RiskSA April 2014

RISKSA Magazine

Most awarded business M AGA ZINE OF 2013

READ US FIRST APRIL 2014 9 771812 596005

04014

issn 1812-5964 • RSA R45.00 (incl vat) ISSUE

138

ELECTIONS 2014 - eCONOMIC POLICY

budget 2014 - HIGHLIGHTS

29154_Agriculture_Broker Focus Ad_275x210.indd 1

2014/03/07 4:38 PM

/07 4:38 PM

Subscribe today

Publisher & editor Andy Mark Production editor Nicky Mark Copy editor Margy Beves-Gibson Feature writers Anton Pretorius Christy van der Merwe Dominic Uys Laura Owings Neesa Moodley-Isaacs Sarah Bassett

MOST AWARDED BUSINESS M AGA ZINE OF 2013

READ US FIRST

R490 for12 months

Art director Herman Dorfling

9 771812 596005

02014

Design and layout Mariska le Roux

Editorial enquiries PO Box 60320, Table View, 7439 Tel: 021 555 3577 Fax: 086 618 3906 E-mail: nicky@comms.co.za Website: www.risksa.com

Advertising and sales Tel: 021 555 3577 Michael Kaufmann | michaelk@comms.co.za Blake Dyason | blake@comms.co.za Riccardo Raciti | riccardo@comms.co.za Dale Gardner| dale@comms.co.za

Subscriptions

ELECTIONS 2014 - ECONOMIC POLICY

BUDGET 2014 - HIGHLIGHTS

Visit www.risksa.com Alternatively send this completed form together with proof of payment to:

COSA Communications (Pty) Ltd RISKSA Subscription Department PO Box 60320, Table View, 7439 or fax to 086 6183906

subscriptions@comms.co.za

For any queries, call us on 021 555 3577 or e-mail: subscriptions@comms.co.za.

RISKSA Magazine is published by

VAT and postage included

|

standard postage FREE to RSA addresses only

company: 2012 2013

Ground floor, Manhattan Tower Esplanade Road, Century City, 7441

VAT no: title: initial: surname:

Copyright RISKSA (Pty) Ltd 2014. 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 RiskSa (Pty) Ltd. The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or pro-ducts or the reliance of any information contained in this publication.

postal address: code: tel: fax: e-mail: signature: gift subscription

yes

no

contents APRIL 2014

THE

20

HIG HLI TS

GH

10

2014: Elections policy c E c o n o mi

Budget 2014: All you need to know

Consensus from the commentators canvassed by RISKSA is that Finance Minister Pravin Gordhan’s 2014/15 Budget was a safe bet, and precisely what was to be expected in an election year, when economic and social stability are required.

ational Africa’s n th u o S up to creased The build y, with in a M 7 n o iated elections nd assoc activity a on n ig a le p ce ‘e cti cam can indu n o g, ti c k a c t politi in protes id all the m a t rties u a b p rious fatigue’, of the va y c li s to o p im ic KSA a econom ned. RIS li e id rs e n is ofte lection e gh the e u ro th t cu conomic outline e d n a g in d in presente highlights li o tical the top p . some of nifestos ction ma le e ’ s ie rt pa

30 |

short term

ST

30 / The taxman cometh…

36 / Ruling increases risk of D&O liability claims 54 / Asian tigers eye Africa 58 / Reinsurance and the year ahead

FOLLOW US ON TWITTER @RISKSA Like us on FACEBOOK / RISKSA

62 |

ML

medical

62 / NHI marches on 66 / Medical schemes registrar under investigation

70 |

LT

long term

70 / South Africa’s investor confidence challenge

76 / Provident funds to be phased out

82 | managing risk

MR

82 / The demise of offshore tax havens 86 / Cyber-attacks and online business

90 |

career

114 |

CR

90 / Locking up the filing cabinets

120 / Into Africa – Tracks4Africa map set made for the intrepid explorer

100 / Giving great presentations 102 / Social media skills for the professional

110 / Events

AS

114 / Vintage investment

96 / Travel insurance sees opportunities

104 / News

ASSETS

124 |

travel

TL

124 / The RISKSA guide to business travel in Africa (Part 3) 128 / Best airline apps

Renasa’s highly personal service is underpinned by advanced claims and underwriting technology. We give our brokers state of the art tools that provide a sustainable competitive advantage without inter4

Scuba 275x210.indd 1

2013/06/04 8:08 PM

Scuba 275x

6/04 8:08 PM

fering with their existing processes and systems, or compromising their independence. Want the best of both worlds? Contact Renasa today on 0860-RENASA or visit www.renasa.co.za.

5

Scuba 275x210.indd 2

2013/06/04 8:08 PM

Dearreader I think the glaring difference between South Africa’s power cuts and those that plague many developed countries around the world is that those events are caused by acts of God. In South Africa, our rolling mass blackouts are caused by incompetence, skullduggery and avarice.

The debacle that surrounds the Medupi power station delays continues to grow with the Mail and Guardian reporting recently that Eskom has already been paying for coal it can’t use at Medupi. This because of contentious delays in the construction which have resulted in (this far only mind) a staggering R2 billion in penalties which Eskom has paid to coal supplier Exxaro.

Risk managers may need to spend a lot more time looking at the knock-on effects of an inconsistent power supply grid which could extend far beyond the losses incurred due to IT meltdown, lost production or security equipment being rendered useless. As if insurers didn’t have enough to contend with.

The elections are here and so we thought we’d take a peek under the bonnet to see what impact these might have on our businesses. We also unpack the budget and filled our pages with some of the best financial journalism in our niche. We’re keen to hear your views; please drop me a line with anything financial services related at editor@comms.co.za.

Enjoy the read.

8

45648-6574

JHB 45648

Together we can grab Worry by the scruff of its neck, poke it in the eye and give it a good old wedgie.

Oh, and we can also sell insurance together.

We’re super proud of the lasting partnerships we’re building with each and every one of you, our brokers. When we work with people like you, forehead veins don’t throb, swear words aren’t hurled, and everyone’s lives become a lot less worrisome. personal

• commercial • corporate • investments

45648-65741 Wedgie print ad in Money Marketing.indd 1

Hollard Short-term, Hollard Life and Hollard Investments are Authorised Financial Services Providers.

2014/03/06 2:30 PM

Electi o 2014

ECONOMIC POLICY Christy van der Merwe

10 8 4

i ons 11 5

12 8 6

National Assembly representation currently:

66% 16,7% 7,5% 4,5%

other

5,2%

The build up to South Africa’s national elections on 7 May, with increased campaign activity and associated protest action can induce ‘election fatigue’, but amid all the politicking, economic policy of the various parties is often sidelined. RISKSA aims to cut through the electioneering and outline economic highlights presented in some of the top political parties’ election manifestos.

T

he 2014 elections will allow South Africans to vote for a new National Assembly, which is the lower house of the Parliament in Cape Town, consisting of 400 members, who are elected using party proportional representation.

The current allocation of seats in Parliament sees the African National Congress (ANC) with 264 seats, the Democratic Alliance (DA) with 67 seats, Congress of the People (COPE) with 30 seats, the Inkatha Freedom Party (IFP) with 18 seats, and other smaller parties including the African Democratic Party, African Peoples Convention, Azanian People’s Organisation, Freedom Front +, Minority Front, Pan Africanist Congress, United Christian Democratic Party, and the United Democratic Movement holding the remaining 21 seats.

Speaking at the recent Momentum Risk Summit 2014, political analyst Max du Preez warns that the political temperature in South Africa is higher than it has ever been since 1994. “There is a very angry political rhetoric that dominates the agenda,” he adds. South Africa experienced almost 3 000 protests in 90 days between November 2013 and February 2014, and Du Preez urges us to look at the root of these conflicts.

“They are often rooted in disagreements about tenders and jobs, the rifts between national and local government and political opposition,” he says. South Africa is experiencing a rise in civic activism, and leaders must realise that governance is not a one-way street.

“It is fair to say that the government has been spectacularly useless at delivering services, but one cannot ignore that an incredible amount of rapid urbanisation has taken place since 1994. There are an additional 34 million people living in Gauteng, largely from rural areas – it is tough to stay ahead of that curve.” He remains positive on the outlook for the country. “Stability is a rare and most precious commodity these days,” Du Preez notes, and adds that South Africa still has a stable foundation. “The judicial system has had its challenges, but it is still internationally regarded as an independent, credible and functional system.

South Africa has the most advanced banking system in the developing world, and a fundamentally sound economy, with a vibrant business class. The black middle class now numbers over five million, with a spending power of over R400 million,” he explains.

13 7

Focusing on finances, economist Azar Jammine says that elections are only a problem if they force changes in the economy, because this could serve as a constraint to growth going forward.

“The major challenges we face are poverty, inequality, lack of skills - particularly in maths and science - and corruption. We need to address the huge imbalances in our country.

The National Development Plan aims to tackle these,” states Jammine.

While protests and capacity constraints hurt the South African economy, Jammine points out that the biggest impact on the South African economy is the global economy.

“Global recovery is expected from 2014, but it will be gradual. South Africa will underperform the global economy, which is concerning”.

South Africa’s trade deficit is a concern, and mining has not performed well.

While growth in retail sales has slowed, it is boosted by foreign tourism, and the financial services sector has proven to be one of the fastest-growing sectors in South Africa. “Don’t get carried away with undue pessimism – things have slowed, but this is not disastrous. The business sector is not about to collapse,” says Jammine.

14 8

Looking ahead “There is bound to be a mega restructure of South African political parties between 2014 and 2019,” affirms Du Preez. Furthermore, he comments that there are whispers among the ANC to get rid of Zuma in the next 18 months.

How this will be done remains to be seen, and questions abound as to whether he will be allowed a soft, graceful exit if he leaves before his term is up.

“Zuma has family and health problems. The stench of Guptagate is still in the air, and Nkandla has hurt him more than ever. He stands a high chance of conviction on the spy tapes issue,” explains Du Preez.

He suggests that after the 7 May elections, ANC deputy president Cyril Ramaphosa will replace Kgalema Motlanthe as deputy president of South Africa. But whether he would take over as president is unclear. There are ANC members who feel that the presidency should stay within KwaZulu-Natal. In that case, names thrown into the ring include Nkosazana Dlamini-Zuma, who is currently serving as chairperson of the African Union; Dr Zweli Mkhize, who is currently the ANC treasurer general; and Baleka Mbete, who is presently the ANC national chairperson.

“Don’t underestimate Ramaphosa. He has gravitas and integrity. He did not return to politics after 16 years to get caught up in Zuma’s muck. He most certainly has ambitions to be the president of South Africa,” reiterates Du Preez. “A new president of the ANC would mean an overhaul, where we could see a major popular revival of the ANC. Their currency is not lost, and there is a new balance to be found.” Du Preez believes that there is a good chance that after the elections, South Africa will enter into a new era of hope. More generally, he speculates that the Rand will remain weak, and growth will stay below three per cent. Inequality will remain the major problem in South Africa, which cannot be solved with social grants.

“Business will have to bring leadership and innovation to the fore to assist the government in tackling inequality. Business will find a willing partner in Ramaphosa,” he explains.

Over the following pages, RISKSA gives the rundown of the economic policies of the three majority parties represented in parliament, which had launched election manifestos at the time of going to print. We also focus on a couple of newcomers to the elections, which have been causing a stir.

ON THE

LOOSE! ANC The current ruling party, the African National Congress (ANC), led by President Jacob Zuma, launched its election manifesto, a 52page document, on 11 January in Nelspruit.

The party’s focus on education, health, rural development, land reform and food security, the creation of jobs, sustainable livelihoods, and the fight against crime and corruption was reiterated.

The ANC has a significant focus on industrialisation and infrastructure expansion.

In the next five years, the ANC says it will promote local procurement to increase domestic production; deploy incentives and secure industrial financing for productive economic sectors; beneficiate mineral wealth and transform the mining sector; work for regional industrialisation and integration; invest in infrastructure that unlocks economic opportunities and creates jobs; produce more, cleaner energy and promote energy self-sufficiency; better freight and passenger transport; rapidly expand access to and use of ICT infrastructure; and expand access to water.

Key pillars are to provide extensive support to small business and co-operatives; strengthen broad-based black economic empowerment; promote equality and decent work; invest in science and technology; expand public works programmes for employment creation; ensure more empowered, educated and employed youth; and make the financial sector serve the economy and the people.

Taking a closer look at the tenet concerning

the financial sector, the ANC says it requires macroeconomic policies that address unemployment, poverty and inequality; promote investment in the productive economy; address poor lending practices and excessive charges in the financial sector; and make the financial sector more inclusive and accessible.

The ANC states that in the next five years, it will pursue macroeconomic policy that contributes to addressing unemployment, poverty and inequality, and back accelerated growth and long-term economic stability. This will spur industrial development and job creation, while a well-managed government budget provides a foundation for a competitive exchange rate, and stable prices.

The ANC outlines its ambitions in the financial sector in the next five years: • Banks will be made safer through tougher regulation, and will be encouraged to do more to lend to businesses, (especially new businesses) in the context of effective regulation. The ANC also supports lending on easier terms through government agencies so that investment in the productive economy is properly financed.

• Engage with the financial sector to discuss investment patterns in line with the 2003 Growth and Development Summit agreements. Introduce measures to make more affordable credit available for productive investment.

• Increased investment from direct finance institutions in in the productive sectors

15 9 11509 ALTRISK SMOKERS RSA.indd 1

2014/03/11 9:02 AM

of the economy must be enhanced and the possibility of concessional finance investigated. Reinvestment in the productive sectors of the domestic economy will be encouraged.

• Measures will be taken to combat erosion of the tax base. Practices like profit-shifting and transfer pricing will be dealt with.

• Poor lending practices and excessive charges and fees in the financial sector will be addressed. Measures to reduce high bank fees and charges on consumers and businesses will also continue.

• Measures will be taken to curb lending practices that lead to over-indebtedness and associated abuses. In particular, extensive abuse of garnishee orders will be stopped.

• The Postbank will lead the expansion of access to banking services to people throughout the country.

• Increased support for the formation of cooperative banks that are democratically owned and controlled by their members will be forthcoming.

In the last five years, the ANC says that the number of South African adults with access to banking services increased from 60 per cent in 2009, to 75 per cent in 2013, and an amnesty for five million people with adverse credit records was initiated.

DA The Democratic Alliance (DA), led by Helen Zille, launched its election manifesto, a 67page document, on 23 February in Polokwane.

The DA has a two-prong focus on change and job creation, and outlines the following priorities relating to the economy: • Save R30 billion a year by cutting corruption and firing corrupt officials.

• Work with the private sector to provide quality, affordable healthcare for all.

• Dedicate an extra R10 billion to speed up land reform and provide training and support for emerging farmers.

• Sustain an economy that grows at eight per cent to create six million real jobs.

• Increase the NSFAS budget to R16 billion so that no student is denied further education because they cannot afford it.

• Create one million internships to give work experience to young job seekers.

• Provide seven million expanded public works programme opportunities to alleviate poverty and provide a step-up for job seekers.

• Make South Africa a nation of entrepreneurs by cutting red tape and providing more support and training for small business.

• Improve black economic empowerment so

ParTnershIP There are eLeMenTs OF rIsK In everyThInG Protecting your client’s business against risk takes strategic insight. It takes innovation and tailored solutions. It takes the pioneering approach of cell captive insurance. Guardrisk offers cover for corporates, small enterprises and municipalities, as well as cover for a variety of industries including marine, construction, motor and many more. The option of a third party insurance offering lets clients sell insurance cover to their customers, boosting their business’ earning potential and building their brand. Tel: +27 11 669 1000 • www.guardrisk.com

guardrisk

Tailored risk soluTions

An Authorised Financial Services Provider

16 10 8

A member of the Alexander Forbes Group

that it rewards companies that invest in their workers and create jobs.

• Break up inefficient state monopolies, and distribute shares to ordinary citizens, to increase competition and bring down prices.

• Invest at least 10 per cent of GDP in the roads, ports, railways, airways, water and communication infrastructure that the economy needs to grow.

To grow the economy and create jobs, the DA will focus on providing leadership on the economy; managing government money better; providing direct incentives for job creation; ensure that labour laws support job creation; support small businesses; support redress; create an enabling environment for growth through investment in economic infrastructure; invest in knowledge; increasing investment and savings; and boosting trade within Africa.

The DA highlights strategic labour-intensive sectors like agriculture, fisheries, mining and tourism, which will garner targeted support, and appropriate stimulus for new growth industries in the knowledge economy, ICT sector and green economy.

Small businesses also get special attention, and the DA states that it will establish opportunity centres where small businesses can access support and conduct all their business with

IFP The Inkatha Freedom Party (IFP) led by Mangosuthu Buthelezi, launched its election manifesto on 2 March at King Zwelethini stadium, in Durban. In his speech, Buthelezi led with the premise that the current government “needs to be fired” but acknowledges that while support for the ruling party will dramatically drop in 2014, the government is unlikely to change hands.

“Some political newcomers promise to increase and even double social grants. But they can’t tell you where the money will come from. They offer no plan to grow the economy or to shrink the budget deficit. But they want you to believe

government; roll out small business incubators where small businesses can share resources and have a supportive environment; give small business owners an opportunity card to improve awareness of, and access to free or discounted training, business support services and business advisory services (such as insurance and accounting); reduce the red tape making it hard to establish a business in South Africa, with focus on streamlined small business regulatory systems for registration, labour legislation and empowerment regulations.

Continuing assistance to small business, the DA says that it will make it easier for small businesses to win government contracts through an e-procurement system, a community supplier database for small tender opportunities, and by breaking tenders into smaller contracts that can be won and completed by small companies.

The party will also establish a National Venture Capital Fund, and foster the role of the informal sector, as well as investing in awareness programmes on the support available to small business.

SO HOLD

YOUR BREATH

Among other initiatives, the DA maintains that it will keep corporate and individual tax rates as low as is financially viable, and explore the privatisation of uncompetitive State- owned enterprises.

We’ll be unmasking the killer at our roadshow.

that extra money will magically materialise if they assume the reins. Conveniently, they won’t have to prove their promises,” he added.

The IFP does not have its election manifesto available on its website, but notes that the party’s mission is to create conditions that attract and develop skills and enable current and new businesses to drive South Africa forward. To grow the economy and create jobs, the IFP is determined to: • Balance job creation and job protection by revising the labour laws to allow more flexibility.

• Take politics out of the economy.

• Focus on developing skills suitable for today’s job market by funding training programmes, apprenticeships and learnerships.

• Create tax incentives and low tax

17 11 11509 ALTRISK SMOKERS RSA.indd 2

2014/03/11 9:02 AM

investment zones in rural areas to stimulate growth, jobs and development.

• Support sustainable SMMEs and reward them for employing and training women, youth and those who are differently abled.

• Partner with the mining and related sectors to refine raw materials in South Africa and build our processing and manufacturing industries.

• Use idle farms and financial incentives to encourage new and current farmers to grow cash crops for export.

Land use and land reform also receives a high profile, and the party says it will look for solutions in this regard through commissioning a full-scale land audit, and use these findings to redistribute State land and support community projects to reach commercialisation. Further in this regard: • White commercial farmers will be recognised as citizens with rights and obligations to their land, and farm attacks will be urgently addressed.

• Farm workers and tenants to be protected from eviction.

• Limit taxes that minimise farm profitability, such as those required by the Property Rates Act. • Encourage partnerships and mentorships with experienced farmers to develop supporting industries such as transport services.

• Ensure that commercially productive farms will not be used for mere resettlement or subsistence farming.

Agang SA Agang SA, led by Mamphela Ramphele, launched its election manifesto on 8 March, in Atteridgeville, Gauteng. The political party’s website outlines how it feels the South African economy is lagging after 20 years of poor economic leadership, and that the 25 per cent unemployment rate is an outrage, fuelling dependency on the state.

The party draws attention to the fact that the collective bargaining system in South Africa is in crisis, skills shortages are crippling, decaying infrastructure hurts economic growth, high barriers prevent people from opening their own businesses, and BEE has failed its purpose and enriches only a tiny political elite.

To address these issues, Agang outlines its plan, which starts with making government accountable, having a single economic plan

signed by all ministers, and linking ministers’ salaries to achievements. Other economic interventions and objectives include the following:

• Build infrastructure and create jobs: develop railways, roads and highways, and create incentives in the tender process for training

www. we s t n a t . c o m | C a p e T o w n 086 193 7628 G a u t e n g 012 523 0900 Western National Insurance Company Limited is and authorised financial service provider (Juristic Representative Under FSP9465)

18 12 8

and employing youth.

• Unleash small business: cut red tape and eliminate barriers, relax regulations, and stop the harassment of micro enterprises and informal traders.

• Let business get to work: establish rapid review teams to recommend policy and regulatory changes, and implement skills, equipment and technology support mechanisms to encourage investment.

• Invest in South Africans: by improving education, skills and training and converting some public schools into vocational schools, funding on-the-job training for young people, and ensuring that State-owned enterprises spend a fixed amount of payroll on training and developing South African youth.

• Break down monopolies and cartels: implement tough, competition policies and instruments to break down cartels which raise prices, undermine entrepreneurship and stifle innovation.

• Remove obstacles to boosting employment: by introducing a qualifying period for dismissal protection, which is shorter for lower paid employees, and excluding executives and higher earning employees from ordinary dismissal protection subject to payment of a specified notice or severance package.

• Restore effective collective bargaining: reintroduce two-tier bargaining at industry and plant level, establish industry minimum wage thresholds, while plant level bargaining will be used to set actual wages. Productivity bargaining will be introduced, and interest arbitration (rather than strikes or lock-outs) will be used as the mechanism to resolve deadlocks.

Agang SA has a strong focus on labour market policy, adding that socio-economic development in the country is hampered by the high rate of unemployment, because the national government has proven itself incapable of leading the labour market out of its downward spiral. “Sweeping structural reforms are required to the labour market and its institutions to eliminate obstacles to growing employment, create the jobs needed to alleviate unemployment and ensure adequate protection for vulnerable workers,” reiterates Agang.

Agang also views SMMEs as vital drivers of economic growth and acknowledges an urgent need to grow a vibrant and dynamic SMME sector. To address the challenges facing this sector, such as skills shortages in rural areas, no access to finance and infrastructure, and lack of support, the party says it will upskill small business owners; boost the level of financial support available to SMMEs and entrepreneurs; mentor small business and entrepreneurs; restructure the support environment for SMMEs; and remove red tape.

EFF The Economic Freedom Fighters (EFF) led by commander in chief and president, Julius Malema, launched its 32-page election manifesto, on 22 February in Tembisa. With the slogan: ‘Now is the time’, the EFF reiterates that it is the party’s firm belief and conviction that economic freedom will be attained through implementation of seven cardinal pillars. These are: • Expropriation of South Africa’s land without compensation for equal redistribution and use.

• Nationalisation of mines, banks and other strategic sectors of the economy, without compensation.

• Building State and government capacity, which will lead to the abolition of tenders.

• Free quality education, healthcare, houses and sanitation.

• Massive protected industrial development to create millions of sustainable jobs, including the introduction of minimum wages in order to close the wage gap between the rich and the poor, close the apartheid wage gap and promote rapid career paths for all people in the workplace.

• Massive development of the African economy and advocating for a move from reconciliation to justice on the entire continent.

• Open, accountable, corrupt-free government and society without fear of victimisation by State agencies.

The EFF emphasises that the key component to the realisation of its objectives lies in the political determination, competency, zeal and commitment of a government in power with the necessary capacity to pass legislation, and implement it accurately. The EFF reiterates that the central pillars of the party lie in the following key programmes: • Land expropriation without compensation.

• Nationalisation of mines.

• Nationalisation of private banks and strategic sectors of the economy.

• Creation of a 100 per cent State-owned bank. Retaining strategic control and ownership of State-owned enterprises and giving these a developmental mandate.

• Development of the African economy.

• Building of progressive political, ideological and economic partnerships in the world.

COMING

THIS

MAY to a venue near you.

Altrisk is a division of Hollard Life Assurance, an authorised financial services provider (FSP 17697).

11509 ALTRISK SMOKERS RSA.indd 3

19 13

2014/03/11 9:02 AM

E

TH

Budget IG

HL

G

HI S HT 20 4

2014 Christy van der Merwe

Consensus from the commentators canvassed by RISKSA is that Finance Minister Pravin Gordhan’s 2014/15 Budget was a safe bet, and precisely what was to be expected in an election year, when economic and social stability are required.

21

S 0 HT P 1 LIG TO GH HI

M

inister in the National Treasury, the ever-pragmatic Pravin Gordhan delivered no great surprises, and stuck closely to his expenditure budgets, allowing for a slightly lower budget deficit, than that of the 4.2 per cent he projected in the mid-term Budget in October 2013. The budget deficit for 2014/15 is expected to be four per cent of gross domestic profit (GDP).

This situation, where government spending exceeds revenue generation, means that the government is required to borrow money, which also comes with the burden of paying back interest on those loans. The level of debt is projected to increase, almost to the previous high recorded in the mid-1990s.

1 4 7

Increase in the retirement tax-free lump sum amount from R315 000 to R500 000.

No implementation date for NHI outlined, pilot projects continue.

Income tax relief for individuals in lower income brackets welcomed.

2

Hence why some of the highlights of Gordhan’s most recent Budget were the focused attempts to curb national and provincial government expenditure on travel, catering, consultants and other administrative payments, which he said would decline as a share of spending. There is also a ceiling of R1.03 trillion set on spending in 2014/15, R1.11 trillion in 2015/16 and R1.18 trillion in 2016/17.

Focus on stimulating small business through incentives and tax breaks.

3

5

Income protection policies no longer tax deductible.

6

Continued focus on expenditure on agriculture and infrastructure.

8

No further word on taxation amendments for estates and trusts.

9

Tax preferred savings account legislation to proceed in 2014.

10 22 8 6

“This leaves the government with no room to manoeuvre in the event of any unexpected downturn in the economy. Similar to Trevor Manuel, Minister of Finance from 1996 to 2009, Minister Gordhan will need to stabilise and lower the debt level in time to create fiscal space,” explains Sanlam Investments economist Arthur Kamp.

Proposed reforms to the tax treatment of the risk business of long-term insurers.

Davis tax committee review expected in June, will guide plans to cut red tape, and amend taxation regime for SMEs.

and a large current account deficit, which sees South Africa import more than it produces and exports, the government must tighten policy.

This is exactly what Gordhan aimed to do with this Budget.

While commentators agree that the 2014/15 Budget was relatively uninteresting, and did not cause undue excitement or concern, Mike Schussler, director at economists.co.za, highlights that the Budget, and specifically the gross debt of the government, shows that South Africa is operating in a tough economic environment.

S fo ma cu ll s bu sin es s

The areas where this expenditure takes place, and ensuring that it is best used to stimulate the economy is just as important as where that revenue is generated, through taxes.

Small business focus Small and medium enterprises (SME) received a lot of attention, as it has been made clear that entrepreneurship and small business will be the best way to create jobs and boost the economy.

Edwyn O’Neill, CEO at short-term insurer Zurich South Africa, says that on the SME side, a host of proposals have been put forward to ease the burden, be it regulatory or fiscal, for small businesses, which is a very encouraging signal.

He cautions against focusing on one room in the house where things look good, and neglecting the rest of the house. Schussler maintains that Gordhan should have mentioned economic capacity constraints such as electricity shortages, strikes and their damaging impact on the economy, sending the right signals to stakeholders. He also highlights that clarity on the National Health Insurance (NHI) was sought, and not much was said in that regard.

Ultimately, an economy where the currency has depreciated sharply, against the backdrop of a relatively wide government budget deficit,

The more SMEs that are able to get up and running successfully, the greater their contribution to the economy as they will be creating jobs, and can become a part of the tax pool. And if they grow and function properly, they will also need to cover their risks, so the benefits will flow down and mean opportunities for brokers and insurers, O’Neill explains.

In his expenditure guidance, Minister Gordhan announced that R15.2 billion has been earmarked for the economic competitiveness and support package over three years.

O’Neill adds that one of the highlights for insurers such as Zurich is the anticipated creation of jobs through the National Development Plan, because as more people become employed, they are able to accumulate wealth and require access to financial services and risk cover.

Professor Peter Surtees, director at legal firm Norton Rose Fulbright, also commends the focus on small business in the budget, and the ploughing back of funds into SMEs. Venture capitalists are encouraged by incentives,

A large corporate needs a global insurer to match.

Global Corporate

Telephone No: +27 11 370 9111

•

www.zurich.co.za

Commercial

•

Small and Medium Enterprise

Specialist Lines Travel Insurance

15 Marshall Street, Ferreirasdorp, Johannesburg, 2001

Authorised Financial Services Provider No.17703

10154/Zurich 85x179/chosen v1.indd 1

2014/03/14 2:41 PM

23

al on n rs tio Pe xa ta

Personal taxation Gordhan was pleased to announce personal income tax relief of R9.3 billion. This merely compensates partially for inflation, and most of the relief is provided to taxpayers in the lower income brackets.

The primary rebate for individuals will be increased from R12 080 to R12 726 and the secondary rebate, for those aged 65 and older, from R6 750 to R7 110. A third rebate for those older than 75 has been increased from R2 250 to R2 367. Income tax brackets will be adjusted to offset the effects of bracket creep.

s ng e di mm en ra Sp og pr

Exactly when this correction will take place is not stated, and could depend on how urgently it is required. Surtees notes that the amendment could be backdated to the start of the implementation of business rescue if this is deemed necessary.

Income tax thresholds have been raised from R67 111 to R70 700 for below age 65 and from R104 611 to R110 200 for those aged 65 and older. For those aged 75 and older, the threshold will increase from R117 111 to R123 350.

The Budget notes that support for small, medium and micro enterprises, entrepreneurs and business start-ups is provided through the Small Enterprise Development Agency and the Small Enterprise Finance Agency.

O’Neill says that individuals saw a good balance between some respite in terms of income tax increases, while fuel, road levies and sin taxes increased, as they do every year.

The tax relief was distributed among people who deserved it the most, because they are negatively affected by inflation.

Spending programmes grants are made available to SMEs, the youth employment tax incentive, and the ability to carry PAYE forward, provides a great amount of relief for small businesses.

He notes that the Davis tax committee’s inquiry is due for completion in June, and will guide government’s plans to reduce red tape and replace the current reduced tax-rate regime applicable to SMEs, with an annual refundable tax-compliant rebate.

Surtees highlights an interesting proposed amendment dealing with tax and business rescue, which could also assist SMEs. The Budget states that the Income Tax Act contains uniform rules covering the tax implications of debt reductions or cancellations, as applied to ordinary revenue and capital gains.

In terms of the new Companies Act (2008), creditors can invoke a business rescue plan, allowing a debt to be partially or fully written off.

This reduction or discharge can potentially result in a tax charge – circumventing the purpose of the business rescue concept by increasing the tax liability. Tax relief measures for companies undergoing business rescue and other forms of debt compromise will be considered.

24

When outlining how the budget would be divided, National Treasury shows that over the next three years, it has earmarked R7 billion for subsistence and smallholder farmers; R34.3 billion on school infrastructure; R22.9 billion to upgrade commuter rail services; and R143.8 billion to support municipal infrastructure.

Overall the Budget has left most people in a good position, and feedback from brokers has been fairly neutral, with nothing causing particular excitement or concern. Speaking to RISKSA while on the company’s broker roadshow, O’Neill adds that it has shown that intermediaries need to be mindful of clients’ ability to remain insured.

“The R7 billion boost for subsistence and smallholder farms is welcomed by the shortterm insurance industry, as this allows product providers the ability to extend support to protect against risks experienced in the agricultural sector. The short-term insurance industry is already working with government regarding catastrophes and how produce farmers can be protected against these,” says O’Neill.

The importance of insurance must be emphasised and maintaining the right levels of cover is important, particularly motor cover. The risks that clients leave themselves open to if they are underinsured carry many unfortunate consequences.

A severe drought could be devastating for a farmer, particularly a subsistence farmer, and often government has to step in and support these farmers. This is critical for food security and stability. Government and industry are working together to come up with long- term solutions.

The spend on infrastructure is also viewed as positive, as this will allow for opportunities in the commercial and engineering space downstream for companies like Zurich, and this is in line with the company’s strategy.

R di etir sa sab em vin il en g ity t, & Retirement, disability and saving Billed as the most interesting thing to come out of the Budget this year, Gordhan announced that effective 1 March 2014, there would be an increase lump sum retirement brackets of 10 per cent.

The single biggest adjustment is the increase in the retirement or death tax table of the tax-free amount from R315 000 to R500 000. The taxfree amount in the withdrawal tax table has also been increased from R22 500 to R25 000.

The large increase in the bottom bracket of the retirement or death tax table is to avoid instances where low income workers may be required to pay tax on their lump sum, even though they did not benefit from a deduction

due to their taxable income falling below the tax-free threshold.

Government also made it clear that it intends to move towards a mandatory system for retirement provision for all employed workers, even those who do not have an employer sponsored plan. A document describing the retirement reform changes up to this point and setting out anticipated future reforms is expected to be released by government imminently.

“While the current environment allows for flexibility, it also results in complexity and cost.

Government seeks to introduce consistency in terms of tax treatment, regardless of the

retirement funding vehicle used, as well as equity in terms of tax deductions so that there aren’t disproportionate benefits to any categories. The intended simplification should achieve efficiencies and costeffectiveness over time,” explains Rowan Burger, head of alternative products at Momentum Employee Benefits.

MMI expects that the tax regime for contributions will be implemented on 1 March 2015 (T-day). Should the Nedlac consultations proceed smoothly, there is a reasonable chance the preservation provisions will be implemented at this time, too. “MMI is working hard to help achieve this goal in the interests of securing as many South Africans as possible a comfortable retirement,” says Burger.

He further outlines actions to consider before March 2015, and these include: • Trustees and employers who offer hybrid arrangements (that is, both pension and provident funds) need to strategise around optimal configuration.

• Tools or information that will enable members to understand the impact on their savings amounts, retirement projections, risk premiums and net take home pay will be important.

• Changes to retirement fund rules may be required either as a result of the alignment, or the changes to contributions. Where members exceed the R350 000 cap, choice may need to be given regarding alternative options.

Tailored solutions that make business sense.

Commercial

Global Corporate

Telephone No: +27 11 370 9111

•

www.zurich.co.za

•

Small and Medium Enterprise

Specialist Lines Travel Insurance

15 Marshall Street, Ferreirasdorp, Johannesburg, 2001

Authorised Financial Services Provider No.17703

10154/Zurich 85x179/chosen v1.indd 2

2014/03/14 2:41 PM

25

the cost to enjoy increased cover remains to be seen.

e s nc ge ra n su ha Inax c t

“Reducing cover should, however, be approached carefully as there has long been debate around whether the commonplace income disability benefit of 75 per cent of pensionable salary (which can sometimes equate to only around 40 per cent of total cost to company depending on how salary packages are structured) is sufficient,” Burger adds.

On saving, Treasury says that agreement has been reached with the Association of Savings and Investment of South Africa (ASISA) on a way forward to reduce the level of charges for retirement savings products. Draft regulatory reforms in this regard will be published shortly.

M

INS

Insurance tax changes Sanlam also notes that the policy approach for the timing of accrual of retirement fund benefits will be reviewed to provide certainty and ease practical application. It appears that Gordhan seeks to review the requirement that taxpayers must annuitise when they retire, even if they embark on a second career and do not need a pension at that time.

Speaking at a Financial Planning Institute (FPI) of Southern Africa’s post-Budget breakfast, on aspects impacting long-term financial planning, Ronald King, director at PSG Konsult noted that income protection policies are no longer tax deductible.

On disability, Burger notes that while not mentioned in the Budget Speech, it is

important for employers, intermediaries and trustees to be aware of the tax changes affecting disability insurance and retirement funding set to be introduced in 2015.

The intention is to treat both capital and income disability insurance in the same manner as life insurance. In essence, where an employer pays premiums on behalf of employees, it’s deductible for the employer but taxed as a fringe benefit in the hands of the employees.

The benefit is then paid out tax-free, which effectively means there is an increased cost and benefit. Whether this will result in employees adjusting their cover downwards to stay in a breakeven position, or absorbing

One of the main tax proposals in the Budget was a reform to tax treatment of the risk business of long-term insurers.

Treasury explains that long-term insurers issue both risk and investment policies. Currently, all activities of long-term insurers are taxed in one of four funds – the individual policyholder fund, the company policyholder fund, the untaxed policyholder fund and the corporate fund. Where profits are taxed in one of the two taxable policyholder funds, the insurer is taxed as a trustee of the policyholders, since profits attributable to policies will in future be paid to the policyholders “tax free”.

Government proposes that profits from the risk business of an insurer be taxed in the corporate fund similar to the manner in which

EVE

ENT

Small or Medium, we’ve got you covered.

Commercial

Global Corporate

Telephone No: +27 11 370 9111

•

www.zurich.co.za

•

Small and Medium Enterprise

Specialist Lines Travel Insurance

15 Marshall Street, Ferreirasdorp, Johannesburg, 2001

Authorised Financial Services Provider No.17703

10154/Zurich 85x179/chosen v1.indd 3

26 10 8

2014/03/14 2:41 PM

NON-STANDARD LIFE INSURANCE

RISK FINANCE

AllLife

Centriq

SOLUTIONS

MOTOR FLEET

INSURANCE Paladin

CAR HIRE INSURANCE BrokerserV

Manwood

EMPLOYEE AND RISK BENEFITS

HCV

INSURANCE IUM

Blue Diamond

AVIATION

MARINE

INSURANCE

INSURANCE

Azriel Aero Aviation

Nautical

EVENTS AND ENTERTAINMENT

Xelus, Total Risk Administrators

KEU

EXCESS BUYDOWN

INSURANCE Beyonda Group

MOTOR STAND ALONE SAU

Ad Ultimum, IUM, Paladin, Paradigm

WHY LOOK ANYWHERE ELSE? We’re all different. We think, work and live differently. At Centriq, we see insurance in the same way – differently. It’s this way of looking at you and your clients that makes us a partner you can trust and turn to, whatever your clients’ insurance needs, from assets to liabilities to people. Over the years, we’ve built relationships with leading UMA business partners in our industry that position us to offer each insurance broker and their clients unique solutions provided by dedicated and competent people – that’s the Centriq difference.

• Measures to address acid mine drainage • Adjustment of the proposed carbon tax and its alignment with desired emission-reduction outcomes identified by the Department of Environmental Affairs.

TAX REVENUE 2014/15 Where the tax revenue collected by government in 2014/15 is expected to come from

Defence

45.2

47.9

50.

Economic infrastructure

84.7

92.8

101.

Economic services

47.9

50.0

52.

Education & related functions

240.5

253.8

274.

Employment & social security

47.9

57.3

64.

General public services

62.6

65.1

68.

Health

134.3

145.7

155.

Local gov, housing & community amenities

127.2

142.9

155.

Public order and safety

109.3

115.7

122.

17.5

18.7

20.

130.9

144.5

154.

1 048.0

1 134.4

1 219.

101.3

114.9

126.

–

3.0

6.

1 252.3

1 351.

B br udg ea e kd t ow n

Personal income tax 33.8%

Fuel levies 4.8%

estimate

Other 6.3%

Science and technology & environmental affairs

Customs & excise duties 8.2%

Social protection Allocated expenditure Debt-service costs

Corporate income tax 20%

VAT 26.9% Source: National Treasury.

short-term insurers are taxed. This will ensure that the corporate fund, rather than one of Final 2014 Budget Highlights Card_PRINT.indd 1 the policyholder funds, will be taxed on the risk policy business and profits. Government will also review the fairness of the taxation of the individual policyholder fund, where a 30 per cent tax rate is applied, irrespective of the income level of policyholders.

there are many unanswered questions, for example, how will reserving be dealt with?

Will it be new business only? And so on. It is largely felt that long-term insurance works differently from short-term insurance, so it is insufficient to state that in future the two will be treated in the same way. On the other hand it could be viewed as an anomaly getting rectified, but it could have implications for commission structures.

It is unclear what the implications will be, as

Budget breakdown

Contingency reserve

Despite being viewed as a boring budget, the 2014/5 outline of the economy does provide Consolidated expenditure 1 149.3 a good macroeconomic snapshot of South Africa, and provides detail on a host of issues relevant to the financial services industry. The even-tempered Budget can be downloaded in its entirety from the National Treasury website (www.treasury.gov.za), should intermediaries want to familiarise themselves with the finer details that could affect their operations.

The overall message has emphasised that South Africans are part of the world economy which is still feeling global pressures from the most recent financial crisis, and should take advantage of tax concessions as best they can.

Get from A to B (and back) with our Travel Insurance.

Commercial

Global Corporate

Telephone No: +27 11 370 9111

•

www.zurich.co.za

•

Small and Medium Enterprise

Specialist Lines Travel Insurance

15 Marshall Street, Ferreirasdorp, Johannesburg, 2001

Authorised Financial Services Provider No.17703

10154/Zurich 85x179/chosen v1.indd 4

28 12 8

2014/03/14 2:54 PM

ST SHORT-TERM

The

taxman cometh‌ Anton Pretorius

30 4

I

The South African Revenue Services (SARS) has been sharpening its claws to clamp down on tax evaders and those who exaggerate on their returns. The results from the 2013 tax season have made it clear that SARS is becoming more efficient, more resourceful and more ruthless.

t is said that there are only two certainties in life: death and taxes. Insurance for after death is quite common, but what about insurance for when the taxman comes a-knocking? Insurance against a SARS tax investigation is a relatively unknown and under-utilised product in the South African market. However, there’s been a significant rise in claims of late. Who should be taking out this kind of kind of insurance and what do brokers need to know in order to advise their clients effectively?

The tax man reported a 7.7 per cent increase from 2012 in tax returns submitted – numbering 6.6 million. Over 91 per cent of these returns were filed on time. More than 1.5 million outstanding tax returns were submitted and 99.86 per cent of all returns submitted were filed electronically. SARS received R674 million in penalties from defaulting taxpayers.

In 2013, SARS, working with the SAPS in combating fraud, has arrested 38 individuals

31

who are alleged to have submitted fraudulent claims for tax refunds. SARS is in the process of recovery of about R29.2 million that has been fraudulently claimed as tax refunds.

But according to Errol Denman, group marketing director for Qdos, there is a common misconception among taxpayers, individuals and companies that because competent accountants are handling their tax affairs, there is no risk of a SARS tax audit. The cold facts are that anyone can become the subject of a SARS audit, whether their taxes are in order or not.

Willem Lombaard, managing director of Qdos, stresses that the responsibility of your tax compliance rests solely with you as an individual. “When people feel that they’re not cheating or defrauding the system, they don’t

subsequently takes on the work and spends hours on it, which the client isn’t billed for.” fear an investigation or audit against them.

However, a tax practitioner or accountant acting on your behalf has no direct responsibility for your tax affairs,” he explains.

Denman adds that this situation can also cause serious problems for tax practitioners. “When a long-standing client is audited by SARS, the client invariably turns to the practitioner – whom he pays good money to manage his tax affairs.

Out of fear of losing his client, the practitioner

Even if your tax affairs are 100 per cent in order, SARS can call for an audit through random selection or if it suspects that there may be something wrong with your tax return. This suspicion may not necessarily be as a result of any wilful error or omission. In fact, many SARS enquiries find nothing wrong, yet taxpayers have to pay thousands in accountant’s fees to defend their case. “The penny hasn’t dropped yet with the average taxpayer, but it’s getting there,” Lombaard says.

You and your business have come a long way. So get

Commercial Vehicle Insurance

from the bank that’s been around for more than 150 years.

We can provide you with the right cover for your business needs. Our customised solutions cover the various risk exposures faced by transport business. Various optional extensions may be added such as risk of downtime, credit shortfall and loss of deposit following an accident or theft. Call us on 0860 999 334. Let’s talk business.

Standard Bank Insurance Brokers (Pty) Ltd is an authorised financial services provider (FSP224).

A member of the Standard Bank Group. Moving Forward is a trademark of The Standard Bank of South Africa Limited. Standard network rates apply.

Products are underwritten by Standard Insurance Limited. SBSA 171002-12/13

32 8 6

Moving Forward

TM

“SARS has been doing a lot more audits than it used to, and has been more aggressive about it. These days you can’t swing the proverbial cat without hitting someone who has been audited by SARS. Eventually, it’ll become an accepted practice to insure against a SARS investigation just as companies insure themselves against fidelity guarantees and D&O liability.”

Lombaard refers to several of his existing clients who have been audited by SARS recently. “While they walked away clean with nothing untoward in their books, they still had to settle their tax practitioner’s account, which could run them anywhere between R50 000 and R200 000. These are seriously unbudgeted fees.”

He highlights another case: “A broker friend from the Eastern Cape was recently slapped with a R450 000 tax penalty from SARS. I asked him whether he plans to defend himself against this SARS audit? He said no, because he believes SARS can make his life a living hell. He’ll rather pay the fine instead of spending time, money and effort in the court fighting this case.

No one expects to have a SARS tax audit just as no one expects to have a car accident. It’s difficult to deal with in your own capacity, which illustrates the need for tax enquiry insurance,” Lombaard says.

Unfortunately, the chances of being selected for audit by SARS are only going to increase as Lombaard notes a significant increase in SARS tax audits and investigations. “Our claims have probably doubled over the last year.”

But what causes this significant rise in SARS tax investigations?

Lombaard believes it’s due to a couple of reasons. “The budget deficit and a shortfall in collection have led to a sharp rise in SARS audits.

Last tax season, SARS didn’t collect its desired target and if you collect too little, what do you do? You turn up the audits and you collect more.” He also feels that the Tax Administration Act of 2012 gives SARS much broader power to investigate.

“SARS can investigate anyone at any time without reason. You need to know your rights as a taxpayer. You need a professional who can advise you on procedural rights.” According to him, a SARS audit also acts as a counter-balance to self-assessment or e-filing. “It’s what keeps people honest.”

Needless to say, a SARS investigation can be expensive and tax enquiry insurance provides policyholders with peace of mind that they will have access to tax specialists and the expertise required to defend themselves.

“Depending on the level of investigation, we appoint the appropriate level of expertise.

It can even be the client’s own tax practitioner because he’s familiar with the client’s tax affairs. We simply monitor his progress and cover his costs. But if need be, we’ll bring in outside tax expertise within our comprehensive network of tax experts and practitioners,” says Lombaard.

Software solutions with the right genes

For example, Qdos utilises the services of renowned professor of tax at the University of the Western Cape (UWC) Prof. Walter Geach.

The company also employs tax lawyers should clients be required to defend themselves against SARS in court.

Tax focus areas SARS has declared that there’ll be increased focus on tax audits across three industries, namely trust fund companies, construction and small to medium enterprise businesses (SME).

WWW.INNOSYS.CO.ZA

+ 27 11 532 8300 | info@innosys.co.za

33

The broker’s role

“SARS has been hammering trust fund companies with audits left, right and centre,” says Lombaard. “In the last Budget Speech, Minister Pravin Gordhan said that trust fund companies will come under the microscope as it is often used as a mechanism to avoid tax.”

The popularity of this product is likely to rise in line with SARS’s more aggressive approach to investigations and it would be wise for ambitious brokers to start familiarising themselves with this type of insurance. The great news is that intermediaries do not need to be tax experts to offer this insurance to their clients.

But Lombaard fails to understand the motivation behind SARS’s plans to target SMEs. “The unfortunate thing is that small companies don’t often have the financial capacity to defend themselves against exorbitant defence costs from SARS audits, which can cost between R50 000 and R60 000.

What happens is that these SME owners try to defend themselves against the audit but they don’t possess the necessary skills. It could even lead to insolvency. These SMEs are then faced with two options: either pay for the defence or pay the penalty and back taxes. If SARS needs to recover your taxes, it will sell your assets. It’s simply too complicated to take on SARS on your own.”

An unfortunate consequence of an investigation could be the need to defend the case in court, which is both costly and time-consuming.

Thankfully, SARS prefers to settle matters outside of court.

Who needs tax enquiry insurance?

Just about everyone and every entity that pays tax is at risk of being investigated by SARS and should consider some form of insurance. “It is our experience that wealthy taxpayers and larger businesses get audited more often, due to the increasing complexity of their tax affairs,” says Lombaard.

While most of us would assume that tax insurance can only be afforded by the wealthy and elite, Lombaard assures us that tax enquiry insurance is affordable, even to the SME owner.

34 8

In some cases, where brokers are unfamiliar with the product, they are initially very tentative about the prospect of advising their clients about it because they believe that they need to be tax experts.

“Relatively speaking, tax enquiry insurance is more affordable than buying professional indemnity or D&O liability insurance,” he says.

Small companies with a million Rand turnover pay in the region of R2 000 per year for tax enquiry insurance. For companies with a R100 million turnover, it’ll cost in the region of R10 000 per year and get R250 000 worth of cover. For bigger companies, the premium increases slightly as they’re more susceptible to audits.

This is not true according to Lombaard. “Tax is complicated. But insurance brokers don’t need to be tax experts in order to advise clients. The broker must understand insurance advice, identify the risks and advise clients on the correct product. It’s our job to advise the broker on the correct product and policies fit for their clients.”

Tax enquiry insurance effectively extends the cover that the broker provides and improves the value proposition and overall insurance relationship between the broker and the client.

Because it’s a relatively new concept in the South African insurance market, the product should also lend an innovative flavour to the broker’s business.

Fortunately, due to the relative simplicity of this product, UMAs are finding that brokers are not making many mistakes. “The most common error is in their understanding of the value that this product can bring to the relationship between the broker and its client.

This is due to the lack of awareness. However, there are opportunities for the forwardthinking broker who wishes to capitalise on the brand value,” Lombaard concludes.

YOUR CLIENT’S CAR HAS BEEN PERSONALLY CUSTOMISED. WE’D LIKE TO DO THE SAME FOR THEIR INSURANCE.

We are delighted to announce that MUA will start underwriting on behalf of Auto & General Insurance from 1 April 2014. For more information on this exciting partnership, please contact Christelle Fourie at cfourie@mua.co.za.

MUA Insurance Acceptances (Pty) Ltd is an authorised Financial Services Provider (FSP No. 37947) underwriting on behalf of Auto & General Insurance Company Limited, an authorised financial service provider (FSP No. 16354)

9

Ruling increases risk of

D&O liability claims Laura Owings

36 4

A first of its kind ruling in South Africa has found a director personally liable for damages caused by his company. The precedent could affect the Directors' and Officers' (D&O) liability market, feeding a growing rise in litigation that has followed international trends.

T

he landmark decision was reached by the Naphuno Regional Court in the Limpopo Province in late January, finding the managing director of clay mining firm, Blue Platinum Ventures, liable in his personal capacity for environmental degradation caused by the company.

Matome Maponya, MD for the mine which trades under the name Bathlabine Brickyard, pleaded guilty to a list of statutory offences involving water, environmental and mining legislation. He was given a five-year suspended sentence, on the condition that the damage affecting the Batlhabine area is rehabilitated by 30 April 2014.

The decision is the first conviction in South Africa of a director of a mining company being found personally liable for mining-related environmental effects, according to the Centre for Environmental Rights (CER). It is also the first sentence given without the option of a fine and directly linked to the rehabilitation of the area.

“What makes this case special is that this is the first time in South Africa that the prosecutor was not content with merely holding the company responsible,” says Tracey Davies, attorney for the CER. “The laws and provisions for doing so have been in place for a long time, but the vast majority of prosecutors never take their cases that far. The ruling against the director of Blue Platinum Ventures makes us hopeful that the prosecutor was not content with merely holding the company responsible,” she said.

Charges against both Blue Platinum Ventures and its directors were brought by the not-forprofit Bathlabine Foundation. The communitybased organisation works for the advancement of those living near Tzaneen, where the mine is situated. The land is part of the catchment area of the Thabina River, which originates in the highlands of the Limpopo Province and joins

the Great Letaba River, a major river draining into the Lowveld area.

Because the mine is located within a catchment area, the pollution caused by the mine, which had been in operation in Bathlabine since 2007, had a far-reaching impact, said the CER. The mining activities affected the water source, as well as the soil and vegetation of the area.

Criminal charges were therefore brought against the company for non-compliance in terms of the National Environmental Management Act and the National Water Act, reported the CER. Additionally, it was alleged that the company conducted mining operations in contravention of the Mineral and Petroleum Resources Development Act (NEMA), and without the required environmental management programme.

Blue Platinum Ventures and MD Matome Maponya pleaded guilty to contravention of NEMA regulations prohibiting the commencement or continuation of a listed activity without required environmental authorisation. The court sentenced the managing director to five years’ suspended imprisonment, on condition that he does not commit the offences again, and that the area be rehabilitated by 30 April 2014. The cost of rehabilitation is estimated at approximately R6.8 million, to be personally paid by the managing director, CER reported. There was no separate sentence or fine imposed on the company.

Claims on the rise Experts have seen increasing D&O-related notifications in South Africa in recent years, compared to a relatively quiet history of claims.

According to Philip Hobson, AIG financial lines African manager, regulation such as the Companies Act of 2008 and the King III report, coupled with increasing media coverage and

37

risk, and an insurance product that continually adapts to meet that risk,” he says.

International trends As major corporate companies abroad, particularly in the US and Australia, have started yielding large D&O claims, directors and particularly non-executive directors in South Africa are increasingly recognising the advantage of the cover, as are insurers.

The instance of class action suits against directors and officers is one trend driving claims abroad that may pick up at home. Such cases see a claims funder, or third party, who accepts the costs for litigation on behalf of an individual or group and is compensated on a contingency fee, or no-win, no-fee basis.

While such D&O class action suits have not yet played out in South Africa, laws are in place that allow for such litigation, says Hobson.

“Class action can take place in South Africa, and if it happens in other parts of the world, there’s no reason why it can’t happen here,” he says.

According to him, the contingency fee element could be a game changer for the SA market, something already being seen in malpractice insurance.

“Effectively, there’s no downside for the plaintiff because if they don’t win, they aren’t out of pocket. If they do win, they get a portion of the damage or settlement amount and the lawyers who represented them will get their share,” says Hobson.

consumer activism has put more onerous responsibilities on directors and officers, making them personally vulnerable to litigation by stakeholders.

“The chances of a D&O claim have picked up due to the fact that stakeholders are aware of their rights and willing to exercise those rights,” Hobson says. Those stakeholders may be shareholders or creditors. Employees can also take action against directors. The widening of D&O liability coverage has also played a part.

“Over the last couple of years, the insurer has widened the scope of cover, so you’re catching more claims in those policies than you were before. The policy as it looked 10 years ago was very different to what you can get today,” he says.

Indeed, D&O liability coverage has seen continuous transformation since its inception in the 1980s as an extension of general liability indemnity. The value of the cover as

38 8 6

a stand-alone product was recognised when big corporates began to face claims in which directors were exposed to liability, say Norton Rose Fulbright directors, Michael Hart and Sandra Sithole. As specialists in D&O liability and proponents of client education, they say the policy has since developed to respond to the expectations of brokers and companies.

“As time passed, the volume of claims did not reach anticipated levels and the market had to adapt the product to make it more effective and relevant so that clients continued to purchase it,” Hart says.

What developed was a modern policy that featured a wide range of coverage and a myriad extensions. “All of these add-ons, which are designed to make the product more attractive to major corporations of the world, are now becoming available here,” says Hart, who adds that the modern policy offerings have been seen in the SA market over the past 18 months. “It’s a strange anomaly of an apparent

“It’s happening in Australia and the US, and on the malpractice side, it’s happening in SA, too. I’d expect it could extend to other areas of litigation and that would be a game changer for D&O insurers. You’d see rewards increasing, which would have a big effect on premium charges,” he continues.

Though he acknowledges the potential exists for class action cases to increase, Hart stops short of likening international trends to the SA outlook. “There’s no doubt that the capacity now exists to bring that sort of action, and there will be more of it. Whether it will ever reach the sort of proportions that exist abroad is unlikely,” Hobson concludes.

Hart suggests the punitive consequences resulting from class action losses may stem the tide locally. “If you lose a case here, you’re going to pay the cost, whereas if you lose the case in America, you don’t expect punitive consequences,” he says.

“The funders that take on these cases here know that if they fund them and lose them, particularly in circumstances where the claimants they are funding are in a precarious

7

financial position, there are consequences.

They will not push the envelope or bring speculative claims. We have already seen orders granted here requiring the funder to provide security for costs,” he says.

The global reach of South African companies is also driving D&O exposures.

Hobson estimates that 20 per cent of JSElisted companies have at least some US shareholders, either by virtue of a direct listing or by what is called an American depositary receipt programme. An ADR is a negotiable security that represents securities of a non-US company that trades in the US financial markets.

“The world is becoming a global space, and we shouldn’t be looking at only the South African exposures; we have to be cognisant of overseas exposures as well,” says Hobson.

In that way, even directors and officers of non-public companies are at risk, as they might have a client in another country that’s more litigious and they could face a claim in that territory.

“I would stress that we’ve seen more claims coming from outside of South Africa than ever before, and that is really because stakeholders can be anywhere in the world, not necessarily in your own country,” says Hobson.

Broker’s vital role Considering the financial burden and reputational damage that directors and officers face in liability cases, it is critical that directors ensure that there is D&O insurance in place, and that it would adequately cover any possible claim, says Hobson.

The broker should advise clients on the applicability of the policy and whether the policy confers adequate cover based on the client’s exposure. Thus, the broker plays a vital role in ensuring the protection of their D&O clients from the sale of the product to the oversight of the litigation process. “The broker advises the client as to the nuances around the cover, and they benchmark the cover against other insurers’ submissions, whether that is a price benchmark or coverage benchmark,” explains Hobson.

“Should there be a claim, the broker plays a vital role in supporting the client and keeping them completely informed.”

In Norton Rose Fulbright’s experience, however, that guidance does not always happen. “Understanding the terms of the cover and coverage that is available is a subject that is seldom addressed in a large percentage of the smaller companies which purchase the product,” says Hart.

“We are often asked to review policy wordings by companies and we always stress the importance of broker participation and advice on the extent of the cover offered in relation to the business risks,” adds Sithole.

Because D&O litigation has only recently begun to spike, and is largely designed according to international trends, it is a challenge for brokers to fully understand the coverage, says Simon Colman, litigation risks executive at RBS. “It’s quite unusual, even as an underwriter, to become involved in a lawsuit where you see the policy working,” he says. “This is a problem in SA in general, because we haven’t seen a lot of claims activity, and we’re often selling insurance policies that were designed in the US, for example. We don’t know how they’re going to operate until they’re triggered, and we don’t know if they’re going to respond adequately to the local environment.”

Further feeding the challenge is the relative ease brokers have selling the product.

“D&O cover is the easiest insurance to sell, because it’s relatively inexpensive and if the business owner this is s aware that this is something that will protect him and his personal wealth, chances are he’s going to  buy the cover,” says Colman.

40 8

E2020125 A

New CorporateGuard D&O: beyond the horizon

Our new CorporateGuard D&O is the strongest D&O offering we’ve ever produced.

It’s built on decades of underwriting and claims experience and listening to clients.

We know what they face today, and may face tomorrow. For directors and officers facing unprecedented regulatory and political scrutiny, mounting shareholder activism, a recessionary environment, intense competition for business and talent, and an irresistible rise in claims, we say, bring on tomorrow. Visit www.AIG.com

Registered Address: 10 Queens Road, Parktown, Johannesburg, 2193. T: +27 11 551 8000 AIG South Africa Limited is a Licensed Financial Services Provider FSP No. 15805 Reg. No. 1962/003192/06

E2020125 AIG ZA Corporate Guard Ad Feb14 210x275 (RiskSA).indd 1

21/02/2014 09:21

“Just because it’s an easy sell, brokers should not spend less time learning about it. In fact, they should spend more time on it because when something goes wrong, it’s probably going to get a lot of exposure. A badly handled claim affects the reputation of the client and the broker’s business,” he says.

Understanding the full extent of the cover also allows brokers to negotiate sales to a larger market. For example, language in the New Companies Act now makes it easier for stakeholders to take action against directors.

This means that even private companies are vulnerable to litigation, the defence of which would be covered with a D&O policy. “It’s not just about big, listed corporations and their shareholders anymore,” he adds.

For example, a creditor can sue a director or officer of a private company in their personal capacity if they can prove the director or officer acted negligently. “It’s not necessarily about whether they were or were not negligent, but every time someone says they might be, they have to defend themselves,” says Colman.

In this instance, brokers should take a proactive approach. “We’ve got to start illustrating to small businesses that this can happen,” says Colman. “Because those clients are the ones we should be talking to, the little guys who we’re trying to encourage to grow their business so the country can grow; the guys who are going to need to hear, ‘This can happen to you’. Just because your turnover is R5 million doesn’t mean you can’t be sued for R50 million.”

42 10 8

Awareness

Despite indications that the claims rate is increasing, the South African market still tends to view D&O litigation as something that is not applicable locally. “We’ve seen too many films about class actions and big claims,” explains Colman. “But that’s changing. We’re becoming more aware.”

This awareness, unfortunately, tends to be in parallel with high profile examples of litigation. “We have all the regulation in the South African market for D&O claims to increase, it’s just a case of a precedent being set or a couple of high profile cases,” says Hobson.

The ruling against the Blue Platinum Ventures managing director is one such example.

While it is unclear what, if any D&O, coverage the MD had, the policy would not have covered the award or clean-up costs.

However, it would have paid for defence costs. “This case highlights the importance of having the cover, which many business owners have chosen to neglect. It should lead to more policies being sold, boosting the premium pools required to cover future losses. It is a case of bad news stimulating the market,” Genlib CEO George Rodinis told RISKSA. Hart expresses some reservations about reading too much into the Blue Platinum Ventures conviction in the context of D&O coverage. “The company and the director each pleaded guilty to the commission of

an offence relating to the commencement or continuation of an activity which required environmental authorisation,” he explains.

“Because of the guilty plea, there is no written judgment reflecting the magistrate’s reasoning and there is little to suggest that the conduct which formed the basis of the conviction fell within the range of matters in respect of which the director could legitimately expect to be indemnified both because of the restrictions in the Companies Act and the common law principles negating coverage for deliberate conduct,” Hart continues.

Despite those concerns, a spike in D&O as well as shareholder derivative action claims may still be on the horizon. “Once shareholders and stakeholders become aware of the new legal precedent, it will encourage them and their litigators to seek redress for wrongful acts of the directors and officers,” predicts Caroline Yeo, underwriter of fiduciary liability at specialist underwriter, Camargue.

Thus, the market must be mindful of elevated risk exposure in the future. “Skilful underwriters will be creative and innovative in the methods used to underwrite and manage the risk being transferred for both individual risks and security sectors. Given the current competitiveness of the D&O insurance market, immediate adjustments to premium rating would be most likely,” adds Yeo.

Choice Elements - CMYK

Travelling this Easter?

Be safe on our roads... but should you have an accident and not know what to do, simply use Momentum Short-term Insurance’s Vehicle Accident Assistant mobile app.

You and your clients will be well taken care of over the holidays!

For more information on our innovative mobile apps, visit www.momentum.co.za or contact our Intermediary call centre on 0860 11 15 12.

Momentum Short-term Insurance is an authorised financial services provider.

A division of MMI Group Limited.

short-term insurance

EVOLVING with rapidly changing risks Christy van der Merwe

The key to effective upfront risk mitigation is a thoroughly comprehensive understanding of the risk itself, emphasises Stalker Hutchison Admiral (SHA) CEO Gary Corke.

This meticulous understanding of inherent risks is what creates opportunities to be proactive in guarding against them, he adds.

44 8 4

C

orke contends that the technical proficiency and skill within SHA is unrivalled. With a team including 12 admitted attorneys and a financial analyst, the underwriting management agency (UMA) brings a certain degree of intellectual capital to any discussion. As an intermediated company, where the individuals at broking houses are SHA’s primary customers, the company also recognises that customers have a valuable role to play in recognising risks in advance.

Corke constantly seeks feedback from customers to advise him on the quality of his claims team, to ensure that risks are being adequately addressed.

Gary Corke, CEO, Stalker Hutchison Admiral.

Anton Meyer, FI executive head.

A subsidiary of South Africa’s largest shortterm insurer, Santam, which has a strong focus on pre-emptive risk mitigation, constant improvements are being made at SHA in terms of risk identification and management.

Physically relocating the claims department, to sit with the risk acceptance department, is one progression that is bearing fruit. “We now monitor the use of external resources like attorneys and loss adjustors to a far greater extent. The segmentation of our broader liability and professional indemnity (PI) offerings will create future improvements, too,” adds Corke.

He adds that SHA then analyses the actual business activities and environment in which the company is engaged, as well as checking their exposures to additional legislative and regulatory requirements which may impact on exposure. All of these are considered in relation to the company and its subsidiaries’ exposure to international jurisdictions. Once these details have been reviewed, consideration needs to be given to any past claims or circumstances and any negative press or other material issues.

Indeed, the risks facing professionals, as well as directors and officers (D&O) are becoming increasingly harsh considering the rapidly changing regulatory environment in South Africa.

SHA understands that given the material changes to the Companies Act of 2008, the directors and officers of any company now face a far larger and more onerous liability than ever before, which is why the risks in this area need to be specifically dealt with and monitored.

In terms of risk mitigation when it comes to D&O liability, Meyer says that there are a few tactics that companies can implement to deal with the multitude of concerns. These include the implementation of proper and adequate processes to ensure compliance with King III, the Companies Act and other relevant legislation and regulations; the appointment of the correct management team to support the business and ensure all interests are aligned; and fully considering the impact of decisions on all stakeholders, and then making informed decisions.

Over time, the company has developed significant expertise in the D&O landscape, which falls within the financial institutions (FI) division, led by FI executive head, Anton Meyer.

Emphasising the important role of intermediaries, Meyer shares SHA’s guidance on what brokers should always keep in mind, and ensure their clients are aware of when dealing with D&O cover:

Meyer explains that one of the major underwriting considerations with D&O cover is first and foremost the board and management team’s qualifications and experience, and how all stakeholders are treated. Also vitally important is to analyse the financial position of the company and drill down into great detail to ensure that the company is stable and that business strategies are supported by the financial position of the company or, alternatively, which other business plans or guarantees are in place.

1. The indemnity envisaged by this policy is intended to provide cover to the individual director or officer in their personal capacity.

The exposures faced by directors and officers are also very personal and any mistake would expose the director or officer to a personal liability, which could have dire consequences on their personal assets.

2. The trigger for a D&O policy is the committing of any wrongful act in the individual’s capacity as a director or officer, and is not restricted to negligence

or other similar more restrictive triggers.

This requirement is important as various decisions taken by a board may be construed as intentional and, as a broker, this wider trigger is non-negotiable.

3. The exposure faced by directors and officers is not restricted to just decisions made by the board. Committee members and other managerial staff who owe the company and other stakeholders a duty, may also be exposed should they breach their fiduciary duties towards these parties. Any person who is able to bind the company could be construed as an officer, and this term could have a very wide application and expose a staff member who has not even considered themselves an officer.

4. Given the new act’s focus on stakeholders rather than shareholders, numerous parties may now be owed a duty without the director or officer being aware of it, given the fact that the act allows for ‘class action’, there is a material increase in exposure.

5. Other material exposures faced by today’s director or officer is that claims can now be brought by any stakeholder directly against the individual and the protection of the corporate veil has disappeared. Under certain circumstances, the company may be the actual stakeholder instituting action against the director or officer.

A few years ago, many did not see the need for D&O cover at all, but the world is changing. SHA appreciates that risks are constantly evolving and, owing to the many pressures on businesses, the quality of such risks is not always improving.

“We have to be sensitive to issues that are not always the fault of our customers, such as variable exchange rates, lack of resources, different weather patterns and so on, which all create external issues on the businesses of our customers. Our underwriting solutions for customers must therefore be relevant, fair and sustainable,” affirms Corke.

Enhancements in other areas continue and in 2013 SHA developed its cyber liability and gradual pollution offerings, as the company responds to the needs and exposures of various industries. Understanding local market requirements, based on global knowledge, SHA has also commissioned an overseas company to provide it with three new product enhancements in 2014. They urge stakeholders to “watch this space”.

“We are a solution-driven company, in a dynamic world, where the only constant is change. I encourage all our people to be innovative in their thinking and to exceed the expectations of all around us,” concludes Corke.

45

years may mean that the insured value of a vehicle could be less than the outstanding debt to the bank. If your client doesn’t have credit shortfall cover to settle this amount, they will be liable for the shortfall on what’s owed to the bank.

Mitigation measures Most vehicle theft syndicates are sophisticated; they are able to steal or hijack and strip a vehicle in a matter of minutes. The best defence is a quality recovery device that recovers the car quickly and with the least damage possible.

“Speedy recovery means less inconvenience, damage, repairs and lower cost to the insurer which means your premiums won’t be impacted and you avoid the loss of time and emotional distress usually associated with a vehicle theft.

In addition, most insurers offer discounts on your monthly premiums if your vehicle is fitted with an approved anti-theft device such as a tracking system,” explains John Edmeston, CEO of Cartrack. “Also, think of the example of the vehicle that’s seven or eight years old, but still in excellent condition, has a full service history and low mileage relative to its age. In terms of its market value, it may not be worth a huge amount, but to replace it with an equivalent vehicle would be difficult and more costly.

Keeping the wheels on the road

Sarah Bassett

An average of 160 vehicles are stolen and 358 more are broken into each day in South Africa, according to South African Police Service crime statistics.

E

ven with insurance cover in place, the reality is that there are always costs for which your clients won’t have planned, and some which you simply cannot attach a monetary value to. Helping your clients assess the possible costs, and additional prevention and mitigation measures, is the only real defence.

“Aside from the emotional distress, vehicle theft incurs considerable expenses that few clients have planned for. There’s the insurance deductible or excess, and monthly insurance premiums will increase as a result of the loss of the no-claim bonus. Without car hire specified in the policy, clients will need to cover the hire of a car until theirs is returned or replaced,” notes Mandy Barrett, marketing and sales manager for personal product solutions for Aon South Africa.

“There might have been valuables left in the car not covered and specified under the all risks section of the policy – iPods, tablets, laptops and so on, not to mention the loss of any valuable data. The process of sorting out the

46 8 4

paperwork and replacing a vehicle if it is not recovered takes up a lot of time, most likely off work, which also needs to be accounted for,” she adds.

Another hidden cost is that of a credit shortfall on a financed vehicle. This typically arises when a vehicle is written off in the first two years of signing a finance agreement to purchase a car.

Accrued interest on the loan within the first two

“People sometimes assume that because they have an older model vehicle they won’t be a victim of vehicle theft or hijacking. But these vehicles are often targets because of the ease with which they can be stripped and sold for parts,” Edmeston adds.

In the event that a stolen vehicle can’t be tracked, Cartrack has launched a R150 000 cash back warranty offer for clients with a Cartrack stolen vehicle recovery (SVR) system installed in their vehicle, ensuring that surprise additional costs are covered. “Where the insurer or broker accepts the warranty offer on behalf of a client and enters directly into the agreement with Cartrack, any warranty payments due will be made to the insurer or broker in line with the terms and conditions of the insurance policy,” concludes Edmeston.

Avoid, avoid, avoid Park smartly: Avoid dark or isolated parking areas. If parking on a street, ensure that the area is well lit and preferably guarded.

Keep valuables safe: Ensure that all valuables including a GPS device and radio faces are not in sight. Avoid storing items in the centre console or glove compartment. Do not keep car registration or car ownership documents in the car.

Lock up: The more anti-theft protection devices in a car, the less chance a thief will have to get away with it.

Pick up the phone: Remind clients to phone the police immediately for assistance in the event of a vehicle theft or break-in and report the crime. If they have a tracking device, they should call the tracking company immediately to report the theft.

not stop there. She says the number of special extensions available through such providers is also important. “A specialist insurer can provide additional coverage such as the depreciation of art, or even a premium for the death of the artist, where the sum insured is automatically increased by 150 per cent in the year following the death.”

In this way, Fourie says it is important to obtain professional valuation of the items at the inception of the policy. “A properly documented inventory of items and up-to-date valuation certificates are the most important assets when filing a claim for valuables, as they are almost always a requirement by insurers at the time of a loss.”

A Stanley Pinker painting sold for a record price in March, signalling an increase in the value of collections that can be covered only by specialist insurance policies.

The art of insuring

collectables Laura Owings

A

rare and undocumented painting by the celebrated South African artist Stanley Pinker set a new world record for the artist in a March auction.

The painting, Love, caused a heated exchange between telephone bidders and buyers in a packed Strauss & Co auction room, until finally its lucky new owner walked away with the piece for R3.4 million. The piece was valued at R500 000.

The sale is an example of the increasing value of appreciating assets that brokers should take notice of, says Artinsure managing director Gordon Massie. “Most insurance providers, including high net ones, don’t have adequate claims systems for appreciable assets like art and collections,” he says, noting the infrastructure of valuation, damage assessment,

48 8 4

restorative teams and recovery network employed at Artinsure. “Brokers who rely on household insurance valuations are not adequate.”

Christelle Fourie, managing director of MUA Insurance Acceptances, agrees. “Standard household cover is not enough to ensure that valuable collections receive appropriate amount insurance cover,” she says. According to her, standard homeowners’ policies usually have a per-item limit or inner contents limits of, for example, 10 per cent of the sum insured, which falls far short of the full replacement value for the collection.

As a result, it is better to have a policy that provides coverage designed specifically for the collection should something happen to those distinctive or rate items. But, the benefit does

The necessity of up-to-date valuation records cannot be overlooked. According to Massie, the increasing value of pieces, such as the Pinker painting, demands a re-evaluation of the worth of collectibles. “Brokers whose clients have old valuations may need to re-adjust that figure,” he says.

The potential need for restoration or repairs is another benefit of specialist insurance cover, Fourie says. “In the event of restorations or repairs on collectable items, specialist insurers typically have contacts with artisans and experts who understand the value and delicacy of the restoration process.”

With the increasingly eclectic collections of today’s market, a broader range of priceless items will need such specialist cover. While the biggest collection values are still in art, particularly oil paintings, Massie says toys, wine and whisky are covered with Artinsure, as well as more diverse collections including Star Wars memorabilia and political ephemera.

Indeed, a study from Barclays Wealth and Investment finds that high net worth individuals are increasingly collecting such diverse items. It also found that these collectors are as attached to their items as much as assets as passion pieces. For this reason, many collectors may not seek to replace their items in the event of a catastrophic loss. “Some consumers have no intention to replace certain valuables, especially items that have been inherited, as the true value is sentimental,” explains Fourie.

This assigned value highlights the key reason collectors need specialist insurance expertise, says Massie. “To all of our clients, their item is restorable but not replaceable,” he says. “That is a key problem in the market, where insurers who are not specialists talk about replacing items that are not replaceable. Replacement is not something in our dictionary,”Massie concludes.

Agribusiness leaders confident for the future

South Africa’s agribusiness sector is confident about its growth prospects over the next few years despite the changing and uncertain regulations, increasing strike action, wage negotiations, land reform and global economic uncertainty. This is the finding of PwC’s latest Agribusiness Insights Survey 2013/2014.

T

he sentiment is echoed in the Confidence Index of the Agricultural Business Chamber (Agbiz) and the Industrial Development Corporation (IDC). This index indicated a further increase in the agribusiness confidence levels in the fourth quarter of 2013.

“The main reason for growth expectations of agribusinesses as indicated by CEOs is new joint ventures and strategic alliances,” comments PwC national agribusiness industry leader, Frans Weilbach. Agribusiness CEOs are positive about the possibility of expansion into the rest of Africa, with 70 per cent indicating that they would pursue such opportunities.

The continent represents the last frontier in global food and agriculture markets, with its large percentage of uncultivated fertile land and sufficient water resources in many areas, according to a recent World Bank report.

The report calls on governments to work side by side with agribusinesses, and to link farmers to consumers in an increasingly urbanised Africa. “South African agribusinesses are in a perfect position to pursue such opportunities,” says Weilbach.

The PwC survey was carried out among agribusinesses with operations focused on delivering agricultural and related services to

primary producers. As with the previous year, government regulations, energy costs and an inadequacy of basic infrastructure are serious challenges for business growth. Respondents also indicated that labour unrest and land reform may affect business growth.

Other concerns cited by businesses were climate change, financially stretched producers, the volatility of exchange rates, and the availability of key skills, price competition and an inability to finance growth.

Agribusiness leaders feel that government is not doing enough to support businesses in the sector, particularly when compared with their global counterparts, including tax incentives to ensure international competitiveness, skills development and reducing the regulatory burden on agribusiness.

Business leaders indicated that they have maintained their focus on risk management, with the majority of participants having a risk committee and a formal risk management strategy in place to evaluate changes in the risk environment.

CEOs indicated that compliance with transformation targets and recruitment of suitable personnel with appropriate skills were again the two most challenging human capital matters. Agribusinesses appear to struggle

to attract suitable employment equity (EE) candidates into managerial levels.

Most of the larger agriculture businesses did not report a substantial change in profitability ratios between 2012 and 2013.

As expected, businesses rely heavily on grain sales (50 per cent) and trade divisions (21 per cent) as the key contributors to turnover.

The increase of 16 per cent in grain sales is mainly due to good harvests in large parts of the country and higher prices.

Revenue from the trade divisions remained constant with a slight increase of four per cent in 2013.

The asset turnover rate increased for the first time in three years, which may indicate that the effects of a sluggish global and local economy are starting to improve. It is evident that although agribusinesses remain focused on the core divisions such as grain, they are diversifying and exploring other opportunities.

“The continuing weakness in the global economy, the continued volatility in soft commodity prices and the Rand exchange rate might still result in a challenging year in the South African grain industry. Exporters of agricultural produce, however, might wish for a prolonged weakness in the currency,” Weilbach concludes.

50 8 4

30373 MF_

VOLCANO 30373

WE TRUST YOU, OUR BROKER, TO PROTECT OUR MUTUAL CUSTOMERS... ...by offering the right kind of insurance advice & solutions.

Together we can turn our customers’ setbacks into comebacks, be they Personal, Agri, Business, Corporate, Marine or Engineering.

To know more about our range of short-term insurance solutions, contact us on brokers@mf.co.za

51

30373 MF_ Broker Integrated_Risk SA.indd 1

2014/03/20 11:16 AM

Renewed hotel investment to drive risk claims Laura Owings

After a post-World Cup investment slump, a resurgence in global hotel lending and investment will benefit the South African hotel sector, says Grant Thornton in the recently released international Hotel Investment 2014 report.

T

he upswing in growth could bring an increase in insurance claims which would be consistent with trends seen over the last two years.

“The South African hospitality sector has experienced a near total freeze in investment since 2011,” says Gillian Saunders, principal and head of advisory services at Grant Thornton in Johannesburg. “The corner has definitely been turned for the hotel sector and 2013 was a reasonable trading year for the first time in some years. The growth outlook for 2014 is even more positive.”

According to the report, investors specifically from the Middle East and Asia are seeking equity opportunities in the region. These findings follow positive growth in hotel

52 4

bookings over the 2013/14 summer period.

David Pratt, head of hospitality and tourism at Hollard Broker Markets, says the increase in occupancy is impacting insurance, with clients more selective in the types of cover required.

worst and we don’t see this improving next year as all the factors leading to this deterioration, such as the drop in the Rand, more expensive parts, poor road surfaces and inexperienced drivers, will remain,” he comments.

“In the past, clients may have self-insured certain covers, such as theft of money, business all risks and accidental damage, but we are seeing a greater trend towards insuring these higher risk covers due to the frequency of loss,” he says.

Both Pratt and Wilensky say the number of fraudulent claims has also increased.

According to Pratt, huge claims are coming from guests reporting lost iPads, replacing the previously common trend of lost Rayban sunglasses.

“Topping that list is claims in business all risks, power surge and theft. But motor claims have emerged as a worrying upward trend,” says Danleigh Wilensky executive director of Hospitality Industrial Commercial Underwriting Managers. “Motor has taken a turn for the

In January, The New York Times ranked Cape Town number one on its list of places to visit in 2014. Locally, the National Tourism Strategy and the Domestic Growth Strategy aim for the country to be among the top 20 destinations in the world by 2020.

Neesa Moodley-Isaacs

Asian tigers eye Africa

Recent interest from Indian reinsurer GIC Re in South Africa has sparked debate about whether Asian reinsurers might be casting their eyes towards South Africa and even the African continent. RISKSA investigates.

54 8 4

W

ithin the last decade, the African continent has attracted considerable global attention largely due to the economic performance of certain countries. Just a decade ago, the Economist labelled Africa as the “hopeless” continent. But since then, Africa has seen its longest economic book with gross domestic product growth rates averaging about five per cent a year.

Last year, GIC Re India made an application to the Financial Services Board (FSB) to purchase a dormant licence to operate in the South African market. The company already operates in a few countries in northern Africa namely Algeria, Egypt, Libya, Morocco, Sudan and Tunisia. The question is whether or not other Asian companies are going to follow suit.

The FSB says the GIC Re India application is still under consideration. An insurer that is registered under the Long-term Insurance Act or the Short-term Insurance Act, and has remaining policyholder liabilities that arose prior to it no longer entering into new insurance business, is referred to as a dormant insurer.

Jonathan Dixon, head of insurance at the FSB, says registration under the acts is not subject to time limitations or fixed term renewals.

“However, should a registered insurer fail to comply with the acts, the Registrar may, depending on the seriousness of contravention, take regulatory action against that insurer, including prohibiting it from conducting business,” he warns. Dixon confirmed that although GIC Re India was the only firm to make a formal application, a number of similar enquiries had been received from other foreign financial services companies.

“Any company that wishes to carry on insurance business in South Africa must apply to the Registrar for registration as an (re)insurer under the Long-term Insurance Act or the Short-term Insurance Act, as the case may be. Further, under the Financial Advisory and Intermediary Services (FAIS) Act, any person who renders a financial service (advice and/or intermediary services) in respect of a financial product and as a regular feature of such person’s business, must have a licence. A financial product includes any financial product issued by any foreign product supplier and marketed in South Africa,” Dixon says.

watch-and-see strategy due to the prospects offered by other emerging markets in particular Turkey, and more recently South America,” he says.

Paul Ray, chief executive of Infiniti, says while China has invested heavily across the continent from an infrastructural point of view, it is well known that not much investment has been made in the insurance or reinsurance industries.

“The reason for this is that insurance for construction projects is almost always insured back into the Chinese market, despite the fact that most regions require insurance to be placed with local companies first. As a result, these insurers and reinsurers are unable to generate premiums for their local markets.

Where projects are funded by Chinese and/ or other international contractors, insurance regulators should be more vigilant in ensuring that such contracts are insured and reinsured in local markets first,” he says.

The African attraction The International Monetary Fund expects the African continent, in the next five years, to have the world’s fastest-growing regional economy.

This growth potential presents Africa as a very attractive option for financial services.

Trade between Africa and the rest of the world increased by 200 per cent between 2000 and 2011, despite the global financial crisis.

“We are also seeing an improvement in the Business Confidence Index for markets across the continent, and this is a direct result of the improved political stability.

Though not completely peaceful and democratic, the continent as a whole has made significant progress in gaining improved opinion on political stability and quality of life indices,” Singh points out.

Effect on the local market The Asian interest in the local market is expected to motivate existing players into consolidating their position in the market through an extension and improvement of agreements with their existing client base, Singh says. He says he expects that local players will pre-emptively increase their market share in surrounding countries. “The approach is most likely to be to secure what they have first, then expand cautiously into foreign markets,” he says.

Ray says any unregulated player in the market is bound to have a negative effect on the local market. “South Africa already has a preponderance of foreign reinsurers who visit the market and write business from this market without being regulated in terms of the South African Insurance Act,” he says.

“This means that the playing fields are not level and foreign (unregulated) reinsurers do not have to bear the costs of capitalisation and the establishment of subsidiary offices. The FSB is currently investigating ways in which local and foreign reinsurers may operate on an equal footing,” Ray continues.

The local advantage Singh points out that Africa, in general, is extremely brand conscious. “The biggest advantage our local players have is the fact that their brands are known and respected. African businesses still adhere to the old adage that Asian brands are inferior and less sophisticated. 

He says natural disasters such as hurricanes Katrina, Rita and Wilma (KRW), the Japanese earthquake and resulting tsunami, and Asian floods and global warming are also likely to push global reinsurers to look into diversify their risk further, opening Africa as a viable solution.

Ray says reinsurers may view the development of the proposed BRICS reinsurance pool as an easy way to enter the South African market.

Saijil Singh, lead analyst at Coface, says Asian reinsurers’ activity and expansion into Africa is limited and mainly focuses on transactions involving global players with interests in Africa.

“While we have noted a definite interest from Chinese firms wanting to enter the market and operate in this space, they have not to date been very aggressive, and seem to be using a

55

While this may be true now, the concept is slowly being eroded and this competitive advantage may not be valid in the next five to 10 years,” he cautions. However, Ray disagrees with this viewpoint, saying that local reinsurers will always be at a disadvantage to foreign reinsurers who generally don’t have the financial consideration of having to fund subsidiary/branch offices. “This results in lower overheads therefore enabling foreign insurers to offer cheaper rates,” he explains.

Challenges Singh and Ray say some of the challenges that new entrants looking to expand into Africa face include: • Understanding the unique risks faced in Africa as well as a better understanding of

the needs of these businesses. This can be addressed through the acquisition of local experience and knowledge. This means job opportunities for locally skilled people.

However, this leads to the next challenge.

• Highly skilled South Africans are still reluctant to venture into the greater sub-Saharan region and quality staff procurement will be an issue.

• The South African insurance market already suffers from a skills shortage and any new player will have to poach experienced staff at a high price, should they establish a local subsidiary office.

• Obtaining work permits or visas for employees. In East Africa, where Asian insurers already have a presence, there is a tendency to bring in senior staff on a contract basis, which prevents local employees from becoming part of the management team.

• The language barrier and the lack of education in these markets. African markets have generally been deprived of financial products so the market is still in its infancy in many cases. Any player wanting to enter these economies will have to be willing to invest significantly in financial infrastructure and education, and understand that profit will not be realised immediately.

Too early to tell The consensus in the industry seems to be that it is still to early to predict whether we will have a major influx of Asian reinsurers hitting South African shores. However, local reinsurers would be well advised to start bedding down their companies in preparation for the possibility of increased competition over the next decade.

Registered reinsurers with a foreign shareholding The following reinsurers listed with the FSB have foreign shareholding: • African Reinsurance Corporation (SA) Limited • Emeritus Reinsurance Company SA Limited • General Reinsurance Africa Limited • Hannover Life Reassurance Africa Limited • Hannover Reinsurance Africa Limited • Munich Reinsurance Company of Africa Limited • RGA Reinsurance Company of South Africa Limited • Scor Africa Limited • Swiss Re Life and Health Africa Limited.

You and your business have come a long way. So get

Marine Insurance

from the bank that’s been around for more than 150 years.

We can provide you with the right cover for your business needs. We have customised solutions in the form of open marine, once-off marine, stock throughput, inland transit, freight liability policies and a whole lot more. Call us on 0860 999 334.

Let’s talk business.

Standard Bank Insurance Brokers (Pty) Ltd is an authorised financial services provider (FSP224).

A member of the Standard Bank Group. Moving Forward is a trademark of The Standard Bank of South Africa Limited. Standard network rates apply.

Products are underwritten by Standard Insurance Limited. SBSA 171002-12/13

56 8 6

Moving Forward

TM

Start doing Smart Business...

Your brokerage.

Your policyholders.

Your App. The only brokerage app on the market, with the unique benefits shown below.

Global Assist App – the personalised interactive mobile App that puts your business in your customers’ hands.

No seTup fee

www.oneassist.co.za

Contact us Call: 0861 44 44 22 Email: contact@globalchoices.co.za

REINSURANCE and the year ahead With the top reinsurance firms’ financial results being made public after the end of the financial year last month, quite a few interesting outcomes have painted a thought-provoking picture of the year ahead.

Dominic Uys

96 58 4

E T

he past year has been a tough one for the insurance industry, not only in Southern Africa but worldwide. Massive claims from extreme weather events and a global economy that still shows meager signs of recovery have put serious strain on insurers everywhere.

The reinsurance industry seems to have felt less strain this past year, with the big international houses like Swiss Re reporting substantial profits in their latest financial results postings. Most recently, Munich Re and Hannover Re reported record high results for 2013.

That said, the African reinsurance market was slightly less energetic than its European counterpart. While the global economic predictions for 2014 seem somewhat more positive, one big question is whether the reinsurance industry will continue to see positive growth, or if the delayed effect of a rough 2013 will carry over into the new financial year.

RISKSA spoke to a few industry insiders to find out what the past year might reveal about the coming one.

African potential Infiniti Re is last year’s new entrant into the reinsurance market. Former MD of Africa Re, Paul Ray, heads the new firm and the company relies heavily on his extensive experience to get the company up and operational.

Having recently returned from his business tour of sub-Saharan Africa, Ray had some interesting insights to share. “Infiniti Re started in July of 2013. Since that time, when our retros were set up, our income has been about R5.5 million. We are hoping to end June 2014 on R10 billion or R12 billion, depending on what happens with the April renewals,” he starts.

For Africa there is not much in the way of April treaty renewals. Most of the renewals here take place during the course of December. “We

would actually hope that 2015/2016 would be more positive from an African premium growth perspective,” Ray continues. “A lot of the business that we have at the moment, in terms of volume, is facultative business. I can count on one hand the number of treaties that we have. From that you can see that we’re very new to the reinsurance industry,” he states.

Larger South African insurance companies could be hesitant to support Infiniti Re, mainly because of the company’s rating. There could also be a perception of competition on the basis that Infiniti itself operates in the direct market. The company’s strategy has been to focus on the local reinsurance brokers and to write local business from the smaller companies. There is also local facultative business coming out of Namibia for the Infiniti Re. “Firstly, the opportunities for the coming year are with small niche insurers in South Africa.

Most of the larger reinsurers don’t display a lot of interest in them at the moment,” Ray says.

“Secondly, reinsurance business out of subSaharan Africa will definitely pick up. In spite of South Africa’s lethargic economy at the moment, this is not the case for countries like Namibia and Kenya. Both countries are experiencing major construction and development and, interestingly, these projects are locally funded. The large reinsurers are aware of this, so we expect the competition for new business to be tough,” he says.

On the subject of opportunities, Junior Ngulube, CEO at Munich Re of Africa also weighs in. “Where the market has problems, it needs solutions. We have the expertise to address these problems and in so doing add value to our partners. For example, our global motor consulting unit is working with some of our clients to assist with getting their motor books in better shape. We are not there to merely provide capacity, but also to help solve our clients’ problems. If our clients are successful, we will be successful too,” Ngulube says.

97 59

www.fishgate.co.za_CT_4453

He adds that Munich Re is not necessarily focusing on a specific line of business in 2014, but there will be an emphasis on infrastructure projects in the rest of Africa. “We are building our engineering team and bringing in expatriate skills,” he states.

Major challenges to come Mark Finch, executive director or Willis Re London, says that globally, the issues faced by the industry over the last 12 months will remain on the table for 2014 and possibly beyond.

That said, the reinsurance industry will need to adapt in the coming year, to face these issues head-on.

“The landscape for risk is undergoing substantial changes and the industry needs to find ways of providing solutions. Of the top 100 global corporates, a large proportion are technology companies. These companies have very different insurance needs from those covered historically such as construction, automotive, marine and manufacturing.

Reinsurers need to find ways to remain competitive in the coming years, adapting to the changing market dynamic.”

“Traditional reinsurers face long-term competition in property catastrophe business for certain. But it is not all bad news as there are certain advantages in creating a well-diversified portfolio, be it geographically or product lines. The value of long-term relationships will favour the traditional reinsurer, as will having the ability to underwrite business outside of the model,” Finch continues.

61 8 6

Ngulube adds, “We will and should expect to see more extreme weather events. In all my years of participation in the insurance market, I’ve never experienced hailstorms like those we experienced in 2012 in Gauteng.” He says that an increase in extreme weather events, coupled with the growth in built-up areas, has increased the exposure faced by insurers and we should accept this as the new normal.

Rates under pressure Finch points out that, globally, reinsurance rates are under pressure. An oversupply of capacity chasing the same amount of business has made competition fierce and opportunities few at the moment. “This is especially so in the peak territories where retentions are expected to continue to move upwards and there are no signs of wholesale changes in terms of buying more cover, as has been the trend in recent years in response to solvency or regulatory need,” Finch says.

“The current market environment should enable cedants to consider buying the reinsurance they want rather than what they can afford,” he adds.

Piers Sargent, treaty broker for Jardine Lloyd Thompson in London, agrees that there is a pressure on rates. According to him, diversification seems to again be on the agenda and reinsurers previously not involved in SA are showing an interest without knowledge and experience. He points out that this may add to the already fierce competition and keep rates thin.

“The increasing frequency and severity of weather-related claims worldwide force us to recalibrate models. The most difficult aspect is the education of single territory clients who may regard events in their own markets as oneoffs when the statistics from around the world would suggest they are part of an international trend. In South Africa, the remedial action taken by clients following the severe weather events in 2012 has varied from a mapping and re-evaluation of flood plains at one extreme to ‘fingers crossed it does not happen again’ at the other. From our view, the number of these events will increase and we will judge clients on their course of action in addressing the underwriting implications of the same,” Sargent explains.

For Sargent, the rating picture is mixed. He states that prices in the US are under the heaviest pressure and perhaps historically have the largest margins. International rates have little or no room. “South Africa is a very cyclical market and there seems to be limited desire locally to take action to change that.

If a company appears to have developed a profitable market segment or niche, the other companies start to compete and drag the prices down to uneconomic levels,” he says.

“There is a resultant withdrawal of capacity and a period of remedial action (often undertaken by specialist UMAs) leading to increased original rates and tighter conditions yielding improved returns. This alerts the competition so the process starts all over again. The agricultural and corporate market segments are currently hurting; however, from what we can see the response of some local companies has been to write for market share. It is interesting to note the number of Lloyd’s cover holders has reduced recently with UMAs getting better terms from local carriers. This too may be an indicator of where we are in the cycle,” Sargent continues.

The year described by the experts is a tough one. On the other hand, Ray’s optimism for his fledgling company is heartening. After an interview where the industry veteran appears cautiously optimistic, Ray does not hide his confidence that this competitive market bears great opportunities for a newcomer with a battle plan.

www.fishgate.co.za_CT_4453

Keep your clients and their families, Always Visible.

Proud associate sponsor of the Titans cricket team.

With the ability to monitor a vehicle’s location via SMS and real-time tracking applications on a smartphone, tablet or computer, keeping the family visible throughout any journey is child’s play. So do your part and recommend a Ctrack tracking system, that comes with stolen vehicle response services, to your clients today.

Always Visible

0860 333 444 • telesales@ctrack.co.za • www.ctrack.co.za

7

ML MEDICAL

NHI

MARCHES ON

Christy van der Merwe

62 4 8

While many national budget commentators felt that the National Health Insurance (NHI) scheme was not a great feature in the Finance Minister’s speech at the end of February, and remain doubtful about implementation, it is firmly on the agenda and progress continues.

I

n his national Budget Speech, Finance Minister Pravin Gordhan stated that the Department of Health’s (DoH) white paper on the NHI, and the National Treasury’s financing paper have been completed, and will be put before cabinet shortly. Although no concrete timelines have been given for this, it has been made clear that the implementation of the NHI will take place over a 14-year period, with the ultimate end goal of a health sector that works for all South Africans.

It is the 14-year roll-out period that has garnered misgiving among certain quarters, with one economist – economists.co.za director Mike Schussler – stressing that initiatives that politicians promise 12 or 14 years down the road rarely ever happen. However, the budget outlines concrete developments on the NHI front, and government remains adamant on implementation, which it says will improve public sector health delivery, and reduce the high cost of private healthcare in South Africa.

“NHI pilot districts have been established in every province, supported by funding for NHI as a conditional grant. In addition to hospital and clinic building and refurbishment programmes, R1.2 billion has been allocated for piloting general practitioners’ contracts. An Office of Health Standards Compliance has been established to ensure that public healthcare provision meets the required standards. A new funding framework for the National Health Laboratory Services and associated research activities has been agreed,” said Gordhan in his Budget Speech to Parliament.

achieved in understanding the issues and then taking effective action,” says Len Deacon, CEO of independent health industry consultancy Len Deacon and Associates, following a feedback session on NHI to the Parliamentary portfolio committee of health.

The budget states that NHI will be phased in, with a focus on upgrading public health facilities, producing more health professionals and reducing the relative cost of private healthcare. Delving into greater detail, the budget document outlines that two NHI conditional grants will support contracting doctors and establish new financial mechanisms for hospitals, and pilot health service innovations in 10 pilot districts.

The national health insurance grant receives a medium-term allocation of R221.9 million to strengthen district health structures, improve procurement and pilot innovations within targeted districts. A total of R18.1 billion is budgeted over the next three years for the infrastructure components of the two grants.

practitioners. This amount of R1.2 billion is to staff NHI clinics with doctors’ services in addition to the nurses’ services.

Overall, R492.4 billion will be spent on healthcare over the next three years. This is the second largest sector of expenditure for the government, coming in just after expenditure on education. In the 2014/15 financial year, the government expects it will spend R154 billion on healthcare (out of a total expenditure of R1.1 trillion), which is about 4.1 per cent of the country’s total gross domestic product.

The national budget’s overall healthcare expenditure includes R600 million allocated for the introduction of the new human papiloma virus (HPV) vaccine, which prevents cancer of the cervix, while a further R1 billion will be allocated for the HIV and AIDS conditional

Within the NHI component of the national health grant, R1.2 billion is budgeted over the next three years to begin contracting with general practitioners, develop new reimbursement mechanisms for central hospitals and improve their revenue management.

Spending on this component has been low in 2013/14 because of delays in reaching agreement on remuneration of general

“I am extremely encouraged by the comprehensive and structured way the minister is dealing with the issues and the 11 pilot projects that are up and running. A lot has been

63

grant in 2016/17 to continue the roll-out of antiretroviral treatment. A total of 2.5 million people are currently under treatment, and 500 000 new patients are expected to join the programme each year, explains Deacon.

Government says that it recognises that the health system needs to be strengthened as a precondition for NHI. The Office of Health Standards Compliance will be launched in 2014/15 as an independent public entity responsible for inspecting health facilities and improving the quality of health provision. The new office receives funding of R369.5 million over the medium term.

NHI progress to date Immediately prior to delivery of the national Budget Speech, the health Parliamentary portfolio committee heard from Health Minister Aaron Motsoaledi, who was reporting on the 11 NHI pilot programmes, which are currently underway throughout South Africa.

Deacon, who was in attendance at Parliament for the progress update, says that it seemed clear, for the first time that the two ministers, of health and finance, are singing off the same song sheet with regard to NHI. “This is great improvement as they need each

64 6 8

other to achieve the massive objectives and requirements for all our citizens,� he reiterates.

The focus at the 11 NHI pilot sites would be on infrastructure development and maintenance; human resources planning development and management; quality of health services with emphasis on standards for cleanliness, safety and security of staff and patients, attitude of staff, infection control, long queues and drug stock outs; re-engineering of the primary healthcare system in three streams – school health programmes, municipal wardbased primary healthcare agents, and district specialist health teams; and contracting of GPs to work in public clinics.

Deacon says that Minister Motsoaledi honestly fed back details of the facility audits undertaken at the clinics where the 11 pilot NHI programmes were taking place over the last 18 months. OR Tambo Municipality in the Eastern Cape was said to have fared the worst in these audits, and from August 2014, three hospitals and eight clinics will be built or refurbished in this area. The minister also shared the plan of new clinic structures to increase space, which will result in 102 new structures built, and will greatly improve patient access in the pilot areas. He announced the following details:

102

Total number of new clinics

92

Clinics with earthworks completed

74

Number of slabs completed

83

Clinics with super structure delivered

69

Clinics with superstructure installed

38

Clinics with roof installed

7

Clinics with finished complete

8

Equipment and furniture installed

These clinics would follow the tenets of the ideal clinic, which include adequate administration; proper clinical guidelines and integrated chronic disease management; medicines supplies and laboratory support; good staffing and professional etiquette; availability of doctors; infrastructure and support services; essential equipment; health information management; communication; district health support systems; and input of partners and stakeholders.

Motsoaledi said that design for future hospitals would be based on what has proven successful, and would not be redone for each and every tender and would initially be based on the design used in the Western Cape.

Rands and sense of NHI

The Health Minister emphasised the six building blocks of a healthcare system, as outlined by the World Health Organisation (WHO), which are leadership and governance; access to essential medicines and other commodities; a health workforce; health systems financing; health information systems; and health service delivery.

He said that the item that is neglected most often is health systems financing, and the “rich get cover, while the poor don’t”.

Motsoaledi explained that the NHI pilot project work is based on the WHO service availability and readiness assessment methodology, which measures and provides a standard health facility assessment questionnaire to assess, map and monitor service availability and readiness.

It covers areas such as facility infrastructure and amenities, water supply, telecommunications and electricity, basic medical equipment, availability of a health workforce, medicines availability, diagnostic facilities availability, infection control, and specialised services among others.

Considering the current state of public healthcare facilities, the improvements envisaged under the NHI would certainly provide drastic relief among many South Africans currently unable to afford private sector healthcare.

• Launch Office of Health Standards Compliance in 2014/15 – R369.5 million over three years.

• Contract with GPs, develop new reimbursement mechanisms and revenue management improvements for central hospitals – R1.2 billion over three years.

• Strengthen district health structures, improve procurement and pilot innovations in targeted districts – R221.9 million over three years.

• Infrastructure components of two NHI conditional grants – R18.1 billion over three years.

State of the Nation’s healthcare In his State of the Nation Address on 13 February 2014, President Jacob Zuma highlighted the following achievements in healthcare: • 300 new health facilities were built over the past five years, including 160 new clinics.

• 10 new hospitals were refurbished or built.

These are located in Ladybrand, Germiston, Mamelodi, Natalspruit, eThekwini, Zola, Bojanala, Vryburg District, Swartruggens, Khayelitsha and Mitchell’s Plain.

• 2.4 million people were initiated on antiretrovirals (ARV) by 2013. The target is to increase this number to 4.6 million people in the next term.

• Life expectancy has increased from a low of 54 in 2005 to about 60 in 2011.

• Mother-to-child transmission (MTCT) of HIV is declining.

• National Health Insurance will extend healthcare to the poor.

The NHI is one point in South Africa’s 10-point healthcare plan. The 10-point plan is as follows: 1. Provision of strategic leadership and creation of a social compact for better health outcomes.

2. Implementation of National Health Insurance.

3. Improving quality of services.

4. Overhauling the healthcare system and improving its management.

5. Improving human resource management.

6. Revitalisation of physical infrastructure.

7. Accelerated implementation of HIV and Aids plan and reduction of mortality due to TB and other communicable diseases.

8. Mass mobilisation for better health for the population.

9. Review of the drug policy.

10. Strengthening research and development.

65

Medical schemes registrar under investigation Laura Owings

The Council for Medical Schemes has confirmed an investigation into allegations of corruption against its registrar and CEO Monwabisi Gantsho. The action is the second time concerns have been levelled at the office.

T

he Council for Medical Schemes (CMS) is also addressing allegations of irregularities in the conduct of former provisional curator of Medshield, Themba Langa. Langa, who brought forth the claims in relation to the fraudulent spending of medical aid cash with regard to Medshield has since resigned his post. Dr Gantsho has been placed on special leave.

Claims include charges that Dr Gantsho ignored recommendations made by a council task team regarding the appointment of independent curators for three medical schemes: Bonitas, Sizwe and Medshield. They also allege Dr Gantsho appointed staff without due process, pressured junior staff to reveal confidential information and made business decisions “without justification”.

“In the interest of transparency and accountability, a task team was appointed to oversee the independent forensic investigations,” said CMS Chairperson Yosuf Veriava.

The Bell Dewar report, finalised in November 2012, found the registrar’s conduct constituted an abuse of his position and authority and was in breach of the Medical Schemes Act. It concluded the CMS should consider requesting the minister [of health] who appointed the registrar, to take disciplinary action.

The health department will consider the results of that investigation before considering any action, said Joe Maila, spokesperson for Health Minister Dr Aaron Motsoaledi.

Days after the CMS announcement in late February, a 2012 report was released that revealed concerns among senior CMS management into the registrar’s behaviour.

That report, compiled by attorneys at Bell Dewar law firm by direction of the council’s then-acting chairperson Trevor Bailey, revealed a list of alleged misconduct.

66 4 8

However, chairperson Veriava, who was appointed shortly after the investigation began, did not follow those recommendations.

According to him, the CMS carried out its own investigation, and did not find satisfactory evidence to support the Bell Dewar report.

“We were not convinced that the Bell Dewar report was correct,” Veriava said. “We looked into it very carefully and we found there wasn’t anything serious enough for us to take major disciplinary action against the registrar.”

Questions surrounding the registrar’s behaviour were renewed in court papers lodged by Langa on 20 February. In those documents, the former provisional curator of Medshield alleges Dr Gantsho asked for a R3 million kickback, and gave details for two bank accounts into which the funds should be deposited.

“The applicant [Gantsho] provided two accounts and instructed me to deposit money therein for his benefit. The applicant impressed it upon me that he has tax problems to settle,” said Langa in a court affidavit.

Those claims were made following court action by Dr Gantsho, seeking the removal of Langa from his position of curator for alleged dubious dealings. Among Gantsho’s claims is that Langa acted unreasonably during a deal in November to secure the trademark for the Medshield name at a cost of R10 million.

“Spending R10 million for a worthless trademark is not incurring a reasonable expense,” Gantsho said.

Langa responded to this in his affidavit, saying he acted in good faith, as shown by his successful negotiation of the trademark price down from a proposed R30 million. According

medical schemes. Through the introduction of new products, a low-cost option and a wellness programme, the scheme has seen growth since Langa’s appointment in 2012.

“I’ve turned the scheme around and it’s growing. We were seeing about 3 000 members lost a month. Since I came in and stabilised confidence, we’re now seeing a loss of around 200 a month,” he says.

Confidence in the management and staff of the council is upheld by the body itself. In a 7 March statement, it said, “The chairperson of the CMS, Professor Yosuf Veriava would like to ensure all stakeholders that council leadership is not discouraged by the unsubstantiated allegations made against the organisation’s CEO and registrar of medical schemes.”

to Langa, who had submitted his resignation effective 28 February with the stipulation he would serve through to 30 April, Gantsho’s actions are a deliberate attempt to prevent him from holding new trustee elections on 11 April.

said Langa’s affidavit. He also called the action retaliation for his failure to comply with kickback demands. “Medshield is stable and growing, and stakeholders would be harmed by this frantic application.”

It reiterated Veriava’s confidence in the management and staff of CMS and confirmed the council will continue undeterred with its organisational functioning which is in the best interest of its stakeholders and members of medical schemes.

“The real reason the applicant [Gantsho] cannot wait for my departure date of 30 April is that the applicant intends to deny me the opportunity to hold elections on 11 April,”

Medshield has 174 000 members and is among the country’s largest medical aid providers. It is regulated by the CMS, which oversees private health financing through

“CMS as a statutory body will continue to follow dual processes and will continue fulfilling its mandate to protect the interests of medical scheme beneficiaries at all times.”

67

The

overweight elephant in the room Christy van der Merwe

The body mass index (BMI) calculator is the standard measurement used to determine whether a person is categorised as underweight, normal healthy weight, overweight or obese. It is used in underwriting to determine medical risks and has become a somewhat contentious issue in the industry.

68 4 8

I

n South Africa, standard rates for life insurance policies were given up to a BMI of 38 on the BMI chart. However, a few years ago, taking heed of the increased risk brought on by being overweight, Momentum changed this acceptable level down to 35, which drew much criticism from the market. Subsequently, other life insurers have followed suit, lowering the acceptable BMI level.

Since lowering the standard acceptable BMI, the difference has heralded a “discernable change to the risk experience”, says Swiss Re Life and Health Africa chief underwriter, Brian Gibbon. Addressing delegates gathered at the Momentum Risk Summit 2014, Gibbon predicted that the acceptable BMI level will be reduced further.

Generally, a BMI of 30 still indicates that a person is overweight, but not obese. And this could be viewed as an acceptable level to be built into policies. This elicited consternation among many of the financial planners and intermediaries in the audience who complained that BMI is not always the best measure of obesity and being overweight. Concerns were

also raised that often BMI is not correctly calculated. Measuring BMI requires that people take weight in kilograms, and divide it by height in metres squared, so BMI = weight/(height)2.

BMI has become such an important indicator of risk, because being overweight can increase incidences of strokes, cancer, hypertension, sleep apnoea and a host of other serious health issues.

It is argued that some people (for example, body-builders or well-trained people with dense muscle mass) may have a high BMI score but they may have very little body fat.

For these people, a waist circumference measure, a skinfold thickness or other more direct methods of measuring body fat may be more useful measures. Waist circumference is the measurement around a person’s natural waist (just above the belly button). It can also be used to determine disease risk. A waist circumference of more than 88 centimetres for women and 102 centimetres for men indicates an increased risk.

Research from the Heart and Stroke Foundation South Africa (HSFSA) has shown that in South Africa, about 195 people die a day because of some form of heart and blood vessel disease.

About 33 people a day die from heart attacks in South Africa, and about 60 people a day perish due to strokes.

BMI is viewed as the elephant in the room when it comes to underwriting life policies because obesity is considered the single biggest risk factor in society, and yet it is so often ignored. About 50 per cent of substandard cases, feature high BMI as a risk factor, explains Gibbon.

BMI chart for adults 140

kg

32 BMI

130

Obese 120

27 BMI

110

Overweight

100

90

Healthy weight

80

60 50

Underweight 40

140 mm 150

160

170

According to a 2011 report from the World Economic Forum, diabetes costs the global economy some $500 billion (R5.3 trillion) a year, and this cost is predicted to rise to $745 billion (R7.9 trillion) by 2030. Obesity is considered the leading cause of type 2 diabetes, which also means that a significant proportion of diabetes is preventable. Surveys, however, have shown that 78 per cent of obese people think that they are either healthy, or very healthy, and 42 per cent of the people surveyed, have no health concerns. This shows a disconnect between the reality of being overweight, and the increased incidence of critical illness as a result of being overweight.

Increased loadings Because lowering the standard acceptable BMI made such a discernable difference to the risk experience of insurers, it is felt that similar adjustments in other areas could have significant impacts. Gibbon notes that some insurers are investigating and assessing the way that they deal with cholesterol in the underwriting process, and will certainly require clients to divulge if they are on any treatment that an insurer should be aware of.

Increased loadings for smokers and obese people are also being considered, showing that more loadings or exclusions to targeted clients are being investigated. This will require more explanations to clients, under Treating Customers Fairly (TCF), but this will also mean that healthier clients are happier because they may get lower rates and not feel that they are subsidising riskier clients. The more stable base rates could, essentially, mean more discounts.

70

30

22 BMI

The South African National Health and Nutrition Examination Survey also released research showing that obesity and the number of overweight people has increased in recent years, with 65 per cent of women being overweight or obese. “This makes them even more susceptible to heart disease, strokes and a range of non-communicable diseases, like diabetes and cancer,” adds HSFSA.

180

190

Gibbon notes that multiple risk factors in life cover, do not mean just an additional increase in risk, but rather, an exponential increase in risk and this needs to be factored into underwriting.

69

lT

LONG TERM

South Africa’s

investor confidence challenge 70 8 4

2583 SSP RiskSA3.pdf

1

2013/02/25

Our data cocktails The perfect recipe for growth.

The Budget Speech this year appeared to have little, if any, impact on investor confidence in terms of how the market moved. However, if the current deficit is not reduced in the year ahead, this is likely to impact South Africa’s credit rating and potential foreign investor inflows.

At SSP, whatever the challenge, we’ve got the perfect recipe for growth. Just tell us which recipe you want and we’ll blend it for you, leaving you with the perfect, stress-free data cocktail to suit your needs.

C

Customerpolitan A smooth blend of ingredients, which is becoming increasingly popular with consumers wanting to sample this cocktail across a multitude of channels around the clock. This blend will benefit insurers and help you to make your customer journey a seamless experience, boost customer retention, win more new business and cross-sell more effectively.

M

Neesa Moodley-Isaacs

Y

CM

Mohr points out that when Trevor Manuel was finance minister, a booming economy and increased efficiency in tax collection meant there was scope to expand welfare spending, while cutting corporate and individual tax rates.

But now the economy is stuck in second gear.

Five years ago, emerging markets such as South Africa were praised for having smaller deficits and lower debt ratios than the developed economies. “This situation has changed. South Africa’s deficit is now comparatively larger as a percentage of gross domestic product (GDP) than the United States’s deficit, and the market’s leniency towards emerging economies with deficits has come to an end,” he says.

In addition, capital that was once freely available to emerging markets with large

external funding needs, such as South Africa, CY is now scarce. “This has caused several key CMY emerging markets’ currencies to slump and bond yields to spike. The increase in bond K yields over the past year means that any future borrowing, including rolling over existing debt, will be done at higher interest rates. Already, government expects to spend R121 billion in this fiscal year on servicing debt (compared with R144 billion on social welfare),” Mohr notes.

Pricing Colada The perfect aperitif to help you change prices whenever you want and avoid indigestible volumes of unprofitable business. This simple recipe for flexible pricing in real-time helps you be more responsive to the market, safeguard your margins and build competitive advantage.

According to the 2014 Budget, over the last five years government has borrowed more than R1 trillion and, due to rising global interest rates, it is becoming increasingly costly for government to borrow. The Budget for 2013/14 was R1.15 trillion. For 2014/15 it was R1.25 trillion. This shows that there is overall fiscal stability.

SSP - resolving today’s challenges with tomorrow’s technology.

Call us on +27(0) 11 384 8600 email info.za@ssp-worldwide.co.za or visit www.ssp-worldwide.com/blendeddata to find your recipe for growth.

Government spending curbed In light of this, Mohr welcomes Minister of Finance Pravin Gordhan’s commitment to containing government spending. “The fact that a ceiling has been put on government spending, meaning they are unable to exceed their allocated budget, is positive as curbing expenditure is the only way to bring down the country’s budget deficit,” he explains.

He goes on to say that the performance of the

2383 TheCheeseHasMoved

T

he most sensitive indicators are bond yields and currency movements. Initially, there was a slight negative impact and there appeared to be some immediate pressure in the market,” says Dave Mohr, chief investment strategist at Old Mutual Wealth.

However, he points out that a day after the Budget Speech, the Rand was stronger than it had been before the speech. “I don’t think there was any lasting negative impact. The Budget broadly projected fiscal discipline, which bondholders and investors took in their stride,” he says.

MY

71 5

3:47 PM

Bhatia, S&P’s director of sovereign ratings, says.

economy is the starting point for understanding the Budget, as it is the economy that has to deliver the tax revenue government spends.

“How government spends its money also impacts how the economy performs. The real economic growth outlook has been downgraded to 2.7 per cent in 2014 and 3.2 per cent in 2015. Inflation is estimated at 6.2 per cent in 2014 and 5.9 per cent next year,” he says.

Gordhan neatly sidestepped any speculation about whether this was his last term in his current office, referring journalists to the president. He then proceeded to outline a national budget that strives to close the current deficit and speaks of discipline at every turn.

Shallow hiking cycle Alex Smith, economist at First National Bank, says the private sector has been slow to invest in the economy recently but this will have to change going forward. “Growth in fixed investment from the public sector is likely to be quite muted,” he says. Smith says the weak Rand and improved global growth will boost exports from South Africa.

“The South African Reserve Bank is in risk management mode, being held hostage by the Rand. Raising interest rates is an attempt to manage risks posed by the current account

“I don’t think we’ve seen any major surprises, either on the upside or on the downside, in the Budget. I do not see any major revenue measures that would give us comfort that the fiscal deficits are going down faster and the debt metrics are improving more radiply.”

deficit and we think it is safe to assume a shallow hiking cycle, with more interest rate increases in May,” he says.

Smith says if South Africa can close the current account deficit, it is more likely to be seen as a separate economy by foreign investors, rather than being lumped together with India, Indonesia, Brazil and Turkey as the ‘fragile five’ emerging economies.

Gordhan says South Africa is still on the road to recovery with the country owing over R1 trillion to investors. If the current deficit is not decreased significantly, the country faces a downgrading from rating agencies such as Moody’s. Some analysts are saying that a downgrade could potentially hit investors in South African assets such as equities, bonds and the Rand.

Negative credit rating outlook Standard and Poor’s and Moody’s Investors Service have kept South Africa’s credit rating on a negative outlook since downgrading it in 2012, and this does not appear likely to change anytime soon. “The rating remains on a negative outlook as we stand right now,” Ravi

The deficit will remain at four per cent of GDP in the year to March 2015, before narrowing to 3.6 per cent and 2.8 per cent in the following two years, Gordhan said in his Budget Speech.

Gross government debt will probably increase to 48.3 per cent of GDP in three years’ time, from 45.8 per cent this year.

Kay Walsh, an economist at Deloitte LLP, says Gordhan probably did his best in trying circumstances to keep the peace, but it’s going to be very tricky in the coming years.

“From a rating agency perspective, I think he definitely helped to reassure investors that they are not about to change the debt trajectory too drastically, that it is sustainable and that government is going to be quite firm on curbing expenditure,” she says.

Bleak investor outlook Economist at the South African Institute of Race Relations (SAIRR), Ian Cruickshanks, says 2014 is expected to be bleak when it comes to attracting potential investors. “We are already seeing some investors’ net outflow.It is very dangerous to upset the current deficit under very difficult circumstances. I think the minister has done the best he could,” he says.

Cruickshanks points out that Gordhan mentioned the National Development Plan along with the promise that government would curb unnecessary spending. “We are going to stop the extravaganza like hotel fees, travelling and all other abuses. That will be good for investors,” Gordhan said. Cruickshanks echoes Gordhan’s sentiment that the country needs to spend modestly this year.

“The minister has basically warned us that we are in for tough times. South Africa is going to struggle to bring down the unemployment rate and I am afraid we are going to languish in slow economic activity and low job creation for some time,” Mohr adds.

“All in all, it was a credible but unexciting Budget. The minister had no choice but to reduce the budget deficit and he delivered. The lower projected deficits should ease pressure on the Rand and interest rates in time,” he says.

“It also creates long-term space for government to respond to future economic crises. The hard work is now to get the various government departments and agencies to spend their allocations effectively and to cut waste and corruption,” Mohr concludes.

72 8 6

3513-A4

Our Corporate and Business Insurance sets the standard when it comes to: • Property • Commercial • Vehicle and Asset Finance • Marine • Guarantees • Agriculture • Corporate Call us on 0860 999 334

Standard Bank Insurance Brokers (Pty) Ltd is an authorised financial services provider (FSP224).

A member of the Standard Bank Group. Moving Forward is a trademark of The Standard Bank of South Africa Limited.

Products are underwritten by Standard Insurance Limited. SBSA 3513-9/13

3513-A4-B-insurance.indd 1

2013/10/15 10:00 AM

The GP and the underwriter – today versus tomorrow

Her doctor did not view this as reason for immediate alarm or cholesterol medication, and instead sent her off with a recommendation to improve her diet, exercise more and retest in a year’s time. Nothing major in Jenny’s mind.

Grant Hanafay, head of underwriting at Altrisk

W

hen Jenny’s application for critical illness cover came back with an offer plus a loading for cardiovascular disease, she was perplexed and convinced that there must have been some error in her medical tests. She had after all, been for a full medical with her GP just six months prior and was given a clean bill of health.

An area that often leaves financial advisers and clients questioning the medical findings reports is the difference in the health interpretation by a general practitioner or specialist doctor, and that of an underwriter.

There is one important reason for this. Usually, a doctor’s report will look at the patient’s current state of health while the underwriter takes a long-term view. To illustrate, at the time of underwriting, the combination of 36-year-old Jenny’s 6 mmol/L cholesterol level, BMI of 30 and family history of coronary artery disease would flag the underwriter.

74 8 4

However, the underwriter looks at the longterm picture and what the implications will be of an above-average cholesterol level in terms of Jenny’s future mortality and morbidity. In other words, the underwriter will assess based on the premise that the behaviour and lifestyle habits that led to Jenny’s current condition, will continue.

There are also other extenuating factors in Jenny’s situation that are considered – being a few kilos over the recommended BMI, a sedentary lifestyle, a family history of coronary artery disease, her alcohol consumption and the fact that she is a social smoker. All of these factors combined deliver a different future state of health than that provided by a GP. On the flip side, it is important to note that while the underwriter’s decision and premium rate will be based on the current state of Jenny’s health, it can be reviewed at a later stage. It is in Jenny’s best interests to take the heed of her GP and the test results and change her lifestyle for the better to improve her state of health. This done, her financial adviser can then request a re-evaluation for Jenny which could possibly deliver a more favourable assessment and hence, a better premium rate.

A similar scenario that brokers often grapple with is when clients with the same condition each receive different underwriting decisions.

It is important to remember that an underwriter makes an assessment based on the applicant’s individual profile and test results. So while two clients may seemingly have the same condition, the medical evidence will tell a different story.

In the underwriting process, the underwriter makes use of extensive medical research, statistical data derived from existing insurance portfolios and underwriting manuals provided by the reinsurers. Insurers and reinsurers also utilise the expertise of medical specialists who advise underwriters in the interpretation of often complex medical information.

So, while the GP may be focused only on your client’s current state of health, the underwriters’ decisions are based on the complete package of medical test results, family history, lifestyle and what this combination bodes for the applicant’s future course of health. The GP will evaluate a patient and make an assessment based on that person’s health at the time and look at ongoing management of their condition.

When it comes to insurance medicine, the underwriter's decisions are based on a longterm view. They look at the complete package of medical test results, family history and lifestyle and what this combination bodes for the applicant’s future course of health.

From ground-breaking to sky-scraping.

Property insurance solutions on a new global scale.

The AIG Global Property Division is a world leader in providing insurance, risk management and loss control services for commercial property and energy risks around the world.

Now we’re thinking even bigger. With larger per-risk capacity, new resources and capabilities worldwide. Whether your needs are local, multinational or global, our industry specialists can coordinate consistent service from engineering to claims to risk transfer solutions designed to meet your specific needs. To learn more, visit www.AIG.com/globalproperty

Insurance and services provided by member companies of American International Group, Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language. For additional information, please visit our website at www.AIG.com.

5

Provident funds

to be phased out Neesa Moodley-Isaacs

76 8 4

Government’s ambitious retirement reforms will eventually lead to the provident fund being phased out entirely. Provident fund members will find their fund’s treatment and tax to be the same as that of a pension fund.

T

he reason for this and other sweeping changes is that government wants to encourage South Africans to save more and to discourage the increasingly common phenomenon of people cashing in their retirement savings when they change jobs.

The end result is that less than six per cent of South Africans retire with sufficient savings, which increases the burden on the State.

Kobus Hanekom, head of general consulting at Simeka Consultants and Actuaries, says the retirement reform process is being phased in slowly but is very necessary. “Especially when you take into account the overall savings scenario in South Africa and how we rate internationally,” he says.

The sad reality is that South Africa’s savings and investment rates are low, particularly in comparison to other emerging economies such as Brazil, Russia, India and China (BRIC). And the forecast for the next couple of years is not positive. According to the World Economic Forum, savings in China are at 51 per cent and India is at 32 per cent while South Africa lags considerably behind at just 16.5 per cent.

This is further complicated by the fact that working careers have evolved and the days of working for one employer until you retire, are long over. Now, it is not unusual for someone to change employers up to 10 or 12 times within their entire career.

Changes ahead The retirement fund industry has a year to implement ‘T-day’ which takes effect from 1 March 2015. “T-day is all about changing the way tax deductions work and, from 1 March next year, pension and provident funds will be taxed the same way,” he says. Benefits will also be paid out the same way for all contributions made from 1 March 2015.

So, if a client has a provident fund currently and they retire in 20 years: they will be able to withdraw as a lump sum all the contributions they made prior to 1 March 2015. However, all the contributions made after 1 March 2015 will have to be withdrawn on the same basis as a

pension fund with only one-third paid out as a lump sum and the remaining two-thirds used to buy an annuity.

Another retirement reform that is looming on the radar is ‘P-day’. No date has yet been announced for implementation of P-day but it will change the withdrawal rules for retirement funds. Hanekom says the latest proposal is that you will be allowed to draw down 10 per cent or the equivalent of one year’s pension up to a maximum of about R15 000.

“People’s financial behaviour can often be relative to their income levels. On the other hand, some personalities just overspend with no thought as to the consequences. The new retirement reforms mean that although these big spenders will still be able to access their retirement savings, it will take them longer to do so,” he says.

Disciplined savers will be less tempted to access their savings with the new withdrawal rules

Hanekom points out that the average working South African contributes about 15 per cent of their gross income to their retirement savings, which is a high percentage. “The problem comes about when you see how often South Africans cash out their retirement savings on changing jobs.

They often have the best intentions of saving more money to make up the difference. But these intentions fall by the wayside. Even if the client increases their contributions later, they will never be able to make up the difference that compound interest would have made on their savings,” he explains. So even though we have a retirement savings structure in place, it is not sufficient.

77 5

Withdrawals before retirement will be taxed as follows: Amounts between R25 000 and R660 000 –18 per cent tax.

Amounts between R660 000 and R990 000 – a tax of R114 300 plus 27 per cent of the taxable income above R660 000.

Amounts more than R990 000 – tax of R203 400 plus 36 per cent of the taxable income above R990 000.

When your client retires, the tax-free lump sum that they can withdraw has increased from R315 000 to R500 000.

The larger increase in the tax-free lump sum is intended to avoid lower-income workers having to pay tax on their lump sum withdrawals. The tax they pay on the amounts they withdraw thereafter has also decreased:

Taxation changes In his Budget Speech earlier this year, Finance Minister Pravin Gordhan changed the way that retirement fund withdrawals are taxed, making it less attractive for people to access their savings before retirement and more attractive for them to preserve their savings.

With effect from 1 March this year, if a client changes jobs and withdraws a lump sum from their retirement fund, the first R25 000 will be tax-free. However, the tax they pay on subsequent withdrawals has now been increased to discourage them from accessing your retirement savings.

and limits. “Those who run into bad debt problems will still be tempted. At the end of the day, if someone wants to spend their savings, there is very little you can do to stop them. We are already seeing a high number of divorces that take place simply so that people can access their retirement funds,” Hanekom notes.

Automatic preservation A third change that the retirement reform will bring in, is that when you change jobs, your retirement savings will automatically be transferred to a preservation fund before you can access it or transfer it to a different retirement fund.

Currently, when you change jobs, your retirement savings are either transferred directly to another retirement fund of your choice or they are transferred to your bank account and you have to transfer it to a new retirement fund at your leisure.

“The new system will remove the temptation

78 8 6

Withdrawals between R500 000 and R700 000 will be taxed at 18 per cent of taxable income above R500 000.

Withdrawals between R700 000 and R1.05 million will be taxed at R36 000 plus 27 per cent of the taxable income above R700 000.

Withdrawals of more than R1.05 million will cost the client R130 500 plus 36 per cent of their taxable income above R1.05 million.

to spend your retirement savings. The money will already be in a tax-efficient, cost-effective savings vehicle. This is a good, tactical and clever move by the South African Revenue Service. It also leaves the option to access the funds if you have a financial crisis,” adds Hanekom.

Implications For hybrid retirement funds, which offer employees both a pension and provident option, the new system can reduce administration fees. “The fund can be collapsed into one structure, which will reduce fees. If your employer offers two separate pension and provident funds, there is no immediate reason to merge the two.

Companies may opt to do so going forward, if they wish to administer only one fund,” Hanekom says.

Costs to be cut “We recognise that households must be encouraged to invest in their future,

including investment in homes and saving for retirement,” Minister Gordhan said in his budget address.

In addition to the retirement reform measures outlined above, Minister Gordhan announced that “further steps will be taken to make sure that you have a secure income in retirement. Unnecessary costs in the system will be cut”.

To this end, an agreement has been reached with the Association of Savings and Investment South Africa on a way forward to reduce the level of charges for retirement savings products. Draft regulatory reforms around this are expected to be made public shortly.

“Legislation has already been passed by Parliament to improve governance over pension and provident funds, and to align the rules and tax treatment of pension and provident funds. We still seek improved coverage and preservation of retirement funds and lower costs in the system,” Gordhan added.

Regular contact

is key

Dominic Uys

The Institute of Retirement Funds is starting an initiative to engage more with the retirement industry. RISKSA has a look at the organisation’s efforts.

S

outh Africa’s Institute of Retirement Funds (IRF) has embarked on a campaign to educate the retirement fund industry on new legislation and recent developments in the sector. This IRF initiative has evolved into the form of bimonthly seminars, aimed primarily at retirement fund managers and trustees.

The latest of these seminars, ‘Trustee Fiduciary Duties: Bringing Realities to the Fore’, was held in Cape Town, Durban and Johannesburg over three consecutive days in February. IRF president, Zamani Letjane tells RISKSA how the seminars came about and what the IRF aims to achieve.

“Initially, the IRF hosted an event every six months, as well as an annual conference. Our members felt, however, that we weren’t doing enough to help them communicate and share their insights. So after our annual conference

last year, we organised a post-conference where we asked attendees to raise the issues that they felt weren’t covered,” Letjane starts.

retirement sector. “We believe that there is a need for to start setting up satellite offices and increase our reach that way,” he says.

“From the feedback, we realised that there is so much change and transformation happening in the field about which our members needed more information. The big issue was that changes happening at government level were not being communicated to the guys on the ground. We decided the best way of communicating the issues to the industry was to start organising information sessions every two months,” Letjane continues.

IRF board member, Wayne van Rensburg, also weighs in, “The feedback from our members has been pretty encouraging and we can see that people are information-hungry.” While on an organisational level, there are a few issues that need to be ironed out, Van Rensburg states that attendance has been strong so far.

Starting relatively small, the first seminars are taking place in the three major cities of South Africa. That said, attendance of the events has been growing. Letjane realises, however, that more needs to happen if the IRF is going to promote the sharing of knowledge in the

"The big issue was that changes happening at government level were not being communicated to the guys on the ground."

80 8 4

“Maybe next time we’ll find a more suitable venue and organise the event a bit differently, but the turnout has been good and the headcount at the event shows us that there is a need for this,” he says.

“What is great is that it is an independent space for people to obtain that information. In contrast, when a service provider hosts such an event, the information is often presented with a business objective,” Van Rensburg concludes.

RISKSA looks forward to seeing the IRF’s next round of seminars.

Protecting your

reputation

GENERAL LIABILITY INSURANCE AGRICHEM LIABILITY BROADFORM LIABILITY COMMERCIAL LIABILITY TOP-UP EVENTS LIABILITY EXCESS LAYERS AND UMBRELLA COVERS GENERAL PUBLIC LIABILITY MOTOR FLEET THIRD PARTY LIABILITY PERSONAL LIABILITY TOP-UP (XOL AND UMBRELLA) PRODUCTS LIABILITY WAREHOUSEMEN’S AND CARRIERS’ LIABILITY PROFESSIONAL INDEMNITY ARCHITECTS ATTORNEYS BUILT ENVIRONMENT PROFESSIONALS CHARTERED ACCOUNTANTS COMPUTER INDUSTRY DESIGN & CONSTRUCT ESTATE AGENTS FREIGHT FORWARDERS INSURANCE BROKERS LAND SURVEYORS PROJECT MANAGERS QUANTITY SURVEYORS UNDERWRITING MANAGERS

Telephone: +27 11 459 1640 Professional indemnity stuart sinclair stuart@leppard.co.za

Facsimile: +27 11 268 5887 General Liability insurance caroline macnair caroline@leppard.co.za

www.leppard.co.za Chartered Accountants Sherelle Horsfield sherelle@leppard.co.za

Underwritten on behalf of lombard insurance company limited (Fsp no. 1596)

FSP No iS 274

MR MANAGING RISKS

Treasure island - the demise of offshore tax havens

Anton Pretorius

Currently a hot topic, tax havens have been used by individuals and entities to evade or avoid the tax laws or regulations of other jurisdictions. However, governments across the globe are desperate for cash as the global economic slump has eaten into tax revenues, and would like nothing more than to get their hands on all that offshore wealth.

82 8 4

T

he term ‘offshore’ does not always refer to the physical location of private assets or liabilities, but also to the multijurisdictional or temporary locations of networks that manage and control private wealth – always in the interests of those who manage it.

In other words, one doesn’t necessarily have to fly to the Canary Islands with a big bag of money to stash ill-gotten gains or evade the taxman anymore. The past 30 years has seen the evolution of mainstream financial systems that is global in scope and, through secrecy and complexity, has enabled itself to profit handsomely from the tax evasion of the world’s richest citizens.

A report by the Tax Justice Network estimates that somewhere between $21 trillion and $32 trillion (R226 – R344 trillion) in wealth is shielded from taxation from various governments across the world.

“Assuming conservatively that global offshore financial wealth of R226 trillion earns a total return of just three per cent a year, and would have faced an average marginal tax rate of 30 per cent in the home country, the unrecorded wealth might have generated tax revenues of

$189 billion per year,” according to the report.

The fact that the global's richest individuals and entities are using whatever means neccessary to hide their money from government isn’t exactly surprising. But the term offshore – which brings to many minds sun-drenched islands ruled by corrupt government officials in cahoots with criminal tycoons – is misleading.

In fact, efforts by governments to crack down on efforts to impede their own tax collections have forced many governments, like the Swiss, to move away from their traditional banking protections that allow foreigners to evade taxation.

So a tax haven these days is less a function of one country with laws that allow for low taxation and secretive banking policies, and more an extension of a large and complex global financial system that is inherently secretive.

According to Graeme Saggers, director at Nolands Advisory Service Africa, a country like Mauritius has traditionally been the destination of choice for holding companies looking to invest into Africa. “Technically, Mauritius is regarded as a low-tax jurisdiction as opposed to a tax haven with the distinction being that

83 5

tax is paid (albeit at negligible rates) and the secrecy of other tax havens does not exist.”

However, Saggers believes that while this is still an option, companies need to be careful with how they structure their investments in the light of the OECD’s (Organisation for Economic Co-operation and Development) action plan on Base Erosion and Profit Shifting (BEPS) and the revised double taxation agreement between South Africa and Mauritius.

“South Africa has recently implemented various incentives to encourage large corporates to incorporate their holding companies in South Africa when investing into the continent.”

In April 2012, section 31 of the Income Tax Act, which addresses transfer pricing in South Africa, was amended. This involved the elimination of the previous safe harbour provision for foreign shareholder investment and replacing it with an arm’s length requirement in order to align the South African legislation with the guidelines of the OECD. “To date, SARS has released only a draft interpretation note to provide guidance

on the practical application of the arm’s length principal. In May last year, South Africa and Mauritius signed a new double taxation agreement (DTA) following indication from both SARS and National Treasury that the existing DTA was being abused, leading to the erosion of the tax base,” adds Saggers.

The new agreement means that certain companies that previously were only taxed in Mauritius may now be regarded as tax residents in South Africa and hence, will be taxed locally. This renegotiation of the DTA is one of the many expected in the near future following the OECD’s release of its action plan on BEPS. “The action plan was released as a response to a growing concern in the international community that large multinational enterprises are unethically exploiting gaps and frictions in the interaction of different countries’ domestic tax laws.

This plan lays out certain goals of the OECD to be achieved in order to counter BEPS and is likely to result in the renegotiation of certain DTAs, signing of multilateral agreements and exchange of information agreements,” says Saggers.

Offshore tax risks Many tax risks exist for any organisation.

One of the largest is the risk of proper tax compliance. SARS audits are costly, time-consuming events. However, there are several risks attached to offshore tax havens.

While rebates exist to ensure that is it unlikely that companies will ever pay double taxation, there is the risk that failure to pay the correct amount of tax to the correct authorities may result in additional unnecessary penalties.

“When operating in multiple tax jurisdictions, corporates need to ensure that any transaction between branches or related party companies is conducted at arm’s length.

The question is: how can companies most effectively manage these risks and what are brokers failing to tell their clients? According to Saggers, companies need to adopt a proactive tax risk management strategy.

This will ensure that they do not fall foul of tax legislation pertaining to transfer pricing.

While the detail of different countries’ transfer pricing legislation may vary, the principle of arm’s length-based transactions is common,” Saggers says.

“The days of relying on your auditor to calculate your tax liability at year-end have long passed. Companies need to engage with a tax expert on an ongoing basis and specifically when conducting any business offshore.”

He adds that the requirements of what constitutes a permanent establishment in a specific country may vary depending on the local tax legislation as well as any applicable double taxation agreements.

He continues, “By pre-empting the tax risks involved, companies will ensure that they structure their investments and operations appropriately to ensure an efficient tax structure.

“Companies need to be aware of this and ensure that they know when their operations in an offshore company will be classified as a permanent establishment as this will likely mean that the foreign country has taxing rights on the profit generated by that operation.”

A tax risk management strategy not only involves ensuring any investments are structured appropriately upfront, but also that companies are up to date with any changes in legislation or regulations that may affect their business.”

84 8 6

RiskSA_Lif

Global strength

Regional teams

Local guru

Put life into motion – anywhere in the world Life insurance markets are changing rapidly – and opportunities abound. Together with our team of experts, you can quickly design and roll out new ideas at the global, regional, or local levels.

It’s an integrated, customized approach to product development. And it’s the perfect combination for moving forward in new, promising directions.

Learn more at www.munichre.com/life

Not if, but how

RiskSA_Life_210x275_en_Ebenen.indd 1

25.06.13 18:04

Cyber-

attacks

and online business Dominic Uys

If you follow the news, it seems that the concern over companies’ IT security is growing. In recent months, impartial industry experts and IT companies alike have been quoted in the media as saying that the risk of cyber-attacks on individuals and companies is on the rise.

86 8 4

A

n article that ran in the American press last month paints an even more alarming picture. According to the report, a number of insurers have refused cover for some of the independent power producers in the country, stating that their IT networks were not secure against hacking from external sources.

employee’s desire to have access to his work at all times should not be viewed as a negative and companies are not stimulating productivity by restricting its people more and more. Instead a company needs to look at how it can accommodate the people working there. You have a number of options in this regard.

While we have yet to hear of a similar situation developing in South Africa, NETCB CEO, Cobus Burgers, points out that even companies with the strictest security protocols can find themselves vulnerable to infiltration.

The source of the breach, the company’s own staff, often means no harm.

“Firstly, there are a number of secure cloud servers available that can help your employees share their work with their personal devices.”

“Once that is taken care of, you need to look at securing the employee’s devices. In this regard, the company obviously needs to look at encryption software. Also, since theft of electronic devices is so common in a country like this, a company should also consider software that allows it to remotely wipe the device if it goes missing,” Burgers adds.

Burgers rightly states that employees are using more consumer devices, such as tablets and smartphones, and enhanced enterpriselevel mobile applications when working away from the office, whether at home or on a client’s premises.

However, allowing them to use an array of employee- and employer-provided devices to access corporate data and resources when working remotely frequently opens up new challenges from a security standpoint.

Accommodating work culture “It is obvious that unsecured cloud services and social media could pose a threat to a company’s IT network. Anybody can potentially gain access to sensitive or privileged information. Quite often we see that companies recognise this gap and, as a result, try to lock down their IT network. The problem is that a company’s employees often have a tougher time as a result,” Burgers starts.

“Employees in many companies often need to continue work at home and to share their company documents with their home devices through Dropbox or similar services. Where companies restrict access to online and social media services, employees find ways around that, pairing their phones with their computers or the like. Naturally this loophole makes the entire system vulnerable,” Burgers explains.

He goes on to say that companies need to start viewing their IT security differently. “An

Minor inconvenience, major cost Another growing threat is the distributed denial of service (DDoS) attack on websites. A DDoS attack is a directed attempt to make a machine or network resource unavailable to its intended users. Hackers do this by simply flooding a network or website with so much data that it slows down to a snail’s pace until the network fails or the network needs to be shut down.

While this kind of attack on a company’s website may seem short-lived (the usual duration of a DDoS attack is anywhere from a few hours to a day or two), the implications are far-reaching, according to Anton Jacobsz, MD of Networks Unlimited.

“It is easy to hire a botnet to carry out a DDoS campaign on your behalf. Numerous sites offer this ‘service’, it is easy to pay and the rates are very reasonable. This has led to DDoS being used as a competitive weapon between rival businesses,” Jacobsz points out.

In what is easily the scariest development in modern hacking, DDoS attacks can now be ordered from professional-seeming hacker services at competitive prices. Jacobsz tells RISKSA that one of his clients has first-hand experience of how hard this can hit.

Jacobsz points out that most service providers are still ill-equipped to deal with massive DDoS attacks on individual sites. “If there is a massive amount of traffic to and from one website, the service provider needs to shut it down to protect the rest of the network,” he states.

In terms of insurance and brokerages, this also puts a company’s attempts to engage online with its clients at risk. The DDoS attacks open up the network to further hacking from outside.

“If a company’s secure gateways get flooded, they need to get shut down to keep the network running. Hackers then come in on the application layer and gain access to the company’s internal system, like what happened to Sony last year,” he says.

“Most companies are also completely unaware that they are the subject of a concerted DDoS attack. We often ask our new clients if they have been attacked and their answer is usually no. If we then ask them if they have experienced any unexpected network or line outages, they say yes,” Jacobsz continues.

The solution, according to Jacobsz, is one of three options. “Firstly, a company can install a hardware device on the enterprise network that can monitor and scrutinise incoming data. It will effectively stop large amounts of nonsense data clogging up the system and protect the company’s network that way. This solution can also be done at a service provider level.

The final option is a cloud server, which we recommend to our larger clients.

“Arbor Networks, for example, has a massive cloud server with a number of engineers monitoring it at all times. The device on the client’s line will identify an attack and reroute all that incoming data through the cloud server, where data scrubbers will clean it up and and send it back to the client at a regulated rate,” Jacobsz says.

With the challenges faced by the IT industry in making the networks safe, it is heartening to see that the security in the industry is evolving fast enough to meet the risks headon. “The investment in technologies and the infrastructure to support them is beginning to pay off,” Burgers concludes.

87 5

RECOGNISING

RISK

The Momentum Risk Summit 2014 took place at Sun City in February and delivered a realistic perspective of existing risks in South Africa, be they economic, technological or political, with an upbeat outlook for the industry.

Christy van der Merwe

T

he 240 financial advisers in attendance heard from analysts, actuaries and reinsurers who work globally, drawing comparisons with Australia, the UK and the US, and highlighting many reasons to be optimistic about the South African market.

Building Momentum Momentum Retail CEO, Mark van der Watt, explained that since 1998, through the Metropolitan Momentum merger, as well as the Sage and Southern Acquisitions, MMI has grown to become 113 times larger with 1 600 times greater earnings. The company has 1.2 million policies and 951 000 policyholders, with assets under administration of R185.5 billion. “Overall, financial wellness has become the mantra,” says Van der Watt.

Momentum has a new focus on the end consumer, to raise awareness of their products,

88 8 4

and become somewhat more client centric, so that brokers can put Momentum products in front of their clients with confidence.

The company has a new partnership with Pick n Pay, which sees Momentum co-sponsoring events such as the Argus Cycle Tour and the Knysna Marathon. It is a boost for the brand to be aligned with healthy events such as this.

There is also increased advertising to ensure that end consumers understand exactly what MMI does and how the company can ensure financial wellness on all levels.

This does not, however, signal a diminished role for the broker. “We are a company with our roots in financial advice. Without financial advice and advisers, we don’t have a business,” reiterates Van der Watt.

The company continues efforts to make business easier for advisers, particularly

through technology, and notes that the Myriad e-application is proving successful, with about 30 per cent of applications now coming through on this platform.

2013 claims total R2.6 billion Steven van Niekerk, head of Momentum Myriad, assures brokers and clients that the company has a good record of paying claims, understanding that if claims do not get paid, this makes it difficult to attract new business.

Momentum retail insurance paid out over R2 billion in death claims and more than R2.6 billion across all benefit types in 2013, an increase from R2.3 billion in 2012. The company also paid R1.4 billion in group life insurance, which means that a total of R4 billion in risk claims were paid in 2013.

This indicates a 94.5 per cent payout rate,

From left to right: Dr Azar Jammine, economist; Max du Preez political analyst; Dr Adela Osman chief medical officer

accarding to Van Niekerk. He adds that only one per cent of claims was repudiated and 4.5 per cent of claims either did not meet definitions medically, or were inappropriately submitted in a bid to receive payment.

The reasons for repudiated claims were non-disclosure in 96 per cent of cases, while suicide accounted for four per cent of repudiated claims. Momentum Myriad’s repudiation rates were lower than the industry average, according to an ASISA survey of 2012 claims statistics.

Since inception in 2002, Momentum Myriad has paid over R31.4 billion in risk claims, and currently, the total sum assured on the Myriad book is over R850 billion.

The largest death claim paid in 2013 was R34 million, significantly less than the largest death claim paid in 2012, which was R97 million. The largest critical illness claim paid was R4.6 million, and the largest income disability claim paid was R278 000 a month, also significantly less than 2012’s largest disability claim which was over R500 000 a month.

The major causes of death claims from Momentum in 2013 were cardiovascular (33 per cent); cancer (19 per cent); respiratory (14 per cent); unnatural (11 per cent); and nervous system (10 per cent).

The predominant causes of unnatural death claims in 2013 were motor vehicle accidents (42 per cent); suicide (24 per cent); murder (17 per cent); other accident (12 per cent); drowning (two per cent); aviation (two per cent); and trauma (one per cent).

Van Niekerk asserts that Momentum is confident in its underwriting, and underwriters are accessible, should clarity be required from intermediaries.

The company is also pleased that it is now seeing a 25 per cent uptake of the Multiply programme, which offers discounts through wellness, with partnerships with companies like Mango for flight discounts.

In terms of longevity protection products, between 40 per cent and 50 per cent of all business is now coming with a longevity attachment, as clients are realising the value proposition of this. Particularly since a portion can be paid back as a lump sum at retirement if no critical illness claims have been made.

political analyst Max du Preez, futurist Daniel Silke; satirist Pieter Dirk Uys; and Munich Re Africa Asia Pacific UK and Ireland Life CEO Andrew Rear.

The audience was encouraged to participate, with technology allowing delegates to feedback information to the summit organisers.

The delegates were composed of 42.6 per cent independent brokers, and the majority (50 per cent) were from Gauteng.

Confirming reports of the ageing intermediary skills base, 48 per cent of the audience was between 41 and 50 years of age, and 24 per cent were between 31 and 40 years of age.

Feedback was sought from brokers on a number of issues, and the intermediaries in attendance said that the most important factors to brokers placing business, is firstly, the breadth of coverage from a provider; and secondly, the ease of doing business.

Summit highlights

Delegates were also treated to a gala dinner, where Springbok rugby players from the 1995 World Cup winning team were in conversation in an informal question and answer session.

Delegates heard from an array of speakers including various Momentum executives; technologist Simon Dingle; Swiss Re Life and Health chief underwriter Africa, director Brian Gibbon; economist Dr Azar Jammine; General Reinsurance Africa MD Paul Lewis;

Joel Stransky, Kobus Wiese, Balie Swart and Hennie le Roux gave insight into their World Cup victory, and delivered sage advice on the importance of trust and teamwork, which would help build any successful business.

89 5

CR CAREER

Locking up the

filing cabinets

The Protection of Personal Information (POPI) Act, signed into law in November of last year, has been on the mind of every financial service provider since the bill was first put forward.

Dominic Uys

I

n spite of non-compliant businesses facing substantial fines and company directors facing possible legal action, the news is not all bad and some see the prospect of POPI compliance as an opportunity for companies.

Simply stated, the POPI intends to promote the protection of the personal information processed by public and private bodies and to introduce information protection principles.

It also makes room for the establishment of

90 8 4

an Information Protection Regulator, who can enforce the codes of conduct outlined in the Act. That said, POPI is not in effect yet. Not only do we need to wait for a commencement date, but POPI also allows the private sector a year from the commencement date to comply with its requirements. “This is good news for the industry since companies will need to completely rethink the way in which they gather and store information,” says Neil Kirby, director at Werksmans Attorneys.

“We are going to have to start by looking at the kind of information that we already gather from clients,” Kirby starts. “It needs to be very clear to the company why they have the client information and what they intend to do with it. Since you are now taking responsibility for every byte of client information that is in your possession, you need to ask: do I really need to know this much about my client? If you don’t need the information, you would be best served by destroying it,” he continues.

This opens up an opportunity for a company, according to Kirby. “The POPI Act forces us all to scrutinise not only the type of information that our company collects, but also where the information is kept. In most companies you will find that customer information is scattered throughout the system. POPI now forces companies to implement better systems to manage information and, in doing so, become significantly stronger when it realises how much information it really has stored, and how it can utilise the information,” Kirby says.

Reworking storage Cobus Burgers, CEO of IT company NETCB, tells RISKSA that storing information will need to undergo its second mind shift in a relatively short time. While companies have initially started getting used to cloud storage and computing as a viable business tool, POPI will once again force the industry to become less reliant on cloud storage.

“Cloud storage is quite secure and a lot of companies have come to see the benefit of it. The problem now is that POPI forbids the storage of sensitive information outside of the country’s borders; a significant problem, since most cloud storage servers are located in other countries,” he says. The solution, according to Burgers, is that companies will once again need to have internal servers, rate it's information in terms of sensitivity and then store the most important content on site.

“A company doesn’t have to abandon cloud storage altogether. You will need to look at creating layers of information and make sure that access to the information is regulated accordingly,” he explains.

“To be clear, POPI doesn’t forbid cloud storage itself but South Africa simply does not have any of those. It may perhaps create a demand in the IT market to be catered for,” Burgers adds.

No reason for panic Kirby points out that South Africa is unlikely to see many litigation suits or major punishments resulting from POPI, in spite of the picture painted by the mainstream media. “On the one hand, we could see lawsuits regarding leaked information getting drawn out by the Act, but we are probably not going to see the Regulator dragging companies to court for non-compliance. The Regulator would probably allow non-compliant companies some grace to fix wherever they aren’t complying with the act, before taking steps. Overall, the response from companies has been relatively positive and we should see the vast majority of participants in the industry do their best to comply,” Kirby imparts.

Werksmans outlines a checklist for companies to follow, in order to make sure that they are compliant.

Audit the processes used to collect, record, store, disseminate and destroy personal information: in particular, companies must ensure the integrity and safekeeping of personal information in their possession or under their control. They must take steps to prevent the information being lost or damaged, or unlawfully accessed.

Define the purpose of the information gathering and processing: personal information must be collected for a specific, explicitly defined and lawful purpose that is related to a function or activity of the company concerned.

Limit the processing parameters: the processing must be lawful and personal information may only be processed if it is adequate, relevant and not excessive given the purpose for which it is processed.

Take steps to notify the data subject: the individual whose information is being processed has the right to know this is being done and why. The data subject must be told the name and address of the company processing their information.

In addition, they must be informed as to whether the provision of the information is voluntary or mandatory.

Check the rationale for any further processing: if information is received via a third party for further processing, this further processing must be compatible with the purpose for which the data was initially collected.

Ensure information quality: the company processing the information must make sure the information is complete, accurate, up to date and not misleading.

Notify the information Protection Regulator: when the POPI is enacted and a regulator established, organisations processing personal information will have to notify the Regulator about their actions.

Accommodate data subject requests: the POPI allows data subjects to make certain requests, free of charge, to organisations holding their personal information. For instance, the data subject has the right to know the identity of all third parties that have had access to their information. A data subject can also ask for a record of the information concerned.

Retain records for required periods: personal information must be destroyed, deleted or ‘de-identified’ as soon as the purpose for collecting the information has been achieved. However, a record of the information must be retained if an organisation has used it to make a decision about the data subject. The record must be kept for a period long enough for the data subject to request access to it.

Cross-border data transfer: there are restrictions on the sending of personal information out of South Africa as well as on the transfer of personal information back into South Africa. The applicable restrictions will depend on the laws of the country to whom the data is transferred or from where the data is returned, as the case may be.

Find out if your industry regulator requires you to make any additional tweaks to your new information policy in order to comply with financial legislation.

91 5

Policyholders’ best interests at heart

“The importance of equipping staff with the knowledge necessary to deliver outstanding customer service cannot be emphasised enough.”

– SAIA Code of Conduct.

Modern codes of conduct spell out ‘best practice in sales’ Modern codes of conduct spell out ‘best practice in sales’ – what may be considered professional behaviour and leaving very little room for misunderstanding. Having the policyholders’ best interests at heart means rendering advice within the parameters of the law, based on trust, confidentiality, fair dealing and no personal gain or self-interest.

Representatives must be properly qualified to offer advice Understanding the rights and recourse of policyholders is a crucial component in representative training. Occasionally, disputes arise around specific issues where the insurer’s representative should be in a position to offer advice and resolve the dispute quickly and efficiently.

Johan Wolhuter Portfolio Manager at Renasa Insurance Company Limited Klerksdorp

92 8 4

With an onerous level of regulation, it is important to balance the safeguarding of consumers with business objectives The extent to which financial institutions and

persons in the financial services industry must contend today with governing legislation is enormous and growing. There is a considerable amount of legislation, including much that is new or recently amended, and it is difficult to grasp the impact of it all. This can be arduous, but when it comes to implementation, it is important to sustain a healthy balance that both safeguards consumer protection and meets business objectives.

TCF is an example of such regulation The Treating Customers Fairly (TCF) regulatory regime is now going full steam ahead under the supervision of the FSB. One of the goals of TCF is to ensure that consumers understand the benefits and risks of financial products. This requires giving clients clear information about the products. The clients must fully understand what they are purchasing.

Plain language is an important element of TCF TCF will have to go hand in hand with the plain language requirement. Section 22 of the Consumer Protection Act is very clear in this

regard. The Code of Conduct also stipulates that policies, disclosures and requirements should be presented in plain language in order for the client to be able to make an informed decision. Terminology and language should be clear and not ambiguous.

The Protection of Personal Information Bill is another relevant piece of legislation One of the most significant effects of Protection of Personal Information Bill (POPI) will be the introduction of comprehensive and dedicated data protection legislation. This is likely to impose heavy compliance burdens on South African companies and public bodies. Data protection has been an issue for some time in the developed world, but it’s a relatively new concept for South Africa, even though the right to privacy is enshrined in the Constitution.

One of the prime objectives of The Financial Services Laws General Amendment Bill (Omnibus Bill) is to ensure and address South Africa’s compliance with international standards of financial legislation. POPI was enacted 26 November 2013 and will be promulgated on a date yet to be determined by the president. Once the act commences, we will have a year to conform to its requirements. POPI protects personal information by restricting how the information may be collected, used and stored.

This means that we will have to ensure that adequate information security protocols are in place in every area of our business where there is gathering, securing and use of personal information. Client information can be shared only as stipulated by law, as approved by the client, in the public interest or for crime combating purposes. In all other instances, client information will remain entirely confidential.

The advice-giving procedure incorporates the needs analysis, identification of products, offering of products and providing the client with the opportunity to decline a product.

The party obtaining the information must implement procedures to ensure that the personal information is updated where necessary, accurate, complete and not misleading as this is the information on which the issue of the advice will be based.

It is essential for organisations to have staff awareness and management training programmes in place to ensure that all staff have a good understanding of their obligations under POPI and related laws.

These are but two examples of the complexity and volume of compliance within the regulatory environment that need to be taken into account when providing sound financial advice. And, the right consulting means the right advice.

Current economic circumstances raise the spectre of average and making clients aware of the dangers is crucial It is not only the rising fuel price that is making consumers gasp. The value of many household goods has also skyrocketed, leaving many policyholders with insufficient cover. Inflation and the depreciation of the Rand could have serious consequences if clients don’t keep up with changing replacement values.

Many categories of goods, especially consumer electronics and engineering equipment, are imported. Adverse exchange rates also push up the local price of items such as computer hardware and software, and manufacturing plant and equipment.

The depreciation of the Rand against the Euro, South Africa’s major trade currency, as well as against the Dollar and the Pound, impacts not only on consumers’ wallets, but also on their insurance cover – a fact many policyholders overlook. Constant vigilance is needed to keep under-insurance at bay.

A client’s understanding of the product is crucial. A close relationship with your client will help to better analyse their needs and convey the suitable product benefits For many insurance buyers, entering into a contract is very daunting. Highly technical with pages of small print and confusing jargon … it’s too easy for consumers to sign on the dotted line without really knowing to what they’ve just committed. This is where the services of a reputable broker or intermediary are indispensable.

If a client is searching to get cover, or to change it, it’s worth insisting that the broker does the necessary groundwork. It remains the clients’ prerogative to create clarity and structure. Give some serious thought to what they really need as the benefits of a close relationship with your customers should never be overlooked.

This exercise should help your client understand that you are putting them in the picture, and why you are recommending certain options, with their best interests at heart.

This approach follows a partnership model that will lead to better behaviour. Dedicate time to the client to build a relationship of trust. Be client-centric, giving full attention to detail, with a view to delivering appropriate solutions.

There is no one-size-fits-all approach.

The objective must be to deliver the best solutions for a client’s changing needs The objective must be to provide new and distinctive solutions that address and benefit every client’s ever-changing needs, taking into account the ever-changing legislative landscape.

93 5

Breaking into new markets why the grass may not always be greener Michelle Camps

Your brand and products are doing well locally; it is time to launch into new markets.

T

he obvious choice is to launch into the rest of Africa, you won’t have to cross any oceans and it is relatively close to your South African head office, so surely that is the easiest choice. Well, it may be a good choice in the long run but not an easy road initially.

The assumptions that are taken when launching brands in foreign markets are often costly mistakes that could have been avoided. There are profitable gains in breaking into the markets on the African continent which has some of the world’s fastest-growing economies. However, as with most great opportunities, these come with some interesting challenges.

Not enough emphasis can be placed on research and the importance this initial groundwork can play in the success of your brand launching in a foreign market. Firstly, research whether there is a real need for your brand and products even if there is no competitor, don’t just assume that your brand is going to be a best seller. There may be a very real reason why no one has entered that particular market; perhaps they have and failed.

Research market needs and the competitive brands. Don’t enter an already saturated market unless you have a very unique brand proposition that those consumers aspire to.

Know whom you are targeting, their social and religious preferences, their purchasing habits and, most importantly, what language

they speak. Don’t assume, for example, that because they speak Portuguese and it is an island destination that they are aligned to Brazil. Having worked on a leading global beverage brand some years ago where a batch of global material was produced, this was a lesson we learnt quite smartly. We were surprised that bikini-clad women, which was well received in Brazil, was not acceptable on a billboard in Mozambique, given their more conservative approach to advertising at the time. It was a potentially costly error for a global brand; however, the company’s foresight in having local agencies manage their brand ensured that the matter was quickly resolved. It is vital to know every aspect of the local market.

It is not always necessary to localise your brand; however, ensure that any graphics, icons or colours used are not offensive in local culture. It is often far more prudent and costeffective to find credible local business partners that can help you navigate through uncharted foreign markets.

Kelvin Onuoka, CEO of Kenna Consulting, has consulted with many multinational organisations in facilitating cross-border business transactions across the African continent and has experienced some of the challenges that investors are likely to encounter. In his

experience some of the common challenges to expect are infrastructure deficit – poor road networks; inconsistent electricity supply; and low telecommunication/Internet penetration.

On a commercial level, other challenges include finding credible local business partners, understanding cultural differences, avoiding fraudsters, skills shortage, dealing with public sector bureaucracy, exchange control issues, political instability, terrorism, piracy, poor credit rating, corruption and crime.

It may sound a little scary, yet Kelvin assures us that these challenges are not insurmountable and should not deter any serious investor from taking advantage of the enormous growth potential across the continent. He believes Africa remains a continent of economic misperceptions where risks are often overstated and opportunities are highly understated.

“Don’t enter an already saturated market unless you have a very unique brand proposition that those consumers aspire to.”

Michelle Camps is a marketing and communications specialist with a wealth of experience covering a broad spectrum of industries from financial services and healthcare to aviation and tourism. Michelle is an independent consultant assisting clients with marketing and communications strategy, brand management and business development. If you have questions for Michelle regarding advice for your business, please forward these c/o editor@risksa.co.za

94 8 4

Travel insurance

sees opportunities Dominic Uys

The global tourism industry is showing significant growth and the outlook for 2014 is positive. This may be good news for travel insurers, if the industry can adapt to the demands of a tumultuous economy.

U

sually, the primary sectors that suffer in a bad economy are the commodities that people can go without. As consumers cut down on their expenses, leisure and luxury spending quickly falls off the priority list and, globally, luxury spending was stagnant by the third quarter of 2013. The tourism industry, on the other hand, has witnessed an unexpected upswing as a number of foreign currencies lose traction against the Euro and the Dollar.

Recently, research done by Sainsbury’s Bank Travel Insurance in the UK revealed that around 22 million people in Britain were planning overseas holidays for 2014, while around 20.6 million people were planning a holiday within the country. From the results, the survey estimates that a collective £37 billion (about R664 billion) will be spent overseas by UK citizens throughout the year.

While this is good news for the tourism industry in places like Greece and South Africa, it doesn’t completely promise good earnings for every stakeholder in the tourism sector. The findings reveal that these holidaymakers still plan on reducing the cost of their vacations wherever they can.

Around 24 per cent of the respondents indicated that they intended to book their holidays independently, going directly to their chosen airline and accommodation providers in

96 8 4

a bid to reduce costs. Another 15 per cent has resolved to keep a strict, cost-cutting budget while on holiday.

Thirteen per cent of the survey respondents intend to choose the most budget-friendly holiday they can find. Keeping in mind that tourists are looking to slash their extra costs by as much as possible, the company has already started commenting publicly on the rationale of buying travel insurance, stating: “It’s worth ensuring your policy has travel disruption cover as this will cover you for incidents such as airline failure or cancellations – without insurance in place, you may be left out of pocket.”

Better economies selling less insurance International market researcher, Finaccord’s research over 40 countries, shows that Sainsbury is not wrong in calling potential customers to action. While the global market for stand-alone travel insurance and assistance is expected to rise to $18.1 billion by 2017, the research shows that most of the world’s largest and most established travel insurance markets are in decline; this includes Europe and the US. The most opportunity for this expected growth, according to Finaccord, is to be found in Latin-America and the Asia-Pacific region.

While Europe was still responsible for around 33.2 per cent of gross written travel insurance

premiums in 2013, it is believed that Europe’s significance within the global picture is diminishing rapidly.

Finaccord’s findings indicate that the Americas and Asia-Pacific regions are set to overtake Europe on premium sales by 2017. The shift is reportedly fuelled by the rapidly expanding outbound leisure travel sectors of several developing countries, including Argentina, China and India, according to the report.

Further, the company estimates that the Chinese and Saudi Arabian travel insurance markets will undergo rapid expansion by 2017.

Weather-related payouts The vast majority of international insurers have complained about extreme weather events putting strain on the sector. It seems that few countries are safe from the unusual weather that has come to define the decade. For the travel insurance industry, this might prove to be a mixed bag, as recent events indicate.

The bitter winter that the US experienced this year, has resulted in a record number of flight

cancellations. Between December of last year and February of this year, US airlines had cancelled more than 75 000 flights, amounting to around 5.5 per cent of the total number of flights scheduled for that period. US-based travel insurance comparison site InsureMyTrip reported that this has led to a sharp increase in calls from concerned travellers and company CEO, Jim Grace, states that the company has seen a marked increase in demand for travel insurance products.

Europe also witnessed similar happenings at the end of last year, when Hurricane Xavier caused the cancellation of hundreds of flights for two days in a row. And the examples continue to mount from unusually thick fog in Delhi earlier this year, to volcanic ash in Bali, all of these cutting short or unexpectedly extending vacations through flight cancellations.

As the times we live in continue to get more interesting, the international travel insurance industry is undoubtedly faced with an opportunity and an expectation to adapt to the changing landscape.

97 5

Background screening industry forecast for SA business

The EMPS Annual Screening Report 2013 reviewed the ‘ESR Top 10 Background Check Trends for 2014’ published by Employment Screening Resources (ESR) and its relevance to the South African screening industry.

Kirsten Halcrow, EMPS The ‘Ban the Box’ movement which seeks to eliminate questions about past criminal conduct on initial job applications, is quickly heading towards becoming a national standard.

The ‘box’ refers to where an applicant is asked to answer yes or no about a criminal past.

The idea is that asking about criminal records upfront serves as a potential early knock-out punch for ex-offenders who may otherwise be qualified. South African companies need to apply the same principle – details of records; type of conviction; date of conviction; and relevance to the job must be considered.

Companies can no longer have a blanket rule that they do not employ applicants who have a criminal record.

2

Updated EEOC guidance on use of criminal records by employers is becoming a core concern for human resources.

Although not a law or legally enforceable regulation, it is critical for employers to understand the guidance since it shows how the EEOC interprets the use of criminal records. The

98 8 4

same applies for South African companies when considering the relevance of criminal record to the position that an applicant has applied for.

3

The use of commercial criminal databases and cheap do-it-yourself background check web sites will be the focus of increased scrutiny and controversy in 2014.

Employers face more risk when screening job applicants as the demand for accuracy in background check reports rises. South African companies should be utilising only the AFIS criminal check, as this is the only legal, reputable and reliable means of checking criminal records in SA. Class action lawsuits for failing to perform background checks properly, are becoming even more prevalent.

Given the need for employers to exercise due diligence in hiring and, at the same time, comply with the complex legal environment regulating hiring. South African companies need to know risks associated with not screening job applicants as well as the applicable laws that govern screening.

Social network searches are being used less for background checks and more for recruiting and sourcing.

Given the increasingly complex legal environment, employers in 2014 will be faced with the challenges of ensuring that a background screening provider utilises best practices, to be in compliance with applicable laws as well as accuracy.

While a hot topic in past years has been the use of the Internet to help with employee selection through social media background checks, it appears that this trend is fading fast for a number of reasons. We anticipate the use of social media will remain a means of screening for SA companies.

Companies do need to be very cautious of how such information is used and that applicants are not discriminated against based on personal information.

Although there isn’t an official body governing the screening industry in South Africa, companies need to look for a reputable business with knowledge of the applicable laws as well as a proven track-record.

Identity theft and offshoring emerging as important factors.

Credit reports are becoming a disfavoured tool in employment screening and may disappear from the hiring landscape.

Employers in the United States are coming under increased pressure to protect the personally identifiable information (PII) of job applicants. In 2014, employers may need to closely examine their processes in the area of protecting PII. South African companies need to become familiar with the Protection of Personal Information (POPI) that was signed into law in November 2013.

Employers should generally approach the use of credit reports for employment purposes with great caution. South African business must be familiar with the National Credit Act and the fair use of credit data for hiring purposes.

Picking up a date

Showing off

The back seat

In 2014, the use of international background checks will increase as employers open offices outside of the country and hire people who have spent time abroad.

South African businesses are expanding into Africa and need to be able to do checks in African countries. The challenge is the availability and access to such information, however.

Technology will continue to decrease yhe time and effort needed for background checks in 2014.

In the coming year, employers can expect to see even more robust applicant generated report (AGR) systems where applicants perform the data entry and also integration with applicant tracking systems (ATS) where employers can simply click a button and be done. With the use of biometric technology for criminal checks, technology is certainly at the forefront of the screening industry in South Africa.

The drivethrough

Arriving in style

There are lots of reasons why your clients love their cars.

There is only one vehicle recovery system to recommend.

Less than R4 a day* Quick and wireless installation Lifetime warranty* www.beame.co.za 0860 BEAME1 (232631)

/BeameTracking @Beame_Tracking

*A few Terms and Conditions apply.

4959_trade_ad_FA.indd 1

2014/03/14 11:53 AM

99 5

Giving great

PRESEN T Public speaking skills are essential for business, but they don’t come easy. Leaders at all levels can benefit from a few best practices that will help them deliver a killer presentation every time.

Connect with your audience

One of the most common mistakes speakers make is talking at their audience and not to them. Being at the podium gives you an air of authority, so be wary of coming across as arrogant or egotistical.

Be aware of your tone, body language and attitude. At the very beginning, Simpkins suggests you take a barometer reading by asking a couple of open-ended questions.

“Are they social, well-read, culturally inspired? Knowing this will help you gauge your appeal,” he says. “But remember, there is no such thing as one speaker who can appeal to everyone.”

100 8 2

Start at the end The first thing you should do is ask what you want your audience to remember when they leave. It may sound counterintuitive to work backwards, but it’s important to zero in on your take-away message before you write your notes. “People often don’t start with a strategic objective,” says Simpkins.

“If we don’t know what it is we’re trying to convey, how can we expect the audience to know?” It’s also important to keep your message short and to the point. According to Simpkins, if the heart of your message can’t be summed up in two sentences, head back to the drawing board.

S

weaty palms, beating heart, all eyes on you. When it comes to public speaking, even the most seasoned executive can come down with a case of the nerves. Whether you suffer stage fright or you want to improve your style, the most important thing is to be prepared. Take a few tips from independent marketing and communications strategist, Clive Simpkins, to boost your communication confidence and the effectiveness of your message.

Share your passion “One of the most memorable speeches I can recall was by a French medical researcher,” says Simpkins. “I had no real interest in the science, but couldn’t stop watching him. He blew me away with his utter and complete passion and intensity for his work.” Speakers are sometimes so wrapped up in their notes and slides, they forget the reason they are there in the first place. Passion is one of the most infectious emotions and audience members pick up on it immediately. Don’t be afraid to share that enthusiasm. If you do, your listeners will inevitably share it too and your message will be remembered long after you leave the room.

Embrace technology

Use imagery

Thanks to remote video-conferencing programmes like Skype, Vsee and Google Talk, you can share your message without leaving the office. But, virtual programmes take some getting used to. Familiarise yourself with the technology so you don’t spend the whole time focusing on controls instead of your audience. A few practice runs can improve how you present yourself online. “The major thing about using remote techniques is that you lose the nuance of non-verbal communication,” says Simpkins.

Without the aid of body language, your message can get lost in digital translation.

“Be careful what you say facetiously or in humour, it can be horribly misunderstood.”

Tell a story

Not everyone takes in information the same way, some listeners are visual learners and others auditory learners. So, it’s important to cover all your bases. By coupling storytelling techniques with images, you can help listeners better connect to your message.

“You want to activate the visual cortex in the brain, which you can’t do with words,” says Simpkins. “Use strong images, colours and schematics that actually constitute a picture in the brain.” Tried and true programmes like PowerPoint are great for this, as you can customise slides to suit your presentation.

Don’t pack too much info into slides or you’ll lose your audience.

Some experts call storytelling a speaker’s most powerful tool and rightfully so according to Simpkins. “People remember factual information connected to a story better than stand-alone figures.” Using personal evidence, experiences and narrative anecdotes is not only entertaining, it keeps the audiences engaged. They can put themselves in your shoes and relate to you and your message. Plus, telling a personal story is easy on the memory, lowering the pressure of having to memorise a speech. But don’t get too long-winded, warns Simpkins. “You want to present stories in an abbreviated form; snapshots of what you want to convey.”

N TATIONS Beyond PowerPoint

They call it death by PowerPoint. It’s that moment when you’ve been through a presentation with slide after slide of tacky clip art and silly fonts. Bring life back to your presentation with these alternatives.

PRESI The highly interactive programme is a visual gem, with crafty mind maps, 3-D zoom features and cinematic slides. Because it’s hosted on web browsers, you get a presentation with its own sharable URL.

GOOGLE DOCS PRESENTATIONS Anyone with a Google account can use this free programme.

Although it’s not as interactive as other options, it’s your best bet for collaborative projects as it allows you and colleagues to edit and update in real-time.

KEYNOTE Mac users love this programme, which is chock full of attractive, easy-to-manage features for keeping your audience entertained. That it’s compatible with iPhone and iPad make it great for working on the go.

BRAINSHARK If you’re already a PowerPoint pro, Brainshark lets you take your work to the next level. The programme converts existing presentations into online videos, with a tracking function for following traffic.

101 3

Social media skills for the professional Millions of people engage online every day, but for the career-minded user, the line between personal and professional can be hard to draw.

RISKSA speaks to social media law expert Tamsyn de Beer to break down the dos and don’ts of digital behaviour so you can safely grow your social network.

Laura Owings

Power of engagement Social media can be incredibly valuable as a marketing tool and as a mechanism to engage with customers. Particularly in the digital age, people often like to feel connected to the people they’re doing business with. Yet there are risks which come with using social media in a professional capacity. Not only can getting it wrong result in potentially serious legal, disciplinary and reputational consequences, but where your company has a presence on social media, the platform can quickly spiral into a forum for complaints. These risks need to be carefully managed by companies and their employees.

102 8 4

Pick your platform

Internet never forgets

Stop, think and post

You may come across those who say it is imperative that your company has a presence on all possible social media platforms. This is not necessarily the case. Companies should take a considered approach in terms of which platforms they choose to engage on, carefully analysing their client base and who it is that they are trying to reach. Each company is different and needs to be guided by exactly what it wants to achieve from its social media presence. Importantly, before getting involved on social media, companies must be sure that they have both the capacity and inclination to properly manage each platform.

In making any content available on social media, users should always remember that this content is viewed in a vacuum.

Therefore, unlike when speaking to a controlled audience, where people are mostly able to tell if you are joking, content posted on social media often lacks tone and context. As such, there is greater potential for it to be misconstrued.

And unfortunately, once it’s been made available online, it is virtually impossible to retract or delete.

There are many positives to be gained from using social media, but users must do so sensibly, using common sense and sound judgment at all times. A good rule of thumb is to pause and think before you post anything online. If something is telling you that it might not be a good idea, or if you are unsure, rather sleep on it or ask a friend or colleague’s advice. It is this moment of caution that can be the difference between getting it right and suffering the legal, disciplinary and reputational consequences of getting it wrong.

Be wary of oversharing

Pictures worth a like

What we are seeing with the advent of social media, particularly among the younger generation, is a default to oversharing information: from what we eat and where we go to how we feel. Those who participate on social media should be wary of using these platforms like a diary. Users should always remember that providing this ‘CCTV footage’ of their entire life opens them up to serious legal and reputational risks.

When posting pictures online, remember that the terms and conditions of most social media platforms do not guarantee that those pictures remain private, and provide that by uploading content, you grant the website or application a very broad licence to use that content. As such, if you wish to retain some sense of control or privacy over pictures, you should think carefully before uploading them. Before you post, consider whether it is something you want to be making publicly available and associating yourself with, personally or professionally.

Personal-professional divide One of the biggest risks presented by social media as far as professionals are concerned stems from the difficulty of determining where the personal-professional divide lies online. It’s not always easy to tell when you’re acting in your capacity as CEO of a company, or in your personal capacity, relaxing with friends on the weekend.

Users should always bear in mind that, to the extent that they are either identified or identifiable as an employee or representative of their company, their behaviour online is governed by both their employment contract and code of conduct. Anything that would bring their employer into disrepute, or breach the duty of good faith that they owe to their employer, could result in disciplinary action.

Furthermore, statements such as, “I tweet in my personal capacity” and “My views are not those of my employer”, are not necessarily sufficient to disclaim liability.

Getting it wrong: The Sacco story Social media mistakes can have farreaching professional consequences, as American public relations executive, Justine Sacco learnt in January.

The former director of corporate communications at media company IAC was about to board a plane to South Africa when she tweeted: “Going to Africa. Hope I don’t get AIDS. Just kidding. I’m white!”

A subsequent Internet storm erupted, with the trending #HasJustineLandedYet bringing together an international following of thousands of outraged social media users. Up in the air, Sacco had no idea what was happening. When she landed at Cape Town International Airport, she was greeted by news media and angry locals. She was also informed that she had been removed from her position with IAC. In a statement, the company said, “This is an outrageous, offensive comment that does not reflect the views and values of IAC. We take this issue very seriously and we have parted ways with the employee in question.”

Despite the response, IAC had already suffered from Sacco’s Tweet, as shares in the company took a dip. Sacco issued a public apology and deleted her entire social media presence. However, the worldwide attention she earned lives on in screen grab photos and news archives that will be accessible by any future employer.

103 5

news

Liberty posts top 2013 results Liberty Holdings reported that the company attracted a total net customer cash inflow of R22.9 billion (asset management R16.2 billion and insurance operations R6.7 billion) in 2013, which was R3.6 billion, or 19 per cent higher than in 2012.

Liberty Holdings 2013 financial results reveal growth in normalised headline earnings per share at R14.40, up from R13 in 2012. The earnings were adjusted to reflect the reality of the black economic empowerment (BEE) transaction instead of reflecting the transaction as a share buy-back.

Liberty called the results one of the best in the group’s history, with a number of key indicators demonstrating substantially improved performance. In particular, the group reported significant growth in the value of long-term insurance new business, customer cash inflows, operating earnings and the group’s Shareholder Investment Portfolio (SIP) outperformance.

The value of long-term insurance new business in 2013 grew 21 per cent to a total R839 million.

Strong year-end growth from Discovery Discovery Limited announced a 21 per cent increase in normalised profit from operations to R2.38 billion for the six months ending December 2013, against the comparable 2012 period. New business annualised premium income grew by 19 per cent to R 5.88 billion.

“The period reflects the increasing relevance and efficacy of the Discovery business model; especially in the light of the global impact of chronic diseases of lifestyle, the challenge of rising healthcare costs and consumers turning to protection products to mitigate uncertainty,” said group CEO Adrian Gore. Discovery’s South African branches Discovery Health, Discovery Life, Discovery Invest and newest member Discovery Insure, each posted positive results. Gore attributed the growth to the repeatable model strategy applied across South African businesses, international markets and adjacent industries.

Discovery Health increased its new business by 15 per cent to R2.6 billion and operating profit lifted by 13 per cent to R860 million. Discovery Health Medical Scheme, managed

by Discovery Health, also saw growth, with membership up four per cent. Loss ratios declined and lapses and plan downgrades remained low.

Discovery Life experienced earnings growth of 21 per cent, driven by new business and continued positive lapse and claims experience. Discovery Invest’s performance exceeded expectations, with assets under management increasing by 35 per cent to R36 billion, and new business increasing by 26 per cent to R652 million.

Discovery Insure posted strong performances across all aspects of the business.

Gore attributed the results to a focused renewal period of product innovation, building distribution capability, service innovation and enhancing the value of the Vitality drive model.

8 2 CR 104

Liberty payouts increase by 16.3 per cent Liberty paid out more than R2.7 billion in claims across its retail risk insurance products for the 2013 financial year, an increase of 16.3 per cent, or R380 million, compared with pay-outs in 2012.. According to the company, this is the highest figure paid since 2006. “The increase in payments of claims is as a result of a number of factors. The biggest contributor is simply that a greater number of lives were covered at Liberty due to increased new business sales and lower levels of policy lapses,” comments Ryan Switala, head of risk product development at Liberty.

MMI credits intermediaries for strong results MMI Holdings (MMI) released its interim results for the last six months of 2013, revealing a robust 23 per cent increase in comparable value of new business to R378 million. CEO Nicolaas Kruger told RISKSA that strong intermediary relationships helped the company deliver that growth.

Kruger’s outlook for new business growth over the next six months was tempered. “Although we will continue to drive new business volumes, the environment will be tough for the consumer and we are likely to see a slight slowdown.” Where the company may see improvements is from their acquisition of high quality new businesses, particularly in the African market.

“GDP growth in the rest of Africa remains resilient and the group is strongly positioned to deliver client-centric products and services that meet the increased appetite for insurance and savings among consumers,” said Kruger. While the African market contributes about three per cent of group profits, Kruger said he expects a growth to 15 per cent contribution is achievable. MMI’s interim results also showed a 24 per cent rise in profits from operating divisions. Core headline earnings grew by 13 per cent to R1 65 billion, leading to a 12 per cent increase in interim dividend to 57 cents per share.

Around 68.5 per cent of 2013’s payouts were made for life cover claims while the remainder was almost evenly split between critical illness cover claims and income protection claims. The percentage of valid claims received in 2013 has also increased to 96.1 per cent, up from 94.1 per cent in 2012.

Of the claims paid by Liberty in the past year, 67.8 per cent were for males while only 32.2 per cent of the claims were for females. Switala indicates that it shows women are less likely to claim for certain types of insurance, and that women generally have less insurance in place.

Cancer remains the largest natural cause of claims at 39.1 per cent. This is followed by cardiovascular conditions, strokes and other central nervous system related causes. These three groups alone accounted for nearly 90 per cent of all critical illness claims. Cancer and cardiovascular problems were also responsible for approximately 40 per cent of life cover claims over the same period.

Guardrisk sale to MMI gets FSB approval MMI Holdings has announced approval from the Financial Services Board (FSB) of the R1.6 billion sale of Guardrisk to the company. The sale was also approved by the South African competition authorities and effective 3 March.

“The Guardrisk transaction demonstrates our strategic intent to grow our business through diversification. This is a significant milestone for both our companies as we continue to pursue and realise growth both locally and outside of South Africa,” MMI Holdings CEO Nicolaas Kruger said.

The R1.6 billion sale will be funded from MMI’s capital buffer.

Grouping itself with MMI will expand the reach of Guardrisk’s expertise, said its managing director, Herman Schoeman. “In an industry where the scarcity of skills is a key factor, the Guardrisk team brings to the table some of the country’s top alternative risk transfer skill and experience,” he commented.

The FSB and the Competition Tribunal approved the transaction without any conditions. Authorities in Mauritius and Gibraltar also approved the sale in relation to Guardrisk’s operation in those jurisdictions.

105 3 CR

New retirement law will create business risk New legislation to be enforced from March 2015 affecting retirement funds could make non-payment of retirement fund contributions by employers a criminal offence. Penalties for non-compliance will include fines of up to R10 million and the possibility of imprisonment for up to 10 years.

Company directors could also be held personally liable for non-payment. In addition, pension fund contribution rates have also been raised to 17.5 per cent of employees’ wages.

Sanlam Umbrella Fund principal officer, Kobus Hanekom, commented that while the amendment should be welcomed, it may constitute a significant business risk for employers. “In the past, non-payment of employer contributions was, to a large extent, merely regarded as a breach of contract.” he said in a statement.

“All the implications of the legislation have not yet been fully considered. If inability to pay will constitute a legal excuse, under what circumstances will they be excused? Ultimately we’ll have to wait and see how our courts will interpret these rules,” he added.

In response, Sanlam Umbrella Fund has amended its rules and introduced a temporary suspension of participation arrangement for its members. Fund rules previously allowed for employers to terminate participation in the fund only. “This is a final and drastic measure, especially if the employer believes the cash flow concerns are of a temporary nature. We also understand that smaller employers are more often exposed to temporary periods of cash flow constraint, and creative ways must be found to assist them,” said Hanekom.

Participating employers will now have the option of either immediate termination if a financial recovery is unlikely, or a six-month suspension if the employer believes it will recover financially.

Top underwriters recognised at PMR. africa awards The second annual PMR.africa awards for underwriting management agencies saw AC & E Engineering Underwriting Managers named top company. The firm ranked the highest across all categories and received PMR.africa’s Diamond Award. Ascent Underwriting Managers and Camargue achieved a close second and third overall ranking in the survey.

The awards were based on a national survey of UMAs, assessed in telephonic interviews with a national sample of directors, senior managers and short-term underwriting managers selected from short-term brokers and insurance companies.

Respondents were asked to nominate UMAs in specific categories, ranking them on attributes ranging from adaptability to reputation. Ratings were based on the perceptions of the respondents and not on the company’s financials.

The PMR.africa survey and subsequent awards are intended to create a global marketing tool for companies and institutions, and establish a benchmark of excellence in the industry.

8 4 CR 106

newappointments Marlyn Pillay joins the Tradesure family as marketing administrator. “With her solid commercial acumen and experience, Marlyn will successfully support our rapid expansion plans,” adds Leclezio.

Tradesure

Stebbing has been appointed as the Camargue Group general liability director.

Artinsure

Camargue

Remmington Zvirime

Marlyn Pillay

Tradesure Commercial Specialists is pleased to announce two new appointments. Remmington Zvirime has been appointed as marketing underwriter. He brings sound expertise in both the insurance and property industries, spanning 18 years. “Remmington is a talented, professional who is passionate about the insurance business.

I have no doubt that he will add enormous value to the team and to our clients,” comments David Leclezio, CEO of Tradesure.

Alain Clark-Miller

Gerhard de Bruin

John Stebbing

Camargue Group welcomes two new appointments. Gerhard de Bruin has been appointed financial director of the group, and John

Harry Kellerman

Artinsure is pleased to announce the appointment of two new team members. Alain Clark-Miller joins as the Cape Town representative, bringing with him much valuable insurance experience.

Harry Kellerman joins the Durban broker team as the representative in KwaZulu-Natal. He was previously with Hollard Insurance.

107 5 CR

news international

India Rising online fraud drives banks to insurance cover

Re. “Since last summer, small businesses in flood risk areas have often been unable to access affordable and adequate insurance,” the federation said in a statement.

United Kingdom Government urged to include small businesses in flood insurance programme

Business groups and insurers called on the government to change its upcoming nonprofit flood reinsurance programme in the wake of recent widespread flooding across the United Kingdom.

Flood Re, which is slated for introduction in the summer of 2015, will be funded by a levy on insurers that underwrite homeowners’ insurance.

Money collected through the levy will be used to purchase reinsurance to cover losses paid by insurers. If losses exceed the limits of that reinsurance coverage, a supplemental levy will be charged to insurers, according to the government’s proposals.

The Federation of Small Businesses has called on the government to rethink its plan and include small businesses in the scope of Flood

8 4 CR 108

The leader of Hamilton, Bermuda-based Hiscox Ltd, which has large operations at Lloyd’s of London and in the UK personal and small- to medium-size enterprise insurance sector, also criticised plans for Flood Re. In a statement, Hiscox CEO Bronek Masojada said that one in six UK households would be excluded from Flood Re, including many currently affected by flooding.

Indian banks are increasingly seeking insurance cover against fraudulent online transactions, including those involving credit cards, as a rising use of plastic money and the ease of Internet business potentially increase lenders’ exposure to cases of data breach. This is according to Indian Business Insider.

“Demand for insurance policy against phishing, skimming and Internet hacking has gone up in the last year,” says TR Ramalingam, head of underwriting at Bajaj Allianz General Insurance.

“Enquiries have gone up and we are working on how to price the product and working on the wording.”

A team of con artists who netted £300 000 from a cold-calling scam selling worthless mobile phone insurance is facing lengthy jail terms. Police installed hidden cameras and microphones in their office.

In 2012–2013, domestic banks lost Rs17 284 crore on account of fraud, according to information obtained through the Right to Information Act. During the period, 62 banks filed a total of 26 598 cases related to online frauds.

The situation has compounded the woes of the bank sector where lenders are facing huge non-performing assets.

Workers at the bogus call centre tricked around 3 000 mobile phone users across the country in the elaborate scam. They pretended to be from phone giants O2 and Orange, and claimed to offer their customers discounted insurance packages, but were not authorised to sell the policies which were worthless.

“The policy covers cyber extortion and breach of data privacy,” said M Ravichandran, president, Tata AIG General Insurance. “There is a lot of talk around cyber insurance and people are actively looking to secure these exposures.”

Three members of the team admitted conspiracy to defraud, another four admitted selling insurance when unauthorised to do so and were sentenced to four years in prison.

While companies like Tata AIG have underwriting capabilities for these policies, for others, it is reinsurance driven.

Insurance fraudsters face jail time

Brazil Brazil seeks Solvency II equivalence

Brazil is seeking Solvency II equivalence for its insurance solvency regime, in a reversal of its initially tentative response to the pan-European insurance project. The country’s insurance supervisory authority Susep is applying for a review of its regulatory framework, which will be carried out by the European Insurance and Occupational Pensions Authority (EIOPA).

This is the first step in a process that would enable European firms to apply local solvency rules to their Brazilian subsidiaries. The decision to apply for equivalence recognition comes a few months after the compromise agreement on Omnibus II, which put the Solvency II project on track for a 2016 implementation.

Brazil will be granted temporary equivalence status and be required to close regulatory gaps during a five-year period. Australia, Chile, China, Hong Kong, Israel, Mexico, Singapore and South Africa are the other countries applying for this transitional regime.

Germany

Japan

Germany eyes watchdog ruling on insurer

Short-term losses offset by increased earnings

Insurers and bankers in Germany are anxiously awaiting a regulatory decision which could pave the way for a fresh wave of consolidation and shake up the country’s fragmented insurance market.

The German regulator, BaFin is poring over the planned sale by Lloyd’s Banking Group of insurer Heidelberger Leben. Senior bankers say that if the regulator waves through the £250 million (R4.5 billion) joint purchase, by private equity group Cinven and the reinsurer Hannover Re, it could kick-start consolidation in the German insurance market similar to that of the UK. The planned deal comes at a time of turmoil for the German insurance industry.

Low interest rates are harming profits in a country where generous guaranteed rates are still paid to risk-averse consumers, who often depend on insurance products for a retirement income.

BaFin recently indicated it would take an open mind to the idea of selling portfolios in run-off mode. But it has helped to scupper previous similar deals. An attempt by Nomura, the Japanese investment bank, to take over the German run-off life insurance assets of Delta Lloyd in 2012 failed after the Dutch insurer said negotiations with BaFin had been more difficult than expected.

The worst snowfall in decades in central and north-eastern Japan, in February 2014, is unlikely to damage the earnings profile of rated non-life insurers, says Fitch Ratings. This is because reported claims are expected to be offset by rising earnings, leaving the overall credit profile intact.

According to the Nikkei newspaper, the reported damage from the record snowfall is estimated at around 60 billion Yen ($580 million) in claims at the three major nonlife groups, Tokio Marine Group, MS&AD Insurance Group and NKSJ Group. It will take several months to tally a final claims figure.

In the nine months to December 2013, consolidated recurring profit of the three nonlife groups rose to JPY564 billion, or as high as 92 per cent of their aggregated full-year estimate of JPY614 billion. Therefore, on an annualised basis, full-year profit targets can still be met across the sector, barring any other adverse developments. The upswing in earnings is underpinned by the auto insurance business which remains a mainstay of premium income.

Earnings are also supported by the increasing contribution from overseas business, with every major insurance group registering double-digit increases in revenue from their overseas subsidiaries.

109 5 CR

events

president Justin Newly elected IIG his dance skills.

Naylor shows off

Gauteng’s Presidential Inaugural Dinner RISKSA attended the Insurance Institute of Gauteng’s Presidential Inaugural Dinner at Madame Zingara’s Theatre of Dreams in Johannesburg. The event marked the appointment of IIG’s new president, Justin Naylor.

The evening was a majestic experience with dancers, jugglers and other performers to entertain the crowd.

The guests were elegantly dressed and sported spectacular hats and face make-up. Thank you IIG, for a wonderful evening. The food was divine and the entertainment was fantastic. RISKSA would like to congratulate Justin Naylor on his new position at IIG.

8 2 CR 110

al

Left to right: Munnik Marais (CANSA), Michael Blain (Altrisk) and Magdalene Seguin (CANSA).

Altrisk supports CANSA In South Africa, more than 100 000 people are diagnosed with cancer each year. Besides the emotional toll of coping with the disease, it also brings with it exceptional financial challenges. This is one of the reasons why Altrisk donated R70 300 to the Cancer Association of South Africa (CANSA) towards its CANSA Care Centres which provide care and support programmes for those living with cancer. The hand-over was done at Acadia House in Parktown. Lucy Balona, CANSA’s head of marketing and communications, says with financial help from organisations such as Altrisk, CANSA is able to extend its reach. Michael Blain, managing director of Altrisk, adds, “Cancer remains a highly emotive illness that has far-reaching implications for the patient and their family. Unfortunately, not only does the cancer survivor face a punishing treatment regimen in many cases, but the cost of treatment can become a major financial burden,” he says.

PFP opens new South African premises February saw the official opening of the new Sandton offices for PFP Insurance Brokers – a wholly owned subsidiary of Price Forbes and Partners. Speaking at the launch, local CEO Warren Bolttler says he is delighted at the support and interest the business has received from both insurers and UMAs during its initial months in operation. He also highlighted the excellent client partnership the business had secured over the past year. “The South African insurance market is full of wonderful capacity and skills, and in our own small way we would like to contribute to that growth and help position the industry locally as an African hub for treaty, facultative and excess programmes for the rest of the continent. As brokers, we need to be able to bring industry-specific skills to bear to add value to clients through innovative, cost-effective and quality solutions,” says Bolttler.

111 3 CR

SHOP WINDOW Cost-effeC tive solutions for the smaller business. to advertise please ContaCt Blake dyason or riCCardo raCiti at

(021) 555 3577

AWII Potjie Competition Date: 9th May Where: Pinelands Sports Club Contact: sandras@thefulcrumgroup.co.za

for 2013 FOR 2014 inDustry INDUSTRY events EVENTS calenDar CALENDER visit VISIT

.Com

.Com Daily upDates of the latest insurance anD financial services news.

THE inTErnaTional insurancE Book your seat for confErEncE 2013

2014 Insurance 28 – 31 Bootcamps July

4-6 June 2014: Business Interruption 20 - 22 August 2014:miss Commercial Don’T ouT! Property including combines VisiTbuilding www.iisa.co.za and sectional title

www.insurancebootcamp.co.za

By owning a copy of the RISKSA UMA Directory you will have every niche insurer literarily at your fingertips.

ContaCt: Glen trussell (021) 555 3577 email: Glen@Comms.Co.za

112

IIKZN Night Race Meeting Date: 16 May 2014 Venue: Greyville Race Course ( Sea Cottage Room) Location: Durban Time: 5:30pm Contact: Karusha Naicker knaicker02@pgglass.com

Book your talent for 2013 now!

ContaCt blake Dyason at 021 555 3577

THE INTERNATIONAL INSURANCE CONFERENCE 2014 27-30 JULY Don't miss out!

Visit www.IISA.co.za

Subscribe today subscriptions@comms.co.za www.fia.org.za

I12033/

AS ASSETS

Vintage

INVESTMENT Sarah Bassett

114

SHOP WINDOW Cost-effeC tive solutions for the smaller business. to advertise please ContaCt Blake dyason or riCCardo raCiti at

(021) 555 3577

AWII Potjie Competition Date: 9th May Where: Pinelands Sports Club Contact: sandras@thefulcrumgroup.co.za

for 2013 FOR 2014 inDustry INDUSTRY events EVENTS calenDar CALENDER visit VISIT

.Com

.Com Daily upDates of the latest insurance anD financial services news.

THE inTErnaTional insurancE Book your seat for confErEncE 2013

2014 Insurance 28 – 31 Bootcamps July

4-6 June 2014: Business Interruption 20 - 22 August 2014:miss Commercial Don’T ouT! Property including combines VisiTbuilding www.iisa.co.za and sectional title

www.insurancebootcamp.co.za

By owning a copy of the RISKSA UMA Directory you will have every niche insurer literarily at your fingertips.

ContaCt: Glen trussell (021) 555 3577 email: Glen@Comms.Co.za

112

IIKZN Night Race Meeting Date: 16 May 2014 Venue: Greyville Race Course ( Sea Cottage Room) Location: Durban Time: 5:30pm Contact: Karusha Naicker knaicker02@pgglass.com

Book your talent for 2013 now!

ContaCt blake Dyason at 021 555 3577

THE INTERNATIONAL INSURANCE CONFERENCE 2014 27-30 JULY Don't miss out!

Visit www.IISA.co.za

Subscribe today subscriptions@comms.co.za www.fia.org.za

I12033/

Traditionally, investing in wine was, dare one say, fairly straightforward fun. A person would buy as many cases of fine wine futures as budget allowed, and wait eight to 10 years for it to reach maturity. Once ready to drink, they’d take delivery of half the wine and sell the rest, which had appreciated enough to cover the initial investment, offsetting the cost of many a fabulous dinner party’s drinking.

But this is no longer the case.

T

hings have changed dramatically in the last few years, with collectors and enthusiasts speculating on the market and buying in large volumes. Over the past 20 years, a basket of fine wines will have outperformed global equities, bonds, property and, until recently, even gold, in terms of capital appreciation.

But only a fraction of the wines produced worldwide increase in value at a rate that would justify the risk and the expense and, while a fascinating and enjoyable market, it is highly speculative and as a purely financial investment, it would be wise to be wary.

New wealth across booming emerging markets, led by China, has seen the international market for fine wine explode in recent years, with prices for premium wines, particularly from France, rising at astronomic rates.

From the South African vantage in particular, there are a number of challenges to investing in wine purely for financial return. South Africa does not have the trade platforms that exist in market such as the UK, Hong Kong and New York.

Had you invested in a bottle of French Bordeaux Château Lafite Rothschild in 2007 for around $100, it could have been sold in 2011 for $550. These rising values, coupled with the ease of access to data and information through the Internet, has increased the media attention about wine as an investment asset.

Challenges in the SA market

There are no specific wine auctions and there are very few fine wine dealers. A major barrier, explains Roland Peens, director at fine wine brokerage and cellar, Wine Cellar, are the limitations for keeping wine in bond in South Africa.

115

Thirdly, South African wine is not yet classed as an investment category. “Apartheid pushed us to our own corner, we didn’t travel enough, we made wine by formula and we didn’t produce great wines in the ‘80s and ‘90s. We don’t have the history, the icon status and the sentiment. And our wines are too cheap. The most expensive South African wines are R3 000, while the most expensive French wine is around R150 000.

“While something is in bond, it is exempt from duties and value added tax (VAT). In South Africa, it cannot remain in bond for more than a year, where overseas wine can be traded in bond and investors won’t pay duty or VAT until the point that the wine is ready for consumption,” he explains. “With VAT at 19 per cent, if you keep trading that wine, it loses a considerable portion of its value each time it is traded.”

Because of the lack of a secondary market, wines tend to be traded overseas in Euros, Pounds or Dollars, meaning that our volatile exchange rate becomes a further challenge to investment for financial return. “Our exchange rate is extremely vulnerable and of course investors really want to be investing in the asset not the exchange rate,” Peens explains.

116

The most expensive Australian and American wines are also far more expensive than South African wines. Once you have a bargain, it’s not a collector’s item anymore. Without expensive, rare wines, our wines simply aren’t taken seriously. Pricey wines indicate to the rest of the market that these are the wines to have at the table to impress. We need expensive rare, sought-after wines, and that takes time.”

A very successful new world fine wine is the Australian Penfold’s Grange, selling at around R10 000 a bottle. That wine has been in production since the 1950s. We don’t have that track record on any wine, so it’s understandable that we don’t have fine wine that is expensive.

A finer vintage to come Over time this will change, says Peens. A few South African brands are already moving

towards the iconic status required to see significant growth in value. “What’s exciting is that in the last five to 10 years wine quality in South Africa has improved, bringing increasing international interest. I would be surprised if there aren’t wines in the next five or 10 years that make it into that class. But at this stage, there are no wines that I can firmly recommend to my customers for significant appreciation.”

According to Peens, Klein Constantia’s Vin de Constance is currently the leading icon brand in South Africa. It is our only wine with a long history. “It was Napoleon’s favourite wine 300 years ago, and the name dates back to 1690.

It’s been through a rocky period. The first modern-day vintage was 1987.

Klein Constantia sells those vintage bottles off the farm for R40 000 or R50 000 a bottle, though I don’t think it’s worth quite that. The current vintage is around R550 and we’re selling the old vintage for around R2 500.”

Investing for value growth “When people say they are investing in wine, I suggest that they look at it as investing in their own drinking, their future pleasure. If you buy top French wines while still in barrel, they will need 10 to 15 years to reach full maturity. If you bought them at maturity, you would likely pay a huge premium and the wine would be harder to find. Undoubtedly, you can sell them at this stage, and we have customers who do.

in barrel in France. It could then be imported in two years when it is bottled, or it could be kept in Europe in bond for another 10 years.

This makes it a difficult transaction for the South African Revenue Services to understand,” says Peens.

Wine futures through the London market It is possible to buy wine at the en primeur stage – wine futures – through the London market, but this can also be a little tricky to do from a South African vantage. At this stage, the wine is still in the barrel, undergoing the ageing process before being bottled and released on the open market, and the wine is bought in advance at a fixed price.

“Clients can buy wine through us while it’s still

“We do have customers who have bought and sold wines in the UK and have made good money. We’ve also had some customers who have bought such wines through us, and we’ve imported the wine and sold it on for them here.

With increasing local interest in fine wines over the last 10 years, combined with the weakening Rand, most French wines have gone up four or five fold in the last 10 years when sold here. But if the Rand appreciates again, it won’t really matter what the value of the wine does,” he adds.

If you choose the right wine you can make a huge amount, but the market is speculative and unpredictable and no one really knows which wines are going to appreciate the most,” says Peens.

As with any investment, the driving forces behind a wine’s value are rarity and demand.

The demand side is largely dictated by brand and sentiment combined with the specific ratings and classification of each wine.

En primeur pre-release tastings take place every year in Bordeaux either at the end of March or the first week in April. Though many critics taste and rate the wines, US critic Robert Parker’s ratings are the most influential across the market.

“At this stage, as the wine is still young, he will give each wine an estimate rating, say between

KEEP IT THAT WAY When you next need a replacement windscreen, ask your broker, insurer or nearest accredited fitment centre for a genuine Shatterprufe windscreen. Ask for PRUFE. South Africa’s trusted brand.

shatterprufe.co.za

118 92 8

find us on facebook

0860 10 10 11

95 and 97. Then, two years later, it is bottled and tasted again and given its final rating; and if it gets 97 it will do better in value than if it gets 95. Sometimes however, that 95 to 97 gets pushed to 100 and that’s when values double or even triple overnight,” he explains.

The best wines in France are classified as first growths. If a wine is a second growth from a very old classification and the French regulator reclassifies it as a first growth, the value can also shoot up. Currently, the greatest demand is for Burgundy wines.

“There’s huge demand for it, the Chinese went after Bordeaux first and have now moved on to Burgundy and the prices have skyrocketed. The top Burgundy is Romanee-Conti with a current vintage going at around R200 000 a bottle. They make only 400 cases a year, and when you’ve got a million millionaires in China, 400 cases doesn’t go very far,” Peens adds.

On a practical note Whether you or your clients plan to buy to drink or to sell, be cautious of the merchants you use, particularly when buying a future that will be delivered only in some years. A merchant could be long gone before you realise the wine was never purchased.

Trading since 2000, the Cape Town-based Wine Cellar imports and sources fine wines from around the world, offers shipping and brokerage services, and for those without the space to store wine for the eight to 10 years required, professional cellaring.

With its 150 000 bottle capacity nearly full, the cellars may soon expand, further proof of the growing interest in fine wines within the local market. Correct storage is also critical to maintain the quality of the wine. “I get offers all the time from the man on the street looking to sell his old Roodeberg which has been lying on top of the fridge for years and he thinks is worth thousands.

I suggest they try it in a stew,” says Peens. Some wines need to mature and some don’t, and those that do, require correct temperature and storage conditions.

Clearly, anyone venturing into the world of fine wine investment requires some specialist knowledge and a willingness to play its trends and sentiment-driven speculation; but at least, as the old adage goes, it’s an investment you can always liquidate.

119 93

Into Africa

Tracks4Africa map set made for the intrepid explorer Anton Pretorius

It’s now the third time you’ve heard that lion roar.

Each time the sound seems closer and you can taste the sweat beading on your upper lip despite the night-time chill. Inside the car the icy evening air is matched by your wife’s demeanour. A glance in the rear view mirror shows the chalk-white face of your eldest looking back at you accusingly. Saving that few hundred Rand by not updating your GPS mapset was not your smartest move, and consequently missing the turn-off to camp after nightfall has elevated you from Moremi explorer hero to zero in your family’s eyes.

120 8 4

U

sing updated maps while travelling through Africa can quite literally mean the difference between life and death. The new Tracks4Africa GPS mapset – designed specifically for the avid African traveller – is all you need to stay on the not-so-straight and narrow on your next adventure.

director Johann Groenewald, T4A will appeal to any self-drive tourist in Africa. “The maps may overlap with conventional city maps, but it is packed with points of interest (POI) relevant to self-drive travellers. Further to this it extends into the remote areas of Africa, but again, where it appeals to travellers. We like to call this the Traveller’s Africa.”

Driving through Africa has got to be one of the most rewarding experiences in the world. The adventure coupled with the freedom to travel on your own schedule is a special experience.

Adventure, however, by its very nature, is closely associated with danger, uncertainty and risk.

With several dangers lurking on the roads, you need nerves of steel, catlike reflexes and a good navigator. If there’s one thing worse than driving through 200 kilometres of car-eating potholes and suicidal cattle, it’s driving the same road back again in the dark because you’ve gone the wrong way.

Groenewald adds that roads and tracks are included via GPS recordings from fellow travellers. “This would imply that if you study a map by numbers, it will not look impressive when compared to other map makers, but when you test drive the map in real conditions, you will find that it provides the kind of information that you’ll need on the road.”

In order to create a reliable GPS map, the Stellenbosch-based creators of Tracks4Africa (T4A) have compiled GPS date collected from experienced 4x4 travellers. T4A has taken to the task of “making Africa visible” with impressive success. What started as a community of intrepid adventurers sharing remote GPS coordinates has become the ultimate traveller’s resource. This available data can fit into the palm of your hand in the form of a SD card and is largely regarded as the most accurate in Africa.

But who will benefit the most from the Tracks4Africa GPS mapset? According to T4A

Tracks4Africa is also packed with quirky details about things and places you would very seldom find on a conventional map. However, apart from the map content itself, another cool feature is the ability to toggle between a city map and the Tracks4Africa maps. Groenewald continues: “Self-drive travellers have a hierarchy of needs from a navigation system, like where do we sleep tonight; where do we find fuel and related auto services; where do we buy supplies or get something to eat or drink; what can we see and do here (think anything from a waterhole in Kruger to the King’s Summer Residence in Zambia); and where do we go in case of emergency? T4A will answer all these questions for you.

“Another feature that will benefit users is a route calculation setting which allows you to avoid four-wheel-drive tracks. The default use of

Tracks4Africa is to include these tracks, but we can see the advantage of being able to avoid these in certain situations,” Groenewald says.

Jaguar Land Rover South Africa is one of the first auto manufacturers to represent an industry first as a factory-fitted integrated system, combining the latest generation of Tracks4Africa with a sophisticated on-board unit using hardware that allows for SD card software and map updates. The result is the very best of satellite navigation whether you’re travelling on dirt or tarmac.

Landy drivers are the first to benefit from integrated satellite navigation with extensive maps across 22 sub-Saharan African countries.

This makes exploring Africa that much simpler for fearless adventurers, minimising travel time, distance and improving safety – even when travelling to the most remote destination on the continent.

“Land Rover is an iconic brand associated with adventure and Africa and we’re very privileged that Jaguar Land Rover SA has decided to make use of our maps. I think the team at JLR can be commended for being the first vehicle manufacturer to have taken this step and we certainly hope that its customers will experience added value in a package that is already hard to beat,” says Groenewald.

T4A provides access to a network of around 720 000 kilometres of navigable roads in Africa. This represents 90 per cent of the roads ever travelled by self-drive tourists in Africa, cataloguing thousands of points of interest 

121 5

along the way. For example, in Angola it maps nearly 20 000 roads and tracks, and details more than 2 500 points of interest.

This is growing all the time thanks to the userdriven interface of T4A. The African version provides turn-by-turn directions from Cape to Cairo. However, be warned, the maps do not offer wall-to-wall coverage – only map places that are relevant to travellers. Another thing to keep in mind is that T4A GPS maps are compatible with Garmin devices only.

T4A offers an accurate list of protected areas such as nature reserves in Africa. T4A GPS Maps will take you anywhere on the continent, sporting a comprehensive set of tourist destinations, whether it’s the Hole in the Wall in Transkei or remote areas of the Kgalagadi. You don’t have to buy them all at once; simply make a selection of the regions or countries you’re interested in.

As well as South Africa, Tracks4Africa embraces countries like Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Zambia and Zimbabwe. Venturing further north, the same level of coverage is available in Burundi, Kenya, Rwanda, Tanzania and Uganda, with coverage of urban areas in countries like Benin, Ghana, Senegal, Togo, Mali, Niger and Nigeria.

and Range Rover models equipped with a navigation system. “It made sense to standardise the package for all models,” he says.

The software is provided by NNG from Hungary which customised its iGO Primo software to be integrated into the Jaguar Land Rover entertainment system. The core navigation functionality is easy to use and designed for vehicle-based navigation. Some buttons have been moved around a bit to fit in with the navigation system.

“Working with a big company like Land Rover is not always easy for a small outfit like ourselves. The testing of the navigation system transpired into a trip to Khutse Game Reserve in Botswana with my old Discovery 2 Td5 and the boys from Solihull in a black Range Rover Sport. Initially, I had my doubts about the choice of tyres, but all in all, we had a great time and I was immensely impressed with the Range Rover’s transformation from sports car to off-road vehicle.” says Groenewald.

What’s new on the T4A map?

A partnership with Land Rover

T4A GPS Maps will be preloaded on a two gigabyte micro SD card with standard adaptor. The card also contains installation files for PC and Mac users who want to install the maps on their computers for trip planning or transferring maps to older Garmin units.

According to Groenewald, the navigation system will be rolled out in all Land Rover

The map in general has seen a lot of

122 8 6

corrections in terms of road conditions, focusing on added data about seasonal roads in Namibia. In Angola, the major roads between Zambia and Angola have now been mapped. On the Western Africa map, once again, a lot of data has been added, especially in terms of protected areas.

On the East Africa map, the new Nairobi northern bypass road has been added.

Morocco has also seen a major improvement.

A lot of data has been reworked to update the road types and many new towns have been added.

Support of Nüvi 2000 and 3000 (except the Nüvi 3760) series as well as the new Montana series has been confirmed. According to the T4A’s website, there are unresolved issues on the 3760 and it is recommended that T4A not be used on this until further notice.

But what if you’re just a broker with an average set of wheels and a burning desire to explore the rough edges of Africa? No sweat. Places like Botswana are waiting for those without 4x4s. These days you can simply rent one. Just remember to take your trusted map with you wherever you go.

How to update your Tracks4Africa map set on your vehicle’s integrated GPS system?

T4A GPS Maps are available on SD card for your Garmin-compatible GPS as well as your in-car navigation system. Simply download the latest T4A GPS map updates from T4A’s online store (http://tracks4africa.co.za/shop) and load onto your SD card. T4A maps are updated every May and October.

TL TRAVEL

RISKSA's guide TO

business

travel in

Africa

With its complexities and idiosyncrasies, there is no doubt that Africa can be challenging for any traveller. Language and cultural differences abound, safety and security concerns remain dominant, and disease and health risks are exacerbated by poor infrastructure. RISKSA offers you a business travellers’ guide to seven key markets in Africa.

Sarah Bassett & Nick Krige

124 130 8

NAMIBIA

T

he good news is that business travel services and high-end hotels are sprouting up across the continent, from Nigeria and Kenya, to Libya and Gabon, buoyed by business travellers flocking to the rich stores of natural resources, including minerals, oil and gas.

According to Sandra Carvao, spokesperson for the United Nations World Tourism Organisation, international arrivals in Africa are expected to more than double for both business and leisure travel, from 50 million in 2011 to 134 million in 2030. Here’s everything you need to know when travelling for business in Zambia and Namibia.

situated for corporate travellers. Five minutes’ walk from Windhoek city centre, the hotel offers three conference venues, a boardroom, currency exchange and airport shuttle.

Kalahari Sands Hotel In the centre of Windhoek’s bustling business centre is the Kalahari Sands Hotel. It offers a small conference facility and is the gateway to Etosha National Park and the Namib Desert.

Hilton Windhoek Hotel, Windhoek, Namibia The Hilton Windhoek Hotel is stylish and contemporary and offers comfortable accommodation in the heart of the city, ideally situated close to the business district. There is one large and four smaller breakaway conference rooms and a boardroom, ideal for smaller meetings.

Namibia Home to stunning desert landscapes, Namibia is located on the south-west coast of Africa.

The economy is largely dependent on industrial sectors including mining. The country is rich in natural resources and is one of the world’s leading diamond producers. GDP is currently growing at five per cent.

Where to stay Kalahari Sands Hotel

Protea Hotel Thuringerhof The Protea Hotel Thuringerhof is ideally

Safety

Vaccinations

Electronics

Airports

Namibia has a relatively high crime rate. Pickpocketing and muggings can be a problem and women should be wary of taking taxis by night. Look for taxis that display the Namibia Bus and Taxi Association (NABTA) logo. If you are alert and use some common sense, you should have no problems.

A yellow fever vaccination is required for entry to Namibia.

Hepatitis A, typhoid and tetanus vaccinations are recommended.

Malaria prophylaxis is recommended for travellers going to the northern parts of Namibia.

Plug sockets are round threepronged Type D and Type M. Voltage is 220 V and frequency 50 Hz.

Windhoek Hosea Kutako International Airport, situated 45 kilometres east of Windhoek, is the primary airport in Namibia serving the capital city of Windhoek. Taxis are widely available.

125 131

Time zone Namibia uses daylight saving time. The country is one hour ahead of GMT in the winter months, April to September, and two hours ahead of GMT from October to March.

Internet Internet access is widely available through hotels, Internet cafés and certain restaurants.

Language The official language in Namibia is English.

Afrikaans, German, Oshivambo, Herero, Nama and other indigenous languages are spoken throughout the country.

Visas

Getting around Namibia’s roads are well connected and well maintained, meaning that car hire and selfdriving is a good option.

F

ar more stable than most of its neighbours, Zambia is a diamond in the rough. This landlocked nation in south-central Africa is known for its copper exports, adventure, safari tourism and the Victoria Falls.

Lusaka is the capital and largest city, located on the southern part of the central plateau. It is the centre of both commerce and government in Zambia and connects to the country’s four main highways. The mining centres of Ndola and Kitwe are also significant business centres.

Growth in GDP accelerated to 7.3 per cent in 2012 from 6.3 per cent in 2011, driven by mining and agriculture. The country is an increasingly attractive market for international investors.

Where to stay According to Chris McIntyre, managing director at Expert Africa travel managers, there’s a wide range of hotels to choose from in Lusaka, with further developments in the pipeline.

126 132 8

All visitors require a passport for entry into Namibia, which must be valid for at least six months beyond the intended stay in the county and have sufficient pages for entry and exit stamps. All visitors must also have a valid return ticket. Citizens of many countries are exempt from visa requirements. A full list of these countries can be found at www.visahq. com. Visas are valid up to three months from the date of issue for stays of up to three months from date of entry. Extensions for a further three months are available from the Ministry of Home Affairs in Windhoek. Applications can be made through the Ministry for Foreign Affairs website.

Currency and money Currency is the Namibian Dollar. Both the Namibian Dollar and South African Rand is legal tender in Namibia although change will usually be given in Namibian Dollars. Banks in Namibia will convert Namibian Dollars for South African Rand and vice versa without charge or paperwork. MasterCard and Visa are accepted throughout Namibia in shops and lodges.

American Express and Diners Club are not widely accepted.

TELECOMS The mobile phone coverage in Namibia is excellent within the city of Windhoek and surprisingly good across the entire country.

The dominant service provider in Namibia is MTC and is recommended to travellers for local calls.

ZAMBIA Labadi Beach Hotel The Labadi Beach Hotel is popular with business travellers, according to McIntyre. It allows easy access to both the city centre and the airport.

luxurious hotel provides spacious comfort and modern amenities. It is conveniently located 22 kilometres from the airport and five kilometres from the city centre. The hotel also provides facilities for meetings and events and Internet access is available throughout.

Protea Hotel Lusaka Situated in the city centre within the bustling Arcades shopping and entertainment complex, this hotel is perfect for business guests and is conveniently situated near the airport.

The hotel offers complimentary wireless Internet access in public areas, a 24-hour business centre, small meeting rooms and audiovisual equipment. Additional amenities include laundry facilities, complimentary newspapers in the lobby and secure parking. For a surcharge, guests have access to a roundtrip airport shuttle (available 24 hours).

Taj Pamodzi Lusaka Set amid tropical gardens in the heart of Lusaka’s business and government district, this

Labadi Beach Hotel

Getting around

Visa requirements

Time zone

The majority of Zambia’s roads are not tarred, and gravel or dirt roads are often in poor condition. Car rental is available in Lusaka and Ndola, but most cars come with a chauffeur, making rental fairly expensive.

Local traffic conditions are often chaotic and short-term visitors are advised to make use of taxis. The Zambezi Express is a reliable train that runs from Livingstone to Lusaka several times weekly.

Passport holders from the following African countries do not require visas: Botswana, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Uganda and Zimbabwe. Business travellers can obtain a visa at the port of entry, but must produce an invitation letter. Business visits by a single individual cannot exceed 30 days in a 12-month period.

GMT+2

Telecommunication Zambia’s cellphone network coverage is expanding, but can be unreliable in rural areas. The prepaid Passport SIM card for Zambia from Telestial is the most convenient and economical solution for visitors.

Language English is the language used for business.

Seventy different dialects are spoken by locals across the country.

Internet Internet connectivity is still relatively expensive, and while Internet cafés are readily available in Lusaka and Livingstone, access is often limited outside the main urban centres.

Safety Zambia is relatively safe and its people friendly, but visitors should be vigilant and avoid walking around in urban areas at night.

Use only reputable banks and bureaux de change, as counterfeit notes are a problem.

There is a risk of landmines near the borders with Angola, Mozambique and DRC.

Airports

Currency & cash

Vaccinations

Electrical

Kenneth Kaunda International Airport is located about 13 kilometres from the Lusaka central business district. The mining centres of Ndola and Kitwe have their own airports.

Currency is the Zambian Kwacha. In January 2013, the Zambian Government rebased the currency. This means Zambia has new notes starting from the two Kwacha note and is now one of the few African countries to use coins. It is now illegal to use Dollars in the country.

Hepatitis A and typhoid vaccinations are recommended.

Malaria prophylaxis is recommended for all travellers to Zambia.

Two and three-prong round, and three-prong rectangular plugs.

Since 30 June 2013, the old notes are no longer legal tender, so travellers are warned to be careful when receiving change or changing currency.

Although using forms of payment other than cash is growing in popularity, you should not depend on credit to get around the country. Visa is the card of choice in this part of Africa.

Make sure you catch part IV in the May 2014 issue, where we’ll feature all the necessary travel information required for Mozambique and Mauritius.

127 133

Best airline

apps

In today’s market, brokers need to be where the business is.

RISKSA unpacks the airline apps that put everything the frequent flying professional needs in the palm of their hand.

South African Airways Pros: Winner of the 2013 Blackberry App of the Year Award, the SAA app has a load to offer local and international travellers. Passengers can manage bookings, check-in, track flights and luggage, and find local lounges. Valueadded features include access to special fares and a handy destination guide with on-the-ground tips, weather and currency conversions.

Pros: The international carrier boasts the best reviews of the bunch, thanks to its easy to manage mobile boarding passes, also available in offline mode. Flight data, check-in, seat selection, live departure times and gate numbers are also handy features. Travellers can track the cheapest flights by month for all BA destinations and book directly through the app. Terminal maps are an added bonus.

Cons: The boarding pass download feature is missing, as is the option to purchase new flights. Users also report slow connection speeds.

Cons: Unlike competitor apps, it lacks a destination guide. Also, featured flight prices and rates are only listed in Pounds.

Download for iPhone and iPad, Android and Blackberry.

Virgin Atlantic Pros: The British airline’s app gives a new definition to the idea of tracking your flight. An interactive globe function shows real-time data of the entire Virgin fleet, with up-to-date arrival and departure times that’s both informative and fun.

Practical functions including check-in, seat selection and managing bookings. Data is saved for easy viewing in offline mode.

Links to Virgin social media and user photo galleries are added features.

Cons: Without options to purchase flights or download boarding passes, the app falls short of being a must-have for frequent fliers.

Download for iPhone, iPad and Nokia.

128 8 4

British Airways

FlyMango

Download for iPhone and iPad, Android and Blackberry.

Cathay Pacific

Pros: The domestic carrier’s app allows passengers to check-in online and download their boarding pass. Options to book and pay for flights, as well as change flights are also available. A ‘Latest News’ section displays travel news and latest sales. More innovative offerings include on-board Wi-Fi capabilities and offline mode, giving easy access to flight info on the go.

Pros: The Asian airline’s CX Mobile is famous for its gorgeous design. Beyond good looks, it features check-in, flight status, schedules and options to manage or make bookings. An impressive destination guide has info on sights, dining, hotels and more for dozens of destinations. The ‘Meet the team’ function adds a personal touch, with staff photos and bios.

Cons: Though the app claims to give flight status and updates, the info is not clearly accessible. Users recommend manually disabling for security concerns.

Cons: The app has no apparent option to download boarding passes. The flight status function is difficult to navigate and users report frequent issues with server.

Download for iPhone and iPad, Android and Blackberry.

Download for iPhone and iPad, Android and Blackberry.

Did you know?

Minimal rental days – First Car Rental’s replacement team micro-manage communications with repairers to ensure rental days are kept to a minimum.

Since implementing this procedure, we have managed to reduce rental days on average from 24 to 17.

First Car Rental - providing the competitive edge to short-term insurers

Contact Sarah Scholefield, Sales Replacement Manager on sarahs@cmh.co.za or call 072 221 0897

0861 1ST CAR | 0861 178 227

www.firstcarrental.co.za

Carel Nolte has been a passionate member of the South African insurance industry since 2000. His column aims to educate, cause a smile, instill pride and stimulate debate. He welcomes contrary views and debate and can be reached via carel@comms.co.za.

I

Kuier with Carel

am writing this month’s column while sitting in the Vesuvio, a world-renowned San Francisco saloon located just across from the infamous City Lights Bookstore.

Vesuvio was first established in 1948 and remains an historical monument to jazz, poetry, art and the good life of the Beat Generation (Ginsberg, Kerouac and others were regulars) attracting – in the words of its website – “a diverse clientele: artists, chess players, cab drivers, seamen and business people, European visitors, off-duty exotic dancers and bon vivants from all walks of life”.

Not sure where I fit into that description; however, it did get me thinking about what happens to people who are so much a part of our industry’s consciousness after they retire or change industries. Kerouac frequented this bar, made it famous, wrote work that still influences in part but he is, at best, a memory to a few literates.

Do the doyens, captains of industry, bon vivants, sage underwriters and trailblazing women, whom we owe so much to in the South African insurance world, end up tending strange varieties of poppies before pushing up the daisies? Perhaps they run up mountains enjoying their last physicality before skidding down the side, clutching wine in one hand and a copy of RISKSA in the other, shouting, “Damn, what ride!” Or are they, too, just a distant memory to a few? I hope not and think it our duty to remember. It is, after all, in the remembering that we evaluate and grow ourselves.

As in all walks of life, there are the heroes who reach the pinnacle of the insurance

corporate world. I think of Mutual & Federal’s former CEO and chairman, Ken Saggers, who passed away earlier this year. The man who is often held up as perhaps one of the last great listed insurance chief executives, died after complications of a hip operation but lived a full life.

M&F also provided employment to Michael McCann for near on 40 years. Despite (perhaps because of...) never being an executive, but the longest-serving regional manager – and many would say most insurance savvy and best dressed employee – Michael influenced hugely how his company operated. And this influence continues today with many McCann mentees across the insurance landscape in South Africa and abroad.

It amazes me that the many men and women, like Michael, who provide such strong guidance to youngsters in our industry, never fully realise their impact. And perhaps it is a strong lesson to those of us who benefited: to acknowledge these giants.

I have heard rumours that the IIG’s newly elected president Justin Naylor has this in his sights; so perhaps we will see not only our erstwhile precious industry presidents at functions being invited and honoured, but also the ordinary men and women who contributed so much. Goodness knows, these functions can do with some added spice and less cost to sponsors in finding the next ‘great’ act.

Sticking to M&F, previous CEO Peter Todd is now the president of the IISA and still very much an insurer. And who can forget the

super-bright, super-dedicated, super-hot, family-loving Caroline da Silva, whose postM&F life has led to an active, valuable and much-needed role at our regulator, the FSB; a regulator who, in my opinion, could do with even more insurance savvy folk in its ranks. And talking of super-bright, influential and beautiful former female executives, Margaret Nienaber, married to ACE CEO John Nienaber and proud mother to beautiful twins, became CEO of Standard Bank’s exclusive private bank after leaving Santam. It would be ironic if she’s steering the riches of a few former colleagues perhaps.

M&F has a wonderful tradition of the CEO hosting an end-of-year, annual, party for retirees. I know that some, like the aforementioned McCann, use this to demonstrate that they are still way more active than some of us 30 years younger. Michael is off on yet another exotic foreign cruise with his fiancee. Well done to M&F on this acknowledgement and I am sure that Raimund will keep that tradition alive, despite some others having been ditched.

When I launched this column, I nailed my colours to the mast quite obviously – as does this magazine in all it does. We love insurance.

We are proud of our industry. We want to celebrate the people who make it the engine of our economy that it is. So, whether you are mates with the retired CEO, the junior claims champion or someone who has retired, don't forget them. Call them, thank them and make sure that they, like Kerouac in a bar in San Francisco, will be remembered for having made our world a better, more enjoyable and special place.

Next time I will share some thoughts on brokers; and perhaps some views on their eating habits.

8 4 TL 130

A&G_A4_Print_sails.indd 1

2012/12/12 3:54 PM