses required, as well as revisiting critical insurance policies and checking your benefits offered and the requirements of cover on these, can be the critical differentiator for this busy and hopefully hugely rewarding time of year.

Hospitality Overview South Africa, Nigeria, Kenya, Mauritius

By Luka Vracar

In June, PricewaterhouseCoopers (PwC) published the fourth edition of its Hospitality Outlook: 2014-2018 report, featuring a detailed forecast of growth and trends in the major hospitality industry segments in South Africa, Nigeria, Mauritius, and for the first time this year, Kenya. We look at the key findings.

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frica’s growing economy has led to a boom in accommodation across the continent, especially in the hotel industry. This can be seen by Marriott International’s recent acquisition of the Protea Hotel Group, with a key strategic emphasis on Africa. Among numerous developments in South Africa, the Tsogo Sun Group spent R220 million on two beachfront hotels in Durban and is spending a further R100 million to renovate the Southern Sun Waterfront Hotel in Cape Town.

South Africa is not the only hub of hotel development though. The PwC report indicates that the number of available rooms in Nigeria has increased by a third since 2009, and last year saw the opening of several five-star hotels, including the International Hotel and the Swiss International Westown in Lagos.

As the fastest growing economy in Africa, Nigeria’s hospitality industry is focused around the country as a business destination, with relatively little holiday tourism, with the hotel market that grew 9 per cent in 2013.

According to the report, Nigeria’s booming economy led to a 59 per cent increase in hotel room revenue between 2009 and 2013. In fact, PwC indicates that Nigeria will easily have the fastest-growing hospitality market over the next five years with a projected 22.6 per cent compound annual gain.

However, the report does indicate that the recent terrorist activity in Nigeria might impact negatively on future prospects, as foreign travellers will be wary of visiting the country, particularly in North-eastern parts of the country where terrorist group Boko Haram operates.

The island of Mauritius relies essentially on its resort market, principally on its fivestar hotels, which make up the majority of available rooms and spending in the market.

According to the report, only 4 per cent of travellers to Mauritius in 2013 were business travellers.

Africa’s second largest economy, South Africa, has weakened in growth. However, it remains an important business and tourist destination.

The PwC report finds that the depreciation of the local currency has aided the growth in international visitors and rising room rates have strengthened the market as total room revenue in South Africa rose 14 per cent last year and hotel room revenue increased 14.6 per cent.

Mauritius is affected more by international global economic conditions than South Africa or Nigeria, through its impact on disposable income and competition from the Seychelles, Maldives, and Sri Lanka. Hotel room revenue decreased by 8.7 per cent in 2013. However, an improving global economy and an increase in visitors will lead to a 4.6 per cent compound annual rate, according to PwC.

Visitors to South Africa from other countries in Africa totalled 6.9 million in 2013, up 3.3 per cent from the previous year, and made up 72 per cent of foreign visitors to South Africa. The largest numbers of African visitors were from Zimbabwe at 1.9 million in 2013. Outside of Africa, visitors from the United Kingdom remain the top overnight visitors to South Africa, with 432 186 travellers in 2013.

PricewaterhouseCoopers expect South Africa’s hospitality industry to increase at a 10.7 per cent compound annual rate overall, and 11.2 per cent compounded annually for hotels.

Much like Nigeria, Kenya is also suffering from concerns over terrorism activity, which has had a significant impact on Kenya’s eco-tourism.

While the country offers safaris and beachfront accommodation, on-going terrorism will lead to short-term and mid-term declines.

Kenya does not have Nigeria’s economy and business interests and is the only country reported where the hospitality industry declined in the past two years, 6.6 per cent in 2012 and 2.6 per cent in 2013. PwC projects that Kenya will only experience a 2.5 per cent increase over the next four years, making it the slowest growing of the four countries.

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engagement The rules of

By Melissa Wentzel

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recent survey of the smartphone usage habits of 5 000 desktop Internet users in South Africa revealed that 92 per cent of Internet users own smartphones, and 82 per cent of those owners use their smartphones to access the Internet.

Of the activities Africans perform on their smartphones, accessing social media is the third most used activity, after instant messaging and email. These findings, coupled with the new Consumer Protection Act (CPA), mean that today’s guest, both local and international, is more mobile, more present online, and more aware of their rights as a consumer.

Skift, an online marketing platform for the global travel industry, is currently running an interview series, The Future of the Guest Experience, which looks to CEOs of international names in hospitality, like Marriott, Starwood, and Wyndham Worldwide, for insights into the evolving expectations and demands of hotel guests.

Stephen Holmes, CEO of Wyndham Worldwide, says that one of the major causes of the current shift in guest expectations and demands is the advent of ubiquitous technology and data that’s available to all consumers.

According to the last research study released

by World Wide Worx and Fuseware, South Africa Social Media Landscape 2014, Facebook is currently the largest social network with more than 9,4 million active users, and Twitter has more than doubled its users in the past year, from 2.4 to 5.5 million, in 12 months.

More relevant to the hospitality industry has been the rise of American-based website, TripAdvisor, that provides a free service to travellers to post their reviews and experiences.

An early adopter of user-generated content, TripAdvisor has more than 75 million user reviews and opinions, and has become the go-to platform for any potential guest prior to planning a trip.

There have been a number of concerns raised in the hospitality industry in South Africa over the past year, ranging from the administrative headache of changing legislation, to the threat the Ebola outbreak in East Africa poses to the 2014/2015 summer season. RISKAFRICA takes a look at what could be the biggest threat to hospitality for risk managers in 2015: the guest.

“If a consumer is going to a certain market and knows there’s a bunch of different hotels then they want to be told what they’ll like and they don’t want to hear it from the hotel. They want to hear it from a third-party site … like TripAdvisor,” says Holmes.

“There’s a growing ecosystem of online rating and review platforms geared specifically toward the hospitality industry which, if mismanaged or ignored, can be potentially disastrous,” says Brett Powell, MD of Intertel, a private investigation company that provides online reputation management.

The by-product of this evolving social media landscape is the advent of a new breed of guest – empowered, expectant, and wielding CPA citations. “Social media has revolutionised how an entire generation expects to communicate and interact,” says Powell. However, social media has also exposed the hospitality industry as an easy

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target for negative, and quite often defamatory feedback, and the potential for reputation ruin.

“Reputation and brand management is vitally important. All you need is one guest to have a bad experience, and that can have such a huge impact on the hotel going forward,” says Brian Muller, director of Factory and Industrial.

CASE STUDY

Ascent - goodwill protection cover “Guests had suffered a traumatic experience at one of the country’s leading lodges.

There was no physical injury to either of the guests nor threat of injury but they had lost their possessions as a result of a random act of God.

“The main thing we’ve experienced over time, because of our involvement with the accommodation industry, is that B&B and guesthouse owners are subjected to frequent intimidation,” says Lana Mizen, head of hospitality at Zurich. “We were finding that every time something doesn’t go right, whether it’s a liability claim or if a guest is involved, then the person threatens to publish on social media.”

It had a particularly emotive connection to them as they were out in the country celebrating an important anniversary and a renewal of their vows. As a result of this act of God, this could not take place.

Zurich has recognised the demand for public risk management within the tourism sector, and have added containment cover as an extension to its liability clause within their hospitality policies. This extension covers the costs of PR or crisis consultant fees and essentially minimises any negative publicity subsequent to a crisis situation.

This inconvenience together with the loss of the guests’s property resulted in them seeking compensation from the insured well beyond what they were entitled to by law. Dissatisfied with that they proceeded to defame the lodge on a number of specific platforms around hospitality and around these lodges. Due to the prominence

“Nowadays, issues can accelerate from dissatisfaction to crisis at the speed of light, and with the click of a button, while the window of opportunity for interdicting an escalating problem is diminishing rapidly,” says Powell.

Ascent Underwriting Managers have a product extension called Goodwill Protection, that covers the costs of mitigation in the wake of a threat to brand or reputation. “We have had the extension for a little over two and a half years now and we see it becoming more and more necessary in this age of unverified digital information,” says Paul Halley, managing director of Ascent.

The extension covers the approved costs of launching counter-active multimedia campaigns, promotional campaigns, or in more extreme cases, the costs of formally approaching Google, Facebook, or TripAdvisor through the necessary legal channels to have certain comments removed.

“The concern and the risk with multimedia is that it’s not conventional journalism, so there’s nobody who’s editing or verifying the details. I think at best the filters on most of these platforms would be around bad language or issues around racism. But there’s no verification of the integrity or the accuracy of the statement. So fundamentally anybody can go and write anything and influence the perceptions of anyone who reads it and it could be based on no facts at all,” adds Halley.

Products like containment cover and goodwill protection, while absolutely necessary, should

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still only be a risk manager’s last port of call. “First of all, make sure that there is good expectation management within the organisation and that the brand promise is being fulfilled while equally being aware of potential issues in real time,” advises Halley.

“For example, if a complaint is lodged, handling it sensitively and correctly at the time would obviate any need for a guest to put their poor experience online.”

“Guest expectations are fundamental to reputation management and should be managed from the outset – before the first contact if possible,” says Powell. “After-the-fact reputation management is not really reputation management at all. It is damage control, and it’s severely limited in the digital age.”

A brand’s promise needs to be supported all the way through an organisation, otherwise the reputation will be damaged as opposed to being enhanced. “By far the easiest way to avoid negative reviews is by not promising something that cannot be delivered, and by making every effort to deliver what has been promised, on time and within budget,” adds Powell.

Have a plan Halley, Powell, Muller and Mizen are

of this lodge and its reliance on international tourists they needed to respond. We assisted with the cost of the attorneys who defended the clients against the guest, and on a legal basis, got the guests to not partake in any further defamatory statements and equally approached the platforms and, through the necessary channels, had the defame withdrawn or deleted.

In addition to that, it is believed there were concilliatory gestures made on behalf of the lodge directly to the guests as an offer of good faith at their discretion.

So the costs of the attorney interdicting the guest from spreading any further defamatory comments on the public domain and obtaining the removal of the earlier defamatory statements was funded by the goodwill protection costs extension.”

unanimous in their agreement that a comprehensive social media content strategy is essential to reputation or public risk management for not only the insured, but insurers as well.

According to Intertel, reputation management involves actively monitoring, constantly assessing, and positively influencing the reputation of a business (or a brand) or person.

So essentially it covers reputation building, reputation monitoring, and reputation recovery.

“I think the best thing to do is have a cohesive media and multimedia marketing strategy where they are ensuring that they are present on these platforms, that they are monitoring these platforms, and that they are capable of responding positively or negatively to comments posted on these platforms,” says Halley, “Leveraging current and emerging technologies to create a strong online presence with recognisable branding will not only encourage public participation and engagement, but will facilitate positive commentary, improve service delivery , and inform product development,” says Powell.

“The shift that everybody is seeing from a PCbased search engine transaction view of the

world to a mobile-based dialogue, app-based way of relating to brands, fundamentally opens up new possibilities for how we can have direct conversations with individual guests, how we can anticipate their needs,” said Starwood CEO, Frits van Paasschen, in his interview with Skift.

“If they’re genuine, if they’re honest, and if they’re few and far between, then they’re arguably an opportunity not only to showcase how wonderful your business is at resolving customer complaints, but vital for improvements to be made to prevent a recurrence,” he says.

“It’s very high risk but at the same time it’s also a very handy tool, to tell guests about up and coming discounts or any packaged deals that they can take advantage of and also to keep the establishment at the top of the potential guest’s mind,” says Mizen.

“I think it’s made it a much livelier conversation … we get guest feedback not just through our survey, but through dozens of social media insights. That feedback is much richer in its depth because it is very much alive. It’s feedback that often might be given by somebody while they’re still in the hotel,” said Marriott International CEO, Arne Sorensen.

“What social media and the availability of information does from my point of view is, the more you know about my hotels and what you can do there, the better chance we have of you coming and seeing us” says van Paasschen.

“Frankly, not to sound contrite about it, it’s forcing the hotel industry to do a better job at customer service. It’s forcing us to get a better game. We probably should have always had a better game, but it’s forcing us to have a better one,” said Holmes.

Powell emphasises the importance of recruiting guests as ‘brand evangelists’ by encouraging the digital word of mouth – tapping into the collective opinion and experience of patrons.

He also reassures that genuine negative reviews need not be damaging at all.

“There should be no doubt that an online content strategy is not only beneficial to a business but is imperative if your enterprise relies in any way on online traffic for marketing, sales, bookings, referrals, etc.” says Powell.

“Google your name or your business name and see what information is out there. How much of that information did you author and is the information really what you want potential guests and the public in general to encounter when they search you? If yes, you’re on track. If not, then you need an online content strategy.”

“Generating unique, quality online content on a regular basis not only enables a business to keep search results fresh (and positive) but is the most effective way of diluting the effects pf negative publicity much like a drop of cyanide in the ocean,” he adds.

“If you go to our website or our Facebook group, we publish a lot of information on it.

For example, information about fires, about fire safety, guides to good thatching, the risks of Ebola to South Africa, etc. and we keep it updated,” reports Muller.

Powell has this last piece of advice: “Don’t let a guest checkout without having elicited their views about your establishment and your service. Invite them (incentivise them if need be) to express to you how they really felt about your business. Give them the opportunity to speak their mind and you will be given the opportunity to make things right before they go.”

CASE STUDY

BnB Sure/Zurich containment cover • “A guest at an establishment had goods stolen from his room. He was insured elsewhere, so we initially rejected the claim. He then had a shortfall and some items were not covered. As a result, he turned to TripAdvisor to complain and only removed the post after payments were made.

This is a prime example where not only is the insured’s reputation is at stake but also the insurer’s. Often, in these particular cases, the establishment is underinsured, or a specific incident is not covered, placing the insurer in a comprising position. Yes, due process was followed, but at the same time the brand itself has the potential to be tarnished.”

• “A guest made her way up a grass embankment at an establishment and did not follow the pathway provided. She slipped and fell and sustained injuries.

After a thorough investigation, it was clear that there was no negligence or wrongdoing on the part of our client.

The client had clearly marked the accessible pathway to use to ensure the safety of all guests. This was just an unfortunate accident due to guest making a wrong choice. However, the guest was unhappy with the outcome and demanded that she be compensated for the injuries and threatened to turn to social media if the matter was not resolved to her liking.

The client then faced possible damage to their brand. This was a perfect opportunity to make use of containment cover.”

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By Melissa Wentzel

Hospitality is multifaceted. It’s operations are vast and diverse, which means industry stakeholders are exposed to a multitude of risks. It is imperative that hospitality establishments not only understand their risk but have adequate systems in place to manage them. RISKAFRICA takes a look at the features of risk management software solutions from SAS, BarnOwl, and Software AG.

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he hospitality industry is one of the fastest-growing industries in Africa, particularly South Africa. It is affected by reputation, credit, and financial risk as well as unique operational risks that include health and safety, as well as hygiene risks. It is also the industry most affected by the outbreak of Ebola in West Africa,” says Colin Hill, senior systems engineer, Risk Management Solutions, SAS. “Key to detecting and preventing attacks is for a business to have a solid understanding and knowledge of its risks, and to continuously monitor this. Once a business understands its risk, it needs to be confident that the controls it has in place to guard against it are efficient,” he adds.

According to Hill, an effective risk management approach consists of three levels that make up combined risk assurance.

This model ensures the efficiency of risk management processes and that risks are being managed acceptably by incorporating three lines of defence: management, risk management and assurance – which can be either a control department or internal audit.

He emphasises that the three layers must be effectively coordinated with clearly defined roles and responsibilities for all stakeholders.

SAS Enterprise GRC Solution SAS Enterprise GRC strengthens governance by enabling early and systematic management of risk exposures and associated issues, action plan development and tracking through resolution. The solution also helps businesses with the detection and prevention of violations of applicable laws, regulations, and policies.

SAS Enterprise GRC interlinks risks, controls, policies, laws and regulations, KRIs, loss events, action plans, assessments, and audit missions – all critical GRC elements – enabling businesses to easily visualise how any one GRC element affects others.

Features • Common repository • Customisable interface • Risk management capabilities • Corporate performance management capabilities • Comprehensive policy management capabilities • Incident management capabilities Benefits • Consolidated GRC elements with a single framework that combines repositories for risks, controls, laws and

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regulations, policies, assessments, loss data, scenarios and audits to facilitate collaboration among risk managers, compliance officers, auditors and business owners.

Better, well-informed decisions with a 360-degree view of your potential compliance and risk exposures and litigations.

Reduced unpleasant surprises with a comprehensive alert engine that gives you early warning of emerging risks, associated issues and action plans for handling them.

Improved efficiency and effectiveness with automated common GRC processes for continuous monitoring.

Reduced risk-related losses.

BarnOwl Integrated GRC Software Solution BarnOwl is a software solution that provides an all-inclusive, fully integrated governance, compliance, risk management, and audit solution. Since 2001, BarnOwl has been implemented and used by over 200 public sector departments and blue chip companies both nationally and internationally.

BarnOwl enterprise risk management software helps to identify, assess, monitor and report on strategic objectives, risks, controls, and contributing factors.

“Our system is an enabler of the risk management process and can be populated with industry-specific content,” says Jonathan Crisp, director of BarnOwl. BarnOwl is endorsed by the OAG (Office of the Accounting General).

Features • A central data repository • Linking of objectives and risks at any or all levels of the organisation.

• Custom reporting • Action plans • Incident management Benefits • A central database provides a single version of the truth with data consistency, integrity and standardisation. This erases the possibility of having multiple spreadsheets scattered around your organisation.

• Facilitates an approach to risk management that is managed, optimised, and non-silo based. Provides an earlywarning system of the knock-on effects of inter-related risks across the organisation.

• The flexibility to design your own reports and to be able to extract into Excel

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enables you to analyse data the way you want to see it.

Facilitates increased accountability and the ongoing monitoring of tasks which allows management to assess mitigation plans in real-time.

The tracking of near-miss and actual incidents provides insight into emerging risks and controls breakdowns, enabling pre-emptive remedial action.

Software AG ARIS Risk and Compliance Manager The ARIS Risk and Compliance Manager identifies, documents, and analyses operational risks. The software, which facilitates compliance, risk, policy, and audit management, enables risk evaluation according to financial impact or probability via the risk assessment workflow.

The solution allows measures to be initiated to manage risks or to reduce their consequences should they occur, and monitor your risks running qualitative or quantitative risk analyses. You can resolve issues using the issue management workflow and simulate risk events along the defined business process chains.

ARIS Risk and Compliance Manager is software that takes an approach that focuses on efficient governance, risk, and compliance (GRC). Use it to implement an enterprise-wide compliance and risk management system and operate it efficiently.

The software covers a multitude of legal and regulatory requirements and has the flexibility to easily accommodate new standards or legislation.

Features The wide range of features in ARIS Risk and Compliance Manager provides the flexibility and intelligence to performance against company objectives and balance risks.

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Control testing Incident and loss management Audit, survey, and policy management Continuous monitoring Dashboarding

Benefits • Efficiently analyse and evaluate compliance and operational risks • Identify shortcomings in your Internal Control System (ICS) • Prepare, plan, execute, and report on your company’s audits • Design, implement, and document controls, tests, and risk assessments • Update management via an up-to-theminute graphical dashboard.

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SA banking Prov ing t he Ratings Wrong

By Luka Vracar

The sudden collapse of South Africa’s largest unsecured creditor, African Bank, sent shockwaves throughout the nation’s financial sector as rating agencies downgraded the country’s big four banks by one notch and the smaller, newer Capitec Bank by two notches. While the ratings agencies have been accused of acting too quickly, the fall of African Bank raises questions on the future security of South Africa’s banking sector.

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fter 18 rocky months which saw a share price drop of some 70 per cent, African Bank Investments Limited (Abil) which operates unsecured lender African Bank as well as retailer Ellerines, finally spun out of control on 6 August 2014, leaving the South African Reserve Bank no option but to place it into curatorship. Share trading in Abil was also suspended.

African Bank announced in May that it expected a first-half loss of R3.3 billion due to a spike in non-performing loans (NPL).

Shortly thereafter, Moody’s cut the bank’s international debt rating to ‘junk’ status. The final straw, however, was the 6 August release of a trading update far worse than predicted, which forecast a loss for the 2014 financial year of ‘at least’ R6.4 billion and stated that a further R8.5 billion would need to be raised for the bank to survive. That same day, 20 years after founding the micro-lender, CEO Leon Kirkinis stepped down.

The following day shares plunged to below R1 for the first time since 1996 after it became clear that African Bank would not be able to cover its R8.2 billion debt. It was placed under SA Reserve Bank curatorship and, shortly thereafter, trade of the bank’s shares and bonds were suspended on the Johannesburg Stock Exchange, after falling to 31 cents a share, representing a 97 per cent decrease of the overall value of the company.

The curatorship and a R10 billion injection by a consortium of banks are keeping African Bank’s doors open. The collapsed African Bank now faces a five-month investigation from the South African Reserve Bank, which will investigate for reckless management, negligence and fraud, the central bank said in a statement released in September.

Downgrades and reactions In mid-August, nine days after African Bank entered curatorship, Moody’s downgraded Standard Bank, FirstRand Bank, Nedbank, and ABSA by one notch respectively (from A3 to Baa1). The relatively smaller Capitec Bank was downgraded by two notches and placed in review for further downgrades, due to the focus on unsecured lending in its model.

Moody’s said it expected NPLs to increase with additional pressure from the stretched unsecured lending market. The agency said that NPLs are likely to range between 4– 4.2 per cent of gross loans in 2014-15, up from 3.7 per cent reported in December 2013.

Moody’s said that their updated opinion was prompted by the actions taken by the SARB in response to include a bail-in of senior unsecured bondholders and wholesale depositors as part of the restructuring plan of African Bank and that it was the regulator’s view that this will result in a lower likelihood of systemic support from the South African authorities.

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The response from the South African banking sector to Moody’s downgrades was to instantly condemn the actions and describe the downgrades as a late compensation for not adequately predicting the African Bank collapse. The South African Reserve Bank along with the banks themselves issued statements illustrating that African Bank’s business model was significantly different from their own, and that the industry as a whole was not at risk.

Standard & Poor’s which had downgraded the credit ratings of the same top four South African banks in June, said it would not follow suit with new downgrades based on a reaction to African Bank, in spite of some analysts’ fears that the Moody’s downgrades would have a knock-on effect.

“At the moment, the banks are on a stable outlook and we have got no plans in the immediate future to change the ratings on situations outside an economic shock or and industry-wide shock,” Matthew Pirnie, senior director at Standard & Poor’s, told Reuters in August.

“The banks are pretty good in comparison to the country they operate in,” added Pirnie.

“We do not believe that the African Bank failure poses a systemic risk, therefore, we would not move down specifically because of that.”

Standard Bank said that Moody’s downgrades are the ratings agency’s assessment of the entire South African banking system as a whole and should not be considered as a reflection of the bank’s financial ability, earning resilience or credit quality.

The South African Reserve Bank disputed Moody’s view of the limited likelihood of systemic support from authorities to protect creditors in the event of need, in light of the loss of creditor confidence in African Bank, by reintegrating that the approach taken by the Reserve Bank to any resolution to address systemic risk is based on the subjective circumstances and possible outcomes of each individual situation, and it will always be so in the future.

“Decisions will also be informed, as was the case with African Bank, by principles contained in the Key Attributes for Effective Resolution Regimes proposed by the Financial Stability Board (FSB), which have the objective that a bank should be able to fail without affecting the system. This is in keeping with evolving international best practice,” the Reserve Bank said in the statement.

Standard Bank is in agreement with the Reserve Bank’s view that the country’s banking sector remains healthy and robust, and aside from the damage done by the downgrades, there has been no indication that the fallout from the African Bank collapse has negatively affected other South African banks.

Standard Bank also defended its overall liquidity position.

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“The Standard Bank Group’s overall liquidity position remains strong with liquidity buffers amounting to R169.3 billion at 30 June 2014.

The group maintains strong Basel III capital ratios – at 30 June 2014 tier I capital ratio of 12.7 per cent and a total capital ratio of 15.2 per cent. The Standard Bank of South Africa’s capital ratios at 30 June 2014 were 12.2 per cent on a tier 1 basis and 15.3 per cent on a total capital adequacy basis. Both capital and liquidity ratios are in excess of regulatory and other internal requirements,” the bank said.

Capitec Bank Capitec was affected by the downgrades more than any other bank as its shares dropped

by as much as six per cent after Moody’s downgraded the bank’s financial strength rating to a ‘D’ from ‘D+’ and the bank’s deposit rating by two notches. The rating agency noted the similarities between African Bank and Capitec – the two banks are similar in size and were both exposed to risky unsecured lending.

However, Capitec hit back at the downgrades in a statement emphasising that the bank is healthy and growing in accordance with its business plan. As with the other banks downgraded after African Bank’s collapse, Capitec condemned the downgrade, calling it a kneejerk reaction to the situation pertaining to African Bank, which is not applicable to other South African banks.

“Our loan book is performing within our risk appetite. We continue to make tweaks to our models as and when we see it fit. We are not taking unnecessary risk and have not opened our lending criteria whatsoever.

Our performance remains in line with our annual plan and budget expectation,” the bank said in a statement.

Capitec Bank has further distanced themselves from similarities with African Bank by illustrating their conservative approach to unsecured lending. The bank said it monitors lending via credit bureaus on a continuous basis. Credit is priced at lower rates and issued only to lower risk clients.

Resilience Even though the South African banking system has been shaken in the past year by the rating downgrades, investor uncertainty, and the bailout of a major financial service provider, the South African Reserve Bank insists that the sector is not in danger.

“While the SARB respects the independent opinion of rating agencies, we do not agree with the rationale given in taking this step, nor do we agree with the assessment it is based on,” Hlengani Mathebula, South African Reserve Bank head of group strategy and communications, said in a statement.

The sentiment was echoed by South Africa Finance Minister Nhlanhla Nene: “The sector remains robust and healthy and there is no indication that any other institution has been affected negatively by the troubled lender African Bank Investments,” Nene told the media after a cabinet meeting shortly after Abil was placed under curatorship.

The curatorship itself, however, does not completely quell market insecurities. Investors and bondholders will be wary of, and look to minimise their exposure to the risk of unsecured creditors and micro-loans.

“Capitec Bank has applied provision policy that resulted in a coverage ratio of current bad debt of 167 per cent at February 2014. This conservative provisioning approach results in the bank providing on average seven per cent of the value of any loan immediately when advancing the loan. By the time the loan is three months in arrears, that loan, and any other loans that are linked to the client, are written off and provided for in full. This applies, even if the other loans are fully up to date,” the bank said.

Unlike African Bank, Capitec also has a diversified source of income in respect of ‘transaction clients’. The source of income is on-going due to the 5.4 million active clients

According to SARB, unsecured credit exposure, however, has been decreasing overall since November 2012. Bad loans at smaller banks had risen in the first half of the year and the trend needs to be monitored closely, with credit card defaults increasing 11 per cent. In October, the central bank said that bad debt has decreased by 0.1 per cent to 3.5 per cent of total loans in six months.

However, Jana Kershaw, credit analyst at Ashburton, says that whether or not there will be a change in strategy from financial services will be informed by the lessons learnt from Abil’s collapse. “Fundamental detailed credit analysis is very important.

A significant lesson is related to portfolio management strategy, and that relates to diversification,” said Kershaw, speaking at a panel discussion at the 12th Annual African Capital Markets Conference that included analysts from Standard & Poor’s, Rand Merchant Bank and Sanlam.

“We need to ensure that portfolios are set up in such a way that one single event does not impact the institution in a way that might lead to default and huge problems,” said Kershaw. This will provide resilience, and the fact that unsecured lending is only a small portion of what Capitec offers, on a

and 2.2 million ‘salary deposit clients’. These clients contributed 58 per cent of operating expenses and 32 per cent of net income earned for the year to February 2014. Capitec says this income continues to grow as roughly 100 000 new clients join the bank each month.

Ironically, the bank hit worst by Moody’s downgrades claims to be the only South African retail bank that is fully compliant with the Basel III liquidity regulations: “Our liquidity coverage ratio (short term) in February 2014 was 1689 per cent versus a requirement of 100 per cent.

Out Net Stable Funding Ratio, which is a longterm ratio with an emphasis on retail funding, was at 132 per cent at February 2014, versus a requirement of 100 per cent,” the bank said.

much smaller scale, is what differentiated its business model from Abil, which relied principally on expensive unsecured loans to low-income earners. On the contrary, Capitec’s shares have since recovered, and the bank has reported a 21 per cent increase in earnings over a period of six months to end of August, post-downgrades, and its adherence to Basel III liquidity regulations cements its sustainability.

Elena Ilkova, credit analyst at Rand Merchant Bank, said the issue of liquidity risk is the highlight of what happened to African Bank and the subsequent rating downgrades: “There is a definite shift in thinking from investors, and the premium of liquidity is clearly going up,” said Ilkova.

With regards to the rating downgrades, Pirnie said that even though Moody’s arguably got it wrong with the downgrades of South African banks in August because they were slow to react to the signs of the unsecured lending bubble, it is easy to criticise rating agencies.

“Ratings are a guide to investment and are not buy and sell advice. A rating is only half of the information of what a rating agency should provide. It is important for the market to talk to their ratings analysts, and that rating agencies are accessible,” said Pirnie.

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Aon

looks to 2015 Anton Roux, CEO of Aon Sub-Sahara Africa & South Africa

Risks which now appear high on many organisations’ agendas barely existed 10 years ago. The breadth and variety of risks businesses face today requires them to mitigate against a wider range of challenges than ever before, ranging from white-collar crime to terrorism and political instability, through to cybercrime.

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n today’s globally interdependent environment, risks are no longer isolated by industry or geography. A perfect example is the current Ebola outbreak that started in February 2014 in West Africa with 10 000 reported cases of infection as at the end of October 2014.

It shows how a seemingly local problem can spiral into a worldwide crisis that has significant implications for multinational and Africa-based businesses in terms of risk management strategies, business continuity plans, travel risk and decisions on where to invest their capital.

The Ebola outbreak is having far reaching consequences from both an economic and socio-economic perspective. Industries that are particularly hard-hit are aviation, hospitality, public entities and higher education, among others, while the healthcare industry in particular faces a unique and augmented set of risk exposures.

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The ripple effect of the Ebola outbreak is yet to be quantified, but as the crisis intensifies it becomes clear that it holds a major risk not only for the African continent, but for all the trading partners of countries affected by Ebola.

Now is certainly not the time to wait and see ‘if’ Ebola spreads to other countries, including those beyond the Africa continent – indeed we have already seen reported cases in the US and UK. As more and more countries close their borders to travellers from infected areas, we need to be pro-active in our approach by implementing measures that will actively manage Ebola-related travel exposures in the form of crisis communication checklists, in addition to monitoring environmental workforce exposures.

Terrorism Another worrying risk that is plaguing the African continent is that of terrorism and the linked kidnap for ransom and extortion

incidents, especially in East and West Africa.

Radical terrorist groups such as Boko Haram, Al-Qaeda, Al-Shabaab and more recently ISIS are serious threats to stability and foreign investment. The shocking kidnap for ransom and extortion incidents in 2014 have refocused global attention on what is a terrifying, often terrorist-linked practice of raising funds for arms or political gain.

Emerging markets that are experiencing significant growth and foreign business activity provide fertile ground for such incidents.

Kidnap patterns in Africa particularly show that expats from international companies and the personnel of international aid organisations are likely victims due to the high profile and perceived wealth of the company they work for. But even the South African environment with its perceived low levels of law enforcement is conducive to the kidnapping of professionals. Every corporation with crossborder operations must protect themselves and

their staff against the risk of kidnap, extortion, detention and hijack.

The modus operandi of kidnappers are also constantly shifting. Some insurers and negotiators have reported that ‘express’ kidnappings are on the rise – unlike the more protracted cases of some piracy attacks, these involve fast, targeted grabs with shorter periods of detention and smaller ransoms.

Other negotiators reported that their most serious cases have been more protracted and the kidnappers more patient.

Risks at home The growing risks in our own backyard are increasing in frequency, complexity and voracity. Volatility is certainly here to stay with ongoing labour action and disputes, political upheaval, reputational crises across both corporate and government sectors, service delivery protests and crime statistics which increased significantly in almost all areas. Added to this, market and currency volatility along with a dismal growth outlook are turning the screws in for business and consumers alike.

Of great concern to all is the increasingly precarious electricity supply and the potential for a major collapse of our grid is not all that far-fetched given our most recent challenges,

exacerbated by ailing infrastructure and delays in bringing more capacity online, which could take a number of years before the electricity grid becomes stable. Volatility is something that South Africa will face for a number of years and businesses will need to find working solutions to cope within such an environment.

During the latter part of 2013 and the beginning of 2014 we also experienced a number of severe hail storms in the country, and these have impacted on claims ratios of all South African insurers. A hail storm in peak traffic in and around Johannesburg may be the single largest claims event in South Africa.

Investing in the future There are many factors at play that will fundamentally change the risk landscape as we know it within the next three to five years.

Regulation, morphing distribution models, the rapid pace of technology innovation and an increasingly sophisticated insurance consumer, coupled with evolving business risks are all culminating to disrupt the industry as we know it.

The insurance industry plays a vital role in promoting global economic growth and as a result we need to utilise the data and

technology that we have at our disposal, to evolve faster than the mounting array of risks that are facing not only our business today, but that of our clients.

In this regard, Aon has been at the forefront of investing in data and analytics which allows us to get into the predictive technology space. Essentially, this kind of data and analytical capability allows us to de-risk our business to a large extent, and keep our focus on our clients, to meet their needs and exceed expectations. It also means that brokerages without the capital to invest in innovation across data and technology are in a tight spot.

Competing in such a rapidly changing environment, especially where so much of what our business does relies on ongoing investment in innovation and data analytics capability, requires lots of capital.

The bottom line is all businesses, irrespective of size, will be challenged to compete against new and disruptive players in the market place who are going to turn distribution on its head. Which is why taking steps, well in advance to innovate and reinvent your business in anticipation of disruptive change, will be the only key to survival.

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Janine Joubert, executive head of business risk at Vodacom

Great achievements require great

risk management RISKAFRICA chats to Institute of Risk Management South Africa (IRMSA) Risk Manager of the Year winner, Janine Joubert, on what sets her team apart, the role of risk management as a business enabler and the future of insurance in a changing risk environment.

By Sarah Bassett

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What do you believe sets the Vodacom risk management team apart?

We don’t do risk management sitting in an office, we’re in the trenches future-proofing the business and I think that is the key thing that sets us apart. We are constantly looking to come up with innovative solutions for how something can be done, rather than trying to prevent it from being done. For Vodacom to be successful in the highly competitive and dynamic telecommunications market, we need to constantly innovate and launch more products and services, adding greater value to customers. This requires taking risks.

Managing these risks needs to be central to driving the business – it has to be an enabler, not an inhibitor to business growth.

How did you come to risk management as a career?

I consider myself blessed to have found my niche and passion in risk management fairly early in my career. I enjoyed early exposure to financial reporting, which provided the foundation for understanding effective risk

reporting. Subsequently my career evolved into the information technology space which provided the foundation for understanding effective risk mitigation for new technology.

This led to exposure to the field of fraud and forensics which in turn provided visibility to legal and regulatory compliance directives and fraud risk assessments. I learned the importance of implementing proactive controls for risk mitigation. I then moved into innovation projects where I developed risk management frameworks and succeeded in embedding risk management practices within a high technology innovation environment.

All these skills and competencies come together in my current working environment, where I am responsible for enterprise risk management, information governance and innovation risk management for Vodacom Groupl.

What do you love most about your work and the risk management discipline?

The telecommunication industry in particular is demanding, fast-changing and innovative.

You need to be flexible to deal with the daily

challenges. I have a terrifically supportive team, and I thoroughly enjoy being leader to this team and driving risk management in the business.

People think of innovation and risk management as two opposing poles, but they’re not. Great achievements require great risk management.

If you look at the great innovators of the world, you’ll see they’re actually great risk managers.

There’s huge power that comes from considering risk and knowing that you are equipped to deal with any challenge. That is the beauty of risk management.

Why do you think you won Risk Manager of the Year?

Nobody could have been more surprised than me. The calibre of the other nominees is in itself an example of how risk management has grown in stature in recent years. But I think perhaps my passion for pioneering innovative risk solutions helped us scoop the award. Innovation and risk are not often mentioned together, but there are many innovative solutions that we can deliver.

At Vodacom, we’ve demonstrated this with

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several innovations in our approach. One example being the development of an innovation and risk methodology based on best practices from various disciplines. We look at 31 areas of risk management, and the framework can be categorised according to the risk profile of the innovation project.

What does this award mean to you and how do you plan to use this achievement in the coming year?

I am absolutely delighted to have received this award, and I would like to thank IRMSA for their choice and trust in me. I will certainly do my utmost to validate their trust in the coming year. IRMSA has been doing great work to promote risk management as a discipline and a science and as a member of IRMSA, I will be involved in the organisation and its activities. I am passionate about giving back, and I’d like to share the knowledge gained from guidelines of best practice.

What strikes you most about how the nature of risk has changed over the course of your career?

It is unbelievable how much volatility, complexity, technology and unknown risk we are seeing now. More than ever before and it’s just going to continue to accelerate. A few years back, we had an established approach to risk management which has not kept pace with the speed of evolving risk. Analysing risks twice a year doesn’t keep up with the speed of the business and the number of risks.

The only way to effectively counter these risks is by building flexible organisations and ensuring that risk management is embedded within the first line of defence to ensure more informed risk decisionmaking and create a whole culture of risk management where we need to be increasingly more proactive and focused on adding value to the business rather than just focusing on risk prevention.

Ultimately, risk management needs to add value to the customer.

For the telecoms industry in Africa, what do you see as the critical risk areas challenging growth on the continent?

There are increasing regulatory and competitive pressures in Africa, particularly within telecommunications, and continued pressure to diversify and grow operations. But there are still huge opportunities for data growth and smartphone penetration.

The key for sustainable growth is to outpace our competitors. Data is capital expensive, so we need continued significant capex investments.

Effective management of these strategic risks forms an important component of Vodacom’s

strategy in order to pursue opportunities with greater confidence.

Do you think insurance is becoming more or less relevant in the changing risk landscape?

Multiple unpredictable risks now threaten the sustainability of organisations. In this context, where protecting physical assets seems less important than protecting the business model and strategy, insurance can seem less relevant. Insurance brokers should play the role of strategic advisers to businesses, helping business respond effectively to critical strategic risk. Therefore, I think the insurance industry is still absolutely relevant.

For insurance to remain relevant, effective strategies are required to support the business models of organisations. In particular, effective responses to information, cyber, supply chain and reputational risks are needed.

What would you like to see change or improve in the risk management space in South Africa and Africa more broadly?

The fundamental question that risk practitioners are asked is: how do you actually help me to grow my business? It can be challenging to communicate the value of risk management, especially if a business sees compliance aspects as a preventer of business rather than enabling the pursuit of opportunities.

We need innovative ways to effectively promote the value of good risk management and better manage stakeholder expectations. Only then will we succeed in embedding an effective risk management culture within the organisation.

Trust between stakeholders and risk management is paramount in implementing innovative risk management models.

A message for RISKAFRICA readers?

Risk management is a relatively young discipline, and there are many opportunities for innovation, particularly in the development of multi-disciplinary tool and frameworks. These frameworks can be automated and simplified to promote risk management knowledge and to help ensure that risk management is indeed an enabler and not an inhibitor of business.

There’s huge power that comes from considering risk and knowing that you are equipped to deal with any challenge. That is the beauty of risk management.

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James Godden Santam Aviation MD

Calibrated

control

By Christy van der Merwe & Sarah Bassett

As the aviation insurance sector in South Africa continues to chart its course through prolonged turbulent market conditions, Santam Aviation MD, James Godden, emphasises that it is more important than ever to stick to strong underwriting principles and proactively mitigate risk wherever possible.

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nsurers and underwriters gain tremendous insight into the state of the aviation industry, particularly from claims data, and are uniquely placed to advise and encourage upfront risk mitigation among clients. “We constantly study claims,� says Godden, noting that the company grows to understand problems that emerge with particular aircraft, when the most dangerous times for pilots are in terms of hours, or which engine types seem to be failing more than others. Underwriters also

Uganda, Zambia and Zimbabwe. “As a whole, Africa has increasingly more to offer the aviation market. The discovery of natural resources throughout the continent, along with gross world product (GWP) figures that outstrip much of the developed world, make the need for aviation a bigger one on the continent,” says Godden.

While this represents significant opportunity, the challenges remain many. Current challenges include the lack of infrastructure available to repair aircrafts; the cost of retrieving aircraft to South Africa if they cannot be repaired in the country they were damaged in; the hostile weather environment in some areas, especially along the equator; and the clientele of aviation operators. “A number deal in foreign tourists which always increases our liability exposure,” Godden explains.

Underwriting concerns

“With rates having dropped as low as they are, we scrutinise every risk thoroughly. Things were never very lax, but we look at everything with a keener eye now, and really have to be certain before we take on a risk,” explains Godden.

Training is essential when it comes to the vast array of technological advances in the industry.

Improved weather detection, meteorological and navigation systems make things safer in the sky, however, the downside is that this can also make the cockpit an ever-more distracting place.

“In days gone by, pilots had to know how to use a map book and a compass, and had to learn to navigate and draw up a pre-flight plan. Now, GPS and advanced systems make flying a lot simpler, but, of course, there is the danger that people become too reliant on this,” cautions Godden.

Godden says that the top underwriting concerns at present are continued low rates and little to no premium growth, as well as the overall lack of economic growth, and perceived instability in South Africa. “The perception of the country is low at the moment. We need more tourism and mining investment – these are the people doing surveys and requiring planes.”

Claims data also shows that after about 100 hours flying time logged, the likelihood of a ‘fender bender’ type accident is higher, seemingly because pilots become more confident and relaxed. After approximately 300 hours of flying, the pilot is significantly more experienced and could potentially benefit from a lower premium.

Santam Aviation has also seen an increase in claims over the last year, and these are mainly caused by pilot error and attitude. “We are here to pay legitimate claims,” assures Godden, highlighting that proper claims processing helps Santam Aviation retain clients.

Beyond the spotlight on training of pilots, Godden says there is also a need to ensure adequate training of underwriters and brokers in the aviation industry. Often the lack of available time and economic reality means that the resources to invest in proper training are not available. This is true across many businesses and sectors, however, proper training should be prioritised.

Ensuring an even spread of risk, and a diversity in the type of aircraft covered also assists when it comes to paying claims. Godden explains that certain aircraft, for example, helicopters, are very expensive to repair and are often unrepairable. These costs have to be carefully weighed.

learn important maintenance tips of the trade, and where is best to hangar your plane, and this knowledge can be valuable for clients and insurers.

The South African Civil Aviation Authority (SACAA) has also highlighted this as an area of concern, and the insurance industry is working in collaboration with the CAA to improve matters.

To illustrate, Godden explains that a private helicopter may cost two million rand, and fetch a premium of between R60 000 and R80 000 a year. One would have to write up roughly 40 helicopters to make up one total loss in such an event. And of course, the size of the South African market is limited, with approximately 10 000 insurable units in total in the country.

One of the biggest changes in the market over recent years has been the increasing number of light sport aircraft being flown in South Africa, and this contributes to portfolio diversity.

Santam Aviation has the largest portfolio in the sector in South Africa and needs to ensure an acceptable claims ratio, and sustainability thereof. “We have to constantly assess if we are moving toward an unacceptable ratio,” he adds.

“Light sport aircraft now make up about 30 per cent of our portfolio,” says Godden.

They are growing in popularity as they are an increasingly advanced, affordable form of aviation. With this increase in popularity of aircraft among recreational flyers, it is important to ensure that the standards of pilot training are maintained.

Spreading its wings

Training and technical

Oustside of South Africa, Santam is currently writing business in Botswana, DRC, Kenya, Malawi, Namibia, Swaziland, Tanzania,

Indeed, beyond just the light sport aircraft market, Godden says there is a need for improvement of training in the aviation industry.

Product development Godden reiterates that aviation is a constantly evolving industry, and conditions keep getting tougher, but the company is working to mitigate risks.

In terms of product development, Santam Aviation has developed a product for engine breakdown of piston-type aircraft. “It has been developed with Dennis Jankelow and Associates, and was created because we saw a gap in the market,” he adds.

The underwriting management agency forms an important part of the greater Santam portfolio and allows the insurer to offer a thoroughly diversified offering, says Godden. Santam Aviation fits in well as part of Santam’s seamless cover product, which covers engineering, marine, bonds and guarantees risks.

The product adequately and simply covers an entire large-scale project at different levels of progress, and the aviation portion of this addresses flight risks. As more business takes place further into Africa, the aviation challenges of hostile weather, dense vegetation, infrastructure issues, and conflict require the application of solid underwriting principles.

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Emerging Africa: partnering with a trusted adviser is your best bet Africa is the next business frontier, but are multinationals misplacing their trust when it comes to insurance?

appear simple enough but can cause a great deal of difficulty if left unobserved.

Enterprises engaging with a global provider that lacks a manifestation on the ground might find it impossible to process claims via the local treasury or reserve bank.

Sanction regulations are equally problematic. Many African territories simply do not comply with these international expectations, leaving multinational organisations, which are required to meticulously observe sanction expectations, in a challenging position. Without proper governance, it is relatively easy for a large enterprise to do business with a group or individual that has been blacklisted by the international community.

nations poised to take the next step forward has created an environment that is highly conducive towards development. Put simply, it is an exciting time to be African.

Despite this, numerous barriers to entry still exist – especially in regard to the entrance and progression of blue chip conglomerates on the continent. One of the largest obstacles undoubtedly relates to insuring business efforts against damage or impairment – particularly in industries concerned with tangible activities such as construction or mining.

Ryan Quan-Chai chief compliance officer, Marsh Africa

A

frica, as an emerging business opportunity, is alive with possibility.

In many ways, the continent represents a new frontier for large multinationals that are otherwise struggling to achieve meaningful growth in developed markets. Vast natural resources coupled with rising infrastructure and a grouping of

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Large multinationals often underwrite their endeavors via a consolidated global insurance provider. Although this makes good business sense from a logistical perspective, it can potentially pose a threat to compliance when operating within Africa.

The vast majority of economically attractive territories on the continent require insurance operators to have a local operating presence.

This expectation, levied to protect the domestic underwriting environment, may

Bribery and corruption also poses a threat to ethical practice on the continent.

Although large organisations might condemn this expectation, it is highly prevalent in some territories. Conducting African business in a principled manner requires the presence of rigid compliance measures – both internally and externally.

Success in Africa ultimately relies on knowledge and experience of the nuances found in each territory. By working with a trusted advisor, multinationals can sidestep many of the most threatening obstacles towards growth on the continent.

Marsh has, over the course of many years, developed an African underwriting model that takes the above into account.

By taking the time to closely understand local regulations, investigate compliance gaps against internationally applied standards and rooting out corruption, it becomes possible to focus on growing the bottom line, as opposed to combatting unexpected obstacles.

Africa is an exciting place to do business, but it requires careful planning and business savvy. In order to guarantee success one must engage partners with a wealth of practical experience. Applying first world expectations and processes to this new frontier is simply too risky.

Success does not come from eliminating risk.

SUCCESS COMES FROM

MANAGING RISK FOR GROWTH.

We help you balance your strengths against the risks that come with growth.

MARSH AFRICA Africa’s pre-eminent Insurance Broker and Risk Advisor www.africa.marsh.com | +27 11 060 7100 An authorised financial services provider | FSB/FSP: 8414

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riskAFRICA

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It is always tempting to leave things in the hands of the professionals and assume that all will go to plan. But in the case of contract guarantees, all too often this is a high risk strategy. RISKAFRICA finds out how to avoid the common errors which can see contractors miss contract opportunities, or even worse, open to recourse from guarantors.

By Sarah Bassett

A

guarantee is a pledge or formal promise by a guarantor made to secure against loss, damage or default. In simple terms, it is a security. They are high-risk instruments issued by commercial banks and insurance companies and are, in most cases, a prerequisite for successful tender award.

“In most instances, a guarantee application is concluded through a broker. The broker acts as an intermediary between the client, the insured, and the guarantor insurer, and under these circumstances information is distorted during the transmission to and fro between the parties, resulting in application form errors,” says Tunga Changamire, executive of claims and risk management at Performance Customs and Bonds Services (PCBS). “In some cases, the brokers, in a bid to earn commission, will complete applications or respond to queries from underwriters on behalf of the client, resulting in misrepresentation of facts.”

All too often, busy contractors are tempted to assume that the guarantee contract is of little significance to them – it will be

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handled by the insurance professionals and is the responsibility of the guarantor to worry about. But, warns Changamire, this is a dangerous assumption. “There are always cross-sureties signed with the contractor. This means that the content of the contract has very real consequences for the contractor,” he says.

“Contractors often overlook this aspect, because there is a tendency to assume that it is the concern of the guarantor alone. But what they forget is that what makes a guarantee different from standard insurance products is that, should a claim be paid, the guarantor/ insurer has the right of recourse to claim against the contractor. So, contractors need to be careful not to blindly accept guarantees.

They need to understand that there is also a responsibility on them to ensure that they have the right cover for the right contract.”

Errors in the guarantee contract can also add costs for the contractor for corrections and can potentially lose the contractor and the contract if the employer so decides.

The common mistakes “The errors are sometimes intentional, where the client or broker knowingly misrepresents certain facts in order to obtain cover at lower premiums or with intention to defraud the guarantor. On the other hand, the errors could be a result of legitimately overlooking or failure to disclose certain material facts to the guarantor or insurer,” Changamire notes.

Here are the common errors, according to Changamire: • Failure to interpret the guarantee questionnaire correctly by the client can lead to inaccurate or inadequate information being supplied. For example, words like employer/beneficiary or contractor can be interchanged by the client depending on the literacy levels and exposure of the client. In most cases, this is unintentional.

• Manipulation of contract details by the client. This is normally an intentional and orchestrated act where the client distorts contract details when applying for

of completion or a certificate of final payment, for instance. This milestone must be achieved for the exposure on the guarantee to be terminated. If this is incorrectly listed on the guarantee and is not what was originally requested by the contractor or in the terms of their contract with the employer, then it could extend an exposure which was supposed to have been terminated. Again, this would leave the contractor open to recourse from the guarantor should a claim be paid. A further critical check is the accuracy of value given in the guarantee.

Ultimately, when these checks are not performed, contractors can end up with exposures or delays or lost business all over something which could easily have been avoided.

Guarantor’s responsibility Although these errors are committed by clients and brokers, guarantors can never be entirely exonerated as some errors are on their own account, says Changamire. “Most errors by guarantors are of a typographical nature and usually do not have damaging consequences, however, in some cases these errors on guarantees can result in legal complications or technical hitches in the event of a claim on the guarantee.”

The onus is on insurers/guarantors to ensure the validity of the information provided by clients during guarantee applications, and the insurance underwriters should go the extra mile in verifying the information provided on application.

PCBS suggest the following methods for verifying information provided: guarantee, for example manipulating the contract duration so as to attain a lower premium charge.

• Guaranteed amount. In construction guarantees, the guaranteed amount is normally a fraction of the contract value, which could be 5 per cent, 10 per cent or 20 per cent of the contract value depending on the nature and terms of the construction contract. Guarantors have seen cases where the client applies for a guarantee on the full contract value. On most occasions, this is a genuine error by the client.

• Non-disclosure of material facts: this when the client deliberately omits certain contractual information so as to obtain cover. For example, a client can apply for a guarantee on a contract in which the client is already in breach so as to defraud the guarantor/insurer.

• Wrong type of guarantee and guarantee wording: there are several types of guarantees, each with a specific cover terms, making it possible for clients to apply for a guarantee which does not

suit the underlying risk needs. There are also different types of guarantee wording for different contracts, and we have encountered on a number of occasions situations where the client requests for a wrongly worded contract.

What to do The critical step is simply that contractors need to understand their potential liability and check contracts carefully to ensure that none of these errors appear.

“Contractors need to start by checking whether the guarantee corresponds correctly with their own application and the requirements of the contract awarded. From there, you can pick up errors like dates where the contractor requested one set of dates and the guarantee differs. The name of the beneficiary is another critical one to check,” says Changamire.

Certain guarantees do not carry specific expiry dates, but rather respond to the completion of specific milestones. This could be a certificate

• Conducting extensive credit checks on clients through the credit databases (Know Your Client) • Cross-checking information provided on the application forms with information provided on letters of award or the terms requested by the guarantee beneficiary.

• Conducting other independent checks with neutral parties (e.g. consulting engineers) • Simplifying guarantee application questionnaires.

In good faith Ultimately, it is important that clients recognise the importance of the ‘Doctrine of utmost Good Faith’ (Uberrima fides) in insurance and guarantee contract. The doctrine requires that the party seeking insurance cover or guarantee disclose all material facts concerning the underlying risk. This is crucial for and benefits all participants as it ensures accurate pricing for the risk underwritten. If full disclosure has been applied, these simple checks are critical to avoid delays, risks and loss of business for contractors.

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Adapting to

climate

change Climate change and the contingent environmental risks will have a disproportionately increased effect on Africa than on the rest of the world, the Intergovernmental Panel on Climate Change (IPCC) reports. The continent’s low capacity to adapt to the risks posed by environmental change, particularly with regards to coastal zones and water resources, calls for careful evaluation of the developing hospitality industry.

By Luka Vracar

T

he IPCC highlights how climate will impact on Africa in the near future.

The organisation claims that by 2050, between 350 million and 600 million people will experience water stress as a result of climate change. Additionally, water variability and climate change will compromise agricultural production and lead to food insecurity, or even famine. On a grander scale, the IPCC expects the projected sea level rise will affect coastlines, often with large populations.

The IPCC says that a long-term increase of 0-2 degree Celsius will put tens of millions of people in Africa at risk of water stress and increase the risk of malaria. Should the rise in temperature increase by more than 2 degrees Celsius, hundreds of millions of people would be at risk, with the addition of reductions in crop yields and permanent damage to ecosystems.

‘One of the things with regards to environmental risks in Africa, in terms of

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climate change, is going to definitely be the increased frequency of events; events like sea storms, and drought, are a huge thing.

There are going to be alternating extreme events: floods and drought,” says Dr Jeanne Nel, research associate at the Council for Scientific and Industrial Research (CSIR).

“Poor governance will ensure a struggle to maintain infrastructure with repeated knockon effects. So, extreme events are critical, and that relates to water security. There are countries that need dams to help them cope with the very wet seasons and survive the dry season, but at the same time, those dams need to be sensibly developed,” she adds.

Climate and hospitality development With rising interest in African economies, totalling a record $80 billion foreign investments, according to the African Development Bank, there is also a significant boom in the hospitality industry on the continent. Marriott International plans

to develop 150 hotels across 16 African countries over the next five years, a move highlighted by its acquisition of the Protea Hotel Group in April 2014. In addition, international hotel chains Hilton, Mangalis, Starwood, and Wyndham all have expansion plans into the continent. With this in mind, the tourism industry has a key role to play in confronting the challenges of climate change.

In its Fifth Assessment Report (AR5): Climate Change, published in 2013, the IPCC concludes that the increases in the frequency and magnitude of climate extremes such as heat waves, droughts, floods, and tropical cyclones are likely as a direct result of climate change. These changes in climate will affect the tourism industry through increased infrastructure damage, requirements for additional emergency preparedness, and higher operating expenses, such as insurance backup systems.

“Hospitality is a huge thing. Everybody wants to buy by the sea; they want to have beautiful

views, but they also have to think sensitively about moving back to a set backline. You can still have the beautiful views, but you might not be able to walk onto the beach,” says Nel. With so many assets located in these areas that suffer from exposure to environmental elements, hotels and resorts could experience major losses as a result of a major sea storm or tidal activity, which could lead to flooding.

Nel emphasises that it would be difficult for such developers to secure property insurance in high-risk regions, and premiums will be increase greatly for locations where damage may occur.

“Many floods happen because people build hotels and getaway places in beautiful areas that are often on a waterfront. There are places in Mossel Bay and Wilderness that have all been flooded. Basically, the insurance industry pays, but insurance companies are very concerned in the Garden Route area after an increase in claims” says Nel. Mossel Bay and Wilderness, along with George, Knysna, and Plettenberg Bay, are within the Eden District Municipality on the Southern Cape coast of South Africa, and the region is an area of climatic extremes.

“Heavy floods are interspersed with prolonged periods of extremely low rainfall, and the region is frequently declared a disaster area,” says Nel. Between 2003 and 2008, environmental damages in Eden amounted to $175 million – 70 per cent of the Western Cape Government’s disaster damage costs during the period. This equated to $6 million in insured losses. The reason for these extreme events in the Eden District is the reduction of buffering capacity of natural ecosystems. Furthermore, the development of housing, hotels, and other structures along coastlines leads to exposure.

“Coastal dunes and vegetation such as mangroves are the buffers. By making roads and building hard infrastructure on these systems, you are actually increasing your risk of sea storms and what it can do to infrastructure.

Coastal hardening is a real problem because if you develop without strategically thinking about it, and you’re doing it on a point by point basis, without thinking of the coastline, you can increase risk not only to yourself but also to others in the region. That is why we need a strategic approach to coastal development,” says Nel. Nel emphasises that in addition to buffering

from storm dunes, vegetation of a healthy wetland ecosystem slows down floodwaters, allowing them to penetrate the soil to be stored and released over time. While in times of drought, vegetation lowers evaporation from soil, lessening the effects of drought.

Mangroves form part of essential coastal wetlands, and across Africa their ecosystems support the livelihoods of millions of people by protecting the coast from erosion and storms through extensive root systems. They are also vital to mitigating climate change, as they are highly efficient at reducing the amount of greenhouse gas by removing carbon dioxide from the atmosphere.

However, two to seven per cent of the world’s mangroves and other coastal wetlands are lost annually as a result of development and expanding infrastructure and half of the world’s mangroves have disappeared entirely in the last 60 years.

Mitigation and adaptation “The important thing in Africa is to focus on a strategic approach to development, and think about it in terms of future risk so that we don’t just allow ad hoc case-by-case development, and then find that it was done incorrectly. We need to be strategic about any sort of development,” says Nel An example of adapting to the current environmental risks for tourism, and mitigating future risks, is in the town of Vilankulo in Mozambique, which serves as the gateway to the Bazaruto Archipelago.

Recent tidal surges and storms have damaged an existing sea wall protecting the town. The World Bank has proposed financing a new sea wall, and is exploring ecological options such as vegetated sand dunes, rather than hard infrastructure, to battle the risk of future damage. Destruction of coastal infrastructure in KwaZuluNatal, South Africa in 2007 revealed that infrastructure protected by naturally vegetated coastal dunes, were better protected than those with sea walls.

Risk management can also be considered through policymakers and governance.

For example, in April 2014, the Africa Development Bank (AfDB) launched the Africa Climate Change Fund (ACCF). The fund is offering African governments, NGOs, research institutions, and development programs grants starting from $250,000 for projects or activities that improve their ability to finance climate change issues, and

increase their climate resilience. The ACCF was created with an initial €4 625 million contribution from the German Federal Ministry for Economic Cooperation and Development.

The ACCF supports activities such as: evaluation of economic and technical options for infrastructure development; projects that promote low carbon development in the power, transport, forestry and agriculture sectors; development of frameworks to raise finance for climate actions; reviewing existing country plans and strategies to prioritise transformational opportunities; training; recruitment of consultants; advocacy services and others.

In South Africa, there has been a move for a proactive approach to disaster management brought on by environmental change. Nel, and the CSIR, has been focusing on teaching people about disasters and how to cope with them by introducing new solutions such as early warning systems, but also by managing the environment in a better way. Adaptation to environmental risks is vital to development, such as not building in the floodline and on exposed coastal areas.

However, hotels and resorts cannot easily be relocated when faced with environmental threats brought on by climate change. Hotel developers with coastal properties need to consider the future and may consider adapting to threats by encouraging the protection or even, if possible, rejuvenation of nearby climate-sensitive ecosystems like coral reefs and mangroves.

For many companies and developers it might seem difficult to dedicate attention to an issue that might take years to unfold. However, working with numerous stakeholders such as investors, local communities and NGOs can ease understanding and hasten mitigation. In the ICCP report, companies are encouraged to understand the impact of climate change on operating costs; learn how to ‘future-proof’ by following policy trends related to environmental risks of the area; establish the role of business continuity for longterm issues, even while using disaster-response management for immediate problems; and to understand the implications of climate change to their business in order to establish effective adaptation mechanism, which will keep risks and insurance premiums low.

“It is about managing risk; you can stop degrading the coastal dunes and our mangroves, you can start rehabilitating them. You don’t have to just sit back and say: ‘it’s climate change, there is nothing we can do about it,’” concludes Nel.

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NEWS Global relief project proposed by

World Bank to safeguard against Ebola Due to the Ebola outbreak in West Africa, the World Bank Chief, Jim Yong Kim, has proposed that global economy funds are made available “in case of a pandemic emergency”. Kim, a physician by training who specialised in infectious disease, assumed the presidency of the World Bank in 2012.

Kim believes that Ebola could lead to massive food shortages globally and that the world needs to prepare to deal with this grave issue. He said the financial aid raised so far to grapple with the Ebola crisis had been ‘totally inadequate’ but praised the ‘spectacular engagement’ of the United States and Britain.

Standard Bank ranks in top twenty of greenest banks report

clean energy investments and a score of 62.3 for reducing environmental impacts.

Karin Ireton, head of sustainability management at Standard Bank said: “The Bloomberg ranking represents Standard Bank’s commitment to sustainability in every aspect of our business operations in South Africa and elsewhere. We are focused on reducing our overall impact on the environment, and financing and supporting energy-related projects that contribute to the upliftment of the communities in which we operate.”

Seychelles accepted into WTO Standard Bank Group, Africa’s largest bank by assets and earnings, has been ranked 19th in the Bloomberg Markets World’s Greenest Bank Report. Standard Bank is the only African bank ranked in the top twenty, achieving a total overall score of 72.5. The rest of the field is dominated by Europeanbased banks.

The bank also achieved a score of 76.8 for

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After 18 years in negotiations, the Seychelles has finally been accepted into the World Trade Organisation (WTO), becoming the 161st member. According to WTO chief Roberto Azevedo, the WTO provides a vital platform for small economies like Seychelles to make their voice heard at the global level. The WTO membership accounts for over 97 per cent of the world’s total trade.

Economy shows no signs of improvement Zimbabwe is showing no signs of recovery after adverse weather, low exports and election year uncertainty shattered growth prospects. This is according to the International Monetary Fund (IMF), which says the distressed African country’s economic situation “remains difficult” and the Zimbabwean Government needs strong macro-economic policies and debt relief plans, together with a strategy to clear arrears, to move away from the economic challenges. The global lender has previously indicated that the country cannot get fresh financial aid until it services its old debts.

Momentum Asset Management fund receives Fitch accolade

Global ratings agency, Fitch Ratings, has assigned the Momentum Money Market Fund (managed by Momentum Asset Management, an AA+(zaf) National Fund Credit Rating (NFCR) and a V1(zaf) National Fund Volatility Rating (NFVR). This rating is in line with the highest money market fund rating in South Africa and the fund is managed by Momentum Asset Management.

The Momentum Money Market Fund is managed by Conrad Wood and Richard Klotnick. Commenting on the ratings, Wood said: “It is meaningful for us to be rated highly by Fitch as they are one of the most prominent and respected rating agencies in the world. For us to achieve these ratings, our fund has had to meet exacting evaluation of asset credit quality, concentration and sensitivity to market risk.”

First SME online platform for procurement and sourcing

New member African Trade Insurane Agency appoints new board member The Government of Kenya has announced the nomination of Dr Kamau Thugge, the principal secretary to the National Treasury, as its new board representative on the African Trade Insurance Agency’s (ATI) board of directors.

Thugge will support the board in managing ATI’s business and general operations. In his current role for the government, Thugge has oversight responsibility for the National Treasury. Thugge’s appointment is effective immediately. His three-year term will include a one-year overlap with his predecessor, Abdulrazaq Adan Ali, whose term finishes in May 2015. Isaac Awuondo will retain his seat as Kenya’s alternate director.

Invest in Africa (IIA) has launched the African Partner Pool (APP), Ghana’s first cross-sector online business platform for small and medium-sized enterprises (SMEs). The platform was created to simplify the local sourcing process by connecting independently validated Ghanaian SMEs with both international and domestic companies.

The platform aims to increase the visibility and credibility of Ghanaian SMEs and assist international and domestic companies to maximise local supply chains more quickly and cost-effectively.

Local businesses registered on the APP will have a profile page on which to promote their offering and business. International and domestic companies are able to use a search tool to identify and find suppliers with the qualifications, experience and standards required.

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One Re

New reinsurer to offer risk managers

one-stop Africa risk solution

By Sarah Bassett

According to Lewis, the UK approval provides two key advantages. Firstly, protection from the sovereign risk exposure currently facing South Africa-based counterparts, with ongoing downgrades a possibility in coming years. “We are likely to be rated in the BBB range and could likely move to an A rating in the next few years. Were we South Africa-based, it could go the other way,” says Lewis.

Secondly, coming through the stringent UK approval process confers an immediate global credibility in the international broking community, he says.

Retention drive One Re plans to drive increased retention and meaningful participation for local African insurers, with the balance of the risk going to risk carriers in London, Paris and international communities.

N

ewly launched non-life reinsurer, One Re, plans to offer multinational risk managers a one-stop solution for risk transfer on operations across the continent.

“Just ask risk managers what their struggles are working in the African environment.

Each country has its own regulations and compliance requirements, and there isn’t one insurance company that truly covers the whole continent,” CEO and co-founder, Andrew Lewis, tells RISKAFRICA. The reinsurer plans to solve this challenge by creating a network of insurance partners across sub-Saharan Africa – a single cedent for each market – to work closely with the reinsurer, developing skills, expertise and knowledge of global insurance standards.

“By creating a network across Africa, a risk manager can come to us to create one solution for all his Africa operations, without brokering a separate deal in each market,” Lewis continues.

“We can provide the local insurers, and brokers if needed, and we can ensure that the

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global programme is compliant with local regulatory requirements and fits in seamlessly with global wordings. No other insurance company can offer this.”

Lewis brings 15 years of on-the-ground Africa experience, having previously built and run Global Alliance Holdings between 2001 and 2011.

Officially launched in November 2015, One Re will begin writing from 1 January 2015 with an initial phase one focus on Southern Africa, excluding South Africa, and an expanded focus further into sub-Saharan Africa from the second quarter of 2015. The founders have invested an initial $50 million in start-up capital.

UK approved The new reinsurer is the first solely Africafocused reinsurer to receive approval from UK regulator and is the first start-up reinsurer to be approved under the country’s new twin peaks regulatory regime, effective since April 2013.

“When we were running insurance companies in Africa, the biggest frustration was that often when there was an exciting chunk of business it would be sucked out of the market and placed elsewhere. Often there isn’t the capacity or the trust from reinsurers to enable significant retention. If we can encourage retention through education, skill and various other offerings, the local market can participate in the actual treaty business instead of a fronting scenario. We’ve also found that the more the local insurance industry develops and demonstrates that they are able to pay claims, the more that the local community trusts them – poor trust has hampered penetration levels in many places in the past,” explains Lewis.

Though not licensed to write reinsurance business in South Africa, One Re plans to have a representative office in Johannesburg, which will offer advisory services. It is One Re’s intention to apply for a Financial Advisory and Intermediary Services (FAIS) licence from the Financial Services Board.

With two sales representatives in West Africa (one Francophone, one English), one in East Africa and one in Southern Africa, treaty business will be written across all classes and facultative business will focus on property and engineering risks, particularly large infrastructure projects.

Data skills critical to future-proof your risk team

Data and reputation The other side to this increased connectivity is the security risk it presents, with significant consequent compliance and reputation risks, among others.

Reputation is the top strategic concern for companies globally, according to a recent study from Deloitte. This is due in large measure to the rise of social media and the instantaneous, global communication it enables, noted panellists at the Institute of Risk Management South Africa (IRMSA) breakfast on strategic risk, held in Cape Town, South Africa in November.

With the Protection of Personal Information Act now in place, data security concerns are top of mind for companies across industries, and with it, added concerns for reputation. “Rising connectivity levels along with increased use of mobile devices and technology and digitised customer engagement mean that the risk of breach is worsening,” noted Ashraf van Graan, associate director of Deloitte’s Risk Advisory.

“Ultimately, every organisation will experience a breach. For this reason it is critical to have a combination of layers of defence to prevent and limit breach, along with a clearly thought out response strategy. Without an established strategy and process for response, reputation damage can be significantly exacerbated,” Van Graan continued.

In future, however, the greatest risk to companies and even industries could be the disruptive opportunities brought on by the rapid proliferation of data and the possibilities it enables. “This will be driven by the so-called Internet of Things, which refers to the ubiquitous digitisation and connectedness of appliances,” said Derek Schraader, a director at Deloitte’s Risk Advisory, Data Analytics Division.

With many companies still turning a blind eye to the more onerous requirements of POPI, Schraader warns that there is likely to be a spate of punitive activity once the regulator is fully in place.

“This is already creating an explosion in the generation of data, and it will intensify. We are going to have to get more switched on about how we manage it, and carefully watch the disruptive possibilities for entire industries.”

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INTERNATIONAL

NEWS

Global economy still on a go-slow

Federal Reserve policymakers say the American economy faces potential risks due to a strong dollar and slow global growth. According to minutes published from the Federal Open Market Committee (FOMC) held in September, forecasts for future growth in the US are expected to slow down if economic growth results are weaker than anticipated. Investors speculated that caution over the economic outlook would lead the Fed to keep interest rates near zero for longer.

Deloitte named risk leader in global risk management consulting services Deloitte has been named a leader in Global Risk Management Consulting services by Gartner, the largest research analyst in the world, in its recently released report entitled Magic Quadrant for Global Risk Management Consulting Services.

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Concerns were also raised that the persistent shortfall of economic growth and inflation in the Eurozone could lead to a further appreciation of the dollar and have adverse effects on the US external sector. After the FOMC event, Fed chairperson Janet Yellen said that inflation remained below the Fed’s goal. In early October, the International Monetary Fund (IMF) cut its outlook for global growth next year to 3.8 per cent from a July forecast of 4 per cent.

“Deloitte considers this positioning as ‘Leader’ to be a reflection of its member firms’ commitment to helping clients integrate risk management into the business,” said Andre i Ionescu, director of Deloitte Romania.

“Deloitte’s approach addresses strategic and operational risks as well as risks related to governance, culture, technology and infrastructure, helping organisations regardless

of industry and geography get ahead of risk.”

The Gartner report evaluated seven global firms and networks on three dimensions of risk-management framework, metrics, and systems. Within the quadrant graphic included in the report, Deloitte member firms’ risk management consulting services were positioned highest on the ‘ability to execute’ axis and furthest on the ‘completeness of vision’ axis.

New global risk management standard for suppliers The British Standards Institution (BSI) has launched PAS 7000, a universally applicable supply chain risk management information standard for suppliers and buyers.

The PAS 7000 standard draws on the collective expertise of 240 professionals gathered from global industry associations and organisations, and addresses product, process and behavioural criteria for supplier pre-qualification, BSI said in a statement.

The supply chain management solution offers a uniform set of common information requirements that reduces duplication of

effort in completing tender forms and assists procurement in ensuring consistency in the supplier base. It establishes a model of governance, risk and compliance information for buyers to pre-qualify suppliers and confirm their intention and ability to adhere to key compliance requirements.

The new standard specifies a universal package of supplier information to be shared with supply chain partners. This covers key supplier information, capabilities, and performance which will assist buyers to trace and secure their supply chains, mitigate risk and brand reputation. While for suppliers the standard will assist in the promotion of their products.

China New lending regulations assist consumers in China For the first time since the 2008 financial crisis, mortgage rates and down payment levels have decreased in China. In an effort to improve the country’s real estate sector and in turn its economy, lending regulations have been eased to help consumers purchase residential property. According to Ma Jun, chief economist at the People’s Bank of China, the sluggish property market is the biggest risk to China’s economy.

Europe Data Protection obstructs fight against insurance fraud Insurance Europe, the European insurance and reinsurance federation said that the European Union (EU)’s Data Protection Regulation (currently in discussion by EU institutions) has the potential to obstruct the fight against insurance fraud. The rights to be forgotten and to withdraw consent would prohibit companies from processing people’s personal data. This could make it impossible for insurers to identify potential insurance fraudsters. William Vidonja, Insurance Europe’s head of single market and social affairs commented, “The protection of people’s personal data is of the utmost importance. It is also necessary to ensure that rules do not prohibit insurers from carrying out an essential function in identifying criminals committing fraud.” Detected and undetected fraud is estimated to represent up to 10 per cent of all claims expenditure in Europe.

Lloyd’s to launch new cyber risk code for 2015 With the introduction of a new set of cyber risk codes and the benefit of a rerun cyber-scenario data-collection exercise, Lloyd’s has big plans for its cyber segment as of 1 January 2015. Lloyd’s performance management director, Tom Bolt, said companies must look to inspire innovation in the fast-growing cyber class of business and warned that that exposure and accumulation must be properly managed. Bolt lauded cyber classes as an area where the Lloyd’s market was showing real strength and innovation.

Eastern Europe Russia-Ukraine conflict biggest global risk Recent Global Poll research conducted

by Bloomberg among international investors indicated that Russia is seen as the biggest risk to the world markets.

The conflict between Russia and the Ukraine was ranked as the highest risk to financial markets with 52 per cent of votes, followed by the Islamic State conflict in Syria and Iraq, with 26 per cent. Russia has experienced multiple sanctions from the United States, the European Union and other international organisations and ‘an oil-market selloff’ threatens its economy.

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Employer’s

liability insurance in South Africa: where are we?

Albert Mushai, lecturer in insurance and risk management

M

any people familiar with employer’s liability insurance and its purpose will be aware that for a long time, the relevance of this type of insurance in South Africa has been uncertain and subject to considerable debate. The reason for the uncertainty is the existence of statutory compensation legislation which, since the early 1900s, has contained provisions barring employees from bringing common law claims against their employers.

For instance, Section 35 (1) of the current Compensation for Occupational Injuries and Diseases Act 130 of 1993 (COIDA) provides that an employee cannot sue an employer for damages for a work-related injury or disease. Such employee must claim statutory benefits on a no-fault basis which shall be the sole and exclusive remedy available to the employee.

To the extent that an employer’s liability

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policy is activated by the legal liability of an employer, the question which has been debated for a long time is: In view of Section 35 (1) of COIDA, can an employer be legally liable to an employee for workrelated injury and disease? Many agreed that for events covered by the Act, the answer to this question must be no. The language of Section 35 (1) makes it explicitly clear that an employer cannot be legally liable to an employee for injuries or diseases contracted in the course of employment.

However, it is often the case that when the legislative environment is complex, issues that arise from it also tend to be complex.

South Africa has operated a complex two-tier statutory system of compensating injured workers since 1911. On the one hand is a system providing compensation to workers in general industry and on the other is a system specifically designed to compensate mineworkers who contract industrial diseases in the course of employment.

The two systems are governed by separate legislation with COIDA applying to the general industry and the Occupational Diseases in Mines and Works Act 78 of 1973 (ODMWA) applying to mineworkers who contract an occupational disease. ODMWA has no provision equivalent to Section 35 (1) of COIDA but in spite of this it was always undisputed that this section in COIDA applied to all workers without exception.

Things changed dramatically on 3 March 2011 when the Constitutional Court ruled in Thembekile Mankayi v Anglo Gold

Ashanti Limited that mineworkers whose statutory claims for occupational diseases are governed by ODMWA are not barred from suing their employers for damages like their counterparts in general industry by Section 35 (1) of COIDA. This ruling could not have been predicted by many since no employer has been successfully sued for causing an occupational disease in the legal history of South Africa. Therefore, the current position is that all workers in South Africa, except mineworkers, are barred from suing their employer for causing an occupational disease. However, if a mineworker suffers an injury at work, the applicable legislation is COIDA and, therefore, Section 35 (1) will apply and bar such worker from suing the employer.

It is only when mineworkers contract an occupational disease that they are treated differently to other workers by legislation.

In so far as the relevance of employer’s liability is concerned, it can be said that the Mankayi ruling has clarified the issue a bit further. Employer’s liability insurance is now clearly relevant in the mining sector to cover the recently-created common law liability of mine owners for occupational diseases contracted by their employees. However, outside of the mining industry the relevance and scope of employer’s liability insurance is still unclear. *Albert Mushai is a lecturer in Insurance and risk management in the School of Economic and Business Sciences at the University of the Witwatersrand, Johannesburg, South Africa.

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