RISKAFRICA June / July 2012

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By the time this issue reaches you, Team RISKAFRICA will be well on its way in the Put Foot Rally. Put Foot is Southern Africa’s largest social rally. Over 60 crews will cross six countries in just 17 days, making sure to reach checkpoints (one in each country) on designated dates. The rally’s official cause this year is Project Rhino. With the help of sponsors and participants, Put Foot aims to sponsor one fully equipped anti-poaching unit in South Africa and help fight the scourge of rhino poaching currently plaguing Africa. RISKAFRICA, backed

by Pro Sano Medical Scheme and Altech Netstar in South Africa, will be taking part in the Put Foot challenge. Read the article in this issue for more on the rally and meet our team vehicle, Mad Max. To follow the team during the rally and find out how you can get involved, visit our blog at www.riskafrica.com/blog.

While fishing can be big money in Namibia, exporting food from here to Europe is risky business. Fish catches generally travel via South Africa and delays are costly for producers.

Read about some of the challenges that insurers face in Adrian Kay’s marine piece.

Enjoy the read.

Andy Mark Andy Mark - publisher Ground floor, Manhattan Tower, Esplanade Road Century City, 7441, Cape Town, South Africa www.comms.co.za Publisher & editor in chief Andy Mark Managing editor Nicky Mark Copy editor Margy Beves-Gibson Feature writers Bianca Wright Hanna Barry Lize van Coeverden Adrian Kay Art director Gareth Grey Design and layout Dries van der Westhuizen Vicki Felix Copyright THE RISKAFRICA MAGAZINE PUBLISHER CC 2012. All rights reserved.

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

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

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CONTENTS 04 08 12 14 16 18 22 28 36

Is Namibian marine ready for oil?

No ordinary Joe: We chat with Joe Plumeri, CEO of Willis Group Holdings Company profile: The Prosperity Group Interesting times for Namibian financial sector Disability cover – expand your service portfolio Africa a hotbed for M&A activity Africa’s unknown investment mecca News Country profile: Kenya

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• Marine

Is Namibian marine ready for oil?

By Adrian Kay

Traditionally, fishing has been the most significant part of Namibia’s marine industry. Until recently, fish were abundant in our waters. Boats would anchor so close to the shore that the fishermen’s wives would go to the harbour and wave to their husbands. It was the heartbeat of the marine industry.

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eclining fishing stocks and tighter quotas have made the quest from the catch to European markets that much more difficult and less profitable. With the advent of oil, Namibia’s marine industry comes under the spotlight. RISKAFRICA investigates how efficient the marine industry is, what risks exist and whether the country is prepared for the demands of oil.

Developments in the fishing industry Years ago fishermen had free rein in Namibian waters and depleted local stocks. The government stepped in and instituted limits. However, fishing companies could not control how many fish would get lodged in the net, and they would have to pay the fine if they were over the quota.

At times Spanish ships have illegally entered Namibian waters, but the government has introduced fishing quotas, and is clamping down by boarding boats and impounding those with illegal catches.

“The fish will have to be flown over the weekend to be ready for the Monday market in Europe.”

In marine terms, fishing has been a big money spinner. Namibian fish travel to Europe usually via Johannesburg in South Africa, and need to be of the highest quality as discerning buyers are easily able to tell whether fish are fresh. Any delay or hiccup along the way will cost the producer and thereby the insurer. It’s a game of precision, where the stakes are high for Namibia’s biggest marine sector.

Paul Devereux of Devereux Marine CC, based in Cape Town, South Africa has been underwriting in Namibia for years. He maintains that while the fishing industry is generally profitable, it requires the entire marine sector to function smoothly in order for the bottom line to reflect positively. “It’s risky because we have to insure the fish all the way and Europeans are picky,” says Devereux. Namibian fish travels by road to Johannesburg, South Africa and then by plane to Europe. “The fish will have to be flown over the weekend to be ready for the Monday market in Europe,” says Devereux.

Stock quality for export to Europe must be excellent and calculations have to be spot on to get the produce to the EU while it’s still fresh.

Any breakdown along the way could spell trouble for the transporter, the producer and the insurer.

There is considerable risk and the risk of a breakdown, and thus having the fish spoil, is quite high. Rail is not considered a viable option at this stage as early this year there were six derailments, illustrating what a high risk rail is.

A great variety of items need to be insured in this high risk environment. If fish spoils at any stage the producer will lose as importers pay only for what they receive in good order. Marine insurance claims stem mainly from spoiling through refrigeration breakdown. In the case of perishable goods, container damage can render the produce totally worthless after several days on a container ship. Devereux adds that insurers have done well in the Namibian fishing market, and for this he credits Namibia’s sophisticated economic infrastructure. “The ports are good, Walvis Bay is quite efficient and most of the business infrastructure is comparable to South Africa in terms of competence,” Devereux explains.

There are some concerns though. Given the complications of using rail, goods need to be transported by road and, while most Namibian roads are in good condition, many of them are narrow. The risk of loaded trucks overturning is high and third party insurance is limited. However, there have been no real impediments to the functioning of the economy and figures suggest that Namibian roads are serving the export industry well.

Industry reports suggest that Namibian fishing vessels are an area of concern as there is a high incidence of claims for fishing vessels.

Yet, Namibia’s sophisticated economy ensures that we’re easily able to deal with the current constraints but are we prepared for the expansion in this industry that will come with oil?

With great opportunity comes great responsibility Mention an oil discovery and people’s eyes immediately light up and with good reason. So many countries have funded welfare states

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Namibia’s economic prospects are greatly enhanced by strong GDP growth in Africa and trade with neighbouring countries is set to benefit us greatly. Namibia is a significant thoroughfare for landlocked countries like Zambia, Zimbabwe and Botswana.

The prospects are limitless and everyone from big business to the entrepreneur stands to benefit. The critical question is where the skilled workers will come from It’s already clear that investors should be easy to come by, as Petronas and BP have shown, but this is not where the problem lies. Namibia needs to ensure that it does not follow in the footsteps of other African countries and see the benefits of oil pale in comparison to other oil-rich states.

effectively living off black gold. Take toppled Libyan dictator Muammar Gaddafi, whose rampant corruption and looting of public funds could not prevent Libyan oil powering the North African country to the highest per capita income on the continent. In South America, Venezuelan President Hugo Chavez has ploughed billions into anti-poverty drives and continues to hold a fanatical following among the country’s poor. Oil can make a difference,

it’s big business and with oil-hungry China’s insatiable appetite for crude, as well as the ongoing Iranian embargo saga, oil could prove a major money spinner for Namibia.

Namibia is a stable democracy. According to the Economist Intelligence Unit, the country is allocated a BBB rating, ranking it on a par with South Africa and Brazil, in terms of business risk. Historically, Namibia has been heavily dependent on its mining industry, with uranium, gold and diamonds all major contributors to total GDP. Our economy has traditionally been closely linked with South Africa, but it’s possible that oil could change that relationship. One of the major concerns expressed is Namibia’s skills shortage. To capitalise on the potential the oil industry holds, Namibia will need a host of proxy businesses to succeed.

“Oil rigs are like mini-cities and they continually require goods, entertainment and services.

Merely shipping stuff to the rigs is a sustainable business, so insurers are in for a field day as those supplies will have to be covered.

Maintenance and supplies to oil rigs are also major opportunities that could rake in loads of cash,” adds Devereux.

The newly discovered oil is likely to benefit Namibia considerably, both as a direct revenue source and indirectly through the array of services that will need to be supplied to make the industry a success. Namibia has developed its engineering business in line with these trends.

Walvis Bay has attracted some of the larger South African ship repair businesses and these are working together with local companies.

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“Oil rigs are like mini-cities and they continually require goods, entertainment and services.

Merely shipping stuff to the rigs is a sustainable business, so insurers are in for a field day as those supplies will have to be covered. Maintenance and supplies to oil rigs are also major opportunities that could rake in loads of cash.”

Multinationals have jumped in enthusiastically.

South Africa is a potential market for skilled workers, as is South America and Eastern Europe. The likelihood is that restrictive labour laws in Africa’s largest economy will create a push factor which is likely to benefit Namibia, further enhancing the close links between these economies.

Multinational companies are bound to bring in a trove of expatriates on oil rigs and in subsidiary services, but the opportunities go a lot further than just oil-related revenue. Billions of dollars will be made by an innovative entrepreneurial class backed up by government investment in infrastructure. If roads and ports, medical facilities and telecommunications are up to scratch, business will thrive, employment will blossom and those who don’t benefit directly are likely to be looked after by the government’s bulging coffers. The challenge for Namibia is to be ahead of the curve, learn from the lessons of other oilrich African states and give back to the poor.

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• CEO profile

No Joe

ordinary

Willis Group Holdings

“Call it ‘Big Willie’,” said Joe Plumeri, CEO of Willis Group Holdings, of his high-profile acquisition of the famous Sears Tower in Chicago in 2009, renaming it Willis Tower. RISKAFRICA caught up with Plumeri, who is guest of honour/keynote speaker at this year’s Insurance Conference. He is positive about the future of brokers and the future of South Africa, he told us about plans to expand into Africa and gave us his best career advice.

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Joe, why are you in our neck of the woods. Does Willis have future plans in Africa?

What about the financial mess in Europe?

What does it mean for insurers and reinsurers?

I will be in South Africa to meet with our Willis associates, clients and markets, and to deliver the keynote address at the Insurance Conference in Sun City. Willis South Africa celebrated its 10th anniversary last year and with the country’s admittance into the BRICS club and the significant business opportunities here, we have big plans for our local operations.

Over the past few months, we have seen a series of views, commentaries and rating actions from the major rating agencies, covering the dynamics of Eurozone sovereigns, markets and insurer financial strength ratings. We have seen downgrades for some big insurance groups by the four major rating agencies, in some cases by multiple notches. Within the major European insurance groups, direct exposure to the most vulnerable sovereigns of Greece, Ireland and Portugal has generally been low, and typically represents only minor parts of their business profiles in risk terms. In contrast, those groups with operations and investments weighted towards Spain and Italy tend to face greater levels of uncertainty from contagion and the systemic risks associated with extreme scenarios, such as multiple sovereign and bank defaults, or even the complete break-up of the Euro.

South Africa is also the gateway to one billion potential customers on the continent, as the emerging African middle class grows. In order to access this market, we are working on joint opportunities with French broker and Willis associate company, Gras Savoye, which is a strong market leader in all the French-speaking African countries.

Willis has a strong presence in all the emerging market regions with which South Africa is increasingly doing business – for example China, which replaced Germany last year as South Africa’s biggest trading partner. So another big opportunity for us is to provide the best insurance solutions to help facilitate business between these regions.

And BRICS? It is estimated that over two billion people from the BRICS nations will join an emerging global middle class in the next 20 years (and that was even before South Africa joined). The resulting demand for insurance from this new group will herald a golden age of opportunity for the insurance industry. We are positioning ourselves within the BRICS countries to respond to this future growth. For example, we recently opened our 21st office in China, which is now our largest business in Asia.

I’ve also just returned from a trip to Brazil, where the insurance market is set to grow by nearly 13 per cent this year. We have over 300 associates in four offices there, who are gearing up to cater for the imminent flood of insurance requirements stemming from the 2014 World Cup, the 2016 Olympics and all the other massive infrastructural developments going on there.

While the impact from these scenarios remains extremely difficult to predict, they are nonetheless, potentially severe. That said, the European market appears, at present, to be retaining a sense of cautious optimism and a degree of confidence that the European insurance industry is proving largely resilient to the stresses and challenges posed by the Eurozone crisis so far.

While the extent of exposure varies considerably from one insurer to another, for clients of the world’s insurance groups, the principle remains that careful consideration of the quality of an insurance partner should always be the top priority.

This is what Willis does through the Willis Research Network (WRN). We have formed research partnerships with more than 50 of the world’s leading academic institutions to better understand the risks we face from extreme weather. We then use this knowledge to help better inform our clients and public policy.

The insurance industry also plays an important role in encouraging people and businesses to prepare for more extreme weather. You might receive lower premiums or better terms and conditions if you are militating against the risks of climate change, by building flood defences or adapting and strengthening buildings, for example.

You refer to insurance as “the DNA of capitalism”. What is its role in driving the green revolution currently sweeping through businesses and the market?

Insurance is the DNA of capitalism because it allows businesses across our economy to offset their risks and grow. Every wind farm, solar panel manufacturer and recycling plant needs insurance to help manage their risks. From early development to end product, Willis is helping businesses in the waste reduction and renewable energy sectors to invest in the future and grow.

Direct insurers are growing market share.

With an ever more tech-savvy generation on its way in, are we likely to see more of this? Are your days numbered?

The industry was hard hit last year by natural catastrophes. Are insurers and reinsurers geared for the increasingly significant impact of climate change?

We recognise that online insurance platforms will eventually become the norm for personal lines and simple SMME commercial placements, which is why we’re evolving to offer our own eTrading portals like InsuranceNoodle in the US and various online MGA-style arrangements in the UK. However, there is no replacement for face-to-face broking on large, complex risks.

Climate change is a major looming issue facing our world today and insurers are sitting on the front line. We need to work in partnership with our clients, governments, intergovernmental bodies, such as the UN and the scientific community, to make our businesses and economies more resilient to the potential risks posed by a changing climate.

Our role as a broker has changed from a purely transactional one, to one of a trusted risk adviser who helps clients look at their risk exposure holistically. When it comes to a $5 billion (R39 billion) construction risk for example, the sheer complexities make it impossible to calculate the risk in a simple online algorithm.

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“I support a number of causes but there are two which are particularly close to my heart – the Makea-Wish Foundation for terminally ill kids, and the National Centre on Addiction and Substance Abuse (CASA). I grew up in New Jersey and the Make-AWish Foundation does some incredible work in the community there that I want to be a part of. “

When disaster strikes and the construction site is destroyed in an earthquake, the client will want instant, expert advice from a knowledgeable human and not an automated call centre. I don’t define online trading as a case of adapt or die, but rather adapt and thrive because in the new world, brokers with the best face-to-face advice and service stand only to gain.

Has Chicago forgiven you yet for renaming the Sears Tower?

At a time when a lot of companies were moving out of the city and the tower itself, we showed our commitment to doing business there by moving 500 people from five different offices across the Midwest into the Sears Tower and renamed it Willis Tower. The publicity generated by our bold move marked the start of an impressive regeneration of the iconic building, which nearly three years later has a considerably increased occupancy rate. Following us into the Willis Tower was United Airlines, which took a large chunk of square footage, as it made the Tower its global headquarters. When United merged with Continental, even more staff moved in. We’re really proud to have started the trend toward returning to that beautiful, historic structure.

What was the thinking behind removing all doors in the Willis office?

When I came to Willis over 10 years ago, I found a quite traditional London headquarters where the chairman had his own floor and his own elevator. Throughout my career, I’ve worked to break down doors and open lines of communications. So I made sure that in our new London and New York headquarters, and in every Willis office that we have renovated, there are no doors. I don’t even have a door – only the meeting rooms and the bathrooms do.

This open architecture helps break down silos

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and stimulates conversation, encouraging two of our company’s core principles: transparency and teamwork.

What sorts of questions do you ask when you’re interviewing someone for a job?

My main question for potential job candidates is ‘What are you most passionate about?’ The answer tells me a lot about the type of person they are. People who are not passionate about something, whether it’s running marathons, their families or reading books, won’t fit into our company culture, where it’s all about getting excited about what you do and getting involved.

How about your best career advice? What do you wish someone had told you?

Go play in traffic – that’s my best advice. Believe that anything is possible, put yourself out there and get in the game, meet as many people as you can, get involved, and things will happen for you.

When I was at law school in 1968, I went looking for a part-time job to use those legal skills and ended up in front of Sandy Weill at Carter, Berlind & Weill. When he asked me why I wanted a job there, I gave him the whole pitch about being a law student and wanting to gain experience at a law firm. He said, “That’s great, but what makes you think you’ll be learning law here? This is a brokerage firm.” Long story short, I got the job and ended up working alongside Sandy for 32 years as he built up the Citigroup empire.

You’re not just about business. Tell us about causes close to your heart.

I support a number of causes but there are two which are particularly close to my heart – the Make-a-Wish Foundation for terminally ill kids, and the National Centre on Addiction and

Substance Abuse (CASA). I grew up in New Jersey and the Make-A-Wish Foundation does some incredible work in the community there that I want to be a part of. After losing a child to substance abuse, I’m also very involved in CASA’s mission to change the way Americans think about addiction.

What do you do on those days when you don’t feel like getting out of bed? How do you keep the passion going?

I’m passionate about what I do – I’m always on the go, travelling hundreds of thousands of miles a year, and my job is to motivate and inspire our people; and in return I’m inspired and motivated by the great work I see around Willis. I can’t have a bad day. When you are in a leadership position where people depend on you, it’s simply not an option.

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• Insurance response to flooding • Group profile

With its finger on the pulse From a specialised healthcare management company in 1994 with just one member, to a group of companies extending an umbrella of services to the whole country, the Prosperity Group chatted to RISKAFRICA about plans to launch a low-cost product through Prosperity Health, the FIM Bill and some of the issues facing healthcare in Namibia.

1. Prosperity started as a specialised healthcare management company and is now a group of companies offering products across the insurance spectrum. Tell us a bit about the company’s genesis and development.

The company was started in 1994 as a health administrator by Bertus Struwig in Windhoek, Namibia. It has since grown to where it is today, with the Prosperity Group consisting of Prosperity Health – the administration company; Prosperity Life – medical insurance; Emed Rescue24 – emergency evacuation; HIT – the healthcare IT company; and Sun Karros – the Lifestyle Safaris company. Over the last 18 years, we have had many high and low points, but our success comes from working as a team and overcoming the low points together.

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2. How is the company’s vision and mission instilled in product design and the day-to-day running of the business?

From the day-to-day running of the business to the development of products, our main objective is always to look at the best possible benefits and service we can give our members. We have been in the service industry since the beginning and that has always been our main focus.

3. What is the profile of Prosperity’s client base?

The different companies we have and the different brands within those companies, means that we target every segment of the community.

We have high-end brands like Execumed, on our medical insurance side, which targets the higher

income bracket; Oxygen, which caters to the young and upcoming market; and then EMed and Renaissance, which cover all income brackets and LSM groupings. The spread of products in each company is planned and laid out to reach every person in Namibia.

4. How has the global financial crisis impacted the Prosperity Group and the Namibian economy in general?

The economic recession has not affected Namibia in the same way as it has South Africa and the rest of Africa. However, our mining and fishing industry has felt it the most and from Prosperity’s beginnings, these have been the areas from where most of our members are drawn. We have felt the recession in a definite decline of our member totals, but we’ve turned this around

“Medical aid in the form of mutual funds will only survive in the long term if they are successful in extending their coverage to a broader base of the population and maintaining escalation in healthcare costs.”

in the last year, with a growth of 20 per cent in main members in Renaissance Health, the fund administered by Prosperity Health and a 10 per cent growth in Prosperity Life.

5. What other avenues for growth is Prosperity pursuing? Is the company rethinking its strategy?

Prosperity Health has been in negotiations with various partners to create a low-cost product.

Research has shown that approximately 18 per cent of the total population is covered by medical aid and that there is a real need for a product developed specifically for the lower income market. Another focus area for us has been the switch over from a manual process, through which claims and membership applications were administered, to an electronic interface, which makes the process easier, faster and less faulty.

6. Let’s talk about the FIM Bill. Is it to be welcomed or will it make Namfisa too powerful?

Namfisa, the regulator for financial services and registrar of medical aids, is in an advanced stage of formulating the new FIM Bill and the prudential standards that will be the guiding regulations for the industry. We are supporting this and believe that it will only increase an already high level of standards.

products to work together. Internationally and in Africa there is a strong shift from solidarity to mutual funds to health insurance products. As in South Africa, with a national health plan being implemented, the two industries need to find a middle ground. Prosperity is ideally geared for that and with our insurance products we give our medical aid funds the opportunity to offer members additional benefits not traditionally covered by a medical aid. Internationally and in Africa there is a strong shift from solidarity or mutual funds to health insurance products.

Medical aid in the form of mutual funds will only survive in the long term if they are successful in extending their coverage to a broader base of the population and maintaining escalation in healthcare costs.

8. Will Namibia see a national health insurance scheme, similar to South Africa?

It is early days and we believe that constructive engagement among all the stakeholders will be crucial in finding alternative healthcare models in the country. Namibia has a unique healthcare history and facing challenges that will be best addressed through public and private healthcare solutions. We have much to learn from regional and international experience in the formation of National Health Insurance (NHI) and national medical benefit funds.

Private healthcare has much to offer and should be maintained as an integral part of the envisaged National Medical Benefit Fund.

stakeholders, including health professionals, trustees, funders and other service providers.

This will require a lot of work and effort and jointly address issues relating to affordability, accessibility and finding solutions for a fair billing and tariff-coding system.

10. How successful has the mobile clinic (part of Prosperity Health’s joint initiative with Medscheme – through Namibia Health Plan – known as the Prime Care Network) been in improving healthcare accessibility?

The mobile clinic has been fundamental in us reaching remote areas where our members work. It has given people the opportunity to see a doctor and prevent serious illnesses if caught early, where before they had to travel far distances for the same service.

11. Why the decision to close business operations in Tanzania, Kenya, Malawi and Mozambique in mid-2009, after investing some N$10 million in your East African venture? What happened to your members here?

When the economic recession hit East Africa, we had to make the hard decision to close up, as it just wasn’t feasible for us to trade there anymore.

We sold the books to other insurers and made sure that the process was done accurately to spare our members the least upset.

7. How about insurance-driven healthcare products; is there a place for them in Namibia?

9. What are some of the major challenges facing the insurance sector in Namibia?

12. Does Prosperity have any plans to expand into other African countries?

If you look at world markets, you will see that it becomes more and more important for traditional medical aid funds and medical insurance

A major challenge facing the private healthcare industry is to restore and build a working relationship and trust among the various

At this stage we are watching the world market and waiting for it to stabilise before we will consider moving into another country again.

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• FIM Bill

Interesting Times for Namibian Financial Sector T

BY BIANCA WRIGHT

“The set of laws that regulated the nonbanking financial entities is being reviewed and consolidated into the FIM Bill, so that Namfisa is strengthened to become a riskbased supervisory institution for the non-bank financial sector.”

here’s an old Chinese proverb that says, “May you live in interesting times.” We certainly live in interesting times and that has been both a blessing and a curse.

The recent recession and lingering economic woes in the developed world has seemingly made the Third World the place to be. Economies in and around Namibia are growing and the world is certainly taking note. Foreign investment is high and BRICS interest in Africa means we are in a ‘golden window’ period, where developing economies can work together to make up ground to traditional superpowers. But the opportunity comes at a small but significant price.

Along with all the possibility comes a renewed focus on regulation. It’s happening all over the world, but developing nations particularly need to ensure every step is one in the right direction.

In order to continue to grow and challenge the status quo, we need to ensure the viability and sustainability of our industries, especially vital ones such as financial services.

Viewed from that perspective, increased regulation in financial services doesn’t sound like a bad thing, but RISKAFRICA knows that the impending Financial Institutions and Markets Bill (FIM Bill) has been a cause of some anxiety among industry members in recent times. At least, the lack of information surrounding the proposed legislation has had some stakeholders worried about what impact it would have on their business.

RISKAFRICA spoke to top brass at the Namibia Financial Institutions Authority (Namfisa), to get an update on the progress of the legislation, as well as a few other rumoured regulations and standards we’re likely to see in the future.

The not so bitter bill The FIM Bill has been on the agenda of Namibia’s non-banking financial services sector since 2010.

The legislation clarifies the regulation of the sector as well as setting standards for these entities.

Deputy Minister of Finance, Calle Schlettwein, said in a speech to Parliament on 17 April, “The set of laws that regulated the non-banking financial entities is being reviewed and consolidated into the FIM Bill, so that Namfisa is strengthened to become a risk-based supervisory institution for the non-bank financial sector.” He added that these developments necessitated further industry consultations on the FIM Bill, which is expected to be tabled in Parliament later this year. Alongside the FIM Bill modernisation, Schlettwein said Namfisa is also in the process of finalising market standards and regulations to be gazetted along with the bill.

Namfisa has been working with the Ministry of Finance in consultation with its stakeholders to ensure that the bill represents the best possible framework for the sector. A circular from Phillip Shiimi, chief executive officer of Namfisa, described the modifications that had been made to the bill as well as the way forward for the process.

In the circular, Shiimi said that the Consumer Credit Chapter has been removed as it was deemed too wide in scope and more research was needed to develop a comprehensive policy for consumer credit in Namibia. The Complaints Adjudicator had also been removed from the FIM Bill. “The functions of the Complaints Adjudicator, as an adjudicator for consumer complaints from regulated financial institutions, may be expanded to include complaints from non-regulated financial institutions (other parastatals providing financial services). The development of the legal framework for the Complaints Adjudicator, now renamed the Financial Services Ombudsman, will be co-lead with the Bank of Namibia,” the circular states.

In addition, it was indicated that the Namibian Association of Medical Aid Funds (NAMAF) may be removed from the bill since it serves no regulatory function.

No cause for alarm The timeline for the revision and resubmission of

the bill was March/April 2012. According to Isack Hamata, corporate communications manager of Namfisa, there should not be any shocks for the industry as much industry consultation has taken place in terms of the FIM Bill.

of society,” says Hamata. Namfisa will, however, still continue with its own consumer education campaigns, just as all the other FLI Platform members would be expected to do for their different audiences.

The FIM Bill is not the only new or amended piece of legislation on the horizon for the sector.

Consumer protection regulation also seems to be on the cards. “At present, there is no uniform consumer protection law in Namibia,” says Hamata. “It is fragmented and outdated and may be in conflict with other pieces of legislation. The idea with new consumer legislation is to clearly define the rights and obligations of consumers as well as those of market participants. The consumer protection framework, once enacted, will protect consumers from undue marketing and business practices.”

“It is important to understand that one of the objectives of the FLI is to co-ordinate activities so as to avoid duplication. This means that consumer education activities would now be streamlined and that all possible gaps would be filled,” Hamata adds.

“The basic purpose is really to create awareness on good and responsible practices both for private and business financials.”

The Law Reform and Development Commission and the Namibia Competition Commission are driving the process.

In 2011, Mihe Gaomab II, secretary and chief executive of the Namibian Competition Commission, wrote on a blog, “The Namibian Competition Commission has started to interrogate the link between consumer protection and competition policy and law. In fact, the Commission is busy drafting a historical research study that will as an outcome propose concrete recommendations with regard to the strong relevance between Consumer and Competition Protection in Namibia. As evidence shows, having only one without the other compromises the attainment of the purpose for which the Competition Commission has been established.”

The educated consumer Financial literacy is a key area of focus for both the Namibian Government and the sector. The Financial Literacy Initiative (FLI) was launched to address the needs of the country in terms of financial literacy. Namfisa is a founder member of the 30-member FLI, which is run by a secretariat at the Ministry of Finance. “The campaigns are conceptualised at member level and each individual platform member/institution has an opportunity to give their input with regard to the form and shape of the campaigns, targeting specific segments

The programme seeks to educate consumers around issues such as: what do Namibians know about personal finance? Do they know how to calculate interest rates on loans, mortgages, and so on? Do they know how to budget or do they spend willy-nilly? Are they able to distinguish between the different insurance products and do they know their rights if they feel hard done by providers of financial services? The FLI will address these questions as well as other issues.

In addition, there was a need to develop a national strategy to address the low levels of financial literacy as identified in the FinScope 2007 study and based on the national aspirations of Vision 2030 of reducing poverty and increasing financial capability among the general population so as to reduce poverty. According to the FinScope 2007 study, only 12.8 per cent of the population was classified as financially literate. However, there was debate around the accuracy of the figure and another study, FinScope 2011, was commissioned. “The final results of the FinScope 2011 study will soon be made public,” Hamata says.

According to the preliminary 2011 results on FinScope’s website (www.finscope.co.za), bank accounts have the highest financial product awareness among Namibians at 26 per cent, with pension fund, medical aid and smart card products also having high awareness. The study found that the majority of respondents rely on their relatives or spouse/partner as a major source of information for making important financial decisions, while only 11 per cent rely on formal sources like a financial adviser or a bank for obtaining information on making important financial decisions.

The main theme of the financial literacy campaign, which is guided by a two-year strategic plan under the ambit of the Ministry of Finance, is ‘Be Wise’ and is driven through a combination of booklets, posters, street theatre plays as well as radio and television shows. “The basic purpose is really to create awareness on good and responsible practices both for private and business financials,” Hamata says.

Namfisa and the Namibian Government are working to address the legislative and regulatory issues in the sector, as well as to ensure that consumers are empowered to take control of their financial wellbeing. Details on legislation can be found at the Namfisa web site (http://www.namfisa. com.na/legislation.html).

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• Disability

Disability cover – Expand your service portfolio

By Lize van Coeverden

Disability cover is one of the trickiest beasts in the life insurance stable of products. RISKAFRICA looks at what the Big 5 of life insurance have to offer on the disability front and why putting in the time and effort to add disability cover to your service portfolio may be the smartest investment a broker can make.

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ccording to the 2011 report of the Namibia Financial Institutions Supervisory Authority (NAMFISA), in its role as arbiter of consumer complaints for consumers of financial services and products, only four per cent of the 521 complaints received for the 2010/2011 year arose from instances when an insurer rejected or repudiated payment of disability benefits, and every year long-term insurers pay out millions (N$) in disability claims.

Not a bad record, yet historically, disability cover is one of the most controversial benefits.

Although the majority of claims are usually settled satisfactorily, criticism arises when valid cases are rejected on a technicality. The most contentious of these issues is usually the definition of disability.

Designed to assist the policyholder to maintain an income in the event of disability by way of a lump sum payment or ongoing monthly income replacement payments, variations of disability definitions abound. In some instances, definitions stipulate that the claimant must not be able to continue his own or similar occupation. This may lead to rejection of a claim on the basis that the insurer feels that the claimant could take up a similar occupation for which they are not disabled. Other variations include the methods of evaluating a person’s physical and mental condition and to which extent these may lead to impairment or disability.

Every broker needs to be able to accurately advise their clients of possible adverse outcomes to enable them to assess the pros and cons of a particular policy or group of products. This is

even more valid in the case of disability cover, where a small misunderstanding of the policy conditions can create false expectations and have dire consequences in the event of a claim. It is not possible here to enumerate every permutation of every benefit offered by larger life insurance companies in Namibia and South Africa or to comprehensively expound their definitions of disability; however, the following broadly represent the trends within the disability cover offered by Liberty Life, Old Mutual, Metropolitan Life, Sanlam and Momentum: • Occupational disability benefits pay out a lump sum or monthly payments (dependent on the particular product or policy chosen) in the event of temporary or permanent disability due to an illness, injury or accident that results in the policyholder being unable to perform the duties of his or her occupation; • Impairment benefits cover the policyholder in the event of physical or functional disability as a result of illness, injury or accident, irrespective of whether or not the policyholder can perform occupational duties. The type of benefit does not take into account whether the policyholder can earn an income, but rather pays out based on whether the insured can perform certain basic daily tasks, for example, mobility and balance, hand function, upper limb function, use of senses and mental functioning.

• A benefit that combines occupational disability and impairment benefits. This type of plan usually pays out a lump sum if the insured becomes permanently impaired or unable to perform his or her occupational duties. The severity of the impairment or occupational

disability will determine the amount paid out and may be limited to certain severe illness events such as stroke, cancer, heart attack and coronary artery bypass graft.

Extensions may include cover specifically tailored for business owners or entrepreneurs, impairment events in old age and accidental disability or death (incorporating traditional life and funeral cover).

The merits of having disability cover cannot be overemphasised and it should be an essential element of a financial portfolio for every breadwinner. Being unable to work (even temporarily) can have devastating effects on the ability to provide for family or maintain a lifestyle.

Severe illnesses and dread diseases may involve extra medical costs or mean additional expenses involved in adjusting to a new, assisted lifestyle or travelling expenses for specific treatments.

Thoroughly assessing your clients’ needs and providing good advice is a broker’s first priority and, in expanding your understanding of the disability insurance sphere, can add a valuable component to your service offering to new and existing clients. Statistics released by the Association for Savings and Investment South Africa (ASISA) last year suggested that disability cover is one of the biggest untapped insurance markets, with South African’s underinsured in the region of R18.4 trillion (approximately US$2.26 trillion). Although no formal statistics of this kind are readily available for Namibia, trends would suggest that it similarly has a large scope for growth in the number and value of disability insurance cover.

• Mergers and acquisitions

Africa a hotbed for M&A activity

By Adrian Kay

“We have seen a marked increase in M&A activity across the board.”

In soft economic times like these, mergers and acquisitions (M&A) are often popular. A volatile global economy forces companies to buy established businesses rather than start new ones; and in the M&A sector, Africa is one of the hottest markets around.

Discoveries of oil fields on the continent pave the way for Africa to be a continent of choice in so far as deal making is concerned.

“Our forecast is that this quarter will surpass the same quarter in 2011 in relation to the number of M&A transactions,” says Witness Makhubele, a director in corporate commercial at the South African law firm, Edward Nathan Sonnenbergs (ENS). Makhubele credited the fact that many African countries were focusing on major infrastructure growth and development, as the reason behind increased investments in those markets. This bodes well for increased M&A activity on the African continent.

Latest stats from the Thomson Reuters Emerging Markets Legal M&A and Mergermarket Reviews, for the first quarter in 2012 (Q1), show more business being done in Africa, with the troubling climate in Europe leading investors here. The numbers are particularly impressive given that the first quarter is often less active than other quarters. ENS secured the greatest share of announced deals in Africa this year. “We have seen a marked increase in M&A activity across the board, in both volume and in value, over the first few months of 2012. All eyes seem to be on Africa at the moment and, with the troubling climate in Europe, the time is ripe for firms to take advantage of the growing African middle class,” says Michael Katz, CEO of ENS.

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Profitable growth exists According to the Thomson Reuters’ M&A Review, deal activity in Africa and the Middle East in Q1 totalled US$8 billion (N$64 billion). While this represents a decrease of 52 per cent compared to Q1 2011, the figure is significantly higher (19.3 per cent) than deal activity measured in Q4 2011 (US$ 6.7 billion).

According to merger market figures, a total of 30 deals amounted to US$3.5 billion (N$27 billion) of M&A activity in Africa in the first quarter of 2012. “There is a lot of interest in new African deals. Our deal pipeline right now is looking vastly better than it was at the same time last year,” adds Katz.

Of 236 African deals tracked by Thomson Reuters between September 2011 and March 2012, the energy, mining and utilities sectors registered the highest level of activity, according to Scott Nelson, head of ENS Africa. “What is interesting to see is the shift towards countries not traditionally viewed as investment destinations, such as Ethiopia. This is largely due to governments’ efforts to open up the countries’ economies. We believe this pick-up in privatisation could seep through to other economies as sectors start opening up, which will lead to significant M&A activity in the region,” says Nelson.

The increased focus on Africa is in line with global trends in M&A. Emerging markets are increasingly the place to be for M&A. In a survey of hundreds of corporate executives around the world, commissioned by UK law firm, Clifford Chance, 69 per cent were focused on emerging markets. “There is an increasing appetite from clients across many sectors for opportunities in emerging, high growth markets, as is borne out by our survey and the global M&A trends being seen generally,” says Matthew Layton, who runs the corporate practice globally at Clifford Chance and oversaw the report.

The insurance industry has not been slow to recognise the opportunities that come with investor interest in Africa. Chartis Insurance in South Africa has launched a warranty and indemnity (W&I) product for clients involved in M&A. W&I insurance is a tailored insurance product that covers breaches of representations and warranties given in the sale of a business. The policy indemnifies the insured for loss resulting from a breach of warranty or tax indemnity in a sale and purchase agreement (SPA).

A seller side policy covers the seller for its own innocent misrepresentations and a buyer side policy covers the buyer against the seller’s misrepresentations (innocent or otherwise). The buyer claims directly against the insurance policy and does not have to seek recourse against the seller. The limit of liability under the policy will be agreed by the insurer and insured and will be driven by the transaction value. The premium will take into account such factors as the complexity of the transaction, the industry sector and geographical spread of the business, as well as the quality of the transaction process and advisers involved.

While its main focus will be on South Africa, Chartis will insure African M&A transactions on a case-by-case basis.

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2361 TheCheeseHasMoved

The largest deal announced in the first quarter of 2012 was the acquisition of the Kolwezi Tailings project, and the Frontier and Lonshi mines and related exploration interests, all located in the Katanga Province of the Democratic Republic of Congo, by Eurasian Natural Resources. The deal was worth US$1.25 billion (N$10 billion).

• Rwanda holds promise

e h t g n i Sett anda bar, Rw

ves to o m ry t s u d in e c n ra T h e R w a n d a n in s u in c re a s e p e n e t ra t io n

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t’s a tall order for one of Africa’s smallest and most densely populated countries to be on par with the new African standard, especially since it doesn’t really have any natural resources to bolster the economy. But Rwanda is determined to make the most of the growth and development potential it and its neighbours are experiencing at the moment.

and government buildings compulsory.

They’d also like to see insurance for medical practices and doctors (most likely professional indemnity cover) become mandatory. Currently only civil servants are required to have motor and health insurance and, while financiers might require debtors to insure property when building or purchasing, the current legislation is not ideal.

At least in terms of GDP growth, Rwanda is a powerful nation, achieving around 13 per cent in 2008 and averaging around seven per cent every year since then.

That makes it one of central Africa’s fastest-growing economies. Financial reforms in countries like Kenya have played out well for Rwanda’s neighbours and economies are now not only growing, but also becoming more sophisticated.

This is something that didn’t go unnoticed by the Rwandan insurance sector, which is now asking how it can get the country on par with middle-income nations.

Insurers say that less than five per cent of commercial buildings in the capital Kigali are currently insured, while government is only now starting to insure its own property with earnest. The director general of the housing regulator, the Rwanda Housing Authority (RHA), said that insuring the State’s property is an ongoing process. Some 16 buildings from ministries, hospitals and stadia are insured, with another 15 due to be insured when the next budget is announced.

Rwanda’s insurance sector has set itself a target of increasing insurance penetration from 2.3 per cent to close to 10 per cent by 2020. To do this, it is pressuring government to employ legislation that will make insurance more attractive and, in some cases, compulsory. Insurers want government to waive value-added tax (VAT) on insurance premiums and make insurance on private, commercial

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Corneille Karakezi, CEO of Africa Re, recently urged Rwanda to consider the value comprehensively insured construction, industrial and medical industries would hold for the well-being of its society. CEO of Rwandan insurer, Soras General, and chairman of the Rwandan Association of Insurers (ASSAR), Marc Rugenera, agreed but felt that government should waive the 18 per cent VAT charged on premiums.

Rugenera feels the request should not have come as a surprise to government, as

Rwanda joined the East African Community (EAC) some four years ago and its members do not tax insurance premiums.

But the Rwandan revenue authority is not buying that. The commissioner for taxes reportedly responded to the request by challenging insurers to conduct a study to prove that VAT on premiums impact insurance penetration.

Like many African countries, the insurance industry is hampered by a lack of skilled, employable staff and much of the population is simply not able to afford insurance. Close to half of Rwanda’s 11 million people are subsistence – or at least small scale – farmers. Financial literacy is also a problem, but Rugenera maintains that Rwanda’s six private insurers are investing heavily in marketing, while Karakezi suggested micro-insurance as a possible answer to affordability issues.

Rwanda’s insurers have managed to increase their assets in recent years, while penetration grew to 2.3 per cent in 2011 from just 1.6 per cent in 2010. So there is potential. But we can’t shake the feeling that the State is just not getting it. Not so said the Finance and Economic Planning Minister, John Rwangomba, who believes that government should help the industry in achieving growth. At least he realises that the insurance industry is fundamental for transforming the nation and attracting investment, both foreign and domestic.

• Microinsurance

Africa aims for growth in microinsurance This year’s maiden International Microinsurance Conference provided the industry with creative ideas and practical implementation to manage livelihood risks. The conference took place in Ghana and was organised by the National Insurance Commission of Ghana (NIC) and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), in partnership with three organisations engaged in the microinsurance sector.

“In five years we expect to work in 10 African markets and serve 20 million people in Africa, with 80 per cent of our client base new to insurance.”

Microinsurance is a means of protecting households and small businesses in the informal sector from vulnerability caused by natural disasters or the sudden illness or death of a family member. Learning sessions were designed to provide international perspective on opportunities and challenges involved in providing microinsurance services, while taking into consideration the current stage of development of the industry.

Insurance commissioner, Nyamikeh Kyiamah, says microinsurance seeks to reach out to customers who are not yet served by traditional insurance markets, and provide them with a valuable tool to manage their livelihood risks. The NIC is actively spearheading the development of microinsurance in Ghana, particularly through the development of an appropriate regulatory framework for microinsurance products. She says only 4.1 per cent of the total Ghanaian population held an insurance policy in 2010, excluding public health insurance which stood at 1.89 per cent in 2010. With the support of the GIZ and other partners, NIC now has the capacity to handle microinsurance in Ghana in the areas of policy framework and legal review, actuarial capacity development, research and development and technical services.

Vice-chairman of the Munich Re Foundation, Dirk Reinhard, says although the industry in Ghana was not doing badly, more needed to be done to add value to the microinsurance market. He feels there is a need to explore and research solutions and urges policy makers to create the enabling environment and framework to give the industry a boost.

Ghana’s overall insurance penetration currently hovers around two per cent, with microinsurance penetration speculated to constitute less than half of that.

GIZ adviser for financial systems development, Claudia Huber, notes that its mission of making finance work in Africa was to establish a common platform for the harmonisation and facilitation of the financial sector development and knowledge sharing in Africa. The partnership brings together donor partners, African governments, the private sector and other financial sector stakeholders, with the aim of unleashing the full potential of Africa’s financial sector. This will help drive economic development and reduce poverty across the continent.

MicroEnsure is an insurance intermediary currently serving 3.5 million people in Africa and Asia. CEO and president, Richard Leftley,

“The NIC is actively spearheading the development of microinsurance in Ghana, particularly through the development of an appropriate regulatory framework for microinsurance products.”

is confident that 70 per cent of Africans can be insured. He says by the end of the year, his company hopes to serve two million people in Africa, and to those who need it the most. “In five years we expect to work in 10 African markets and serve 20 million people in Africa, with 80 per cent of our client base new to insurance.”

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• Economic overview

Africa’s unknown investment

mecca

By Mikhaila Crowie

While the world watches the debt crisis unfold in Europe, good news awaits sub-Saharan Africa. The International Monetary Fund (IMF) predicts a strong economic forecast for the region in 2012. Add the possibility of a multi-billion Dollar investment project and we may have plenty to celebrate.

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he IMF says economic growth will remain strong in the subSaharan region as demand for the region’s resources will offset global risks, including financial turmoil in Europe and the increase in demand for oil. “One-off factors, including new resource production in several countries, will help nudge the region’s output growth,” explains Antoinette Monsio Sayeh, director of the IMF’s African department. The organisation’s Regional Economic Outlook for sub-Saharan Africa reports that growth will be led by new natural resource production in countries such as Angola, Niger and Sierra Leone. A rebound from drought in the Sahel region and parts of eastern Africa also plays a part in the development.

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However, the lender warns that clear downside risks remain due to global uncertainties. The African Finance Corporation (AFC), a Lagos-based development financier, is considering potential investments across the region, worth $3 billion (N$24.7 billion). President and CEO of the company, Andrew Alli says the projects will extend from Senegal down to Mozambique. “Virtually every country in sub-Saharan Africa has a power deficit so there is obviously quite a lot of opportunity in power,” he notes. Alli’s organisation has already invested $50 million (N$416 million) in Kenyan cement firm, Athi River Mining, this year. “We are looking to put at least another $100-$150 million (N$ 831.9 million – N$1.2 billion) into Kenya in the next 18 months if things work out correctly.”

A report by research and mining firm Frost & Sullivan, reports that the Namibian mining sector generated $1.6 billion (N$13.3 billion) in export earnings in 2011, contributing significantly to GDP. By 2015, the uranium sector will be the single largest mining sector in the country. A research analyst at the firm, Christy Tawii, says the depletion of diamond reserves in Namibia gave way to the development and expansion of Namibia’s uranium mining industry as an alternative source of revenue. “The prospects of Namibia becoming a uranium mining hub have since increased with the government’s sustainable economic growth objective, identifying uranium as a key commodity,” explains Tawii.

Namibia

Since the 1980s, sub-Saharan Africa has seen a swell in the size of the middle-class economy. In the year 2010, the number totalled 350 million, which is larger than the middle class in the United States, a developed country. The IMF predicts growth of 5.4 per cent for the rest of this year. Although this is a slight decrease from its previous projection of 5.9 per cent, the organisation says this is driven in large part by the weaker economic outlook for South Africa. The same report says Sierra Leone’s GDP will rise by 51.4 per cent this year, thanks to mining company African Minerals which is mining iron ore in the country.

Niger, once ranked second last on the UN’s Human Development Index, is set to be the world’s second-biggest uranium producer by the year 2014. The country’s new oil rig will push the GDP growth by 12 per cent, while Angola and Nigeria, the region’s biggest oil producers, will register a 10.8 per cent increase.

Aided by a stable regulatory environment and a high degree of openness to global trade, the country’s economic growth has averaged four to five per cent over the past five years. The discovery of oil will likely place Namibia on the map of oil-rich countries, as the first production of oil reserves is rumoured to begin in 2015.

The Ministry of Finance has implemented plans to protect and improve the economy, while Cabinet authorised and formulated a long-term strategy towards the development and upgrading of the financial sector. This will help the industry become more technology driven. The document is known as the Financial Sector Strategy. Spokesperson for the Ministry of Finance in Namibia, Aldrin Manyando, says an assessment done on the country’s financial system showed that while it is sound, there are flaws. “Key weaknesses identified by the review include a shallow financial market, limited competition, limited financial safety nets, an underdeveloped capital market, and inadequate and less effective regulation.” He went on to say that consumer illiteracy and low participation by Namibians in the economy were also identified as key flaws.

Towards this end, the Financial Literacy Initiative was launched in March this year.

Finance Minister, Saara KuugongelwaAmadhila, says the programme will enhance participation among citizens in the financial sector, as well as improve their knowledge on finance. Governor of the Bank of Namibia, Ipumbu Shiimi summed it up best, saying that “finance is a key catalyst for economic development and wealth creation”.

The grass is fairly green on this side

The countries in the region have been less dependent on Europe, exporting to other emerging markets. President of the African Development Bank, Donald Kaberuka, recalled the average growth, which now puts the continent behind Asia, but warned, “The African economy, which largely depends on the exploitation of natural resources, should move on to become a transformation economy.” Sayeh reckons a weaker global economy would, of course, slow the pace of growth in sub-Saharan Africa but there is a light at the end of the tunnel. “The resilience of the region’s economies, over the course of the current global economic crisis, provides confidence that solid growth can still be recorded under less favourable external conditions,” maintains Sayeh.

BRICS and the rest of Africa The BRICS nations – the group of emerging economies consisting of Brazil, Russia, India, China and South Africa – sparked further interest after announcing plans to establish a development bank. The announcement was confirmed shortly after the G20 summit and the bank, said to rival the World Bank, will be launched in South Africa next year.

“Key weaknesses identified by the review include a shallow financial market, limited competition, limited financial safety nets, an under-developed capital market, and inadequate and less effective regulation.”

Speaking at the World Economic Forum held in Ethiopia, Brand South Africa’s chief executive officer, Miller Matola, explained that his country will leverage its membership of BRICS to increase investment and trade into Africa and reiterated that working in isolation will only impede the continent in reaching its full potential. The inaugural BRICS Africa Export Import Forum will take place from 15–17 July 2012 in Midrand. The aim of the event is to maximise mutual trade activity and will include a series of workshops. John Thomson, managing director of Exhibition Management Services, the co-organisers of the event, says that members of BRICS are seeking access to African markets to fuel their rise by buying primary resources and exporting manufactured goods, and that BRICS members view South Africa as the preferred entry point into the rest of the continent.

The IMF says there has been a significant improvement over the past decade. In order to maintain the growth in the next 10–15 years, the sustained improvement in people’s living conditions requires a capable state apparatus and high levels of public investment in infrastructure and human capital. “Investments in Africa have yields that are among the highest returns of different continents,” says Alli.

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• Clem Chambers

“To a degree such a downturn can be helpful as they can often prise information out of the market and lay out the reality of the situations.”

Europe:

Ready for another dip?

C l e m C h a m b e r s , C E O o f A DV F N

Despite strong performances at the onset of 2012, markets saw a downturn toward the end of Q2. The FTSE100 fell well over 100 points in a day, -1.9 per cent, leaving traders and investors flummoxed and scrambling for answers.

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nsurance firms such as Aviva fell by 2.1 per cent, as did Old Mutual. Prudential though fell by 4.8 per cent – one of the day’s biggest losses. Should this lead to panic in the insurance markets? To a degree such a downturn can be helpful as they can often prise information out of the market and lay out the reality of the situations. In this recent example, the difference between the current standing of the FTSE Life and Nonlife Insurance indexes became clear.

The fortune of the Non-life index rose and fell with the FTSE100, at times their percentage falls were exactly the same. While shareholders would, of course, have preferred for it to perform better than the FTSE itself, to act in unison with it could be said to demonstrate the Non-life’s relative strength by matching the UK market’s 100 biggest firms. The Non-life’s performance was marked in comparison to the Life, falling 3.1 per cent and over 133 points.

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Market fluctuations helped to expose an underlying uncertainty at a time when Europe itself is gearing up for another difficult summer.

In the good old days, the two decades before the credit crisis, the markets of the developed world had broken away from the yoke of government and performed the magic of producing untold wealth by their ability to help economies operate without the heavy burden of central planning and bureaucracy.

The long boom of the 80s and 90s had several factors driving the good times such as good demographics and the end of the cold war.

Looking ahead, it is hard to see the replacements for these drivers.

Though outside of the Eurozone, as Europe’s financial centre the London market is open to all problems coming across from the continent.

While the country on everyone’s lips in 2011 was Greece, 2012 is shaping up to be the year of Spain.

The economic numbers for Spain

are not as horrendous as those of Greece. However, the Spanish banking system is loaded up to its ears in real estate debts that will never be repaid. Consequentially, Spanish banks are a default waiting to happen.

With these problems requiring answers, it is the ideal time for insurers to start addressing the issues that led to their recent losses.

2011 Q3-4 should have been a wake-up call and smart firms would have started the long, hard task of reorganising their businesses.

Another summer of difficulties may prove too much for some, alongside the challenges of Solvency II. Firms who did not take hard decisions last year should use the current situation to makes changes and make them fast.

Europe has forestalled a broad economic collapse across its many overstretched states by playing for time. The officials have come up

with a method to hold the currency and the block together. The European Central Bank (ECB) buys bank bonds and government bonds.

The ECB swaps their good money, for bad money.

If a country is shaky, it buys that country’s bonds and keeps interest from going off the dial. This level is five per cent to six per cent. If a country’s banks become shaky, the ECB buys its bonds – which they can invent by swapping with other ‘dodgy’ banks. In exchange, banks buy government bonds to fund the deficits of their country, on the back of the credit worthiness of the whole of Europe. It’s a threering circus; ECB, European state treasuries and the banks.

Efficient markets have ceased to operate and economics are being framed not by economic realities or market pressures but by political edict.

If you are a trader, this is heaven, if you are an investor this is hell.

• IT in insurance

Go tech or go home?

“The increase in interest in these areas shows that IT investment in front office processes is on the increase.”

In the insurance business, technology matters. Launching innovative products in a short period of time, quickly processing claims and effectively attending to customer queries all require high-tech systems.

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his may sometimes be neglected in favour of saving costs or more immediate concerns. However, neglecting the back office could prove costly given the current environment as regulations make it necessary to upgrade computer systems.

Rhys Collins, head of African operations for SSP, says that programming code embedded in older legacy systems creates massive difficulties when the business needs to create, launch and effectively manage new products.

This is particularly critical for an industry where responsiveness through rapid product development and channel access is a primary requirement for growth.

Collins says the advantage with the new IT skills is that they are readily available and so can be acquired at minimal costs. “Access to a proven modern technology platform will ease the transition and build a reliable infrastructure for the future,” says Collins.

It is not easy for insurers to decide on their route to legacy transformation. The traditional big bang approach can be costly and time consuming, requiring significant initial costs with little return on investment in the short term.

Moving the data from one system to another

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can cost anything from N$500 000 to N$6 million and can take up to four months.

To contain cost and manage risk, some insurers compromise by limiting the scope of projects and focusing on delivering smaller changes in capability. This helps ensure the delivery of specific results, but also leads to deferral of the major challenge and missing out on the potential to reuse and maximise the overall return on investment in IT.

There has been a move towards replacing developed core systems with packaged systems.

For insurers of all sizes, developing their own dedicated policy administration systems from scratch seems to have disappeared. Instead of implementing an entire integrated suite in one project, some insurers have sought to implement components of a suite, to enhance their capabilities and then replace other parts of their legacy systems over time.

This is obviously an increasing concern for those in the industry. A Gartner report entitled ‘Top 10 Insurance Inquiries from Gartner Insurance Customers in 2011’ found that legacy modernisation is one of the foremost concerns of insurers. Regulatory concerns are among the issues driving insurers to balance their IT investments between legacy modernisation and technology innovation. Gartner Inc. is a leading global information technology research and advisory company. “Legacy modernisation accounted for more than 25 per cent of all inquiries made by Gartner clients last year, showing that insurers are acknowledging the need to respond to changing consumer demands as well as regulatory and market changes. They are also looking to their peers to compare priorities, as well as quantify their own risk and the business value of their individual IT investments,” explains Collins.

“The increase in interest in these areas shows that IT investment in front office processes is on the increase. Gartner suggests that this is because insurers will often be able to achieve quicker and more visible business benefits for their clients and channel partners. By developing online services for their brokers and policyholders, insurance companies can move some of the cost out of the business, while at the same time improving their service offering,” adds Collins.

He believes that investing in and implementing innovative e-business strategies will be the key determinant of future growth within the industry. Cloud computing and business analytics are also becoming a priority. “Those insurers that are still debating the cost and merit of mobile technology rather than starting to experiment are being left behind.”

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NEWS Harmonising insurance Insurance may not be all glitz and glamour; in fact most individuals thank God first before their insurers when surviving certain loss.

However, Ugandans should sit up and take notice of a recently signed memorandum allowing for a peer review of the insurance sector in the five East African community member states. The East Africa Insurance Supervisors Association (EAISA) has approved the measure, which is good news for clients.

Certain insurance crises would be difficult for any single state to solve.

Regional integration is about collective and uniformed effort, which is why in order to streamline the sector to international standards, the

EAISA has endorsed 26 insurance core principles (ICP), which summarise the entire sector.

Uganda’s Insurance Regulatory Authority (IRA) and other stakeholders plan to launch an aggressive consumer awareness campaign in the next two months, to highlight the positive side of insurance. IRA has also instituted a section concentrating on research and development programmes with regard to agricultural insurance.

The IRA is aware that there is a lack of skilled manpower in the sector and training programmes are being installed to ensure improvement.

Africa poised to enter the premier league of investment According to Ernst & Young’s African Attractiveness Survey, there is growing confidence among international and African investors which has led to significant investment into Africa over the last decade.

The survey highlights that there was strong growth in the number of new foreign direct investment (FDI) projects in Africa during 2011. It also found that the top investors into Africa included the US, France, the UK, India and the United Arab Emirates. South Africa was listed as the sixth largest FDI investor, while Nigeria and Kenya were listed in the top 20. Intra-African investment has been a key driver of this growth. However, the survey highlights a perception gap between those investors, with an established presence in Africa, who believe that only Asia represents a more attractive option, versus those who have yet to invest in Africa and who perceive it in a negative light. The respondents with no presence in Africa cited political instability and corruption as the main concern. “In the midst of a global economy that is being reshaped, with growth and capital flows shifting from north to south and west to east, Africans have a unique opportunity to break the structural constraints that have marginalised the continent for decades, if not centuries,” Ernst & Young managing partner for Africa, Ajen Sita concludes.

“The finance ministry is unable to access these and there are fears that the money may have been abused.”

Namibia’s secret accounts Deputy Finance Minister, Calle Schlettwein, says that government departments have N$1.6 billion stacked away in private accounts, and that these are impossible to audit given client confidentiality.

The finance ministry is unable to access these and there are fears that the money may have been abused. Schlettwein adds that the practice of holding public money in private accounts is problematic, as the use of public money should be transparent.

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Protecting cotton farmers Weather conditions are beyond farmers’ control, yet they invest in cotton growing as a major means of livelihood. A micro insurance scheme is to be implemented in Tanzania to shield cotton farmers and their harvests from risks posed by weather changes.

Pashal Mabiti, regional commissioner for Simuyu, recently met with stakeholders in Dar es Salaam to highlight a new era in agriculture that will mitigate the uncertainty experienced by farmers as a result of changes in weather.

Under the scheme, cotton farmers will be compensated for crop failure due to drought or floods. It will also aim at protecting the farmers’ investments and those ginneries that invest in contract farming. Last season’s drop in cotton harvests, as a result of weather changes, caused extensive losses.

“This is a huge opportunity for the country. The cotton industry is at a crossroads and needs us to make the right decisions,” says Mabiti.

West African oil pirates strike again West African pirates returned a gasoline tanker after stealing some of the cargo.

The hijacking is one of a growing number off West Africa. At least 16 such incidents have been reported this year along the coastline from Togo to Nigeria, according to the International Maritime Bureau (IMB) Piracy Reporting Centre.

The ferocity of the attacks on the tankers varied widely from case to case; but in general, West African pirates were more violent than those off East Africa.

Traders in the Indian Ocean are already taking precautions to limit risk off the coast of East Africa as the danger of hijackings often sends insurance premiums on trade vessels through the roof.

Insurers will no doubt be worried by the high prevalence of piracy on Africa’s coasts. While hijacked vessels along the east coast of Africa are commonly reported, those on Africa’s west coast have attracted far less attention.

“At least 16 such incidents have been reported this year along the coastline from Togo to Nigeria, according to the International Maritime Bureau (IMB) Piracy Reporting Centre.”

Absa ploughs into Zambia Regulators in Zambia have approved Absa’s Greenfield insurance business in Zambia. Absa now has four different insurance businesses in sub-Saharan Africa.

Group CEO, Maria Ramos, says that the Barclays-owned bank is determined to grow its retail, investment banking and corporate footprint in the region.

Ramos adds that Absa’s Africa growth strategy is on track and there was no need to merge its retail banking operations in Mozambique and Tanzania with those of Barclays.

Willie Lategan, the CEO of Absa Financial Services, says he saw the Zambian operation as offering shortand long-term insurance. However, banking analyst, Johan Scholtz of Afrifocus, adds that simple short-term insurance products would offer the ideal entry into Zambia. Ramos says that Absa would achieve “modest” earnings this year through selective expansion in segments such as unsecured and mortgage lending.

Absa’s African expansion has been done in partnership with Barclays.

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RM Insurance targets online growth with SSP Zimbabwean short-term insurer, RM Insurance has recently teamed up with SSP to produce a personalised web portal to deliver better customer service while reducing operational costs.

The new portal, developed by SSP, has allowed RM Insurance to extend its distribution while retaining its existing Insure/90 back-office system and processes, which is an insurance software package. The SSP solution allows RM Insurance customers to quote and buy online and register and monitor the status of claims, enabling customer self-service.

Donald Muthe, managing director of RM Insurance says, “Although we already had a reliable SSP policy administration system in place, what we

needed was a tried and tested solution that could enhance the existing system to create a user-friendly web interface. SSP’s Insure/90 Extended Edition provided that fast-track layer, allowing us to externalise the full policy lifecycle over the Internet.”

SSP Insure/90 Extended Edition has been developed to enable Insure/90 systems to deliver on-demand customer self-service via the Internet and provide a seamless upgrade path to SSP Select Insurance.

SSP Select Insurance will enable insurers to drive profitable growth by increasing their speed to market, streamlining current processes and improving customer service.

Reinsurance mooted for West Africa The Economic Community of West African States (ECOWAS) Commission promises to float a reinsurance agency with a capital outlay of $300 million (N$2.4 billion) to encourage foreign direct investment (FDI) into the West Africa region.

Uganda welcomes Sanlam (Uganda) Limited was launched in April 2010 in Kampala after being licensed by the Insurance Regulatory Authority (IRA) to provide life insurance on 23 March 2010.

The agency will provide a window of reinsurance to the insurance industry as well as mitigate the political risk to foreign direct investments in the region. The $300 million is expected to underwrite an exposure level of $1 billion (N$8 billion).

Speaking at a workshop in Abuja to study the feasibility of the agency, Commissioner of Macro-economic Policy, Dr Ibrahim Bocar Ba, said the agency will cater for risk in investment arising from political instability in the sub region.

In his remarks, Minister Counsellor Pierre Philippe, head of operations at EU Services in Nigeria, says the ECOWAS was on the right path as investment is a tool to promote economic development and security as seen in Europe for many years. He expressed the EU’s support for the agency but urged the commission not to focus on political risk alone as there are other factors that discourage investments in the sub region.

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Sanlam Life Insurance has emerged victorious, winning an award of excellence in the Private Sector Foundation Uganda (PSFU) Development Awards. Sanlam Life Insurance

Sanlam’s Ugandan arm is a wholly owned subsidiary of Sanlam Emerging Markets (SEM), which is part of the Sanlam group − one of the largest financial services companies in South Africa. It is responsible for the strategic focus of growing Sanlam’s presence in Africa. We take a look at the products it offers, as well as the outreach activities it is involved in.

Products

Individual insurance

Since Sanlam’s arrival in Uganda, it has grown substantially.

It offers group life assurance, available to organised groups for the benefit of the group members. It can also be packaged to enhance the statutory workers compensation or group personal accident products offered to employees.

Sanlam offers individual life products such as the Dreambuilder plan, an holistic insurance offering to individuals who want to plan for their financial future. Dreambuilder is a life policy that offers a regular savings instrument together with a maximum of USh40 million (N$129 million) life cover, without any medical underwriting.

Medical insurance Sanlam medical insurance, Sancare, was approved by the IRA and the product launched in July last year. The operating model is one of close monitoring and technology solutions to support the business effectively.

The Sancare medical insurance plans offer benefits through tailor-made cover options in order to meet the diversified healthcare needs of corporate and employer groups.

Regular contributions will save towards financial goals, as well as protecting assets in order for a lump sum to be available for loved ones should death occur during the term of the policy.

Outreach As the Sanlam group prides itself on making a difference through CSR initiatives, Sanlam Uganda is carrying that legacy forward by focusing on the most vulnerable members of society. Sanlam has reached out to the local population by supporting various initiatives, such as Wakisa Ministries and Katalemwa Cheshire Home.

Wakisa is a home for under-privileged girls as well as abused teenage mothers. The Sanlam team and NIKO Insurance visit the girls to talk about nutrition and ways to keep themselves and their babies healthy. Katalemwa Cheshire Home for rehabilitation services (KCH) is a non-governmental development organisation in Uganda involved in the rehabilitation of children with disabilities. “These initiatives helped us to win the PSFU Development Award. We were surprised and honoured to receive this award,� says Hellen Muwemba Bwengye, marketing manager of Sanlam.

Asia China’s elderly are an opportunity for insurers A new study released by the Boston Consulting Group (BCG) suggests that insurance companies in China should be actively planning how to capitalise on the challenges and opportunities that the greying Chinese population presents.

It has been predicted that an ageing population could send China heading towards a demographic disaster. The once-thriving workforce, responsible for the country’s rapid socio-economic growth and development over the past two decades, is swiftly approaching retirement age.

The mainland government has been working to address this and launched a RMB 850 billion (N$870 billion) healthcare reform plan over the past two years. In the government’s three-year reform strategy, the Health Ministry plans to protect employees and reduce work by increasing government subsidies in public hospitals, while relying on insurance companies to make up the difference.

Insurers can reap the dividends by placing themselves at the forefront of regulatory reforms, which could help the growth of private-sector pension, healthcare and insurance markets in China. Chinese consumers need to be educated by the insurers about the long-term value of savings and investments in retirement preparation.

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Indian Ocean marine insurance gets demarcation boost

tanker insurance sector for vessels calling in Iranian ports.

Traders in the Indian Ocean may get a boost from new proposals by the Indian navy, which includes specified demarcation of piracy hotspots. The proposal would include naval co-operation and armed guards posted onboard ships travelling through the Indian Ocean’s notorious pirate-infested waters. The proposals were drafted at the Indian Ocean Naval Symposium (IONS) held in Cape Town, South Africa. After scores of incidents in which vessels fell victim to piracy and other attacks, the proposals are likely to benefit trade in the Indian Ocean drastically.

China’s insurance firms do not have to abide by the sanctions, and have the capacity to cover the vessels bringing supplies to the world’s second-biggest oil consumer and its second-largest economy.

Indian navy chief, Admiral Nirmal Verma, bemoaned the fact that trade in the Indian Ocean was hampered by insurers imposing blanket premiums on trade in the area. He advised that demarcation would specify high risk areas and differentiate them from areas of lesser risk, thereby ensuring lower premiums and lower costs for traders.

At present, IONS is headed by South Africa and the chair will be handed over to Australia in 2014.

“It is mostly Chinese vessels from Sinochem and Nanjing Tankers that are taking a chance. The money is good and they have the tonnage,” says a Singapore-based broker who declined to be named. Sinochem and Nanjing are reportedly charging double the normal asking rate.

Around 90 per cent of the world’s tanker insurance is based in the West, so the sanctions threaten crude shipments to Iran’s top Asian buyers, including China, India, Japan and South Korea. Buying 22 per cent of Iran’s exports, estimated to be worth around $14 billion (N$122 billion), China buys more Iranian oil than any other country.

Beijing is believed to be considering sovereign guarantees on ships importing oil from Iran.

United Kingdom Chinese firms score off Iran sanctions Chinese shipping firms are making huge profits transporting Iranian oil. EU sanctions on insurance and reinsurance came into effect on 1 May and have eliminated competition in the oil

Whiplash claims cost British insurers billions Britain has been labelled the whiplash capital of Europe, with 1 500 claims for whiplash made every day. False claims add £90 (N$1 140) to insurance

premiums, which cost insurance firms about £2 billion (N$25 billion) a year. In the last five years, road accidents in the United Kingdom have decreased by 23 per cent. However, claims have increased by 70 per cent.

At a summit in London, five ministers, consumer groups and insurers discussed reforms to stop false whiplash claims that are pushing up insurance premiums.

The root of the problem is that whiplash is difficult to disprove, which is why moves are being made to include independent panels of medical specialists to help assess the claims.

United States Calls for US flood insurance to be extended The United States Government’s Federal Emergency Management Agency (FEMA), has called on the congress to extend the National Flood Insurance Programme (NFIP), which expires just days before the beginning of the Gulf of Mexico’s hurricane season. The NFIP has been a political football in Washington for years, particularly because of the huge debt load it took on in the wake of Hurricane Katrina in 2005.

From 2006 to 2010, the NFIP paid out $6.21 billion (N$50 billion) in claims, according to statistics on the programme’s website.

Federal law in the US requires that homes in designated flood-

risk areas have flood insurance before a mortgage can be completed. Because the NFIP is effectively the only flood insurance available in the United States, a lapse in the programme means home sales cannot close in designated flood areas.

Dog bites worse than their bark Last year, US insurers forked out US$479 million (N$4 billion) in medical claims for dog bites.

California, the largest state in the US by population, and home to more dogs and people than any other state, led the way in 2011, with 527 claims. Victims received $20.3 million (N$160 billion) in pay-outs, a jump of 31 per cent over 2010.

After children aged five to nine years old, seniors represent the largest group at risk, followed by letter carriers. The Washington Post reported that nationally, about 5 600 U.S. Postal Service letter carriers were attacked by dogs each of the last two years. In California, a carrier was attacked in March and died of complications four days later after she suffered a stroke likely caused by trauma.

“It is mostly Chinese vessels from Sinochem and Nanjing Tankers that are taking a chance. The money is good and they have the tonnage.�

Authorities are promoting dog safety in the US with a particular focus on children, who are 900 times more likely to be bitten.

Heredity, training, socialisation, health, and the behaviour of humans, can all contribute to a dog’s tendency to bite.

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PUT FOOT R ALLY 2012

RISKAFRIC A

Project Rhino,

Put Foot and Mad Max

I

t started last year when my seven-year old (a budding vet) asked me why people would do that to an animal. I had just surfed through the news channels on DStv when the screen settled on horrific images of a freshly butchered female rhino. The animal was still in its death throes and a young calf was wandering aimlessly between park rangers trying to get closer to its critically injured mother. Poachers had sawn the horns off the older animal while it was still alive. It was horrible.

I kicked myself for not being able to change channels quickly enough, the risk of watching news with a child in the room I guess, but there I was, on the hook, having to explain why some perfectly intelligent adults (some say Asian folk are the most intelligent) would think that imbibing a rhino horn cocktail would reduce their fever and cure their ills.

Urban myth has it that the rhino horn powder is an aphrodisiac or remedy for erectile dysfunction, but after researching the topic a little it seems the stuff is used more as an anti-pyretic to reduce fever as any other use. Why on earth aspirin isn’t first choice the world over for headaches I don’t know.

It was about this time that marketing around the Put Foot Rally 2012 started to rumble into life.

Social networks were buzzing with posts and YouTube video clips from the inaugural event in 2011. Here was a group of adventurers who was having fun travelling through Africa and leaving a trail of community upliftment in its wake. By all accounts, the 2011 trek was a huge success and event organisers, Mountainshak Adventures, had done some excellent work with former South African rugby captain Bob Skinstad’s ‘Bob’s for Good’ foundation along the way. The 2012 event is going to go even further, with participants raising funds to distribute school shoes in rural communities as well as to support a cause close to all of us here at RISKAFRICA, Project Rhino.

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Team RISKAFRICA’s involvement was driven partly by my Emma’s reaction to that TV clip, but mostly due to the outrage and helplessness we were all feeling in the office. Stories about the attacks were escalating daily and, while initially centred on the Kruger National Park with its vast (but porous) border with Mozambique, were now coming through from all over the country.

Our news feeds were buzzing with reports of attacks from as far afield as Limpopo, the West Coast and the Eastern Cape in South Africa. A lack of political will, plenty of unscrupulous businessmen, and the promise of untold riches were fast ensuring that nowhere was safe for our dwindling rhino population.

It didn’t take long for news of our entry to break and the good people at Prosano Medical Scheme and Altech Netstar in South Africa were the first to answer our appeal for assistance. As luck would have it I own an old, (but perfectly serviceable) Land Rover Discovery, which was languishing in a garage down at our farm. The old girl is in perfect nick and up for any challenge.

To be fair, our intentions are not purely altruistic.

I have long dreamed of an adventure just like this. We are travelling through Namibia, Zambia, Zimbabwe, Malawi and Mozambique. The Put Foot organisers have given us check point co-ordinates in each country, with a cut-off date for each leg of the journey. How we get there is up to us, but get there we must. Because when we do, apparently we’re in for a party under African skies like no other we’ve experienced. All the Put Foot entrants, and there are 60 of us, are raising funds for social upliftment and Project Rhino. We’re also likely to swim naked in Lake Malawi with the flat dogs*. And try our hand at tiger fishing in Lake Kariba. I’m putting together a cookbook of our adventures showcasing our adventures and the meals we make using only local ingredients procured from local markets. In countries where ‘fresh chicken’ means we have to

By Andy Mark

catch the bird ourselves, this is likely a highlight for me (but perhaps not Mike or Blake). Mike is bringing his spear gun for a spot of (legal and sustainable) fishing in the Mozambique channel. RISKAFRICA has footed much of the bill for the campaign, and so we are going to introduce ourselves to as many financial services types as we can on our way through the SADC countries.

“Here was a group of adventurers who was having fun travelling through Africa and leaving a trail of community upliftment in its wake.”

How can you get involved? Please visit our blog by following the link on RISKAFRICA.com and then following the instructions on the giveandgain link. Your donation, big or small, will make a difference. Our intrepid marketing director Michael Kaufmann, will attempt to stay stand-bound for 24 hours at South Africa’s Insurance Conference in June. Whether you sponsor Mike for R1, R10 or even R1 000 an hour, every cent goes to the Put Foot Foundation, a charity bent on social upliftment in Africa and saving our rhinos (seriously, no donations will go to our beer fund or spare parts for the Landy).

If you’re keen to follow our progress, click on the link on our blog, courtesy of the good people at Altech Netstar. We’ll be driving a minimum of 7 000 kilometres in just 17 days, through some of the most beautiful parts of sub-Saharan Africa.

* flat dogs is a colloquialism for crocodiles among travellers in Africa.

Andy’s old lady was transformed at the hands of the talented folk at Rocket Signs and Graphics in Cape Town, South Africa, who perfectly executed the design from ace COSA Media designer Dries van der Westhuizen. As the matt-black wrap went on, their team pointed and yelled in glee, “Mad Max!” and so the old duck inherited the undignified moniker from the 80s cult Mel Gibson movies of the same name. She might be old, and look somewhat uncomfortable in her tight black wrap, but Max does have a thoroughbred pedigree; she is powered by a 3.9 litre V8 that Land Rover used from the French spec Buick back in the day. She has high lift suspension; long range fuel tanks; an ARB bull bar complete with WARN winch; a duel battery system powering a built-in fridge and a 2000-watt inverter giving the guys the ability to set up a mobile office wherever they are. And just in case the boys are caught on the road at night (never recommended in Africa), she is also fitted with four spots and a 26 000-Volt HID lighting system. No wonder Max leapt at the chance for one last African adventure with the boys.

• Insurance in Kenya

A GROWING INDUSTRY

KENYA’S INSURANCE INDUSTRY

I

n recent years, Kenya has been associated with political instability, terrorism, post-election violence, financial crises and natural disasters such as floods and drought. The insurance sector has weathered these storms and managed to secure an important place in Kenya’s economy. That is not to say that there are not challenges. A report

by Business Monitor International (BMI) in the third quarter of 2011, stated that the Kenyan insurance market is fragmented and dominated by local players with few international companies operating in the space.

There are currently 45 insurance companies registered under the Insurance Act, according to the Commissioner of Insurance in Kenya, which publishes a list of registered insurers on the website of the Insurance Regulatory Authority (IRA). A report in the Business Daily in September 2011 states that Kenya has 163 licensed insurance brokers, 23 medical insurance providers and 4 223 insurance agents.

The two major South African insurers operating in the Kenyan sector are Metropolitan Life which has a subsidiary there, and Sanlam, which has a subsidiary in African Insurance as well as strategic relationship with Pan Africa Insurance in the region. Apart from that, international companies such as Chartis also have operations in the East African country as do players from Britain, America and India. Pan Africa is the largest player in the life sector in Kenya, but enjoys competition from another South African company, Old Mutual, whose life operations are among the 10 largest.

The Kenyan insurance industry is a highly developed and sophisticated contributor to the

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rise in premiums in the non-life sector to KSh 200 billion (N$19.6 billion) by 2015.

“As in many parts of Africa, lack of knowledge about the importance of insurance has hampered growth of the industry and is highlighted as one of the key challenges for the market by all major players and stakeholders.”

Kenyan economy. According to the Association of Kenyan Insurers (AKI) annual report of 2010, the insurance industry recorded gross written premium of KSh 79.1 billion (N$7.8 billion) compared to KSh 64.47 billion (N$6.3 billion) in 2009, representing an increase of 22.7 per cent. “Gross earned premium increased by 17.7 per cent to stand at KSh 63.44 billion (N$6.2 billion) in 2010 compared to KSh 53.92 billion (N$5.3 billion) in 2009. The industry’s annual performance therefore exceeded the overall economic growth of 5.6 per cent recorded in 2010,” it states. Despite this, insurance penetration is relatively low, estimated at three per cent, in comparison to South Africa’s almost 15 per cent penetration for the same time period. In 2012, BMI placed non-life insurance penetration to have risen to around two per cent of GDP. BMI is predicting that total life premiums will exceed KSh 65 million (N$6.4 million) by 2016 and AKI’s strategic plan has set a target of a

The AKI’s strategic plan sets out priorities for the industry and advocates a number of interventions including product simplification and innovation; activities to promote the image of the insurance sector; customer education; modernisation of the Insurance Act; further market research; and improvement in the processes and systems of member companies. As of December 2011, BMI forecasts for non-life premiums of around KSh112 billion (N$11 million) by 2015. Total industry growth stood at 16 per cent per annum in December 2011, according to the AKI. As in many parts of Africa, lack of knowledge about the importance of insurance has hampered growth of the industry and is highlighted as one of the key challenges for the market by all major players and stakeholders. The BMI report also emphasised the pricing challenge as a hindrance, with many players trying to address the issue through the development of micro-insurance products at affordable prices for the Kenyan market.

The industry has also faced negative perceptions as a result of rogue practitioners who have damaged the trust that Kenyans have in the insurance sector.

Through careful interventions and targeted moves to rebuild their image, the sector has been successful in overcoming these perceptions. As the AKI states, “Efforts made by the majority of insurance industry operators to embolden the Association of Kenya Insurers (AKI) and the Association of Insurance Brokers in Kenya (AIBK) are steadily paying off with more consumers angling to take-up the services.

Practitioners in the industry are also enhancing the quality of their products and services as well as the market penetration strategies.”

• Put Foot

Insurance companies registered under the Insurance Act.

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“We think this is a reflection of the innovativeness of many of Kenya’s indigenous non-life insurers, most of which are small organisations by most standards. The insurers understand the needs of the clients and are responding accordingly.”

New products are redefining the industry landscape, such as the introduction of agricultural risk products that cover farmers against the impact of natural disaster, and shari’ah-compliant insurance products (takaful). The report also highlights the innovation in terms of the development of facilities to pay premiums via mobile phones.

Quick to respond to the needs of the community, insurers have introduced terror and political risk insurance cover, with the African Trade Industry Agency (ATIA) providing backing of KSh 30 billion (N$2.9 million) to each of the three insurers operating in this space.

This innovative approach has been lauded by entities such as BMI, which states in its 2012 report, “We think this is a reflection of the innovativeness of many of Kenya’s indigenous non-life insurers, most of which are small organisations by most standards. The insurers understand the needs of the clients and are responding accordingly.”

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Kenya’s regulatory environment is well developed with the Insurance Regulatory Authority having been established under the Insurance Act (Amendment) 2006 to “regulate, supervise and develop the insurance industry”. The IRA is dedicated to fair and integrity-filled regulation and supervision that “enables industry players to be innovative and entrepreneurial. Bearing in mind industry differences in terms of size, extent and complexity, necessitating changes in operating and investment decisions helps cut down on compliance costs. Since in the long run, this has impacted on productivity and growth of the insurance sector, the authority deploys significant resources in monitoring market behaviours, compliance and solvency issues”.

The IRA is responsible for limiting ownership of a single individual shareholder to 25 per cent and increasing the minimum capital requirement from the KSh 50 million (N$4.9 million) to KSh 150 million (N$14.8 million) for life insurers.

Late in 2011, the government announced that the Kenya Police Anti-Fraud Insurance Unit had completed training and had joined the four other police anti-fraud units focusing on Kenya’s financial services sector. The unit is part of the government’s plan to reduce incidents of fraud. According to the AKI, up to 40 per cent of all insurance claims paid out in Kenya are fraudulent. At the time, Insurance Regulatory Authority (IRA) CEO, Sammy Makove, voiced his support for the initiative and announced that the IRA will increase its budget for training police officers in 2012 on insurance and fraud detection.

Overall, the Kenyan insurance landscape is a complex one, with myriad challenges and an equal number of opportunities. Its more transparent reporting of industry information, together with its long history of investment from international companies, makes it a worthwhile possibility for insurers wanting to extend their African operations.

PREtirement Plan. Realise. Enjoy.

It’s easier than you think to make a difference to your future, and it’s the small steps you take today that will help build a great retirement tomorrow.

PREtirement, a fresh approach to retiring well.

SMS PRE to 081 143 2469 or contact your broker or financial adviser | Old Mutual (061) 299 3999