RISKSA June 2013 by COSA Media

2012

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Should I stay 6 009900 153315

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FOCUS ON... LLOYD’S, ECHELON & MARSH AFRICA

INSURANCE FOR THE RICH AND FAMOUS

JUNE 2013

CONTENTS FEATURES Should I stay or should I go? SA vs Australia 4-1

Insurance for the rich and famous

The future of telematics: innovations and opportunities

Leading Lloydâ&#x20AC;&#x2122;s

REGULARS SHORT TERM

MEDICAL

F&I

LIFE

50-carat medical cover

ERM

Retirement annuities to become top savings choice

BETTER BUSINESS

101

Building blocks: comparing tertiary education savings vehicles

LIFESTYLE

145

SAM plans pushed back

Soft Landing: understanding the ISO standard for business continuity

LIKE US ON FACEBOOK / RISKSA

VISIT RISKSA.COM

Insurance fraud

102

The front line against fraud

108

Property syndications: Financial advisers risk personal liability

112

News

124

The wealth of a woman

146

28 38

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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.

With our ever-expanding national footprint, Renasa is probably closer than you think. And we donâ&#x20AC;&#x2122;t fob you off on a call centre, or even expect you to queue at our door. Renasa still treats brokers like brokers with

personal service around claims and the fastest turnaround on commercial underwriting decisions. Want to meet us in person? Weâ&#x20AC;&#x2122;ll come to you. Contact Renasa today on 0860-renasa or visit www.renasa.co.za

from the editor Dear reader The Guptagate debacle is still getting page one coverage in our major newspapers as I pen this letter. During a visit to the UK last month, I was horrified to find out how much airtime was being given to our beloved country on the UK telly, too. Thanks to the ubiquitous cellphone, there was footage being aired nightly of SA police brutality. Interviews with bumbling government spokespersons, initially condemning the attacks and then in the same breath, explaining that brutality was needed because “we have a high level of violent crime in SA”. I'm not sure who chooses these folks for PR duty, but that particular interview did nothing for our image as an attractive tourist destination. Of course, we know South Africa differently. While our country does have significant issues to work through, I wouldn't want to be anywhere else in the world; would you? Perhaps you have thought of joining the great trek of Saffers who have already packed for Perth. We thought you should be aware of a few things before you employ your newly found insurance accreditation down under. Read Neesa Moodley-Isaacs's piece on why the grass isn't always greener on page 10 For the first time the black middle class in our country has outstripped its white counterparts. If you were looking for good news about our country, this is indeed it. It means that there are more of us sharing the tax burden – and it means the potential policyholder cake is growing at last. This is great news for our industry. Once your clients have burst through the middle class bubble, they may even get to live in the rarified atmosphere of the super-rich, high net worth individual. Lest they feel left out, we’ve dedicated several pages to HNW individuals and their unique insurance needs. There are always those who view their insurer as a bank. On the opposite end of the spectrum are the scourge of our industry, the insurance fraudsters (who often look like your average client) and the PIs who almost always get their man. Enjoy the read.

Should I stay

or should I go? Neesa Moodley-Isaacs

AUS 80:00 SA

RISKSA is and always will be proudly South African and, casting our eye a little further, proudly African. Financial advisers frustrated by the high level of industry regulation in South Africa, combined with crime statistics and general economic conditions, might be tempted to venture to other countries with the idea that life could be very different. Since Australia is one of the most popular emigration destinations for South Africans, RISKSA used this country as a case study that proves why you should be proudly South African, too. ď&#x192;

he number one reason quoted by people emigrating from South Africa is the high level of crime or a particularly violent crime incident that spurs an impulsive decision to “leave now, at all costs”, says Daniel AnvariBrown, the head of Global Visas. He says Australia is a popular destination for South Africans who choose to emigrate for greener pastures. Some of the benefits that attract South Africans to Australian shores include an easily accessible and safe public transport system, free healthcare and world-class education. Australia also has a similar climate and there are already about 500 000 South Africans living in Perth; it’s a home away from home,” he says. Global Visas has helped move more than 1 000 South African families out of the country into Australia in the past year alone. However, that is just the tip of the iceberg. In the last year, Global Visas received five million enquiries from people wanting to emigrate and at 500 000 of those enquiries related to Australia.

Skills assessment Financial dealers, brokers and investment advisers all have to have their skills assessed before they can be accepted for immigration into Australia. One of the companies that undertake skill assessments in the financial services industry is Australian-based Vetassess. Anvari-Brown says the basic requirement for entry is a degree, preferably a finance degree with a minimum of one year’s work experience. “This is evaluated on a case-per-case basis. For example, a financial adviser can prove the tasks and duties he is capable of, in the form of references,” he says. The level 1 Regulatory Exam may qualify a financial adviser for entry as might a financial planning diploma – it would all depend on the content of the modules included in the course material. The Certified Financial Planner (CFP) qualification would also need to be assessed. Prem Govender, the chairperson of the Financial Planning Institute (FPI) says CFP certification is reasonably strong in Australia with around 33 per cent of all planners holding the designation. “Notably, only two per cent of regulator action is against CFP professionals in Australia,” she points out. When a person applies to immigrate to Australia, a scoring system is used to determine whether or not they qualify for entry. Typically, an immigrant would need 60 points to get into Australia and these points are determined based on various factors including a skills assessment, an English assessment, criminal  record, medical health and age.

Preferential skills list

Market entry is tough

“The desired skills list for Australia is divided into two sections – schedule one and schedule two. Schedule one includes the preferential skills list and this would include occupations that the Australian Government has decided the country is in dire need of,” he explains. For example, auditors and accountants are currently on schedule one and this means that their applications would be processed a lot quicker due to demand.

Julian Haw, a Certified Financial Planner who emigrated last year, says the market is tough as Australians are very proud of being Australian and like to deal with other Australians. “They will listen and be impressed but it is difficult to get a signature. However, there are a large number of SA advisers in Australia who appear to do well but they have worked hard to get to where they are. Bear in mind that when you move to a new country, it is like starting all over again.”

People who work in occupations on a schedule one can also work anywhere in Australia. The time taken for the emigration process has dropped from two years to about six months. However, it would take just two weeks to assess an auditor or accountant as the process is pushed forward. Schedule two includes occupations which are required in specific locations in Australia. Anvari-Brown says this is still a great list to be on. Occupations in the financial services industry which are currently on schedule two include financial dealers and brokers or financial advisers. Effectively this means that if you emigrate, you may end up working in an area of Australia that is not your first choice. If you stay in SA, you can work anywhere you want.

Haw says an Australian visa is difficult to obtain and the services of a good emigration agent are a definite must. With reference to fee structures, many advisers charge a fixed fee for advice and the fees are lower in Australia. Ongoing fees do not continue indefinitely but must be contracted with the client at appropriate intervals. Haw cautions that while some financial adviser companies pay a salary, it is difficult to apply for a position without being a resident as they are reluctant to sponsor people. Govender concurs, saying that Australia has moved to a fee for advice model faster than SA with commissions banned on everything except pure risk life insurance and debt. “SA also seems to have a ‘tied agency system’

while Australia appears to operate more in an open architecture environment. For example, planners within a company in Australia have a range of product solutions to complement their advice and are not restricted to just that company’s solutions. In South Africa we are still largely commission based although regulation seems to be moving away from commission particularly on savings products,” she says. Although South Africa boasts one of the most highly regulated financial environments in the world, the regulations in Australia are more stringent. “I think in terms of regulation, South Africa has been following in the footsteps of the United Kingdom and Australian systems,” adds Haw. The Council of Financial Regulators in Australia is a non-statutory body whose membership includes the Reserve Bank of Australia (RBA), which chairs the council; the Australian Prudential Regulation Authority (APRA); the Australian Securities and Investments Commission (ASIC); and the Treasury.

Overarching financial ombudsman The Financial Ombudsman in Australia provides an independent dispute resolution process covering financial services disputes including banking, credit, loans, general

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highlighted in the review, a financial services provider (FSP) had referred to incorrect policy wording when assessing a client's claim for disability benefits.

In one of the more recent decisions taken by the FOS this year, an insured complained after their insurer declined a claim on the basis that floods were excluded on the policy. The complaint was based on the fact that the insurer had paid for a claim under similar circumstances in 2008 and that the insured paid a neighbouring party for property damaged during the same weather event.

The FSP concerned was then asked to check previous claims to check whether other client's had been similarly treated. The FSP identified a number of policyholders whose claims had been terminated on the same, wrongful basis. The FSP undertook to educate staff. It reassessed and reinstated benefits in all affected cases, with interest and paid out $208 652 (R1.9 million) to the affected clients.

The FOS found that the circumstances in 2008 were significantly different and in the case of the neighbour’s property, the high water boundary was at least 100 metres away. Interestingly, each FOS decision is based on the merits and facts of each individual case. They do not represent a precedent for other cases.

Australian ombudsman resolves 97 per cent of disputes According to the 2011/2012 annual review, the office of the FOS received 36 099 disputes for the year, of which 35 049 or 97 per cent were resolved. The office carried out 173 investigations of alleged breaches of industry codes of practice, of which there were 95 confirmed breaches. In one case that was

South African FAIS ombud report The office of the local Financial Advisory and Intermediary Services (FAIS) Ombud, received 8 821 complaints for the 2011/2012 year, of which nine per cent was settled, 17 per cent carried over to the next year, 47 per cent referred to the correct authority and 27 per cent dismissed. Some of the main concerns highlighted by the FAIS ombud, Noluntu Bam, in the latest annual report include: • Property syndication investments – over the last year, there has been a rise in the number of consumers putting their money into high-risk investments they don’t understand. However, when these

investments go awry, financial advisers tend to paint the consumers as discerning investors who knew what they were getting into. • Selling/taking over a book – where there is a change in insurer, it is the duty of the broker to familiarise themselves with the terms and conditions under which their client is now insured. The client should be informed that their insurer has changed and the new material terms of their policy. • Risk profiling and disclosure – there appears to be a ‘disconnect’ between the consumer’s risk tolerance as calculated on a questionnaire and the consumer’s actual circumstances. For example, it is misleading to ask a consumer if they have ever invested in or are comfortable with equities when the investment under consideration is a property syndication.

FOFA reforms Andre Dorfling, a financial services compliance lawyer working in Australia, says a financial adviser planning to move to Australia will need to be prepared to face some serious regulatory and compliance changes in Australian laws encapsulated in the Future of Financial Advice (FOFA) Reforms. “From 1 July 2013, the Australian regulator will ensure measures are put in place to ensure registered financial advisers who hold an Australian financial services licence and companies operating in 

this space comply with these new reforms. This could be by way of significant penalties and fines for non-compliance, but the Australian and Securities Investments Commission (ASIC) may follow a facilitative approach as part of the implementation process. Most of these reforms have already been passed into law in Australia.”

Tightened controls

the arrangements which people make in order to have funds available in retirement. • The introduction of a statutory fiduciary duty so that financial advisers must act in the best interests of their clients, subject to a reasonable-steps qualification, and to place the best interests of their clients ahead of their own when providing personal advice to retail clients. • Increasing transparency and flexibility of payments for financial advice by introducing a biennial (every two years) opt-in arrangement and annual fee disclosure statements so that consumers are clear about the ongoing fees they pay. • Percentage-based fees (known as assets under management fees) will be charged only on ungeared products or investment amounts and only if this is agreed to with the investor. • Expanding the availability of low-cost simple advice to improve access to and affordability of financial advice. • Strengthening the powers of the Australian Securities and Investments Commission to act against unscrupulous operators. • The examination of the need for a statutory compensation scheme for financial services.

New legislation and amendments to Australian company laws will now require financial advisers to clearly disclose their fees, commission and/or remunerations when delivering financial advice to their clients. In addition, new rules and tests have come into play whereby financial advisers coming to Australia must comply with new rules and regulations when considering key areas of best interest of clients, scaled advice and principles of banned conflicted remunerations. The Future of Financial Advice reforms include the following: • A prospective ban on conflicted remuneration structures including commissions, in relation to the distribution of and advice on retail investment products including managed investments, superannuation and margin loans. Superannuation in Australia refers to

Dorfling points out that in addition, Australian companies holding financial services licences will need to update various policies and internal procedures to ensure that financial advisers and the company as a whole will be able to comply with these FOFA reforms. “This could be crippling for some companies that may not be ready for commencement of these reforms on 1 July 2013. The costs associated with training financial advisers and administrative costs related to disclosure statements and the percentage-based fees structure may also be troublesome when it comes to implementing these reforms,” he says. “These are tough times in the regulatory compliance space for financial advisers in Australia as the government and the Australian Securities and Investments Commission increasingly tighten the reins and controls over financial advisers,” Dorfling adds.

SOUTH AFRICA

Scorecard: South Africa vs Australia

AUSTRALIA

Scoring system – you have to score 60 points to work in Australia

No scoring required in SA – 1

Your location

You can live and work anywhere 1

If you are on the schedule two skills list, you can live and work only in specified areas, not necessarily of your choice 0

Establishing yourself in the market

You’re already established. 1

A tough market to break into 0

Fee structures

Higher than Australia 1

Level of regulation is high in both countries

Crime levels

Higher than Australia 0

Total score

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INSURANCE FOR THE RICH AND FAMOUS

The lifestyle of the rich and famous might be glamorous but they need to be insured just like everybody else. We find out more about the nuances of high net worth cover and some of the pitfalls brokers need to watch out for.

NEWS

50-CARAT MEDICAL COVER When it comes to medical aid; are the wealthy on the most expensive medical aid benefits with the best cover? Or are many of them self-insuring? RISKSA digs a little deeper to find out whatâ&#x20AC;&#x2122;s happening in this space.

Insurance for the

rich & famous Neesa Moodley-Isaacs

As inflation rises and most households in South Africa struggle to make ends meet, there exists a section of society that live a lifestyle most can only dream of. A recent study by British research house, WealthInsight, titled ‘South Africa – The Future of HNWIs to 2016: the Rise of African Wealth’, shows there are at least 600 millionaires residing in South Africa.

ealthInsight refers to a high net worth individual as someone whose wealth totals $1 million (R8.9 million) or more, including equities, bonds, cash, real estate and business interests. WealthInsight’s senior analyst and head of its report team, Andrew Amoils, says the company has a database of more than 100 000 millionaires worldwide and most people on the list are multimillionaires, with wealth of more than $30 million (R268 million).

Increased buying power The company found there were 75 South African multimillionaires from a previously disadvantaged background. “This is a relatively low percentage considering that these groups make up 90 per cent of the national population,” Amolis observes. But this group is growing quickly and so are their insurance needs. Global consultancy Bain has predicted a 20 per cent to 30 per cent growth in the luxury brands market in South Africa over the next five years, further indicating the increased buying power in the country. Willem Coetzee, an executive risks consultant at Zenith Insure, says because the high net worth population in South Africa accounts for a small percentage of the country’s population, there is extreme competition for market share in this space. “We have experienced a significant



Scalable cover a 30-year-old owner of a night club might both drive a Maserati but they would have very different risk profiles,” he says.

take-up for our product aimed at this market and year-on-year growth has been in excess of 30 per cent for the past three years,” he says.

Individual risk profile Darrel Dawson, a director at Echelon Private Clients, says in a high net worth situation, the insurer should be focusing on the person and not their assets. “Echelon has introduced a lifestyle underwriting matrix, which looks at the client’s age, where they live, their occupation and their claims history. This individual risk profile is then applied to the client’s assets. For example, a 55-year-old chief executive of an investment company and

Dawson says the client’s occupation and claims history are key when evaluating their risk profile. “The approach of insuring and flat-rating assets on their value is outdated and incorrect. Very often, a person’s age and occupation is a big clue regarding their appetite for risk and this is often confirmed by the items they purchase,” he says. A client with a negative credit rating, for example, is more likely to have a high propensity for motor claims than a client with a positive credit rating. “Historically, insurers have asked clients to specify any item over a certain amount, such as expensive jewellery. However, this means that the client’s insurance schedule is unnecessarily long and requires constant updating. To make it simpler, our approach is that there are only two things that need to be specified under all risks. An item used purely for business, such as a doctor’s medical kit or a sporting goods item such as a professional cyclist’s bicycle worth R130 000,” he says.

Willem Coetzee, an executive risks consultant at Zenith Insure, says the insurer introduced a product specifically for the high net worth market seven years ago. “Our product is designed to provide comprehensive cover scalable according to the client’s appetite for risk,” he says. For example, Zenith offers: • Very high limits for sums insured. • Asset all risks cover for house contents. • Special vehicle covers such as Weekender cover and Swallow cover and ‘new for old cover’ on vehicles up to two years old. • Tailor-made cover for private art collectors. • Business insurance for entrepreneurs with home offices. The Zenith product includes options to insure assets such as exotic and classic cars, water craft and art collections. “Affluent clients often have a risk appetite to match. For this reason, we offer a comprehensive excess structure where clients can elect to participate in risk and pay reduced premiums. This structure allows for excesses from policy level down to item level,”  Coetzee says.

The case for specialist insurers Christelle Fourie, the managing director of MUA Insurance Acceptances, points out that the claims settlement approach used by many general insurance providers does not factor in the premium paid for designer brands. She says this is most often seen when it comes to replacing designer jewellery brands. “For example, if a consumer loses a pair of Jenna Clifford diamond earrings, they will naturally want them replaced with a similar Jenna Clifford design. However, some general insurers often have their preferred suppliers; so even if the earrings were insured for R25 000, the client will have to go to the insurance company’s preferred supplier to replace them. A specialist insurer will replace the earrings with a pair from the client’s preferred designer.” In the same vein, she says, a homeowner who

has international designer furniture, such as an Italian DePadova dining room suite in their home, which is subsequently damaged by a geyser bursting, will not be satisfied with a mainstream furniture brand replacement. “This is where the benefits of a specialist insurer who understands the preferences of the client come into play.” MUA’s policies are tailor-made and offer the following benefits: • Minimum entry level sum insured; buildings, contents and all risks combined R3 million or a contents minimum of R750 000. • Comprehensive subsidence and landslip cover at no additional premium. • Extended all risks cover – normal household goods are covered anywhere in the world. • Full coverage of accidental damage to both buildings and their contents. • International personal luggage cover from airport to airport is included in the contents cover. • A voluntary home appraisal service.

• Underlying cover includes personal liability insurance of R30 million, which extends to identity theft cover. • A golf hole-in-one is covered for R10 000 and a bowls full-house for R5 000. • Motor total loss and theft claims are settled at retail value. Where the vehicle is less than one-year old the formula for settlement is replacement cost, subject to the sum insured. • Excess waiver on non-motor claims in excess of R100 000. • Excess waiver for over-55s. • Excess waived on motor where the car is less than one-year old and a tracking device is installed. • Windscreen cover is up to the vehicle sum insured.

“One of the distinguishing features of Unique Elite is the asset out option, which replaces the traditional, unspecified all risks and allows the client open cover up to R250 000 for jewellery, photographic equipment and personal effects. Values can also be increased at the client’s discretion,” says Laura Greer at AUM. She says an automatic survey of the contents ensures that the client is not underinsured and helps eliminate complications during the claims process.

Premium vehicle cover There are several specialist insurers who offer cover for high-end vehicles including Execuline Motor Insurance and Aquarius Underwriting Managers. Some of the benefits on these specialist policies are tailored to suit  the market they cater for. For example, Execuline Motor Insurance offers the  following benefits:

www.globecreative.co.za

Aquarius Underwriting Managers has a flagship product, Unique Elite, specifically designed for the high net worth market. The product was developed after AUM recognised that independent brokers seldom have a VIP channel for their high net worth clients and cannot guarantee special service from conventional insurers. The policy caters specifically for the high net worth individual with a unique portfolio that includes luxury homes and exotic cars.

Insurance products for the accomplished

www.zenithinsure.co.za

info@zenithinsure.co.za | Tel: +27 21 872 7065 | Fax: +27 21 872 7168 | 191 Main Road Paarl 7646 | PO Box 3505 Paarl 7620 | Registration Nr: 2006/032693/07 Zenith is a licensed Financial Services Provider, underwritten by Hollard, an authorised Financial Services Provider. FSB Number: 36469

• Sound equipment can be covered for up to 2.5 per cent of vehicle value on an all risks basis at no additional charge. Thereafter a rate of 15 per cent will be charged. The sound equipment value must be included in the vehicle sum insured as the maximum amount payable is the vehicle sum insured. • Car hire is automatically included in the premium for up to 45 days in the event of accident and theft. Up to a 1600cc vehicle, manual with air conditioner will be supplied. • Territorial limits include Republic of South Africa, Namibia, Lesotho, Swaziland, Botswana, Mozambique, Malawi, Zimbabwe and Zambia.

• Motor vehicle inspection at no cost. • Aquarius Underwriting Managers offers a policy for vehicles valued at more than R350 000, where the company insures executive and exotic cars for drivers older than 30 on a stand-alone basis, or in combination with other AUM products. The vehicle policy offers clients excess-free cover for theft or hijacking, provided the vehicle is fitted with an approved tracking device. Drivers over the age of 60 with an advanced driving certificate also enjoy an excess-free policy. A second vehicle with a value less than R350 000 may be added to the policy, provided the vehicle is owned or registered in the insured’s name or in the name of their spouse.

Broker’s toolbox tips: Christelle Fourie, the managing director of MUA Insurance, identified some of the most common pitfalls brokers need to watch out for when insuring the possessions of high net worth individuals. Under and over insurance of property There have been large fluctuations in the market values of homes in the affluent areas of South Africa over recent years. Market value is often confused with insurance replacement value and this is why it is so important for high net worth homeowners to obtain a professional insurance replacement valuation for their home and its contents. At MUA, we have seen massive underinsurance as well as over insurance on property. For example, the market value of a property situated in a suburb like Bakoven or Sandhurst may be set at R25 million, but the actual replacement value of the building is only in the region of R10 million. These clients are paying premiums on a value which will not be paid out to them in the event of a claim. Fragmentation of cover Purchases of fine art, new cars or holiday homes are made over a period of time, with the result that insurance can often be fragmented with clients holding multiple policies with different brokers and insurers. By consolidating their insurance cover, the broker will probably be able to reduce costs for their client as well as avoid any gaps in their coverage. Work with the right people An insurer that deals exclusively with the general public is unlikely to be properly equipped to deal with the complex needs of the client. Insurers that specialise in providing cover to high net worth individuals often tailor their policies to meet the very specific needs of their customer base. It is also important to consider the specialist claims handling ability of the chosen insurer – not all insurers are geared towards having a

Bentley repaired following an accident or a silk Persian rug repaired after water damage. Insure valuables correctly Whether the client is an avid collector of fine art, wine or antique jewellery, it is important that all their valuables are correctly evaluated. Certain policies aimed at high net worth individuals do not require homeowners to specify each and every item in their home. However, a valuable collection of art or piece of jewellery needs to be properly assessed and valued and should not just be included under a basic home insurance policy. Read the fine print As brokers know, the devil is always in the detail. When it comes to insuring high net worth individuals, the fine print becomes even more important. It is crucial to understand what exclusions apply under these policies and how these could impact on the client. In most cases, an individual would be happy to pay an increased premium for additional coverage rather than discover too late that their policy does not meet their needs. Rare and collectable items These should never be insured under a

standard personal lines policy for the following reasons: • Such items require the basis of indemnity to be on an agreed value. • Specific extensions are required, such as an increase in cover for the year following the death of the artists (in the case of valuable paintings). • In the event of a claim, the insurer must be capable of handling the loss in an acceptable manner. Does the risk carrier

have the correct panel of loss adjusters and specialist service providers to deliver the level of service the policyholder might need? Will the policy pay cash on full agreed value or what the insurer believes is replacement value? • Collectables also extend to unique jewellery pieces. This means it is important to ensure the insurer’s panel of suppliers and claims paying approach is in keeping with the client’s collections.

Insuring the

one per cent Providing adequate cover for a unique group of people and businesses, such as the high net worth market, requires an equally unique group of underwriters. RISKSA profiles the UMAs operating in this space.

Nick Krige

About The flagship U-NIQUE Elite product was created in recognition that independent brokers at the time did not have many channels for their VIP high net worth clients. Aquarius is backed by Zurich Insurance Company, which recently acquired equity in the niche high net worth UMA. Specialisation Aquarius’ products cater for high net worth individuals, with unique portfolios of antiques, jewellery, art, collectibles, luxury cars and yachts, who require specific and tailor-made short-term insurance options. The distinguishing feature of this product is the asset out option, which replaces the traditional, unspecified all risks and allows the client open cover up to R250 000 for jewellery, photographic equipment and personal effects. Values can also be increased at the client’s discretion. An automatic survey of the contents ensures that the client is not underinsured and helps eliminate complications during the claims process.

About A specialist insurance product group formed to offer unique insurance products to art collectors and photographers to insure financial security of clients’ artworks, equipment and valuables. Specialisation As a specialist artwork insurer, Artinsure understands that even when professional restoration is a possibility, it results in immediate devaluation of the item. Artinsure’s products have been designed to ensure that the client’s financial interests in their appreciating assets are protected.

About Echelon Private Client Insurance is a niche underwriter focused on high net worth market segments in South Africa. As specialists in the local short-term insurance industry, Echelon offers tailored personal asset risk solutions to meet the needs of professionals, business owners and executives. Backed by Santam Limited, Echelon adopts a lifestyle underwriting model aimed at achieving sustainable results. Echelon endorses intermediary expertise in client risk management.

Artinsure provides customised policies for collectors, museums, dealers, auctioneers, restorers, appraisers, galleries, exhibitions, artists, photographers, shippers and packers, thoroughly safeguarding clients’ interests against loss, theft or damage.

Specialisation Echelon underwrites all risks cover for motor, buildings, contents, pleasure craft, private aircraft and unspecified and specified assets, together with flexible personal accident and personal liability solutions. By choice, it partners with select brokers only and simultaneously endorses the values of independent advice and personalised broker representation for policyholders.

Drew Schnehage, CEO

Gordon Massie, Managing director

Mark Marinus, CEO

www.aum.co.za Phone: 086 727 7854 E-mail: raksm@aum.co.za

www.artinsure.co.za Phone: 0861 111 096 E-mail: info@artinsure.co.za

www.echelonpci.co.za Phone: 011 023 2214 E-mail: darrel@echelonpci.co.za

About Formed more than 10 years ago, in conjunction with Hollard Insurance Company, which has a 40 per cent holding, Execuline Underwriting Managers now boasts a staff of more than 50 people catering for the needs of executive motor car owners.

Specialisation Execuline focuses on offering an insurance product aimed at executive and high-value motor vehicles. The core product covers potential risks of damage to or loss of a motor vehicle. The added benefits the policy offers include car hire, personal accident, top-up and third party liability cover. The Execuline Assist programme also forms part of the augmented product.

Alan Eustice, Managing director

www.execuline.co.za Phone: 0861 106 106 E-mail: debbieg@execuline.co.za



About Allianz Insurance Company had, for many years, underwritten jewellersâ&#x20AC;&#x2122; block insurance. In 1999, Allianz saw the opportunity to increase its share of this niche market. Together with Lireas Holdings (Pty) Limited, the investment arm of Hannover Reinsurance Africa Limited, Gem & Jewel was formed and commenced trading in July 1999. Specialisation Gem & Jewel offers specialised insurance for jewellery retailers. The cover protects jewellers against theft and stock breakages. It also includes provisions such as trauma cover for staff and customers in the event of a jewellery heist. Natasha Maroun, Managing director www.gemjewel.co.za Phone: 0861 234 436 E-mail: info@gemjewel.co.za

About Insurance Zone Administration Services is a niche short-term administrator that offers insurance products in the specialist areas of product design, underwriting, policy administration and claims management.

About Established more than 20 years ago, MUA Insurance Acceptances (MUA) has become one of the major players in tailored insurance risk management solutions for the high net worth personal lines market.

Specialisation The Leisure Zone product has been designed to protect valuable leisure items from yachts and catamarans to motorcycles and 4x4 vehicles. The product includes a flat excess structure and includes cover for track days and participation in organised racing events.

Specialisation MUA is solely dedicated to the high net worth short-term personal lines insurance market. Management believes a focus on just one discipline allows the company to provide an individual approach to each of its clients.

Alan Johnston, Director

Christelle Fourie, Managing director

www.insurancezone.co.za Phone: 011 601 8800 E-mail: admin@insurancezone.co.za

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About After 14 successful years with MUA, first as operations director, then as CEO, Adrian Louw decided to use his experience to explore other avenues of insurance. His passion for cars led him to create a specialist product within that niche market. Specialisation Vantage focuses on providing comprehensive motor insurance products to high net worth individuals through a network of largely independent intermediaries. The company boasts a team of experienced individuals who have long-standing relationships with key operators in the motor industry. In order to preserve its niche, the main driver of the vehicle needs to be at least 27 years old; should be a manager, entrepreneur or professional; should have a history of at least five years of uninterrupted motor insurance; and should have at least a three-year insured and accidentfree record.

About Zenith is partnered by the Hollard Insurance Company, and offers design insurance products to a select market of financially accomplished individuals. The location of the primary risk, the qualification of the insured and insured value is used to decide if potential clients will be given access to the product offering. Specialisation The product is custom made for the affluent market and includes high cover limits, asset all risk cover and commercial cover for home offices and industries. The product features an elective excess structure, a risk inventory and pictorial, and full AA membership.

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Lourens Kirsten, Managing director

Website: www.vantageinsurance.co.za Phone: 0800 214 763 E-mail: info@vantageinsurance.co.za

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The

biggest claims in history Neesa Moodley-Isaacs

The last two years have been a nightmare for short-term insurers the world over, as natural catastrophes rocked underwriting books. But over the years, some of the most expensive insurance claims have come from the most unlikely sources.

Up in flames The Waldo Canyon Fire was a forest fire in Colorado in June 2012, which resulted in the evacuation of more than 32 000 residents of Colorado Springs and the destruction of about 346 homes. The insurance claims related to the Waldo Canyon Fire totalled more than $352.6 million (R3.1 billion). The top three most expensive local claims at MUA Insurance Acceptances all involved fire damage. Managing director of MUA, Christelle Fourie, says the company’s largest loss on record was for R6.7 million in a fire damage claim. “This is not so bad though, when you consider that we insure buildings valued at more than R100 million,” she points out. The fire at St Francis Bay in November last year was estimated to have cost more than R500 million in claims, having destroyed at least 75 homes.

Crash, boom, bang With a collective total of damage to the elite sports cars adding up to more than $4 million (R35.8 million), it was said to be the world’s most expensive car accident: eight Ferraris and a single Lamborghini were involved in a chain-reaction pile-up on Japan’s Chugoku Expressway in Yamaguchi Prefecture in December 2011.

Fourie has the following advice: • The importance of having valuations done on both buildings and contents cannot be understated. • If the client goes to the trouble of having a valuation done, the adviser should encourage them to accept the valuation that comes back. “Often, clients think the value on their building is overstated. They think they can get a builder for less per square metre than the estimate. As a result, they insure on this lower value but at claims stage, this means they get paid out far less than is adequate to properly replace the house.” • A homeowner’s policy should be reviewed and updated at least every three years.

The convoy of expensive sports car owners and enthusiasts were travelling on the rain-soaked section of highway in the city of Shimonoseki. The driver of the lead Ferrari lost control when changing lanes and the following vehicles, slammed into each other, one by one. All the drivers were between the ages of 37 and 60, and six were injured, with two in serious condition. Police say it took them over six hours to clear all the debris off the highway, as it was spread out over a stretch of road roughly 400 metres. According to a witness, the Ferraris, which included a F430 Scuderia and F360, valued from $190 000 (R1.74 million), were driving at speeds between 140 and 160 kilometres per hour in an 80-kilometre zone. The driver of the lead car was a 60-year-old self-employed man; he and the nine others were later charged with “accidental infliction of injury while driving”.

The incident involved 14 cars in total. In addition to the nine exotic cars, there were two Toyotas and three Mercedes-Benzes. English actor and comedian, Rowan Atkinson, takes the prize for the most expensive single car insurance claim. In 2011, he crashed his McLaren F1 for the second time, leading to a repair bill of £910 000 (R12.6 million) for more than a year’s worth of repair work. When it comes to classic and luxury cars, clients need to be sure that they are getting the best insurance cover at the best premium. American Collectors Insurance offers the following advice: • Drop unnecessary cover: If the car is stored in the garage all year, the client could save money by insuring only for theft or third party damage. • Limited mileage policies: If the client drives the car only on the weekends or to classic car shows, they could take advantage of insurance policies based on limited mileage. • Remove other drivers from the policy: Luxury cars are unlikely to be driven regularly, if at all, by anyone other than the primary driver. The client could reduce their premium by ensuring that no other drivers are listed on the policy. 

The shocking effect of power surges According to the Insurance Information Institute, lightning surges in America cost nearly $1 billion (R8.9 billion) in insurance claims in 2011.

Darrel Dawson, a director at Echelon Private Clients, says usually accidental damage is limited on insurance policies to R10 000 or R15 000. “However, the cost of goods affected by a lightning surge is far more than that. A plasma television set alone could cost the client R10 000 to replace,” he points out. Dawson says Echelon has previously had a R250 000 insurance claim for damage due to a lightning or power surge.

Loretta Worters, the vice president of the Insurance Information Institute, says plasma and high-definition television sets, home entertainment centres, multiple computer households, smartphones, gaming systems and other expensive devices, which can all be destroyed by power surges, continue to have a significant impact on claims losses. Another reason behind the increased claim costs may be due to a spike in consumer electronics prices.

Dawson has the following advice: • Select a surge protector that has an indicator light and/or audible alarm to show when it needs a replacement. • Look for a surge protector with a manufacturer’s warranty. Some warranties cover only the device while others also cover any damaged equipment connected to the device. • The best surge protection is to unplug equipment from the wall during an electrical storm.

The cost of art Some of the largest insurance policies in the world exist to cover art, particularly rare paintings and sculptures that would be a loss to the entire world if they were to disappear. Gordon Massie, the managing director of Artinsure, says global art theft has reached very high numbers. “The largest art theft in 2012 was from a museum in Rotterdam and involved artwork valued at $250 million (R2.2 billion). There were several other museum heists in excess of $50 million (R448 million) in 2012. The largest recorded theft (aside from wartime looting) is valued at $500 million (R4.4 billion) from a museum in Boston,” he says. Massie points out that art theft frequency is on the rise with Paris galleries and museums being prime targets. Additional occurrences of art theft have been during government changes throughout the Arab spring. His advice to brokers with clients who have art collections is to: • Catalogue the collection well. • Value it frequently. • Make sure you are updated when the client revalues or adds to their collection.

High-priced kitty Pet insurance is not something you would expect to rank as one of the biggest insurance payouts of all time, but a $22 000 (R197 120) claim for a cat’s renal surgery was paid in 2010. Not only is this the largest single pet insurance claim ever filed, the cat in question was an ordinary mixed breed with no special traits or characteristics. Pet insurance claims can range from expensive to just downright odd. In 2011, Harlem, a pug from America won the Veterinary Pet Insurance Hambone Award for the weirdest claim. Harlem’s owner had been away on holiday and noticed on her return that he was passing a lot of stones. She could also feel more stones in his stomach.

An emergency animal hospital was able to give the dog medication and he passed out more than 100 stones. Clients who want pet insurance should look out for the following: • Exclusion period – some policies will accept a claim only from a certain date after the policy is taken out. • Maximum age – a new pet insurance policy may specify that it can be taken out only for a pet under a certain age. • Co-insurance excess – this means the client will have to pay the policy excess plus a percentage of the claim.

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Mark Marinus, CEO of Echelon Private Client Insurance

Building on the

success

of a start-up Hanna Barry

n idea and an opportunity intersecting at the same time led to the fairly recent establishment of this underwriting management agency (UMA). An entrepreneurial venture, Marinus approached Santam with the business proposal for Echelon in mid-2009, but his idea for the business had been brewing for some time. With a background in private equity and as a stock market analyst covering insurance companies, he saw an opportunity in the insurance space. “What struck me from engaging with institutions in the market was that everyone was trying to do something

across the board and didn’t take a segmental approach to insurance,” he remembers. “I saw an opportunity to put something in place that was the equivalent of a private bank in insurance, pitching the business to people who would typically go to private banks.” Officially launched to the market in October 2009 as a specialist underwriting management agency, Echelon offers tailored personal asset risk solutions to meet the needs of professionals, business owners and executives. Marinus admits that for Santam to have made capital available in the

middle of the recessionary storm took a fair amount of faith, especially since the insurer had nothing to go on other than a business plan. Nevertheless, Santam is no doubt pleased with its commitment as Echelon’s size approaches the R150 million mark, growing by 126 per cent at the end of 2011, by 106 per cent at the end of 2012 and tracking for another 70 to 80 per cent growth in 2013. But the business is still in embryonic from. With only 200 brokers selling its products, hardly a saturated distribution base, scope for further growth remains and he is confident that this will happen organically over the

Mark Marinus is an ex-SA hockey representative and current keen mountain biker. He is also a passionate father to three children and the CEO of Echelon Private Client Insurance. His favourite teacher at school was his history teacher who encouraged independent thinking while under surveillance by the security police.

Product, service, solvency

Finding profitable growth

This commitment to deliver something that is ‘at another level’, as the company’s slogan articulates, expresses an aspiration to do things better than anybody else. “People in this segment want benefits, service delivery and an overall experience from an insurer that is above the norm,” he continues. In this vein, he outlines three pillars on which the business is built and in which areas it strives to differentiate itself: products, service and solvency. At a product level, Echelon looks to develop benefits that are in step with existing and new risks that people have and the products they would want, such as in-built identity theft coverage or its flagship motor insurance benefit, which provides for a brand new vehicle if a client suffers a total loss within the first three years of owning a new vehicle.

This was particularly pronounced in 2012, when Echelon, like many other shortterm insurers and UMAs, was hard-hit by claims arising from fires, floods and hail damage. In this environment, ensuring profitable growth is a major challenge. “Pricing is largely determined by economic forces of a competitive nature, but this has to be balanced with the appropriate claims delivery to clients.”

“The reputation of this business has been built on service turnaround,” says Marinus, moving on to the second pillar. “We know that if we drop our standard of service we will feel the impact. Insurance is a grudge purchase; making it difficult for clients and brokers to source a quote, secure cover or get a claim paid only aggravates this.” From hassle-free quoting to innovations on workflow and process, Echelon’s aim is to make the experience as easy as possible for policyholders and brokers, leveraging this as a competitive advantage. next few years. “As with any start-up, we had to work hard to secure new business from intermediaries, launching a business and a distribution channel at the same time. Brokers are now approaching us independently, introducing new opportunities for growth.” These opportunities will, however, be balanced against what the UMA’s infrastructure can handle. “A thousand new intermediaries overnight, for example, would not be good for us; we need to build the infrastructure and resources to keep our promises to clients and brokers and follow through on our commitments,” says Marinus.

Finally, the UMA’s claims-paying ability is unmatched in this niche market segment due to its backing from Santam. “Solvency as a pillar is critical in the insurance business and will become even more relevant going forward. If you are accepting a premium you have to meet the claim.” This is the very reason why Santam was approached. “In terms of inspiring confidence in clients, brokers and employees, there needed to be a company of substance behind this new startup in order to make it more easily accepted and trusted. Ultimately, Santam’s solid reputation and financial strength made this the logical choice.”

Meeting claims is not easy in a world with increased costs of repair and labour, exacerbated by a weak Rand. “For example, a vehicle may be 10 to 15 per cent more expensive to repair than it was a year ago because of the increased cost of parts. So while growth is less of a challenge to the business, competitive and economic forces place pressure on our profit motives.” But challenges bring with them opportunities and not a day goes by where this is not a challenge to overcome, which is what Marinus enjoys most about his role. “Having the space to be creative and innovative is highly rewarding. And working towards building something that accommodates the interests of policyholders, intermediaries, shareholders and staff is a challenge that I relish.” He particularly enjoys allowing his team to build with him, giving them significant scope to make decisions and take ownership of their roles. Although fixated on numbers and productivity, he believes in creating an environment that empowers people to take responsibility and attributes Echelon’s success to its people and their ability to work as a team. “While products, solvency and the right service model are important, if you don’t have the right people with the right skills and drive to move this all into the market, you don’t have a value proposition at all.”

The future of telematics:

Innovations opportunities

Telematics has had a significant impact on the insurance industry over the last few years, particularly in the heavy commercial vehicle (HCV) market and, as the technology becomes more accessible, the potential for it to be utilised in other areas is increasing dramatically. Nick Krige

elematics technology has now evolved to a point where a driver’s acceleration, how hard they brake, how fast they take corners and the routes they choose can all be monitored by a little black box installed in a vehicle. The benefit for the HCV industry, where driver behaviour is critical to the success of the business, is obvious, but telematics is now starting to have an impact on the motor insurance sector as well.

Looking forward In the United Kingdom, new motor insurance companies are popping up offering premiums and incentives based solely on how well the policyholder drives their car. Currently the application is seen as especially useful for young and other perceived high-risk drivers who would usually face high premiums. However, it seems likely that telematics is destined to become a major factor throughout the motor insurance industry. “This is a really interesting time for telematics. Everybody, insurers or brokers, is involved in some way, in pilots, investigating the opportunity, trying to understand how telematics data can help with rating and claims,” explains Penny Searles, managing director of Wunelli, a telematics solutions provider. David Waring, director of SSP Europe, believes that telematics and individual customer premiums are the future of the motor insurance industry and insurers that ignore it are going to be left behind. “Over the past two years, every motor insurer that I have talked to has some sort of initiative underway regarding usagebased pricing. Not everyone is completely converted, but to a man insurance companies have some pilot underway or are planning a pilot, and a handful of players who are fully engaged. This initiative is real; we believe it is here for the long term and will cause a massive change in the motor market,” says Warring.

The game-changer Traditional insurers must be aware of the potential telematics brings to the market and how consumers are going to react to it. “There is a level of complacency in the market. People are saying that this is a specialist application for the likes of high risk and younger drivers. I suspect there are insurers out there thinking: why would I want to reduce premiums for my nice, cosy and safe book of over 50s drivers? The answer is: because if they don’t, someone else will,” warns Waring. Previously the cost of telematics technology limited insurers’ opportunities to make use of it, the premium had to be high enough to justify the service, however that is changing. “What

we’ve seen is the development of smartphone applications that produce the same quality of data as hard-wired devices. That cost of data acquisition is a tenth of what you’d pay for a hardware box. It’s not just about better information for the insurers, it is also good for consumers who now have the information on their phones telling them how they are driving,” says Searles. The major drawcard of telematics is that it allows insurers to offer premiums on an individual basis based on how well they drive. The concept would appeal to both consumers (if they drive well, they save money), and insurers (policyholders are incentivised to drive safely which leads to less accidents and improved loss ratios). “Telematics deals with application fraud and helps with loss ratio; that way you can triage claims faster and price more accurately with the customer. It’s always been great for the insurer, what’s different now is that it will benefit the customer too. Telematics might be one of these disruptors that is good for everyone,” says Bob Skerrett, distribution director, personal lines at RSA Group. The amount of data collected by telematics puts tracking devices to shame. It would not be entirely surprising if it got to the point where the ‘little black boxes’ are installed in vehicles on the factory floor, especially when an industry standard has been set for data collection. Over time, insurers will be able to combat fraud through telematics data by analysing thousands of similar incidents, and cataloguing the results and damage. Before even seeing the vehicle, loss adjusters will be able to source most of the replacement parts a car would need after an accident just by looking at the telematics of similar crashes. With all the additional data, it is difficult to see the traditional tracking device companies being able to keep up, unless they embrace telematics.

Challenges faced by insurers The agility required to offer the dynamic policies and premiums that telematics makes possible presents an interesting set of challenges for traditional insurers. “It is almost easier for new players to enter the market because there are so many legacy issues and infrastructure challenges with telematics,” says Ed Rochford, product director at Carrot Insurance. “Once you’ve seen the data as opposed to a traditional insurer data set, it’s difficult to imagine how you did it before.” Legacy systems are geared towards an annual policy renewal. It is a fixed type of product that is difficult to change. This is a marketplace where insurers need to be incredibly agile and able to change products and prices overnight. 

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Telematics creates a whole new set of challenges and a whole new set of ways insurers have to deal with the customer. That is why it is more straightforward for new brands to enter the market, and perhaps more difficult for traditional motor insurers to adapt their processes to the new technologies. “We need to make sure those insurers that have good market position are able to use driver behaviour data effectively while still using legacy systems, infrastructure and traditional processes that work effectively for them on their current books. New entrants into the market can be so effective because they are absolutely dedicated to that data,” explains Searles. Generally, with motor insurance, in the absences of a claim, the only engagement between the insurance company and the customer was the annual retention letter. Telematics data means that insurers will receive data about each of their clients on a daily basis. “Instead of a renewal letter once a year, you could be re-pricing on a monthly basis, or even renewing on a monthly or quarterly basis. Being able to administer that kind of transaction volume without incurring additional cost is a big challenge,” says Waring. Transparency is the key to insurers succeeding in this market. Consumers may initially be weary of all the data insurance companies will be able to collect about them, but this can be offset if customers see a real relationship between their driving patterns and their insurance premiums. “Being able to rate people on an individual basis makes the policies transparent. If you can show them on a daily basis how well they are driving and how that is influencing their premium, that has to be a good thing,” explains Searles.

The sheer volume of data being collected by insurers about their clients through telematics will bring with it a host of questions about the security of the data and how it is being used. The mere fact that the data influences premiums means insurers need to be 100 per cent certain the data is accurate. Consumers want to know exactly what it is that they are buying. “The main thing is that brands are transparent about how the product works, as well as making sure the data is reliable. Making sure they are open and honest about what they

have to do as a consumer, which is going to mean a higher charge or cancellation,” says Rochfort. “You’ve got to build trust with the customer, because, long term, companies that worry about and look after the customer are those that are successful,” concludes Skerret.

Safer roads Telematics can play a vital role in public transport just as it does in the heavy commercial vehicle world. If insurers of tourism, transport and bus companies insisted on vehicles being fitted with telematics devices, it could have a definitive effect on South African roads. The bus that veered off the Hex River Pass near De Doorns in the Western Cape, killing 23 people, is a chilling example of what can go wrong. If that bus had been fitted with a telematics device every time it swerved, went over the speed limit, behaved erratically, or even if the driver drove too long without a break the insurance company would have known about it. Insurers could incentivise the transport companies and their drivers to stay safe with penalties for poor driving and rewards for successfully completed trips. There is no way that the devices will completely eradicate accidents involving buses and transport vehicles, but when they do occur people who are able to provide help will instantly be aware of the situation. Furthermore, telematics devices are able to provide invaluable data for loss assessors, medics, the police and insurers. It is almost inconceivable that it is not compulsory already.

Leading Lloydâ&#x20AC;&#x2122;s Hanna Barry

A condensed matter physicist seems an unlikely choice to lead the world’s oldest insurance market. But CEO of Lloyd’s of London, Dr Richard Ward, has been at the helm for seven years and can’t get enough of it.

nce you’ve joined Lloyd’s, it gets under your skin so quickly. It’s impossible not to be passionate about it,” according to Ward, which explains why the opportunity to lead Lloyd’s was not one that he could ignore. It was October 2005 and Ward had just tendered his resignation as CEO of the International Petroleum Exchange (IPE).

be bought and sold at the press of a button, so I took the decision to close the trading floor, demutualise the organisation and turn it into a full profit company, which I sold to IntercontinentalExchange in Atlanta. That is probably the best deal I’ve ever done in my life.” The volume of trading and value of the business increased dramatically and the combined group is now worth billions.

Two weeks later, then CEO of Lloyd’s, Nick Prettejohn, did the same. “I had planned to take some time off after leaving the IPE, but I remember saying to my PA at the time that the position as chief of Lloyd’s was the one job I wanted to go for. The opportunity to run a 325-year-old organisation, which has managed to survive extreme turmoil in the world and in business and still be regarded as highly as it is, was not one I could avoid applying for,” he remembers.

At the time Ward joined Lloyd’s, there was a view that the market should demutualise, close the underwriting floor and become an electronic marketplace. Given that he’d just done it for the IPE, the Lloyd’s council thought he could do the same for Lloyd’s. But Ward quickly dispelled that aspiration.

Ward had done pioneering research on liquid crystal display (LCD), which is used in many smartphones, for his chemistry PhD and thoroughly enjoyed scientific research. But after one of his closest friends was awarded the top chair in theoretical physics at the University of Birmingham in the UK, he realised it unlikely that he would ever be a spectacular scientist. This led him to make contacts with industry and eventually become a scientist for BP, where he was selected to be part of its individual development programme and went on to become a derivatives trader in London in 1990. After a brief stint in commodities broking, he became head of product development at the IPE and then CEO in 1999. In those days, the IPE was open outcry, with traders gathered in a pit to buy and sell commodities. Ward was on the trading floor on 11 September 2001 and had to close the market twice to process trades. “It was a fantastic exchange, but commodities are ripe for being traded electronically. They can

“If you want to buy and sell a stock, you can press a button, but you can’t do the same if you want a policy to cover a drilling rig in the Gulf of Mexico. You’ve got to sit down and have a chat; that is the Lloyd’s marketplace.” “Once you’ve spent time in the Lloyd’s underwriting room, it doesn’t take long to recognise that the placement of risk, the negotiations between brokers and underwriters and writing the actual policy wordings themselves, are skilled undertakings.” The Lloyd’s marketplace sees 3 000 underwriters and 7 000 brokers wandering in and out everyday, with 900 individuals employed in the corporation itself and an additional 40 000 working alongside it.

Extending far beyond the London community, Lloyd’s is a global business, with a value proposition that is the same the world over.

Why Lloyd’s? The Lloyd’s edge is characterised by its underwriting expertise and appetite for risk. “Many insurers shy away from complex risks. Our competitive advantage is our willingness to write unusual and specialist risks that other businesses don’t necessarily have the expertise and experience to write,” explains Ward. “Underpinning this is our financial security and reputation for paying claims, which has been built over 325 years. After risk mitigation, advice and assistance, all the policyholder is buying is a promise to pay a valid claim.” He agrees with the suggestion that insurance is the unsung hero of the financial services industry. “Banks are criticised for enriching only themselves, but we as insurers can hold our heads up high and say we are providing real value to society,” he says, referencing the $2.2 billion worth of claims that Lloyd’s paid out for Superstorm Sandy, which has helped communities rebuild. “We get letters from policyholders to say thank you for helping rebuild their homes and businesses. I think that is a pretty good business to be in.” Since the UK’s banking crisis knocked public faith in the integrity of banks, Lloyd’s has found that graduates are more interested in joining insurance companies. Running its own graduate programme, the market enables young graduates to learn their trade in an apprenticeship-type fashion by working with senior underwriters who have years of experience. “Insurance offers people a career. We are able to attract talent on the basis that it won’t be the same job year in and year out,”  says Ward.

“I’ve thrown the challenge down to the Lloyd’s market, to work hard at ensuring that our products meet the needs of global populations.”

Amit Khilosia, who will be returning to the UK in June, at which time John Sibanda, general representative and non-executive chairman of Lloyd’s South Africa, will take over as managing director. The interview is coming to an end and I ask Ward for his thoughts on the biggest risk facing Lloyd’s. “The relevance of insurance; considering the gaps that exist between economic losses and insured losses, we need to seriously reflect on whether we are actually offering products that help clients manage risk,” he says. Ever the scientist, he is focused on the fundamental properties of complex organisms. “I’ve thrown the challenge down to the Lloyd’s market, to work hard at ensuring that our products meet the needs of global populations.”

Yet, finding that talent remains a challenge. “It is ironic that in the current climate, where we have such high unemployment, we are experiencing skills shortages. And here I must question whether education establishments equip youth with an education that prepares them for what businesses are looking for.” Ward works with educational institutions around these challenges.

Lloyd’s in Africa

He for one wants the Lloyd’s marketplace to source a diverse array of talent, so as to reflect the increased business it is doing in emerging economies. In 2012, 41 per cent of Lloyd’s’ premium income came from North America, 33 per cent from the UK and Europe, and 26 per cent from Asia and the rest of the world.

“Despite the economic growth being experienced on the African continent, we are not seeing the same growth from these markets as we are from our Brazilian business, for example, which grew from $80 million to $260 million in a matter of three years. Africa should be a bigger part of our portfolio and I am keen to see how we can do more business here.”

But the insurance market’s Vision 2025, whose strategy it is to become the world’s number one insurance and reinsurance market, takes the global GDP shift into account and details plans to expand its growth in developing economies. Priority countries include China, Mexico, Turkey, Brazil and India.

South Africa is an important market for Lloyd’s and Ward would like it to be more important. Relative to its other businesses, premium income from Africa is small. Its African business is worth about $720 million, with South Africa comprising about $280 million or 40 per cent of this.

South Africa is one of four African insurance markets in which Lloyd’s has direct representation. Outside of South Africa, Mauritius, Namibia and Zimbabwe, it operates only on a reinsurance basis on the continent. Its South African operation has been headed up by

In touch through TECHNOLOGY In order for the insurance broker to remain competitive, a strong reliance is placed on insurers to provide highly responsive technological back-up. Systems should be able to, at the very least, provide real-time scientific rates, a means of requesting information or quotes online and deliver professional documentation on demand.

Herman Scheepers, general manager, risk and technology of Renasa Insurance Company Limited

For centuries trust has formed the foundation for the transaction between the buyer and the seller.

ven in a highly automated modern experience, a degree of direct human interaction is required to establish the foundation of a trustworthy relationship between the buyer and seller. Insurance is a contract of trust and a breakdown in trust will result in the essence of this agreement, namely peace of mind for the insured, being jeopardised. Therefore, when insurance is sold, it is essential to the integrity of the agreement that the level of trust between the buyer and seller is maintained. Face-to-face distribution of insurance products via the broker market provides for this basic human desire to transact, not in an anonymous environment, but in an interactive, personal and comfortable one. However, trust is also built on a proven track record of accuracy, reliability and speediness of information, creating the necessity for brokers to offer their services using highly responsive state-of-the-art technology. Backing up this interaction with surprising efficiency will most certainly result in happy clients and reinforce the relationship between the broker and the insured.

â&#x20AC;&#x153;Other technological resources like communication via e-mail, social networks and SMS/MMS can assist the broker to get access to a market that is otherwise dominated by direct insurers.â&#x20AC;? Of even more value to the broker market are systems that can support and assist brokers with the plethora of legislative requirements with which they have to comply. These systems are not said to replace the personal conveyance of information to the client; these systems are going to be used to assist the broker in professional presentation, accuracy and consistency. By the very nature of wireless connectivity, available on a range of mobile and compact

devices such as mobile phones and tablets, technology can follow the broker to wherever he is personally interacting with his client. Other technological resources like communication via e-mail, social networks and SMS/MMS can assist the broker to get access to a market that is otherwise dominated by direct insurers. While developing systems, it is important for insurers to keep the interaction user-friendly. These systems must always be backed up by a support staff that is easily accessible. These staff members may be given mandates to make decisions which fall outside of system parameters. Integrated systems are not only directly advantageous for brokers, but they also serve the interests of the insurer-broker relationship. They enable insurers to provide more accurate rates, which in turn leads to stability of the brokerâ&#x20AC;&#x2122;s book, as well as improved support in terms of procured services for claims which helps keep the cost of insurance in check. It goes without saying that the preferred distribution channel is still the traditional broker who provides a personal touch and establishes a dependable relationship between himself and the insured. This relationship can be further entrenched with the proper backing of technology.

In-house expertise with broker benefits Etana’s strategy to bring UMA-style expertise in-house has definite benefits for brokers Specialisation, to us, means delivering insurance that really protects against all threats. That ensures satisfied clients who remain loyal. And that gives our brokers a truly competitive edge to grow their businesses, according to Paolo Cavalieri, chairman of specialist business insurer, Etana. “Because focus delivers protection that really works, five years ago Etana took a unique approach to the conventional and historic function of UMAs. We have, so far, created

seven internal Centres of Excellence that deliver single-minded expertise to a range of business markets.” He explains that each one of these Centres of Excellence (CoE) delivers powerful benefits to brokers with insurance and specialist underwriting suited to individual business categories and industries. “They do the job the industry has come to expect from a UMA while we have control

over continuity and standard of delivery,” explains Cavalieri. “While our CoEs are not separate legal entities, falling under that specific section of the Act, they nevertheless have their own independent Board and MD. They each focus on their specific industry, class of risk and the protection needs of businesses in their category of insurance. They are also free to focus on their specialities without distractions from back office administration concerns.”

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MEDICAL

50 -carat

medical cover Hanna Barry

We tend to think that the uber wealthy live differently to the rest of us. And for the most part, they do. But what about when it comes to medical aid; are they all on the most expensive medical aid benefits with the best cover, or are many of them self-insuring? RISKSA investigates. he South African Revenue Service (SARS) defines high net worth individuals (HNWI) as those whose gross incomes exceeds or is equal to R7 million and/ or gross wealth exceeds or is equal to R75 million. There are currently 2 300 such individuals on its register.

Not much is known about their medical aid habits, however. Since medical schemes tend not to ask members how much they earn, unless they need to earn below a certain threshold to qualify for a specific benefit option, it is impossible to know how many of those individuals who are on their top of the range benefit options are in fact HNWI, as per the SARS definition. A quick glance at the cost of the major schemes’ top of the range options is enough to make your eyes water, especially when you realise that some of the contribution amounts are higher than some low-income earners’ salaries. Out of eight major South African medical schemes, three comprehensive cover options cost above R3 000, three cost more than R4 000, and only two are below R3 000. Only 1.24 per cent of Fedhealth’s total membership base is on its Maxima Plus option, which costs R4 341 a month for the principal member, while 0.58 per cent of the total membership base is on its Ultimax benefit option, which costs a minimum of R5 933 a month. As at March 2013, one per cent of the membership of Discovery Health Medical Scheme (DHMS) was on the scheme’s executive plan, costing R3 764 a month for the principal member. DHMS stresses that this one per cent is not linked to the income of the member, but is greatly influenced by the needs of the member. The total cost of a principal member, spouse and three children on Discovery’s executive plan and Fedhealth’s Maxima Plus plan is R9 670 a month and R11 936 a month, respectively. Based on these figures, we can surmise that the individuals and families on these plans aren’t begging bread. But this still doesn’t provide a definitive answer on whether HNWIs have medical aid or not.

Meeting medical expense “Our experience is somewhat divided at this level,” says Clayton Samsodien, managing director of Genesis Healthcare Consultants, a medical aid broker. “There are those HNWIs who will cover hospitalisation or major medical benefits through private healthcare cover, like a hospital plan, and then self-insure day-to-day benefits, claiming these costs back from SARS. The other lot will simply purchase the most expensive cover available simply because they can afford it.” Tax director at BDO Johannesburg, Marty Santana, says that in her experience, HNWIs are generally CEOs or directors of listed companies and are covered by their company’s medical aid scheme. “In some cases these individuals take out gap cover to fund additional expenses, but in most cases they have comprehensive medical aid cover because they can afford it,” she iterates.

“You can calculate your loss or damage to an expensive vehicle, but providing for healthcare has no limits.” Samsodien says that while HNWIs, who are typically well-looked after by advisers, may self-insure when it comes to cover for assets like motor cars, they are less likely to do the same for medical expenses. “You can calculate your loss or damage to an expensive vehicle, but providing for healthcare has no limits,” he notes. Independent financial adviser at Toro Financial Planners, Duncan Barker, adds that older medical scheme members, usually the wealthier ones, are the individuals who have a need for more cover. “They either have chronic needs or injuries that require physiotherapy or

other specialist treatment. Even though these benefits come out of savings, which is only a portion of their premium, people still purchase the cover instead of taking out a hospital plan and self-insuring,” he says. It seems that as a general rule, those who can afford it, do take out a high level of medical aid cover. “This is especially true if the company is paying for a portion, as they can then take a comprehensive option and not have to fork out the whole contribution,” Barker adds, echoing Santana’s experience. “It is my experience that people in this income group take out health cover for the major events, through a medical aid plan that covers only hospital and big ticket items. They will then self-insure for the day-to-day events like doctor and dentist visits,” says Len Deacon, CEO of Len Deacon and Associates Pty Ltd, a company that provides strategic services to the overall healthcare environment in South Africa and internationally. Deacon has extensive experience in the healthcare industry, having worked in various roles, notably as senior manager of Sanlam Health and principal officer and CEO of Topmed and Selfmed schemes. Presumably, the medical aid cover that HNWIs have is often the result of how they have been advised by their broker or financial adviser. A tax accountant in Johannesburg told us that most of her HNW clients have comprehensive cover because she advises it. Those of her clients who are doctors themselves tend to selfmedicate and barter with other doctors, taking out hospital plans only.

MEDICAL

Out-of-pocket In her book Health Care in South Africa 2012, author and media consultant, Liz Still, notes that out-of-pocket funding is a significant source of healthcare financing that is underresearched. Out-of-pocket expenditure refers to those healthcare expenses that members pay for from their own pockets, because they are not covered by a medical aid or hospital plan. She quotes figures published by National Treasury, which say that outof-pocket expenditure on health services by South Africans was R18 202 billion in the 2011/2012 period. Treasury expects this to be R19 294 billion in the 2012/13 period and R20 452 billion in the 2013/14 period. Measured as a percentage of the total health spend in South Africa, this is 7.32 per cent, 7.21 per cent and 7.14 per cent respectively. Measured as a percentage of total private expenditure on health in South Africa (R120 844 billion), Still observes that Treasury’s estimate of out-of-pocket expenditure, at R18 202 billion, is 15.4 per cent. But the underlying components of this expenditure warrant investigation, since this figure is significantly different to that quoted by the World Bank, at 29.6 per cent. “It is unclear what is included in National Treasury’s figures, but it is unlikely to include estimates for private money spent on traditional healers and traditional medicines in the informal economy,” she writes. “Significantly different impressions of health-spend patterns emerge depending on whether out-of-pocket spend is calculated as a percentage of private spend, health spend in the country as a whole, or measured as a percentage of GDP.”

Still says that at least two surveys have attempted to track out-of-pocket expenditure on private facilities by non-medical scheme members and, in general, results show a growing use of private facilities by the poor and lower groups in South Africa. Since outof-pocket expenditure by no means accounts for the majority of the private healthcare spend, and is projected to gradually decrease as a percentage of the total health spend in South Africa over the next few years, it is likely that medical schemes and medical insurers remain among the major funders of healthcare.

“It is unclear what is included in National Treasury’s figures, but it is unlikely to include estimates for private money spent on traditional healers and traditional medicines in the informal economy.” Although these figures include out-of-pocket healthcare fees being spent by all South Africans, and not only HNWIs, the fact remains that those who can afford the best medical care will pay for it. And in a country where private healthcare costs are enough to break even the fattest bank account, it is unlikely that those with the money to afford sound financial advice and comprehensive medical aid cover would not pay top dollar for their own peace of mind.

SARS targets the wealthy SARS has made no secret about its plans to target high net worth individuals who may be tax dodging. So intent is the Receiver of Revenue on ensuring that HNWIs remain complaint, that it has included ‘Wealthy South Africans and their associated trusts’ as one of five priority areas of the tax base identified as key focal points for the next five years. These priority areas fall under the SARS Compliance Programme for 2012–2017, which was launched by the Minister of Finance on 1 April 2012. Between 1 April 2012 and 1 April 2013, 280 HNWIs have undergone compliance reviews and analysis by SARS, resulting in 109 of them being identified as high risk and earmarked for a full audit. A total of 62 full audits have been conducted, yielding a total of R184 million and 14 individuals in the HNWI category have been identified as potential serious offenders as a result of the magnitude of their outstanding returns. In April, SARS reported that four criminal cases involving HNWIs were under investigation.

MEDICAL

Co-payments and industry Michelle David, director; and Melissa Cogger, candidate attorney Norton Rose South Africa

Is a medical scheme obliged to pay the full cost of treatment for a prescribed medical benefit (PMB) condition if the treatment is provided by a non-designated service provider? How much is a scheme obliged to pay if the invoiced amount exceeds a medical scheme’s prescribed tariff? medical scheme can impose a co-payment or deductible if use is made of a service provider other than a designated service provider (see regulation 8(2) of the Medical Schemes Act). Members who do not make use of the services of designated service providers when seeking treatment for prescribed minimum benefits face a co-payment, unless the service was involuntarily obtained from the non-designated service provider. An involuntary situation includes: • W here the treatment is not available from the medical scheme’s designated service provider or where the services cannot be provided without unreasonable delay. • Where there is no scheme designated service provider in a reasonable proximity of the patient’s home or work. • Where the patient’s condition requires emergency treatment or care.

person’s life in serious jeopardy. Legislation has not defined ‘reasonable proximity’ or ‘unreasonable delay’ and guidance will have to be sought from a medical scheme’s own rules. For example, some medical schemes provide that if there are no designated service providers within a 15-kilometre radius of a member’s work or home, the patient will be permitted to use a non-designated service provider if pre-authorisation is obtained. Other medical schemes have implemented a 100-kilometre radius. What is reasonable may depend on the area in which the member lives; for example, the use of a designated service provider in rural areas will be more difficult than the use of a designated service provider in urban areas. A further example could be if there are no designated service providers in the area, in which the member happens to be, at the time the services are required. It will depend on the facts and merits of the particular case.

An emergency medical condition is the sudden and unexpected onset of a health condition that requires immediate medical or surgical treatment; failure to provide medical or surgical treatment would result in serious impairment to bodily functions or serious dysfunction, or would place the

The Medical Schemes Appeal Committee and the high courts have consistently found that a medical scheme is obliged to fund the full amount stated in an invoice from a non-designated service provider in cases of involuntary treatment, even if it is in excess of a medical scheme’s tariff. In Samwumed

Medical Scheme vs Puterman and Kara vs Government Employees Medical Scheme, the court considered the interpretation of the words ‘pay in full’ in regulation 8(1). Both decisions found that pay in full means the full amount charged by the health service provider. In the absence of an agreement to the contrary, the health service provider is entitled to charge usual and normal fees if the fees are not unreasonable and unprofessional. A patient, who considers a health provider’s fees to be unprofessional, can lay a complaint with the Health Professions Council for South Africa. Medical schemes can, however, employ appropriate interventions to improve the efficiency and effectiveness of healthcare, including the requirement for preauthorisation, the application of treatment protocols, and the use of formularies. Payments to non-designated service providers can be limited by ensuring that schemes enter into a contractual agreement with a non-designated service provider to accommodate its members. Medical schemes can also mitigate risk by ensuring that their designated service providers are reasonably close to workplaces or homes of the majority of members.

Is chronic illness

undermining South Africa’s workforce? your workforce is covered by a broad-based medical cover is often the right starting point.” There are many reasons why a valuable staff member may request sick leave on a recurring basis. According to the Gauteng Department of Health, hypertension – also referred to as high blood pressure – is a growing cause of absenteeism.

Michael Otten, managing director of Onecard Management Services

ny experienced employer will be familiar with the difficulties associated with a staff member suffering from chronic disease or illness. The absence of a key contributor to the business team, be it a vital labourer, a technically orientated senior manager or the office receptionist, can swiftly result in lost productivity and declining revenue.

With over 60 000 new cases diagnosed in the last financial year, a total of 2 544 369 individuals now receive chronic medication control from the State on a monthly basis. It is estimated that 6 300 000 South Africans live with this affliction. Left untreated, hypertension can significantly limit life expectancy and may contribute to strokes, heart attacks, heart failure, aneurisms and chronic kidney disease. Sadly, high blood pressure is often referred to as the silent killer for good reason. Many chronic sufferers are not aware that they are fighting this condition. Although hypertension is a serious illness, it can be swiftly identified and easily managed. The key, however, is to ensure that the client’s illness is detected, early. With access to the right medical treatment and ongoing supervision, an employee afflicted by a range of chronic illnesses can work to their full potential.

Otten adds, “Chronic illnesses such as hypertension are gradually undermining the well-being of South Africa’s labour force. As a result, there’s never been a better time to investigate corporate healthcare cover. With a large percentage of the workforce relying on government healthcare services versus private medical aid, and with the framework and future of the proposed National Health Insurance (NHI) unclear, employers must consider products on the market that are aimed at closing this gap and putting quality healthcare into the hands of more South African employees. “In the South African context, comprehensive medical cover can be costly and exclusive. Despite this, there are options available to local organisations which meet the needs of both the employee and employer – everyone deserves to enjoy a healthy body and mind,” concludes Otten. An unhealthy workforce is bad for business. Help your employees to enjoy healthier and happier lives by affording them access to comprehensive medical cover. For more information, please contact Oneplan Medical Insurance on 010 001 0141 or visit www.oneplan.co.za

Although every South African holds a constitutional right to six weeks of sick leave on full pay over a three-year period, the impact that this has on the economy is significant. A chronically unhealthy staff member can often mean the difference between success and failure in the business environment, especially at a senior level. With this in mind, it is increasingly up to the employer to equip personnel with the knowledge and tools required to maintain a healthy lifestyle. Michael Otten, managing director of Onecard Management Services, the group responsible for Oneplan Health Insurance, says, “While it’s certainly not an obligation, we are seeing a trend in South Africa towards employers looking for ways to improve the health and well-being of their employees. Ensuring

MEDICAL

â&#x20AC;&#x153;Sophisticated IT systems such as those at Agility Africa, on the other hand, assess all claims in real time and can immediately identify fraudulent claims, while approving and paying out valid claims swiftly.â&#x20AC;?

Aggressive

IT systems drive down the cost of medical scheme fraud

Examples of medical aid fraud 1. A medical aid member may go to the dentist to have work done on a tooth. The dentist then claims for that procedure, plus work done on another tooth. Agility Africa’s IT system keeps a history of all claims related to a particular patient, and may find that the additional tooth was extracted three years prior, providing the scheme with the necessary information to reject the claim. The patient then has the right to claim back any additional money from the provider so that they are not out of pocket. 2. In some cases, doctors are regarded as ATMs. Members pay them a visit, get cash from the provider and return the money to the provider by submitting a false claim to their medical scheme. 3. ‘Code farming’ is a common fraudulent or over-charging practice where providers charge for one coded procedure and then add a number of related procedures that were never performed. A provider could attempt to claim for both procedures while only one was delivered.

ntelligent IT systems can help medical aid schemes save up to 20 per cent on fraudulent or over-charged GP and pharmacy bills and as much as 10 per cent on specialist bills. Since this directly translates into savings for medical scheme members in the form of reduced monthly contributions, brokers should take a long, hard look at a scheme’s ability to combat fraud/overcharging before signing up their clients. “Fraud costs the medical scheme industry billions of Rand a year, which is estimated to account for between seven and 15 per cent of total medical scheme costs. Selecting a medical scheme that effectively combats these

activities could translate into lower monthly contributions for the consumer, as more money is allocated to member healthcare costs rather than funding fraudulent claims,” says George Roper, the chief executive of Agility Africa, an administrator and risk management company for medical schemes, including Resolution Health Medical Scheme. Roper says it’s a good idea for the broker to question what fraudulent claims are currently costing the scheme and what systems the scheme has in place to ensure that fraudulent claims are kept to a minimum. Many schemes place a higher priority on member satisfaction to the detriment of fraud detection. “Consumers tend to regard schemes

that process and pay out claims quicker as providing a better service. However, in these cases, the majority of claims received are processed speedily without enough time to properly investigate and scrutinise their validity. Sophisticated IT systems such as those at Agility Africa, on the other hand, assess all claims in real time and can immediately identify fraudulent claims, while approving and paying out valid claims swiftly,” says Roper.

Identifying fraud at claims stage Roper adds that it’s far more cost-effective to invest in systems that prevent fraudulent claims from being processed at all, than to recover the payment later. Agility Africa’s IT system trawls through claims data and can almost immediately identify when a fraudulent claim has been submitted, in time for the scheme to reject it. Roper recommends that medical scheme members request an initial quote from the provider prior to undergoing an expensive procedure and ensure that the relevant procedural codes are included. Jacques Snyman, product development director at Agility Africa, believes that, while most medical scheme members are on the receiving end of fraud, others collude with service providers to defraud medical schemes. He warns that sophisticated IT systems are able to track provider behaviour and identify patterns of illegitimate claiming. “In these cases, the medical scheme can use the data to approach the provider and negotiate a change in their behaviour or ultimately open a case of fraud.”

Overcharging Schemes that have contractual relationships with hospitals are also more likely to be in a position to deter fraud and over-servicing, particularly when it comes to consumables. Snyman says on an average hospital account, approximately three per cent of total costs can be ascribed to product charges that are not included in the contractual agreement. “However, most schemes check bills of more than R10 000 or R20 000 manually, meaning that over-charging often slips through the net, unless a rules-based system follows up on it. Our IT system is highly intelligent and sensitive and can identify potential over-servicing. The scheme is immediately alerted that further investigation is required,” he explains. Fraud does not occur only on high cost claims. For example, some providers charge for a full box of needles during a surgical procedure rather than individual units. “Agility Africa’s IT system scrutinises each line item and rejects those that cannot be justified and can save schemes, and ultimately consumers, millions each year,” Snyman concludes.

finance& insurance SALES | TRENDS | NEWS | INFO

STATE OF THE INDUSTRY

Motor experts have cautiously predicted good news for the sector going forward. But can the vehicle industry reach the predicted targets in the face of an economic downturn?

LOOK, CLICK, BUY â&#x20AC;&#x201C; THE INS AND OUTS OF BUYING CARS ONLINE

Ten years ago, online shopping was something people in other countries did. Today it has become commonplace with consumers even shopping for their groceries online. RISKSA delves into the burgeoning market of online car sales.

STATE OF THE INDUSTRY Bianca Wright

The South African automotive industry seems set for potential renewed growth as experts cautiously predict good news for the sector. But can the sector reach the predicted targets? 60

n May, the National Association of Automobile Manufacturers (NAAMSA) commented on April sales statistics released by the Department of Trade and Industry. In the statement it noted that overall new car and commercial vehicle sales for the month had benefited from the additional selling days during April 2013 compared to April last year which had been affected by the Easter holidays. “In the event, aggregate industry sales of 50 920 units had shown a fairly substantial increase of 19.5 per cent or 8 312 vehicles from the 42 608 units sold in April last year. On a daily selling rate basis, new vehicle sales continued to reflect improved demand. As expected, export sales had registered another strong performance reflecting an improvement of 29.7 per cent.”

Growing sales NAAMSA’s first quarter review noted that aggregate industry new car sales at 113 971 units recorded an improvement of 3 286 units or 3.0 per cent compared to the 110 685 new

cars sold during the corresponding quarter of 2012. Aggregate industry commercial vehicle sales during the first quarter of 2013 at 49 292 units recorded an increase of 3 304 units or a gain of 7.2 per cent compared to the 45 988 units sold during the corresponding quarter of 2012. Projections for 2015 are an increase in domestic sales of locally produced vehicles to 15 0000 and exports of locally produced vehicles to 20 000. The total car sales market is predicted to reach 520 000 units by 2015. Stanley Anderson, marketing director at Hyundai Automotive South Africa, says that new vehicle sales have improved in South Africa since the beginning of the year, and the country has a far better outlook for the year than Europe, where only the United Kingdom and Portugal had recent significant growth. All the other markets were down, Germany by as much as 17 per cent compared to March last year. “In South Africa, the low interest rate – the lowest that it has been for many years – makes

on total forecasted industry sales as well as individual brand performance and market shares. “We are seeing a definite downward buying trend towards smaller, more affordable and more fuel efficient cars and expect this to continue,” she says. Cassel adds that consumer credit remains a concern for the industry as well as the bank finance acceptance rates that have played a key role in the performance of the industry in the past and will continue to do so going forward.

Potential for growth “In addition, the growth in the industry has definitely slowed as we anticipate that the market will see a growth of two to three per cent this year,” she says. “As a result, players in the new vehicle space will have to become more competitive in order to achieve growth through increased market share as opposed to riding the back of growth in the market.” According to Cassel, this typically results in aggressive special offers and rebate schemes which are all targeting volume-based growth. This could impact on the used car space. “Nonetheless the market is still there and will continue to be favourably affected by the growth in the emerging black middle class,” she says. NAAMSA’s medium-term outlook for the automotive sector highlights the continued affect of new vehicle pricing pressures as a result of the weaker exchange rate and the April 2013 increase in CO² vehicle emissions taxes on cars and certain categories of light commercials. “This is expected to result in some moderation in the rate of growth in sales over the balance of the year.” the acquisition of a new car very affordable,” he says. “And expectations are that the interest rate will soon come down by another percentage point to stimulate much-needed growth in our economy. That will be a boost for the local car market too, particularly in the entry-level segments which are vulnerable to any increases in the cost of borrowed money.”

Exchange rate woes Anderson notes that automotive importers have been hit hard by the exchange rates of a weak Rand versus the Dollar and the Euro and price increases have been inevitable. “If the Rand could stabilise at a level under R9 to the US Dollar, it could help us a lot to sustain our growth in vehicle sales. I am a little bit more bullish in my expectations of the overall growth in the local car market this year than some other prominent players in the local economy,” he says. Kerry Cassel, MD of LiquidCapital, says that the exchange rate has played and will continue to play a pivotal role in our car market, impacting

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Despite this, the report said, various factors should lend support to the industry and these include the low interest rate environment, low debt servicing costs, strong replacement demand, the highly competitive trading environment with attractive incentives and high tech new model introductions. “On the other hand, rising inflationary pressures facing consumers would affect consumers’ real disposable income and could also impact on future vehicle sales.” In early May, Econometrix chief economist, Azar Jammine, told Business Report that between 300 000 and 400 000 black Africans were entering the middle class each year, which was having a huge effect on buying power and providing continual “upside surprises” in new vehicle sales. Jammine added that Econometrix was forecasting “five per cent growth in passenger vehicle sales this year, which was down from the 11.5 per cent growth achieved last year, 17.5 per cent in 2011 and 32 per cent in 2010. We don’t see any collapse. People call it a bubble but I’d rather call it a balloon that is just going to let the air out over the next couple of years.”

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Saving SA’s

loss-making auto insurance industry S

hifting from a reactive risk-based assessment to a more proactive focus on the broader environment or the clever management of vehicle fleets using electronic vehicle mapping or telematics may be the future of South Africa’s loss-making vehicle insurance industry. Marsh Africa and Marsh Risk Consulting managing director, Volker von Widdern, believes that the fixing-the-damage-afterit’s-happened perspective threatens to make insurance cover unaffordable for individuals or businesses or commercially unviable for insurers.

Since approximately two-thirds of vehicles in South Africa are not insured, the country’s premium pool is inadequate, relative to the total number of vehicles on South Africa’s roads. This means that risk costs significantly more for vehicle operators in South Africa. “Traditionally, motor insurance has been driven by events – accidents and thefts. These have defined risk perceptions, established insurance models and determined the cost of vehicle insurance,” Von Widdern says. According to a report from Marsh, the external, environmental and behavioural factors

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influencing risk will define risk perceptions and set insurance pricing in the future. “The combination of environmental and behavioural risk analysis with new technologies will redefine risk and what insurance costs in the South African motor industry in the future. Shifting the conceptualisation and management of risk from reactive risk-based assessment to a more proactive focus on the broader environment contributing to risk may also save South Africa’s loss-making vehicle insurance industry,” says Von Widdern.

Given the costs of vehicle risk in South Africa, telematics has been variously deployed to record location, acceleration, braking, cornering, engine RPM and even the number of occupants in the driver’s cabin. Often the information gleaned helps vehicle risk managers deter theft, identify poor driving, overloading or assist lost drivers, thereby reducing fuel consumption, wear and tear, accident and vehicle loss by improving driver behaviour.

Furthermore, poor provision of information by individuals or fleet managers often prevents thorough risk profiling and analysis. The result is that South African underwriters face narrow margins and significant underwriting losses from both individual and business clients.

Today, telematics combined with live traffic reporting and diagnostics can assist fleet owners to minimise the risk of multiple vehicle damage or loss in peak traffic or poor driving conditions. There is a strong correlation between accelerated depreciation from excessive wear and tear or increased maintenance – and higher indicators of behavioural risk or poor training, for example.

A legacy of South Africa’s development and demographics is a high number of barely roadworthy or illegal vehicles on our roads. This is exacerbated by periods of massive concentrations of traffic on limited road infrastructure, high levels of overloading of both passenger and freight vehicles, poor or deteriorating road networks and high concentrations of road users on all classes of South African roads. “This means that the vanilla picture of driving conditions presented by most individuals or fleet managers when calculating risks and premiums simply doesn’t apply in South Africa,” adds Von Widdern. The report claims that because of this, South Africa suffers in excess of 10 000 fatalities per annum, more than 10 times the rate of other countries with similar vehicle populations.

“All risk indicators need to be linked, including the maintenance record, driver behaviour, vehicle telematics, delivery targets, business performance outcomes, training required and external operating environment, if the overall risk outcome is to be improved,” explains Von Widdern.

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“If all the risks that contribute to vehicle damage in South Africa, including behavioural risk, training and operating environment, are managed holistically, the total cost of risk that businesses and individuals carry can be reduced, and cover will be affordable for all,” he concludes.

Bianca Wright

Look, click, buy A car is more than just a purchase; itâ&#x20AC;&#x2122;s a status symbol, an investment, a means of livelihood for many. It is little wonder then that buying a car is such an important process, second only perhaps to buying a house.

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the ins and outs of buying cars online G

Kerry Cassel, MD of LiquidCapital, says that online car sales are becoming increasingly competitive with a number of new players emerging. As a result, she says, the trust in the brand is a critical influencer of where to go online. “Cyber criminals are on the increase and consumer education is critical; the importance of this going forward cannot be overemphasised,” she says. Cassel Consumers is using the Internet primarily as a stock locator (where to find the ideal vehicle) “Ultimately, people prefer face-toface negotiations. Traditional sales channels, such as the dealerships, will still have a role in delivering the vehicle and closing the deal,” she says.

A positive experience Dr Marius Crous, a senior lecturer at the Nelson Mandela Metropolitan University, bought his first car from McCarthy online and was very happy with his choice. “But I was lucky enough to have someone with me who knows

about vehicles. I think the AA could also do that for you,” he says.

With intelligent SMS – Vehicle Location and tracking applications such as Ctrack Mobi and Online, your clients can now easily keep track of their vehicles, caravans or boats. So ensure their peace of mind by recommending Ctrack to keep their valuables always visible.

Marketer and masters student, Fezeka Motsogi, was suitably impressed with her online purchase experience. Motsogi had seen one of those cars with a sticker that said, ‘Buy a car for R699’. She visited the website and filled in a form online. “They called me. It was a VW Polo. They explained the process of how they will pay me monthly to advertise for them. They sorted out the financing and dropped off the car a week later. They brought the contract and I signed it,” she says. Craig Prins, a cameraman and video producer, chose the same type of online deal. “I was initially concerned about the process as it was my first time buying a car on my own and I was clueless. I saw the car only when they delivered it to me and hadn’t taken it for a test drive,” he says. Initially, his experience was less than pleasant. “After five days it broke down due to a factory fault and it was in for repairs for two weeks. I was not very impressed as it was a brand new car. I haven’t had any other problems with it since. It is not the car I would like, but it gets me from A to B. The whole process was quick and easy to understand and they were able to answer any questions.”

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iven the importance of a car and the value attached to owning one, are South Africans ready to make this purchase online? Are the days of bricks and mortar dealerships and polished salespeople over? Not yet, it seems, but online car sales are a burgeoning market.

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The online car market is ripe for expansion as more dealers realise the easy access to information that the web provides.

Not all potential car buyers are as enthusiastic about the idea. One consumer who did not want to be named said that she would never trust buying a car from an online site. The key seems to be finding a brand you trust and then ensuring that you adequately vet the car before final purchase, as you would if you bought it from a traditional dealership.

Buy and sell The easy access to information in an online environment means that the process of finding that ideal car becomes much simpler, quicker and easier. Instead of taking the time to drive from dealership to dealership, you can search online and select the three or five that best meet your criteria. McCarthy Call-A-Car has a mobi site that lets you browse for cars on your phone. Sellers are increasingly looking to website listings to help them find the right buyer. Blogger Nick Soper highlighted the pros and cons of a number of the online sites such as AutoTrader and Gumtree in terms

of selling cars as an individual in his blog post of November last year. “I think AutoTrader is a waste of money for purely online selling. It might be different if you go into the print publication or if you are a trader, but for individuals it does not supply any results to justify the spend. I was surprised with the sale coming from OLX, but I think this was purely because I reduced the price on OLX before I reduced it on Gumtree. I could have sold the car six times over from the enquiries I got from Gumtree,” he wrote. Of course, consumers are not the only ones to realise the potential of online sales. Traditional car dealerships are investing in online sites to compete with the online-only listers. Companies like AutoAgent (http:// www.autoagent.co.za) help these retailers create an online car sales solution through its Pickacar (www.pickacar.co.za) site. A testimonial from Petrus Hayes of Cape Auto Centre reads, “I am very impressed with the ease of using Auto Agent’s system. The ease and efficiency of a product or service are the most important characteristics

that any product must have to get my stamp of approval. This is what makes Auto Agent so exciting to work with. The leads from Pickacar are 10 times more useable than the rest of the sites we’ve worked with. My sales have increased by almost double and there is no wasting time by loading vehicles over and over into different systems.” While the potential of digital sales is attractive, consumers and dealers need to exercise common sense and be security conscious when opting for online, however, as cyber criminals are a real threat and scams are not uncommon. In fact, AutoTrader (http://www.autotrader.co.za/ latest-scams) has a section on its site to alert consumers to what scams to look out for. The online car market is ripe for expansion as more dealers realise the easy access to information that the web provides. While most customers will use the website for informational purposes, the role of online sites in car sales is likely to grow as the South African population becomes more comfortable with online buying in general.

IN MADE SOUTH AFRICA

New app provides instant vehicle info

Anton Pretorius

South African car buyers can now make informed buying or selling decisions when purchasing a vehicle, thanks to a new smartphone app from TransUnion Auto Information Solutions that provides the value and status of a vehicle by allowing users access to TransUnionâ&#x20AC;&#x2122;s vast database.

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3738_beame_risk_179x125_FA.indd 1

2012/10/25 4:41 PM

he TransUnion CarValue application provides registered users with an instant report on the value and status of a specific vehicle. The new app combines the data used to produce TransUnion’s vehicle verification and valuation products into a single, more intelligent vehicle evaluation report that’s delivered almost instantaneously to the user’s smartphone or tablet (BlackBerry, iPhone, iPad and all Android devices).

Vehicle Tracking

TransUnion Auto Information Solutions has been producing vehicle values for the motoring and associated industries for 50 years and vehicle verification reports for 30 years. TransUnion’s Auto Guides contain values published as guide prices (both for trade and retail) for particular vehicle makes and models.

More than just vehicle

TransUnion’s director of product development, George Palmer, says it has seen a number of users improve their car-buying decisions since the launch of the app. For example, one reported finding a possible purchase was two years older than the seller claimed. “The user reported that he was able to determine that the vehicle he was viewing was not a 2012 model as stated, but rather a 2010. Another consumer discovered that the mileage on the car he wanted to buy was lower than what was previously reported to TransUnion,” says Palmer.

tracking...

Consumers download the free CarValue app to their smartphone, register once and use a credit card to buy a valuation report or verification report. “Consumers can use their credit card to purchase a valuation report from R10 or a verification report, which includes a valuation report, from R140. On registration every user receives a free valuation.”

AT&T

“The values we publish are collected from the market place (vehicle dealers) via thousands of data returns submitted to us on a monthly basis,” says Palmer. For the first time, South African consumers are able to access the vast TransUnion vehicle database and obtain values and other key identification and verification information for specific vehicles rather than for generic makes and models at the push of a button.

Smart Phone Tracking

Crash Alert

AT&T

“Consumers can use their credit card to purchase a valuation report from R10 or a verification report, which includes a valuation report, from R140. Also, on registration every user receives a free valuation.”

Roadside Assistance

The app’s CarValue report provides the trade and retail values of the car. “It ensures the price that you are being offered on your car as a trade-in is market value and ensures peace of mind that the car you are offered is listed at a fair price,” Palmer says.

“It is worth noting that we have found a growing number of insurance assessors using our Dealers’ Guide app. Because of the way the app blends traditional valuation data with vehicle pedigree data, dealers are able to make more informed and accurate on-the-spot decisions,” Palmer concludes.

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because... M1851FEATURES/HP

The Car Check report provides consumers with the trade and retail values of the car. “It alerts you to the history, such as any third party alerts on the vehicles. It also assures consumers that the vehicle is not stolen and is no longer financed.” Palmer adds that the application is exceptionally intuitive and easy to use. “It has been developed over a number of months and is really an extension of the Dealers’ Guide Application, which won the 2012 MTN App of the Year in the Enterprise Category. The insurance industry has been using the same TransUnion data for a number of years.”

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Are your clients going nowhere? Their life insurance might think so. How often do your clients’ lives change? Maybe they’ve bought a house, started a family or changed jobs since you helped them take out their life cover. Whatever has happened, their financial needs today are probably very different from what they were back then. And they probably still have plenty of plans for the future. So why doesn’t their life insurance recognise this? When they bought their life insurance, the policy was based on a snapshot of their life at the time – with little allowance for the way their needs would change. But your client is not one age for life. That’s why we’ve changed the way life insurance works. With us, a life insurance policy is not only created to meet your client’s individual needs at the outset, but is designed to change flexibly and appropriately as their needs change. Get the first ever life insurance that changes as your life changes. Visit www.brightrock.co.za for more ways to love change.

Terms and conditions apply. BrightRock (Pty) Ltd, underwritten by Lombard Life Ltd, is an authorised financial services provider.

life INSIGHT | LIFE | INVESTMENT | RETIREMENT

RETIREMENT ANNUITIES TO BECOME TOP SAVINGS CHOICE

With retirement reform looming in the next few years, clients are asking questions about the safety of their money and the best retirement savings vehicle. We compared a retirement annuity investment to a pure unit trust investment and found the answer for you.

BUILDING BLOCKS: COMPARING TERTIARY EDUCATION SAVINGS VEHICLES

The cost of education has climbed at an alarming rate with parents forking out the equivalent of their own tertiary education costs for their childrenâ&#x20AC;&#x2122;s primary school education. What is the best vehicle to use for education savings?

Retirement annuities

your top savings choice Neesa Moodley-Isaacs

The new legislation around retirement reform is likely to encourage consumers to use retirement annuities as their primary savings vehicle for their golden years.

In its paper on retirement saving, National Treasury says only about six per cent of retirement fund members can afford to maintain their pre-retirement lifestyle after they retire. In order to stop fund members withdrawing their retirement savings when they change jobs before retirement, Treasury is proposing to make it easier for fund members to do the following: • Leave their accumulated savings in the retirement fund provided by their former employer. • Transfer their savings to the fund offered by their new employer. • Transfer their savings to a financial services industry preservation fund. Henry van Deventer, the head of business development at Acsis, says over the next five to six years, he can see retirement annuities (RA) evolving to become the dominant savings vehicle for retirement. “Even when the fund member changes jobs, their retirement savings will be unaffected,” he says. “The reality is that South Africans are chronic under-savers, who cannot afford to sustain their standard of living. Employers are not incentivised to encourage staff to remain invested and many people opt to cash out their retirement savings between jobs or in the event of retrenchment. This is going to be limited in the future.” (See Retirement reforms). So, going forward, a client can save for their retirement by investing directly in a unit

Tax

trust or by investing in an RA with a unit trust as the underlying investment. But which option is best and offers the maximum savings benefit? A retirement annuity is an investment with unit trusts, which can be chosen at the investor’s discretion, as the underlying investment. In terms of Regulation 28, clients can invest only up to a certain amount in certain asset classes via an RA. The rest of the investment has to be in interest-bearing investments, such as fixed deposits.

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“This is where asset allocation plays a big role,” cautions Van Deventer. He points out that if an investor puts all their money into one asset class, there is very little risk protection. South African investors generally look for some protection from total exposure to equities. “How much money can I stand to lose? This is a key question that investors need to ask themselves. Typical investment funds or the most popular in retirement annuities are similar to discretionary balanced funds which target returns of about six per cent above inflation,” he says. Van Deventer points out that over the last 30 years, all money in shares have seen returns of eight per cent above inflation. There are two key considerations that investors need to take into account when choosing between investing directly in a unit trust and investing in a unit trust via a retirement annuity – tax and costs.

When taking tax into consideration, there is both a savings benefit and a growth benefit. In South Africa, investors are allowed to deduct about 15 per cent of their taxable income in an RA. For example, if the investor earns R100 and saves R15 in an RA, they get taxed only on the remaining R85. With a unit trust, the investor would be taxed on the entire R100 and can then save the difference.

which then grows to R200, the client is taxed on one-third of the growth (ignoring the CGT exemption).

If the investor is paying tax at the average tax rate of 30 per cent, they can save 30 per cent more on an RA, only if they save the tax benefit. This means that when they get their tax refunds, investors have to be disciplined enough to invest it. “This is where most investors go wrong. For example, you can save R5 000 a month in an RA, but if you invest directly in a unit trust, you will be taxed first and only R3 500 is saved in the unit trust each month,” he says.

If, on the other hand, the investor chooses to invest directly in an RA, they will not pay CGT, tax on dividends or tax on returns – all returns are tax free. The total tax on a normal balanced fund comes to roughly two per cent a year and this means a massive difference of more than 49 per cent at the end of a 20year investment term.

The second tax benefit comes into play when we consider the way the returns on the investment are taxed. If the investor invests directly in a unit trust, they pay capital gains tax (CGT). For example, if their marginal tax rate is 30 per cent and they invest R100

MARY

There was a capital gain of R100 and a third of that is R33. The client pays CGT on R33, which works out to R10. From April this year, investors will also pay a 15 per cent tax on dividends and income tax on interest earned.

A top performing balanced fund will give the investor a return of about six per cent above inflation. “The additional returns still leave you ahead and the great part is that there are tax benefits and no monthly fees,” Van Deventer says. He cautions that the income taken from an RA at retirement will be taxable. Even after taking this tax into account investors are still, however, better off.

Costs “In South Africa, we have different classes of unit trusts. Some have higher total expense ratios (TER), where the financial adviser is paid out of the fund. In that scenario, the product provider is paying the financial adviser. The client is roughly in the same position in terms of what they pay financially,” Van Deventer says. But the global financial services industry is moving away from this type of arrangement and in the next two to four years, it is likely that financial advisers will not be allowed to receive any direct commission or payments on investments from product providers. Australia adopted this approach in July last year and the United Kingdom in January this year. “This is great from an investor’s point of view, as they can see exactly what they are paying for. The effects on the industry are already starting to show. In the UK, the size of the independent adviser force has dropped by 20 per cent and the number of bank advisers alone has decreased by 44 per cent.” Retirement annuities commonly pay advisers commission on investment. The rule of thumb in the industry is that the first year’s commission is roughly eight times the premium on the policy and another third of that is paid out in the second year of the policy. Based on the term

Net returns There are three investments to consider – an RA which pays upfront commission with an assumed annual administration fee of 1.8 per cent; an RA which pays commission on an as-and-when basis with an assumed annual cost of one per cent (0.5 per cent admin fee and 0.5 per cent adviser fee); and a direct unit trust with an annual fee of one per cent. The investor needs to ask how high the net return is going to be, assuming inflation is

six per cent and the average return is about 12 per cent a year, before tax and costs. Van Deventer says he assumed the investor is saving R5 000 a month in an RA or about R3 500 a month directly into a unit trust over a 20-year period from the age of 35 to 55, or 40 to 60. Over the 20-year period, the traditional RA will give the investor a return of R5.93 million, while the new-age RA will give the investor a return of R6.89 million and

the unit trust provides a return of R3.84 million. “The conclusion is that the investor would be significantly worse off in a unit trust than in an RA. One of the important benefits of an RA is that the investor cannot access those funds before they retire. A unit trust is more accessible and people tend to use the funds in a unit trust for emergencies. An RA protects the investor against impulsive financial decisions and provides better long-term investment results,” he says.

Comparison of a retirement annuity vs a direct unit trust investment Scenarios

After-tax premium p.m.*

Annual return

RA with commission

5 000

12.0%

1.8%

0.0%

10.2%

5 934 592

RA without commission

5 000

12.0%

0.0%

11.%

6 503 456

Unit trust

3 500

12.0%

2.0%

9.0%

3 634 511

* Assumes an average tax rate of 30% ** Assumes a marginal tax rate of 30% • Assumed an annual investment contribution increaseof 6% • All RA tax refunds are reinvested

Admin fee

Annual tax on return**

Net return

Rand value after 20 years

Source: ACSIS

of the investment, this amount could vary. So, an adviser could earn R36 000 in the first year of the policy. This payment is recovered from the investment in the form of higher costs. An investor is looking at costs of 1.5 to two per cent for an RA compared to one per cent for a direct unit trust investment. This means that the traditional retirement annuity product is 1.5 to two times more expensive in terms of admin fees and this could have a massive impact on the client’s savings by the time they retire. Traditional RAs also charge hefty penalties if the investor wants to move them before maturity, so that the insurer can recoup the commissions. However, Van Deventer points out that in South Africa, we are starting to see new generation RAs with an as-and-when commission structure instead of upfront, monthly fees and the cost of these new RAs works out to about the same as that of a unit trust.

Retirement reforms Awie de Swardt, the head of benefit consulting at Simeka Consultants and Actuaries, says T-Day and P-Day are days when retirement fund reforms are currently scheduled to be implemented in or after 2015, in terms of the proposals from Treasury. The rules on taxation of retirement fund contributions will change in the following ways on T-Day: • The employer’s contributions will be added to a retirement fund member’s taxable income as a fringe benefit. • Investors will be able to deduct both their own and their employer’s contributions to a pension fund, provident fund or retirement annuity fund up to 27.5 per cent of the greater of remuneration or taxable income. • There will be a cap of R350 000 on the total amount investors may deduct from their taxable earnings in any tax year. • Contributions in excess of the annual cap may be rolled over to future years when the investor may not reach the cap amount. • Any non-deductible contributions will be added to the tax-free lump sum at retirement.

• Any new contributions made to a provident fund will be subject to the same annuitisation rules as pension funds, namely that at least two-thirds of the savings must be used to purchase a pension at retirement. Any provident fund savings made before T-Day, and any investment growth on those savings, will not be subject to the new pension purchase requirement. • However, Treasury is recommending that if an investor leaves their job and is then unable to find another job, they be allowed to withdraw a maximum of one-third of their accumulated savings – only after they have exhausted their benefits from the Unemployment Insurance Fund. Treasury has also proposed that investors be allowed to make limited withdrawals “in the case of demonstrated medical need”.

MARY ...but it nearly ruined her bank balance.

P-Day Recommendations for the preservation of retirement savings are: • From P-Day, all retirement funds will be required to identify a default preservation fund to which members’ savings can be transferred if they withdraw from the fund before retirement. The use of an existing retirement fund to preserve savings for retirement is already a no-cost option for members who, if the fund rules allow, can stay on as deferred members with their savings protected and growing until normal retirement age. However, currently, no withdrawals are allowed. This will change with the new withdrawal rules. • Currently, fund members are limited to one withdrawal from a preservation fund before retirement, but the withdrawal can be up to 100 per cent of their savings. The new proposal is to allow for an income stream in periods of unemployment with an allowance for one withdrawal a year. • The withdrawals will be based on a formula. The proposed annual withdrawal will allow members of preservation funds to withdraw an amount that is the greater of the state old age grant (R1 260 from April 1) or 10 per cent of their initial preservation fund deposit, excluding any portion to which vested rights apply. Any unused withdrawal amounts may be carried forward to future years. • Consideration is also being given to relaxing the preservation requirements of RA funds, from which investors currently cannot make any withdrawals before the age of 55. (On maturity, two-thirds of the RA savings must be used to purchase a pension.) • Treasury is considering allowing RA fund members to transfer their balances to preservation funds, under conditions that will prevent them from seeking out additional tax advantages. The conditions may include preventing individuals who have transferred money out of an RA fund from rejoining that fund, or from receiving a tax deduction in respect of any RA contributions, for a period.

Disability

cover revisited “In an industry that presents them with a series of allor-nothing decisions, most financial advisers and policyholders are bound to choose the option they perceive to be most certain.” Schalk Malan, executive director, BrightRock

Is there any product in the life insurance market more debated than disability insurance? There are so many definitions of disability – occupational, functional, medical – and arguments over the relative merits of capital disability versus income protection products. So while the proverbial jury is on an extended lunch break, financial advisers and their clients are left to draw their own conclusions.

iven the sheer number of products available in the market and their complexity, not to mention the medical jargon, there are no easy answers. Still, recent industry surveys suggest a clear favourite: according to a 2011 Swiss Re study, 83 per cent of the disability products sold in South Africa are lump-sum products. So why is capital disability so popular? We could argue that current product structures in effect leave clients with little other choice. In an industry that presents them with a series of allor-nothing decisions, most financial advisers

and policyholders are bound to choose the option they perceive to be most certain. It’s human nature to take the money and run.

But is capital disability always a sure thing? The downside to lump-sum products is the risk of the policyholder outliving the payout. And clients also carry the unnecessary cost of over-insurance in later years, with wasted cover of as much as 40 to 50 per cent. That’s because the lump-sum cover keeps growing (and is priced to grow from the outset), even though the amount of cover needed usually reduces over the years as the policyholder nears retirement. Worst of all, clients may end up with far less money than they anticipate. According to the 2010 insurance gap study by True South Actuaries, policyholders are underinsured by about 60 per cent for their disability needs. According to the table, the lump-sum disability cover a client would need to buy themselves is a monthly annuity income (growing by inflation each year) of R30 000 per month, for life. AGE

LUMP SUM REQUIRED

R8.27 million

R7.22 million

R5.52 million

Source: BrightRock Flint online quoting system

We believe the current strict delineation between income-based and lump-sum-based disability cover is failing to fully meet consumer needs. What clients really need is a best-of-both-worlds approach. Clients need both asset and income protection: Consumers need to secure their assets, through the ability to settle their debts, and to provide for their living expenses if they become disabled. Their disability cover should allow them to meet both these needs appropriately. Flexibility: Clients need to know that they’ll have the choice and control to make the best decisions at the time of their claim, when they’ve got all the facts. Long-term relevance: When it comes to securing debts, clients don’t necessarily need their disability cover to grow. Typically, a person’s level of debt reduces over the course of their life. However, their living expenses are constantly increasing with consumer and salary inflation. Their disability protection needs to make provision for this growth in their income needs and not just pre-claim, but also once in claim.

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Protection against poor future economic conditions: Forcing clients to choose between lump-sum and income disability at inception compels clients to take on significant financial risk. If they take the lump-sum option, future changes in economic factors such as inflation, interest rates and investment returns could erode the value of their cover by negatively impacting their ability to buy an annuity that matches their income needs. BrightRock strongly advocates a new approach to disability cover that draws together the advantages of lump-sum and income-based cover. Cover should allow clients the option to make choices at claims stage, should provide economic downside protection, and should focus on the injury or illness, to ensure objective claims payouts and certainty both pre- and post-claim. The composition of new insurance business being sold to South African consumers (Swiss Re Individual Risk Market New Business Volume Survey)

Certainty of claim: Clients need to know their claim will be assessed fairly and objectively. They also want to know that once they’ve met the criteria and their claim has been approved, they won’t face any unfair post-claims adjustments to their pay outs. While insurers should guard against overinsurance, they should not penalise clients who are still seriously sick or injured for being able to earn some form of income once in claim.

NO.1 ’RE

SURER RM INODUCT E T G R N P FIA LO – RISK 2012 HE YEAR OF T

Capital disability appears to provide greater certainty, because policyholders can invest their lump sum as they see fit without having to rely on the insurer for further payouts (and especially if the insurer can make in-claim adjustments to those monthly payouts). Income protection products enable policyholders to service their debts, but lump-sum payouts make it possible for them to settle them – leaving clients with greatly reduced financial liabilities. And capital disability products are often cheaper than income protection.

O ’RE N

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

The

early

bird

catches the worm

Hanna Barry

Early stage cancer might not be covered by your client’s critical illness policy. A quick glance at the exclusions clause in the policy preamble will confirm this. Most critical illness products do not provide cover for the early stages of cancer, or in situ events. This is why one long-term risk product provider launched its Early Cancer Cover benefit.

illness policies only provide cover for cancer beginning at Stage 1,” explains Dalene Allen, Altrisk co-founder and underwriting director. “In one particular claim, the client had early cancer of the ureter and had to have his kidney removed. Despite having major surgery, the organ removal was not covered by his critical illness policy because the cancer was in such an early stage.” Allen saw the shortcomings of traditional critical illness policies. She was further inspired by her own experience with cancer and the financial burden of having to foot most of the medical expenses for screening, tests and surgery, despite having comprehensive medical aid and critical illness cover. She was left out of pocket at every single stage of her treatment and because the cancer was caught at such an early stage, she didn’t have a critical illness claim. “It is not unusual for patients to have a number of tests done as part of the cancer screening process, but very often, these costs aren’t covered by medical aid or by critical illness policies. I was fortunate enough to be able to afford the tests I needed, but many clients can’t.” Allen stresses, “Clients don’t hear the words pre-cancerous, or early stage cancer, they just hear the word cancer. Even when the cancer is not severe enough to secure a critical illness payout, the emotional and financial impact on the client may be no less severe. This is exacerbated by the fact that there is often a disconnect between what clients are expecting from their policies and what their policies provide for.”

ltrisk’s Early Cancer Cover (ECC) benefit is an industry first in that it provides cover to those diagnosed with a defined malignant tumour, which has not invaded surrounding tissue. The ECC benefit provides cover for 17 carcinoma in situ events, including those of the breast, cervix, uterus, fallopian tubes, testes, prostate, bladder, kidney and stomach. Cover is available as an ancillary benefit to all of Altrisk’s critical illness benefits. The benefit is available to age 65 or for life, and offers a maximum sum insured of R100 000.

Why early cancer cover? “We continually got questions from clients who felt they had cancer, but because it was in its early stages, it was not covered by their insurance company. Generally, critical

Despite understanding the medical terminology (Allen trained as a nurse), as well as fully understanding her critical illness policy wording and being able to fund the tests, she was no less affected by her ordeal. “If I was traumatised, imagine how individuals must feel who don’t understand the wording or medical terminology and don’t have the money to fund the tests.”

Cancer uncovered If your client is lucky enough to catch their cancer diagnosis early, the prognosis is generally fairly positive. This is why life insurance companies have historically opted to exclude early stage cancer, rather than price for it, as critical illness policies are designed to help clients adapt to major lifestyle changes and meet massive medical expenses. But as cancer screening becomes more common, driven by active screening

campaigns, and more people present with early stage cancer, life insurers may need to whistle a different tune. Figures from reinsurers reveal that one in six claims are declined due to them being early stage cancer. “We as life insurers should be telling brokers what we don’t cover, rather than making a noise about what we do cover. Even if a cancer diagnosis has been positively confirmed, it still has to get to a certain stage before a critical illness policy will pay out,” Allen iterates. At Altrisk’s recent broker roadshows, one broker was adamant that Stage 0 cancer was covered by his life insurer’s dread disease policy, despite being shown a policy exclusion clause that suggested otherwise.

“Clients don’t hear the words pre-cancerous, or early stage cancer, they just hear the word cancer.” Altrisk’s benefit Take-up of Altrisk’s ECC benefit has been gradual, but it is early days. With R50 000 payable on diagnosis and R100 000 in the event of organ removal, the ECC benefit is designed to provide comprehensive early cancer cover. “This is a top-up and is not there to replace critical illness cover, which is why the sums insured are small,” explains Allen. Currently, it is a prerequisite that clients have an existing critical illness policy with Altrisk, to which ECC can be added as an ancillary benefit. A six-month waiting period from benefit inception is in place in order to stop people from anti-selecting. “As we are paying for cancer at such early stages, we don’t want people to select against us,” says Allen. The ECC benefit is an industry first. Based on Allen’s research, the closest comparison is a product from an Australian insurer with a far more restricted list of cancers. Altrisk’s ECC benefit certainly lives up to its philosophy of offering insurance to people who can’t traditionally get cover in the marketplace, upholding its reputation for being a life insurer that thinks out the box. It will be interesting to watch how the market receives the benefit and whether other insurers follow suit.

A culture for excellence: what makes a good fund manager?

“The investment business is as much an art as it is science. The halo of the rock star managers, which litter the history of the industry along with a number of fallen ones, no longer shines as bright,” says executive chairman of Threadneedle Investments, Simon Davies. He was speaking recently at an industry forum held in Singapore. So what are the secrets behind a good fund manager?

avies emphasises the importance of finding an experienced support team. After decades in the industry, he believes experience largely outweighs education, though it is the balance of both that is vital to a team. According to Windall Bekker, partner at Rezco Investment Consulting, excellence in fund management extends beyond just a top performing investment team. “There are three main areas that directly affect the quality of the manager: the investment team, the administration team and the distribution team.” The overall excellence of the manager is determined by the weakest of these three areas. Even if the investment team is a top quartile performer, without a distribution team to raise the assets and an administration team to administer the portfolio and clients, the manager won’t gain traction. “A key reason for non-performance is a culture of non-ownership and a resistance to problem solving and change. This is often because personal career risk can outweigh the potential benefits of change; an employee will likely not be penalised for inheriting a problem in the business, but could be penalised for making changes that are not successful.” Staff members must understand what the goal and philosophy of the investment manager is, and whether this fits in with

their own personal goals and core beliefs. “Investment management is a calling and employees who see it only as a job will often struggle to compete against their peers in the organisation,” cautions Bekker.

FOCUS AREAS FOR CULTIVATING A CULTURE OF EXCELLENCE Structure and discipline Crucially, the business must have structure and discipline, ensuring the team can focus on its core business rather than continual solving of internal issues. Clear structure will also allow managers to identify and fix areas of risk or concern in the business and enables seamless integration of the investment, administration and distribution areas. Today, technology can be a valuable tool for managers working to facilitate structure and productivity.

The machinery for knowledge Fund managers are knowledge factories, heavily dependent on staff ability and knowledge rather than tangible assets and machinery. Here, the balance of education and experience Davies alludes to is crucial. “The key to this,” he notes, “is that they must have mutual respect for one another.”

Bekker emphasises the need for companies to recruit people who have the same core values and beliefs. Where areas of weakness or improvement can be identified, staff members should have the confidence and management support to raise the issues and risks. It is crucial to avoid micro-management as it disempowers the employees. “Deliverables and quality of deliverables should always be clear and non-negotiable, but leaders need to have confidence in their team’s ability and skill without micro-management of processes,” Bekker notes. “Each team member needs to feel empowered to operate in their area of strength with other team members supporting where necessary, irrespective of their position in the management structure.”

Compensation Compensation modifies employee behaviour and, for this reason, compensation policies need to facilitate excellence through all business areas and across all levels of staff. “Remuneration should be based on the overall performance of the company, rather than separate business units, with the bonus calculated on overall business metrics rather than individual units,” Bekker comments. This ensures staff members are incentivised to continuously improve the business as a whole and encourages collaboration.”

Up to 93% of the temporary disability need is not covered

How many of your clients might be at risk? According to an independent study by True South Acturaries and Consultants on disability cover in South Africa, their lowest estimate for temporary disability cover in place was only 7% of the need (and 23% at best). At FMI we know that for self-employed people, this could have potentially disastrous financial consequences. For our independent Financial Advisers this latest actuarial evidence on disability planning is essential to help construct sound financial plans for their clients. To read more about this report go to www.fmi.co.za

Income Protection Specialists Underwritten by Lombard Life Ltd. FMI Ltd is an authorised Financial Services Provider FSP 2717

Building blocks comparing tertiary education savings vehicles Sarah Bassett

With the cost of education soaring, saving towards a childâ&#x20AC;&#x2122;s education is a financial planning necessity for many parents. RISKSA compares the costs, returns and relative advantages of education endowment policies versus unit trust funds.

The argument for saving Over the last 15 years, education inflation has averaged almost 10 per cent according to Statistics South Africa, roughly four per cent above the country’s inflation rate. The cost of education is increasing far faster than average salaries, making the lump sum annual fee payments required for tertiary education a challenge for many. According to Wanita Isaacs, investor education manager at Allan Gray, paying through savings instead of direct from salary could reduce the cost to a client’s budget by as much as 31 per cent. “Although going this route requires contributing a meaningful percentage of your salary at a time when you may have many other financial pressures, tight budgeting upfront allows for predictability and cost saving in the future,” she comments.

Investment vehicles As every adviser knows, early planning can give your clients the significant advantage of time. If a parent starts investing 15 years in advance of their child’s tertiary studies, they can afford to make higher risk investments to keep up with education inflation, notes Lebeko Mphelo, head of technical solutions at Investment Solutions. But what is the ideal vehicle to advise a client to opt for?

“Although going this route requires contributing a meaningful percentage of your salary at a time when you may have many other financial pressures, tight budgeting upfront allows for predictability and cost saving in the future.”

REDUCED IMPACT ON BUDGET FROM EARLY INVESTMENT Reduced impact on budget compared to paying fees from salary

Investment performance

Child’s age at start of investment 0

3% above inflation

31%

29%

28%

25%

At inflation

21%

20%

18%

Source: Allan Gray Research

Education endowment policies Many investment houses now offer specific education savings vehicles in the form of an endowment policy, such as the Liberty Education Builder, the Old Mutual Education Plan or the Sanlam Stratus EduFocus. These have been popular with advisers in the past in part because they paid higher commission for the adviser, notes independent financial planner Ian Campbell. According to Campbell, the benefit of an education policy is that it offers your client a more structured savings plan, with limited access during the first half of the investment term with an endowment life insurance policy, your client can opt for underlying investments that offer guarentees to reduce investment risk and are often safer, low-risk portfolios. But, of course, this may mean lower returns, making it difficult to keep up with education inflation and to reach the amount required to cover future tertiary education. Certain products do offer greater risk flexibility. The Liberty Education Builder fund, for instance, enables your client to select up to seven different portfolios including cash, bonds, property, equity and specialist portfolios, allowing them to choose a combination of portfolios and risk that will meet their unique needs, risk profile and financial needs. These endowment policies can be a good option for less disciplined investors, as they oblige the investor to preserve their savings for at least five years. However, such policies are contractual, so should a client be unable to fulfil monthly payments over time, the life insurer can impose penalties. Certain funds do offer measures to counter this. The Old Mutual Education Fund offers the Premium Holiday Benefit, which will allow the investor to miss up to six monthly premiums over the term of the policy without being penalised. On the Liberty Education Builder, should your client be retrenched, the optional Retrenchment Premium Waiver will pay all regular premiums for the next 12 months.

consider. “Yes, an endowment can mean disciplined saving, but to too few people. While this can act as an effective disincentive for withdrawals, withdrawal rates suggest that often tough periods force policyholders to dig into their education savings and the penalty fees only serve to further reduce capital.” Again, there are exceptions to this. The Old Mutual Education Fund, for example, does allow a part withdrawal to be made within the first five years without penalty. Another feature of endowment vehicles is that life assurance cover can be linked to the policy. For instance, the Old Mutual Education Fund offers the Optional Premium Waiver Benefit. For an increased premium, if your client should die or be disabled due to an accident at any time within the first 10 years, Old Mutual will pay the value of the premiums for the balance of the first 10 years into the plan. The same applies in the case of death from causes other than an accident after the first six months. However, none of these added benefits are free. Endowment policies have relatively high management fees at around 2.5 to three per cent and additional benefit options require higher monthly premium payments. For this reason, the added benefits need not be a deciding factor in choosing an investment vehicle. “An adviser should ensure that their client has sufficient life cover to provide for their family’s future needs, including education costs,” notes Campbell.

Penalties will also apply should a client need to access funds invested before the initial five-year period is complete. Campbell points out that this is an important factor to

“Unit trusts and investment policies provide ideal vehicles to use as part of an education savings plan, depending on a client’s savings behaviour and requirements.”

Unit trusts “Unit trusts and investment policies provide ideal vehicles to use as part of an education savings plan, depending on a client’s savings behaviour and requirements,” says Campbell. They are a flexible vehicle allowing investors to withdraw money or put extra in as they choose. With a unit trust, your client will face no penalty for missed payments or early withdrawals, though this flexibility may be dangerous for less-disciplined investors. Currently there are over 800 funds in South Africa available to investors. Management fees on these funds also tend to be lower than those charged for endowment policies. “An endowment savings policy will often have

both initial and annual fees. Unit trust will usually have only annual fees. That said, unit trust minimum will often be R500 per month or higher, which could present a limiting factor for some, comments independent financial adviser, Mel Hanekom.

that has a higher risk profile than the money market portfolio. The beauty with a multimanaged unit trust is that the portfolio blends different managers; each are expected to perform well given a particular market or

These cover all asset classes, asset subclasses and various mixtures of asset classes, allowing the investor to take greater risk at the start of the investment term and then move over to a safer fund or portfolio as the start of the child’s education approaches.

“In order to decrease the monthly payments, the parents would need to consider a portfolio that is a little robust in returns and that has a higher risk profile than the money market portfolio.”

“In order to decrease the monthly payments, the parents would need to consider a portfolio that is a little robust in returns and

COMPARISON OF A UNIT TRUST INVESTMENTS VS AN EDUCATION ENDOWMENT -

Return rates based on aggregate historical data

Scenario

Assumed annual return

Monthly premium 2013

Annual premium increase

Monthly premium 2028

total invested

Equities high risk

22%

R 403

n/a

R 403

R 72 520

Equitiees balanced

11%

R 1 223

n/a

R 1 223

R 220 140

Cash/bonds

7.50%

R 1 680

n/a

R 1 680

R 302 400

Education endowment

R 787.05

R 2 804

R 288 440

More important than the differences in fees, says actuaries, is the differing tax rates. An endowment is taxed at 30 per cent for an individual investor, while a unit trust investor is taxed at their marginal tax rate. Therefore, if your client is not a high income earner paying tax at more than 30 per cent, an endowment may be in their best interest. DIFFERENCES BETWEEN A UNIT TRUST AND AN ENDOWMENT

economic cycle,” notes Mphelo. Currently, an engineering degree from the University of Cape Town will cost R42 000 a year and four years of study are required to qualify, according to Mphelo, when adjusted for inflation of 10 per cent, the annual fees in 15 years’ will be R175 444. Assuming that the parents will disinvest at the beginning of the first year of their child’s university education, they will need to have accumulated R556 135 to cover total fees (ongoing inflation included). This assumes that the remaining capital after each year’s fees will remain in a cash account receiving returns in line with inflation.

Unit trust

Endowment

Taxed at the client’s marginal tax rate.

Tax efficient if the client’s marginal tax rate is more than 30% as interest is taxed at 30% in the case of individual investors

Interest and CGT exemption can be used

Client’s interest and CGT exemption is not taken into consideration

Flexible and accessible

The client must commit for at least five years with limited withdrawal options, and these may come at a cost

Cannot be ceded as security for a loan

Can be ceded as security for a loan

Beneficiaries cannot be appointed and the investment forms part of the client’s estate on death

Beneficiaries can be nominated and benefits do not form part of a deceased estate

Performance figures are available daily

Overall portfolio performance is reported periodically, although unit trust performance figures can be accessed daily.

Performance figures are available daily

Overall portfolio performance is reported periodically depending on the product provider. If the underlying investments are unit trusts you can access performance figures for the individual funds daily

Source: Acturial Society of South Africa

Student loans “Eduloan, however, offers loans structured specifically for parents or employers paying for a student’s education. The terms are therefore much shorter and repayment starts immediately.”

The prevailing wisdom is that it wise to avoid debt wherever possible, but it is possible that it could be cost-effective to consider using a loan to pay the costs of tertiary tuition. For multiple reasons it is not wise to rely on a loan in the future to pay the fees; however, it may be an option to keep investments intact and pay for tuition not direct from salary or savings, but to pay a loan from savings instead. All of the top four South African banks offer student loans, and repayment and interest rates are calculated based on individual risk profile. Currently, standard rates offered through major banks start at around 10.5 per cent. In all cases, a new loan must be applied for and granted for each year of study. Interest payments start from the inception of the loan and only interest rate payments will be required for the duration that the student is enrolled in study. Some institutions will extend this to a period of articles or a further professional apprenticeship-type period. Repayments on the loan itself begin only once studies are finished or the articles period complete. Eduloan, however, offers loans structured specifically for parents or employers paying for a student’s education. The terms are therefore much shorter and repayment starts immediately. Loan terms offered are for 10 months, 16 months and 22 months and interest rates differ according to the term of the loan and the institution attended. Interest rates vary depending on the institution of study, starting at 9.5 per cent and increasing to 14.5 per cent, based on current rates. Assuming a rate of 9.5 per cent, applied for a degree at UCT on a term of 10 months repayment, it may make sense to leave the full R556 135 capital accumulated untouched and not disinvest from the unit trust fund. At such rates, returns on the capital invested could cover the cost of the loan, if left in a moderate or aggressive unit trust fund.

COMPARISON OF TOTAL COST OF A LOAN VS TOTAL VALUE OF UNIT TRUST AFTER FOUR-YEAR DEGREE Eduloan

Unit trust-equities (aggressive)

Unit trust-equities (moderate)

Loan value

Term of loan each year

Assumed interest rate

Total cost of engineering degree paid via loan

R175 444 (X 4 years)

10 months

9.50%

R 756 908

Capital invested

Term of investment

Assumed return rate

Total value after four years

R 556 135

n/a

22.00%

R 1 232 025

Capital invested

Term of investment

Assumed return rate

Total value after four years

R 556 135

n/a

11.00%

R 844 252

The table is a clear illustration of how, with access to a loan at an interest rate lower than predicted returns for a unit trust investment, returns would far exceed the cost of the loan. Lebeko cautions, however, that this is merely indicative as calculations are based on historical data and future returns cannot be predicted but rather multi-managed.

Stick to the plan Rob Rusconi is general manager of Lombard Life, a licensed long-term insurer that seeks to meet customer needs through partnerships like BrightRock and FMI. Lombard Life is a member of the Lombard Insurance Group.

nvestment is about returns, right? Well, this is true, but only partly. High returns from an asset class are good, but the certainty with which return can be achieved is at least as important as the return itself. And at some times in our lives – in our retirement, for example – certainty trumps possibility and we need to be careful about investing in high-risk assets like shares.

We need a plan. If we don’t have a plan, we’re more likely to do ourselves some damage by jumping from one boat to another when things get tough. An important part of that plan is understanding why we invest in certain asset classes. If we have that clear in our minds, we’re less likely to panic when things change. Take shares as an example. In South Africa, we had a good 2012 and entry to 2013, but the last few weeks have taken some of the shine from that performance (I write early in May). Does this mean that equities are a bad investment for our retirement savings? No. Stick to the plan, recognising why you invest as you do, and you are less likely to panic when you hit the bumps on the road. Shares are by far the best investment for the long term. Why is that? Your earnings during

Interesting times. Shares have run well, fed by the economic stimulus of low interest rates. It may be difficult to imagine the performance of the last year repeating itself. Furthermore, the long-term outlook for shares is poorer than it has been for the last 10 or 20 years, as global prospects for economic growth are not great. On the other hand, the alternatives are hardly attractive, with bond and cash yields pretty much as low as they can go. This article reminds us that, for long-term investing, the low-risk investment is the share portfolio. your working life are affected by a number of factors, but one of these is the growth in the economy. As your earnings increase, your expenditure rises. Your lifestyle matches your income. Your hope – it’s an expectation really – is that you will be able to retire with much the same quality of life that you enjoy while you are working. In order to realise this hope, you need to invest your retirement savings in the asset class most likely to grow with your expenditure, which means with the growth in the economy. And that means sticking to your shares.

“A gradual shift from shares to bonds will protect you against market volatility during this conversion process.” So how should you be responding to the ups and downs of today’s markets? If you are a long way from retirement, say 10 years or more, and you are saving with regularity into shares, you shouldn’t do anything. You accept the volatility of the market because you know that it is the right asset class for your long-term

needs. When the market has delivered 40 per cent in a year, your portfolio has grown. Celebrate if you like, but don’t try to time the market, switching into something else. When the market has tanked, keep on investing: you’re buying cheap shares. Research consistently shows that investors hurt themselves when they try to time the market. We can see it in South Africa in our unit trust statistics. When the market has been doing well, inflows to shares increase. Investors are buying expensive shares. When, on the other hand, markets have been falling, we see outflows from shares. People are selling at the bottom. In both instances, this is risky activity that hurts performance. The approach to retirement is different. Now you are getting ready to convert a portfolio to an income stream. A gradual shift from shares to bonds will protect you against market volatility during this conversion process. Finally, keep an eye on those who look after your money for you and your clients and look beyond the obvious. Some life insurance policies involve significant saving, which means investment. How these assets are allocated to shares and bonds determines the ultimate outcome to you, the policyholder. Make sure that the investment approach suits your long-term needs.

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SAM PLANS PUSHED BACK

The implementation of SAM has been delayed by a year but the Financial Services Board is confident that the delay will allow the industry more time to prepare and ensure a smooth transition. RISKSA got exclusive insight from the company that has been awarded the economic impact assessment study.

SOFT LANDING: UNDERSTANDING THE ISO STANDARD FOR BUSINESS CONTINUITY

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SAM

plans

Neesa Moodley-Isaacs

pushed back â&#x20AC;&#x153;Instead of taking place throughout 2014, the parallel run will now start on 1 July 2014 and will continue to the end of 2015.â&#x20AC;?

Although the implementation of Solvency and Assessment Management (SAM) has been delayed by a year, the process is steaming ahead and auditing firm, KPMG was recently awarded the Financial Services Board (FSB) SAM Economic Impact Assessment Project.

PMG partner, David Kirk, says this presents the perfect opportunity to combine insurance, actuarial, capital market and economics skills in order to deliver on a critical project for the insurance industry and the FSB. “We still need to fine-tune scope with the FSB and the Economic Impact Task Team.”

The KPMG assessment will cover the following issues: • E xpected impact on capital requirements, capital ratios and free capital for insurers. • Resultant scenarios around capital raising, consolidation and what this means for new entrants. • The once-off and BAU expenses of SAM compliance –the effect on policyholders and shareholders’ returns. • Impact on capital markets (especially equity investments, government bonds, swaps, corporate paper, sources of capital issued by insurers) and interaction with banks in this space. • Impacts on reinsurers, extending to interactions with other service providers and competing industries. • Likely responses and actions by insurers in response to this changed environment. • Potential broader economic impacts on employment and economic activity arising from these changes to an important part of the financial services industry.

“There’s obviously a fair amount of subjectivity in all of this and we don’t expect to have absolute consensus on all the issues, but we are going to perform a rigorous analysis of the possibilities and will be engaging with a wide range of stakeholders in forming our views,” Kirk says. He adds, “Our economics team has some pretty sophisticated tools to estimate the direction and relative size of changes on the macro economy.” He notes that there are likely to be high costs for insurers going forward as they have already spent large sums preparing for SAM. “In terms of smaller policyholders, if administration and ongoing costs increase as a result of SAM, insurers will need to consider whether those smaller policies are still viable. A company with the proposed new micro-insurance licence might be simpler and we might see smaller policies move into this space going forward,” he says. Kirk says one of the key benefits of SAM will be a decreased frequency of insurers failing as they will have a better understanding of their risk. “Although capital requirements may go up, insurers could be more confident of operating with less capital because of an improved understanding of their risk,” he explains. “The fact that SAM requires highly skilled actuaries and other risk professionals could lead to South Africa putting increased emphasis on skills development and maintaining its lead as a centre of excellence for financial services on the continent.” Input from insurers in the industry convinced the Financial Services Board (FSB) to revise its timelines for the implementation of the Solvency Assessment and Management (SAM) legislation, with full implementation by industry now scheduled for 2016, a year later than previously planned. At the end of July this year, the following documents are scheduled for release: • Draft three of the SAM primary legislation. • Draft two of the SAM secondary legislation. • The primary legislation of the Insurance Laws Amendment Bill, updated following public consultation. • The secondary legislation for the Insurance Laws Amendment Bill. Jonathan Dixon, the deputy executive officer of insurance at the FSB, says the key change is that the SAM parallel run will be extended. The parallel run refers to the process whereby insurers will be required to calculate and provide information on the proposed SAM basis in addition to current requirements and statutory returns prescribed under the Longand Short term Insurance Acts.

“Instead of taking place throughout 2014, the parallel run will now start on 1 July 2014 and will continue to the end of 2015. In addition, the parallel run will take place in two phases, a light phase during the second half of 2014; with a more comprehensive phase taking place during 2015,” he says. The light parallel run is not intended to produce all the information required for annual reporting but rather to base the requirements on the quarterly reporting, Dixon says. The comprehensive parallel run will focus on moving to a position where the vast majority of the SAM requirements are being met. Insurers will be expected to calculate and report on their full quarterly and annual calculations. In addition, insurers will have to get a reduced scope audit opinion on their reporting. This is intended to facilitate a smooth transition for auditors. Due to the extended parallel run, the full implementation of SAM has been moved to 1 January 2016. “The intention behind the comprehensive parallel run is that the SAM requirements are met as fully as possible, so that insurers as well as the FSB will be in a strong position to implement SAM from 1 January 2016,” Dixon says. He says while the FSB is mindful of the extreme workload facing insurers, it would like to encourage insurers to continue to support individuals who are working on the various SAM working groups and task groups, by affording these individuals the time to contribute to the design of SAM. Stakeholders that are participating in the SAM forum structures include insurance and reinsurance companies, the South African Insurance Association, the Association for Savings and Investment, the Actuarial Society of South Africa, National Treasury, the South African Institute of Chartered Accountants, the South African Revenue Service and the South African Reserve Bank. Some insurers are more than ready to tackle SAM within the initial timeframes. Santam’s chief financial officer, Hennie Nel, says, “We have assessed our readiness to comply with these requirements and are confident that they will have a minimal impact on the group.” Nel adds that Santam operates an internal capital model in line with best practice to assist management with capital management, risk quantification and decision-making. “Santam is in the process of applying to the FSB to use this internal model for determining its capital requirements once SAM has been enacted. We expect that capital requirements for Santam under this approach will be slightly lower than the current interim measures solvency requirement of 28 per cent,” he says.

New

ratings factors and criteria clarity from Standard and Poor’s Standard and Poor’s recently published revised insurance criteria for rating insurance companies worldwide. It now provides specifics on how the macroeconomic and industry environment affects the creditworthiness of an insurer, having introduced the assessment of industry and country risk as an explicit rating factor.

Sarah Bassett

he new criteria represent the insurance part of S&P’s commitment to the market, undertaken in 2008, to enhance the transparency, rigour and specificity of our criteria across sectors and asset classes,” the agency explains. The update follows extensive consultation with the global insurance market and is intended to provide the market with greater insight about how S&P rates insurers worldwide and to enhance the comparability of the ratings by creating an integrated, globally consistent framework, building on the existing criteria. The agency does not expect the changes to alter current ratings. Should any changes occur, they would likely be within one notch of the current ratings and preliminary results suggest that positive rating actions will slightly outweigh negative rating actions. The ratings framework includes business risk and financial risk profiles, as well as new rating factors and sub factors to assess the impact of industry and country risks, prospective capital adequacy and risk position. A new matrix clearly outlines how the agency derives the anchor based on the combination of the business and financial risk profiles.

Further key changes include the formalisation of S&P’s insurance industry country risk assessment (IICRA); and the specification of the combined impact of ERM, and management and governance on the insurer ratings.

been integrated into the matrix.

Separately, the agency will publish a commentary on the insurance industry and country risk assessment (IICRA) This will explain how the IICRA provides context for an insurer’s business risk profile, which results from the IICRA and the insurer’s specific competitive position assessment, by looking at the risks it faces from operating in specific industries and countries.

The performance of insurance ratings in the past further informed the new criteria. Past S&P studies documenting insurer defaults were used to review the history of insurancecompany defaults. Rates increased during periods of stress, such as economic downturns or following major catastrophes, but remained relatively low, and according to S&P are among the lowest of any sector. The new criteria globally address the issues that caused these failures, specifically through:

Insurer performance influence The published criteria include changes made as a result of feedback received from the market during a 2012 consultation period. Market commentary indicated that analytical judgment was under-represented and that too many features could cap ratings. As a result, S&P adjusted various scoring elements in the framework to be less formulaic and more judgmental. Rodney Clark, deputy chair of S&P’s global insurance criteria committee, says that a key change is that increased flexibility has

The agency now expects the fixed-charge coverage rating cap to apply only in specifically highly leveraged situations.

• New liquidity metrics • Capital metrics that focus more on asset-liability risks • IICRA metrics that take into account industry-wide pricing adequacy • A larger role for ERM for insurers with complex risks. Further details and commentary for all criteria and the criteria documents are available at www.standardandpoors.com/ insurancecriteria.

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Soft

landing understanding the ISO standard for business continuity Sarah Bassett

ncreased regulation and focus on corporate governance has resulted in many South African companies implementing better risk management practices; yet, business continuity planning remains an under-implemented area of risk management for many. Business continuity experts, ContinuitySA, recommends that South African companies take advantage of the new international standard for business continuity management recently launched by the International Standards Organisation, ISO22301. Currently, full certification is challenging to acquire in South Africa. However, according to Eugene Taylor, managing director of TaGza and the UK’s Institute of Directors (IoD) constituent representative on the British Standards Institute TC223 committee, whether an organisation is currently aiming for certification or not, the management plan structure offered in the ISO22301 document will ensure a thorough and robust framework for a well-maintained and resilient business continuity management system (BCMS) with all the correct checks and balances. “Adherence to a reputable standard indicates that a company is serious about its organisational resilience,” says Taylor. “As clients become more astute, in the context of financial services and banking for instance, many want assurance that those managing their assets or providing services can cope with any eventuality.” Taylor was addressing a briefing on the new standard hosted by ContinuitySA. Currently, certification can be obtained only through international certifiers at great expense. However, certificates of alignment with the standard can be obtained locally through bodies such as ContinuitySA.

Management, says the benefits to organisations that practise the principles of business continuity management include proactive risk identification and mitigation. “One potential benefit is that organisations that take advantage of widespread catastrophes through business continuity management can turn them into opportunities for growing market share. This is at the expense of competitors without business continuity management, as they are likely to struggle to satisfy their customer base through the period of turmoil,” he says.

Insurance benefits While insuring against physical losses and business interruption is a crucial part of any business continuity plan, the days of planning continuity by insurance policy alone are over. However, an effective BCMS integrated closely with an insurance portfolio is a highly effective strategy, notes Ramalodi. “A business is insured against only what they put in their policy. A thorough risk analysis, such as that required in the standard, will enable the business to ensure its insurance portfolio does indeed cover all required risks,” explains Tracey Linnell, general manager of advisory services at ContinuitySA. There will also be additional expenses which a BCMS can minimise and make easier to accommodate. “Insurance is time limited, often covering only a few months of interruption while a business’s recovery may take years. Effective business continuity planning can significantly reduce this recovery period, increasing the likelihood of a business’s survival.”

Taylor adds that in the enduring soft market, there is a correspondingly hard claims market. In order to protect margins, insurers have become increasingly tough on claims. “The presence of a BCMS has become an essential component in the defence or justification of a claim, particularly on business interruption.” Ramalodi confirms this, saying, “If the business can show it went out of its way to mitigate the risk, it becomes very difficult to turn down the claim.” In future, alignment with the standard may result in reduced premiums. “The industry is maturing to a point where insurers will consider a BCMS when underwriting risk,” says Linnell. A demonstrable BCMS can also reduce indemnity periods on policies.

The first steps Taylor recommends that before considering the upgrade of an existing business continuity management system or implementing one from scratch, organisations and business continuity managers should follow the first four steps of the standard, and then determine if more is required for their organisation. “First, make a strong business case,” he says. “It’s vital to obtain an enthusiastic sponsor in top management and a suitably qualified implementer.” He stresses that the business case need not be a lengthy document, in fact brief is better. The next step is to obtain the buy-in of the executive team and board of directors. This

Compliance benefits Jose Afonso, director of Afken Risk Management, says a thorough BCMS will ensure a business maintains compliance with changing statutory and governance requirements. According to Taylor, business continuity planning may become a compliance requirement in and of itself. “Business continuity has been incorporated into the principles of King III and so is already on the corporate agenda,” he explains. “As most of King II was incorporated into the new Companies Act, I would not be surprised if we found the King III recommendations included in legislation in due course. Once legislated, those who have been working towards compliance over time will be excellently positioned.”

Proactive action benefits Madikane Ramalodi, general liability underwriter at Camargue Specialised Risk

intended outcome. “This is about setting up the programme of projects to deliver all the elements of the BCMS.” Step 7: Support This stage requires that the organisation implements a thorough document system to support the BCMS. Many organisations do not have a document management system. This is a critical requirement in order to meet the standard, as documentary evidence is vital at every step. Step 8: Operation This is the implementation stage. Process criteria and controls must be established and implemented, with documentary support to show that processes have been carried out as planned.

will mean identifying the benefits and costs of the chosen approach over the entire life cycle. Allied to this is putting together a comprehensive, realistic budget that covers not just the implementation, but also delivery. “Don’t restrict the budget discussion to basic resourcing of personnel, make sure you provide for technological support resources you will need to make business continuity management work,” adds Taylor. The fourth step is the important task of building relationships. At one level, this means obtaining buy-in from the enterprise as broadly as possible but also building relationships with those who do not initially support the move. “There are always the doubters, but if you work closely with them they can be brought round to seeing the real benefits,” Taylor observes. “I’ve had instances in which those who were most hostile at the beginning of the process have become business continuity champions.”

THE TECHNICALITIES Should the organisation decide to continue with the standard alliance process, Taylor outlines the key technical considerations for the remaining sections of the standard. Step 5: Leadership Commitment from top management cannot be at arms-length. They will need to be actively involved. The BCMS policy must clearly define roles and responsibilities and ensure that authority is communicated. Crucially, someone must always own delivery. Step 6: Planning For this stage, the organisation must be able to show that they have determined the risks and opportunities to be addressed, and that the management system can achieve its

A business must be able to show a thorough impact analysis and risk assessment. A business continuity strategy is then required, outlining the determination and selection or risks, resource requirements, protection and mitigation strategies. The continuity procedure document should lay out incident responses, warnings and communication plans, continuity and recovery plans. Proof of implementation must be maintained throughout. Step 9: Performance evaluation This stage is about monitoring, measuring, analysing and evaluating the BCMS. The key requirements are an internal audit and management review. “If you keep a handle on all your activities and you record issues that could impact the business you will know where your BCMS weaknesses lie and you can do something about that – even if that means

recording a non-conformity without a mitigation option. Just make sure you have a plan on how you will measure and evaluate your BCMS performance.” Step 10: Improvement This requires ongoing resilience development. “Things change, priorities change. Stay on top of your BCMS programme and make changes in good time. Don’t leave it until you are approached. Stay connected with the business. There will always be some form of risk but it’s what you continuously do to minimise impacts that counts.”

Auditing When it comes to the audit stage, Taylor advises that organisations get a pre-assessment some time before certification. He stresses that the auditors used are properly prepared and competent. It is important that the business undergoing the audit structure is prepared for the visit. Under no circumstances should a business go ahead with the audit if it is not yet ready. Internal audits and internal gap analysis are crucial steps to ensure that the BCMS is kept up to date and that issues are noticed and resolved prior to external audit. Management should regularly measure compliance and effectiveness against an evidence matrix. Taylor emphasises that building an effective continuity system takes time to perfect and implement. While the documentation might be put together over the space of a few months, a good system requires testing, checking and constant evaluation. Moreover, continuity and resilience thinking must be embedded within organisational culture to be effective, and this is a human process that cannot be achieved overnight. He warns businesses to be careful about what they put in writing. “Anything you say you will do, auditors will hold you to. Rather keep documents simple and avoid setting yourself up for audit troubles.”

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STUDY REVEALS

TOP 10 RISKS FOR 2013 Aon’s biannual Global Risk Management Survey has revealed a growing trend of risk leaders struggling to identify and manage major risks facing their organisations, illustrating the importance of no longer viewing risks in isolation.

he survey of 1 415 organisations from 70 countries, conducted in the fourth quarter of 2012, shows a decline in risk readiness among a significant amount of respondents. On average, reported readiness for the top 10 risks dropped seven per cent (from 66 to 59 per cent) from the 2011 survey and reported an increase in the loss of income of 14 per cent. Of the 28 industries defined in the report, only three industries – pharmaceutical and biotechnology, non-aviation transportation manufacturing, and agribusiness – reported the same or improved levels of readiness this year. “One possible explanation of the decline in risk readiness could be that the prolonged economic recovery has strained organisations’ resources, thus hampering the abilities to mitigate many of these risks,” says Stephen Cross, chairman of Aon Global Risk Consulting. “Our survey revealed that, despite diverse geographies, companies across the globe shared surprisingly similar views on the risks we are facing today – whether or not they feel prepared.” The 2013 survey saw the number of respondents increased dramatically from the 2011 edition with a 47 per cent jump.

This shows that companies do have a strong awareness of the importance of risk management and identifying risks. The survey ranks the top 50 risks facing companies in 2013 and how significant those risks will remain by 2016. Economic slowdown, regulatory changes and increasing competition are, unsurprisingly, the top three risks in 2013 and 2016. These risks claimed the top spots on the risk rankings for the survey’s five main regions, namely Asia Pacific, Middle East and Africa, Europe, Latin America and North America. These same three risks are among the top risks for 24 of the 28 industries surveyed, illustrating the systemic nature of these risks and the high interdependence of global economic activity. Due to increasing social and political conflicts round the world, political risk broke into the top 10 for the first time and is projected to move up to number six by 2016. Concern for the environment, the unprecedented increase in natural disasters and unusual climate patterns being experienced worldwide means that, even though only ranked 16th for 2013, natural disaster risks are expected to move up to ninth by 2016. Innovation and meeting customer needs is becoming a major priority for organisations, which is represented by it moving up from sixth to fourth on the list between 2013 and 2016.

However, business interruption is predicted to drop out of the top 10 by 2016 due to companies adopting more efficient business recovery plans. “As part of the board’s responsibility to endorse and monitor strategy, directors should gain an intimate understanding of the major strategic risks, possible scenarios and how the appropriate strategy allows the exploration of uncertainties and mitigation of strategic risks. Given the results of Aon’s 2013 Global Risk Management Survey, developing capabilities for strategic risk management by top management teams and boards should be an important priority in these uncertain times,” adds Javier Gimeno, the Aon chaired professor in international risk and strategic management at INSEAD. As companies face increasing pressure from stakeholders to save costs and optimise insurance programmes post-recession, the 2013 Aon Global Risk Management Survey’s industry- and geography-specific insights allow companies to identify and manage risks specific to their company before they become a problem. Aon Risk Solutions first introduced the Survey report in 2007. It was created to help risk decision makers stay abreast of emerging issues and learn how their industry and regional peers are managing risks and capturing opportunities. The web-based biannual survey addressed both qualitative and quantitative risk issues. Risk managers, CROs, CFOs, treasurers and others provide feedback and insight on their insurance and risk management choices, interests and concerns. All responses for individual organisations are kept confidential; only the consolidated data was incorporated into the report’s findings.

The survey unveiled a number of significant risks for organisations, as they are perceived to be underrated risks. Aon has encouraged companies to be aware of the following:

Risk description

Risk rank 2013

Computer crimes/hacking /viruses/malicious codes

Counter-party credit risk

Loss of intellectual property /data

Social media

Pension scheme funding

Top 10 risks Risk description

Risk rank 2013

Risk rank projected 2016

Economic slowdown/slow recovery

Regulatory/legislative changes

Increasing competition

Damage to reputation/brand

Failure to attract or retain top talent

Failure to innovate/meet customer needs

Business interruption

Commodity price risk

Cash flow/liquidity risk

Political risk/uncertainties

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INSURANCE FRAUD

Consumers are forced to count every penny as cost rises and the spectre of insurance fraud is also rising. According to the Association of British Insurers, the cost of insurance fraud in the UK now tops ÂŁ2 billion (R28.4 billion) a year. Find out more about the effects of fraud and the devious methods criminals employ in their bid to cheat nsurers.

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THE FRONT LINE AGAINST FRAUD

Magnum PI and Sherlock Holmes may have made the life of a private investigator seem quite sexy and exciting but the reality is somewhat removed from this popular image. We get into the nitty-gritty of private investigators who fight the battle against insurance fraud.

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INSURANCE In a depressed economy, the volume and value of insurance fraud increases for various reasons. We take a look at how fraud affects the insurance industry and what some of the consequences are. Nick Krige

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FRAUD raud or people wanting something for nothing, is a universal problem and the insurance industry is not exempt. When an economy falls on tough times, the number of desperate people increases, which ultimately leads to an increase in shady activities such as fraud.

Desperation is by no means the only reason people commit insurance fraud, but there is fairly clear evidence that economic meltdowns are followed by an increase in attempts. “Fraud is consistent, but the reality is that economic hardship leads to an increase in scams, no matter what industry you operate in. This obviously presents specific challenges for insurers as many businesses take out cover for these kinds of losses,” says Anton Lategan, head of internal audit at Etana. He warns that an increase in the transparency of reporting may make it seem like insurance fraud is on the increase when it is, in fact, merely being reported more publicly. “Although I can’t put a quantity to it, I’m convinced that the occurrence of fraud has increased since the 2008 meltdown. Another factor to consider is that transparent reporting and greater communication can lead to a perception that fraud increased when it actually didn’t. It’s the reporting that increased and that’s difficult to identify,” Lategan adds.

Depressed economies lead to people having less disposable income than they may be used to and this may tempt individuals to view their insurance policies as a way of supplementing that lost cash. “People who are under financial pressure start making wrong decisions in desperation.

“ We are witnessing a monthly increase, both in terms of frequency as well as severity, in fraudulent claims since October 2012.” This is when you would typically find an increase in fabricated claims such as alleged house break-ins and road accidents with no third parties involved,” explains Susan Gravett, senior forensic investigator at Lion of Africa Insurance. The economic situation is not as bad as it was five years ago when the global financial meltdown first happened, and South Africa was relatively well shielded from its effects, but there is no clear evidence that fraud has begun to decrease now that the world’s economy has stabilised somewhat. “Insurers that execute more effective supply chain management, implement advanced fraud detection tools and

are vigilant in their general approach to fraud, may report that numbers are stabilising or even decreasing. This can be misleading. The concern and challenge is that the fraudsters do not disappear if they’re not prosecuted and become ever more devious. When they are confronted with proactive fraud detection and vigilance, they simply target insurers with weaker controls. Our job as insurers is to remain alert and implement innovative measures that develop faster than the fraudsters,” says Lategan. The fact that South Africa was sheltered from the world’s economic collapse initially does not mean that the country is immune to the after-effects and it would appear that South Africa is experiencing a delayed response. “The frequency of fraudulent claims is still increasing. It is as if we were protected from the impact globally and are only now experiencing financial difficulties, whereas the rest of world started feeling the pinch in late 2008 into 2009. There were slight increases in the frequency of fraudulent claims between 2008 and September 2012. However, we are witnessing a monthly increase, both in terms of frequency as well as severity, in fraudulent claims since October 2012,” says Servaas du Plessis, CEO of Censeo. 

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The effect on the industry The full monetary impact of fraud on the South African insurance industry is not known. What is apparent is that it is extensive. “Fraud probably costs in the region of R3 billion a year. The law of averages suggests that a company loses approximately five per cent of its annual revenue to fraud, so this will amount to billions in the South African insurance industry.

To put this into perspective, insurance fraud in the United States amounts to more than $100 billion (R909 billion), in spite of America having a far more sophisticated justice system,” says Lategan. Gravett believes almost a fifth of insurance claims involve at least a partial element of

fraud. “It is interesting to note that this is not dissimilar to many countries in Europe as well as the USA,” she adds. “It remains an estimate. The South African Insurance Association (SAIA) and the South African Insurance Crime Bureau (SAICB) estimate fraud in the short-term industry to be

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between R2 billion and R4 billion. Processing high risk claims for more than 50 underwriting management agencies and underwriters in the short-term industry (less than four per cent of total claims processed by them), Censeo has prevented the payout of fraudulent claims totalling more than R650 million between September 2010 and April 2013,” adds Du Plessis. However, such speculation takes into account only the hard cash that is lost by the industry due to fraud. There are significant additional costs. “There are several knock-on effects of fraud; the most obvious is a constant rise in premiums to offset the increased cost of claims. It affects everybody who needs insurance. Claims settlement is also affected as several additional validation steps must be conducted to verify a claim. Such steps lead to increased costs as direct expenses for insurers. This is one reason why Etana spends significant resources on innovative risk management and assessment to mitigate the impact on premium costs,” explains Lategan. “It increases premiums for all clients as a result of higher costs in claims management. Not only does the cost of claims increase, but the industry is forced to spend more on systems, resources and other prevention and detection mechanisms,” agrees Gravett.

Devious methods People attempt to defraud insurance companies in many ways. The practice of inflating claims was almost socially acceptable and seemed expected at one stage. Clients maintained they

Reasons for insurance fraud • The perception that insurance companies will not settle claims fairly. • The feeling that insurance is a grudge purchase and people wanting to get a return on their ‘investment’ by inflating legitimate claims. • People seeing insurance fraud as a way of getting out of financial difficulty. • Service providers bribing claims staff into a network of collusion. • Criminals and habitual fraudsters, often members of a syndicate, taking out insurance cover with the sole purpose of making money from it.

were wasting money on insurance premiums in order to justify claiming for a PlayStation 3 for a burglary claim when they had a PlayStation 1. Fortunately, this trend seems to be subsiding; a study by the Insurance Research Council in America shows that the number of people who believe it is acceptable to inflate insurance claims has reduced. Hopefully a similar trend will emerge in South Africa. Excess is another frequent target for fraudsters. “People and businesses see no harm in manipulating excesses payable. The reality is that a premium is based on an insured’s willingness to contribute towards a portion of a claim. A simple example is a glazier that’s willing to bank R3 000 on a windscreen that was fitted. If he manipulates the transaction in such a way that the insured doesn’t contribute his R500 excess towards the claim, the insurer is R500 out of pocket. If this happens on 1 000 claims, the insurer has lost R500 000 in the process which directly affects bottom line earnings,” says Lategan. Gravett adds that there are problem areas such as clients claiming for a burglary or the theft

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of a vehicle that never happened and clients holding multiple insurance policies with different insurers for the same item to make a profit.

Combating fraud Every insurance company will have their own methods for detecting and deterring fraudulent activities, but generally companies rely on the ability of their claims handlers to identify potentially dodgy claims. “Companies train staff in what to look out for when a claim is being processed,” says Gravett. Internal procedures at each insurance company dictate what additional tests should be performed if and when required, but these are by no means foolproof. “Most underwriters are moving towards implementation of predictive analyses on claims and policy data to proactively identify potential fraud through indicators based on historical experience.

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More can certainly be done through better co-operation between underwriters which is still very limited, better support from authorities and better education to the wider community to address current general tolerance for insurance fraud,” explains Du Plessis.

This allows software to be programmed in such a way as to piece together elaborate syndicated fraud schemes across a number of insurance companies,” says Gravett.

“More needs to be done in many instances to create awareness and to report suspected fraud. Perceptions need to be changed internally among staff, and externally among intermediaries, service providers, clients and other stakeholders,” adds Lategan.

According to Lategan, fraud relies on three core principles: • Perceived pressure, such as a client desperate for cash. • Rationalisation or the belief that everybody does it. • Opportunity, such as a lack of security checks.

One of the special efforts implemented to combat fraud is the SAICB, which was formed after a four-year investigation by the SAIA into how best to fight fraud in the insurance industry. “Many insurance companies belong to the SAICB. Here efforts are combined for more effective fraud management, particularly with regard to syndicated fraud where data is shared between companies.

However, Lategan believes the key factor is opportunity. “In my opinion, opportunity is at fraud’s core. If the opportunity does not exist, you can rationalise as much as you want and you won’t succeed. The aim should, therefore, be to prevent the opportunity but risk mitigation should always be rational. A golden rule to consider is the following: if it sounds unbelievable, it probably is. Trust your

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Goods for cash – Censeo An employee working for the high commissioner of a foreign office in South Africa instituted a claim for the loss of her entire house contents. Since she was due to return to her country within nine months after serving almost five years in the office, she insisted on being paid cash in lieu of the loss. The underwriter in turn insisted on replacing some of the high risk electrical and electronic items.

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The provider authorised to replace these items raised the alarm when the claimant insisted on using the full credit line to acquire only LED televisions (18 in total) instead of items similar to those she had lost. It later emerged that there was no loss. She had moved address with all her contents and insisted on the LEDs with a plan to ship the items to her country of origin where they would have been sold on the black market for cash. 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.

A nasty renewal surprise – Etana After receiving authorisation from the insurance company, a glazier visited the premises of a transport company to replace the windscreen of the insured vehicle. He offered to inspect the other vehicles on the premises and the C fleet manager allowed him to do so. The M fleet manager did not bother to check on the Y glazier’s activities.

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The glazier recorded the details of all the other MY branded vehicles. He left the premises with a signed claim form but also with various bits ofCY other valuable information that allowed him CMY to submit more claims. He did so without the knowledge of the insured and only at renewalK stage did the broker and the insured realise that false claims had been lodged.

Case studies of actual fraud attempts Diverting funds – Etana A broker employee submitted a claim form suggesting that an insured individual suffered lightning damage to an electric gate motor. A manipulated electronic invoice was submitted to the insurance company, accompanied by an agreement of loss. Banking details were listed on the claim form as well as the agreement of loss. The claims payment was made based on information provided. The actual bank account did not belong to the insured but to the broker employee. A fraudulent claim was submitted.

Multiple policy disorder – Lion of Africa A client had various policies at the same time at various insurers, making use of family members’ identities and other stolen identities to obtain these policies. This was his modus operandi at various insurers. The industry became aware of this and launched an industry-wide investigation. He submitted claims on mostly building-related damages such as geysers and all risk items including prescription spectacles and laptops. Once he submitted the claim, he would avoid all contact with the insurance company and would use the lack of service from the relevant claims department as an excuse to replace or repair the item himself. The client then submitted false invoices and was reimbursed with cash. Although the modus operandi is common, this case was quite unique in that it involved only one person with at least 30 identities across four major insurers. The estimated total loss to the industry was more than R1 million.

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gut and be inquisitive when you are suspicious. You’ll be amazed at how often you are right. Don’t underestimate low value claims. Water reservoirs run dry drop by drop.”

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3:47 PM

The front line

against fraud Nick Krige

Private investigators play a vital role in combating fraud in the insurance industry, but being an investigator is not always as glamorous as the movies like to portray.

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he practice of negotiation, adjustment, verification and investigation of claims in the insurance and assurance industries are common around the globe. â&#x20AC;&#x153;Verifiers and investigators play a crucial role in validating both the circumstances of the loss, as well as the magnitude of a loss. Validating whether or not a claim is legitimate enables the insurance and assurance sectors to manage risk associated with both opportunistic and organised fraud. Claims verifiers and

investigators reduce an insurance company’s exposure to fraudulent claims,” explains Servaas du Plessis, CEO of Censeo. The most important aspect of a private investigator’s job in the insurance industry is that they assist underwriters to manage claims cost, in terms of fraudulent and dishonest claims. Investigators need to walk a fine line when investigating claims, as their purpose is not specifically to deny a client a payout, it is to find out the truth of a situation, whatever that may be. “It is inevitable that the investigator will discover and prevent the payout of a fraudulent claim, but may in the process end up harassing legitimate claimants. “The investigator operates in an area between anti-consumer and pro-consumer factions within insurance companies, as well as external factions, i.e. consumers, intermediaries and regulators. It requires a high level of skill to remain impartial and objective to protect the different interests,” says Du Plessis. The precise nature of the job is confirmed by Dawie Naude, senior forensic investigator at Sleuth Investigative Services, who says that there are only five or six fully qualified and accredited private investigators in the country. He believes that private investigation is an incredibly specialised field that requires individuals to possess a vast amount of patience and, above all, an ability to remain neutral. Investigators are called in when a claim has been flagged as suspicious for any number of reasons, but there is not enough evidence to prove fraud. “This means that often the client is innocent of any crime, but has just made a strange claim. Because of this, investigators need to be careful not to harass the person in question.” In the short-term insurance industry, Naude says he receives claims that require investigation on a daily basis, and they range from simple claims assessment to actual fraud investigations. In the medical and assurance fields, investigations are less frequent as claims assessments are not required as often, but the investigations are usually bigger. “For example, in an investigation involving a missing person, after a certain period of time, the police will declare the missing person dead and issue a death certificate. If the investigator is able to track the missing person, they can potentially save the insurance company millions in life cover payments and bring a loved one back to their family.”

What it takes to be a PI Being an investigator is no cushy desk job, and Du Plessis lists the requirements of a good investigator as being able to work closely with claimants, witnesses, other professionals,

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Early morning, evening and weekend work is common. Investigators also spend days in the office to search databases, make telephone calls and write reports. “Everything we do has to remain within the framework of the law because we need to be able to stand up in a court of law and give credible and legally obtained evidence to either prove or disprove fraud. We cannot tap phones or obtain privileged information because that evidence would be inadmissible in a court. We have to follow hunches and use the experience we have gained from other cases to make headway,” explains Naude.

claims adjusters and authorities. It is essential that examiners are able to communicate effectively. Good interviewing and interrogation skills are imperative. Computer literacy; a valid driver’s licence with a good driving record; analytical and general mathematical skills; as well as common sense are just as important. Investigators should not be afraid of confrontation, be able to think on their feet and their integrity must be beyond reproach. Continuing education is another aspect for claims adjusters, appraisers, verifiers, examiners and investigators. New technologies, legislation, regulation and court decisions affect how claims are handled. “Investigators must be experts in their fields if they wish to stand in the front line against fraud. Affiliation to the Association of Certified Fraud Examiners South Africa (www.acfesa.co.za/) will ensure that the investigator complies with international standards, qualifications, experience and adheres to the code of ethics,” says Du Plessis.

The investigation process Investigators usually start their preparation by formulating a hypothesis around the information supplied. In some instances it may be necessary to search accessible databases in order to obtain background information on claimants and witnesses. Investigators visit claimants, other parties, providers, suppliers, authorities and witnesses throughout the investigation to obtain recorded statements and eliminate any false hypothesis. “We apply our skills with due diligence within the framework of the law, just like a police officer. We make enquiries and use certain materials to help us obtain irrefutable evidence of fraud,” says Naude.

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The investigation process of insurance and assurance claims requires the following: • A lot of reading. • Studying of documents. • Visiting and inspecting sites where losses occur. • Interviewing authorities, claimants, witnesses, victims, providers and bystanders. Investigators may be required to do surveillance work, searching for evidence that a claim is improper and, like any detective work, claimsrelated surveillance often requires patience, travel and irregular schedules. Insurance investigators work irregular hours because of the need to conduct surveillance and contact people who are not available during normal working hours.

Interesting cases Behind closed doors – Sleuth Investigative Services A patient had a huge claim against a doctor who had operated on him and allegedly, accidentally cut a nerve in his neck during surgery. At the hearings he could barely walk or lift his arms, but because these types of claims are often so large and are handled by underwriters in London, Sleuth Investigative Services was called in to investigate. Investigators found that the patient’s physical abilities were drastically different when he was under surveillance. “We witnessed him cycling, lifting items around his garage and home, but when he was in public he was basically immobile.” Evidence presented in court by Sleuth saved the insurer and the doctor millions in disability and liability payouts, and thwarted a fraudulent claim.

Unfortunately the investigator is often exposed to confrontation with claimants and other parties involved in a specific claim and the job can be stressful and dangerous. “Threats happen often and are taken very seriously. On one occasion, a former colleague was the target of an arranged execution. Thankfully no harm came to him,” reveals Du Plessis. According to both Du Plessis and Naude, the effort to regulate private fraud and forensic investigators in South Africa is finally gaining traction, but insurance fraud remains a global problem. Insurers need to work together to continually upgrade their systems and train staff to effectively identify fraud as soon as possible and thereby limit the damage. What is the strangest claim you have ever received? Send your stories, whether they resulted in the client being caught for fraud or not, to nicholas@comms.co.za and the most intriguing stories will be included in a follow up feature.

Trailer trash – Censeo A client claimed for a burglary at his residence on his own domestic insurance policy. On assessment, the claims verifier was not happy with the client’s explanation and the items claimed for. The claims verifier noted a vehicle trailer on the client’s policy schedule that was nowhere to be found on the premises at the time of assessment. The client was questioned about the whereabouts of the trailer and he explained that he had lent it to a friend. The claims verifier insisted on an inspection of the trailer for policy records. The client took the verifier to an address not too far away. The locked trailer was in the driveway and looked as if it had recently been placed there. The claims verifier put some pressure on the client to inspect the contents of the trailer. The client then placed on record that he was experiencing financial difficulties and admitted that the burglary had never taken place. The items claimed for were inside the trailer.

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Property syndications are renowned in the financial services industry as high-risk investments. This means financial advisers need to be wary when recommending these investments to their clients and ensure they do the required research, checks and balances before handing over their clientsâ&#x20AC;&#x2122; money.

Neesa Moodley-Isaacs

Property Syndications Financial advisers risk personal liability

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current legislative framework provides adequate regulation in this regard, if the FAIS Act is applied more strictly.

investment after one year only if a buyer was found for the shares and that the responsibility for finding a buyer would rest with the investor.

For example, the records of the Financial Services Board (FSB) reflect that Blue Zone used the services of 482 representative FSPs. “How Blue Zone could possibly address the question of competence and training in respect of this number of people is beyond comprehension. Blue Zone as a financial institution had no infrastructure, nor the capacity to train and supervise as many as 482 representatives,” she points out.

He also told them that they would receive an income of R586 a month in the first year, increasing to R610 in the second year, R658 in the third year, R711 in the fourth year and R768 in the fifth year. However, the income stream dried up and they did not receive a monthly income.

Numerous complaints received by Bam’s office show that independent representatives marketed Blue Zone after being attracted by lucrative commissions on offer. In some cases, brokers were paid a commission of six per cent of the invested amount. “Representatives need to be aware that if they fail to comply with the FAIS Act, they will be marketing those products at their peril, and they will be held responsible. The attraction of quick profit may well result in permanent financial ruin,” she warns. And it is not only representatives who may find themselves liable. Earlier this year, Bam held the directors of FSP Network and Sharemax personally responsible for a client’s loss and ordered the following parties to compensate a 67-year-old widow to the tune of R580 000: • Cornelius Botha, trading as CJ Botha Finansiële Dienste • Sharemax Investments • FSP Network, trading as Unlisted Securities South Africa (USSA) • Gerhardus Goosen, a director of Sharemax and USSA • Johannes Botha and Andre Brand, both directors of Sharemax • Dominique Haese, a director, key individual and representative of Sharemax.

Capital Investments n two recent rulings, the Financial Advisory and Intermediary Services ombudsman, Noluntu Bam, ruled against advisers who failed to do their homework and ended up losing their clients’ funds. In both cases, the brokers concerned were ordered to repay the lost monies (see Blue Zone and Capital Investments).

In a previous ruling, Black vs Moore, Bam said that representatives of FSPs should be aware that “they will be held personally responsible if they recklessly or negligently market meaningless investments to their clients. If there is meaningful deterrence then the scam promoters will suddenly find that they no longer have a network of representatives they can exploit”. She went on to say that the

In the second case, Daniel Smalberger vs Marius Barendse, the broker (Barendse) was ordered to pay Smalberger R140 000 plus interest at a rate of 15.5 per cent effective from 14 May. In 2005, Barendse invested money on behalf of Smalberger and his wife in a company known as Dividend Investments, which later merged with City Capital to become Capital Investments. The company was formed to promote several property syndication schemes. At the time of the investment, Smalberger and his wife were aged 80 and 76 respectively. The money invested formed part of the couple’s joint estate as they were married in community of property. Barendse assured the client and his wife that they would have easy access to their money after one year, despite the fact that their money was invested for five years. He neglected to mention that the company could release the

There were several issues highlighted in the Barendse ruling. As a financial adviser, he failed to do the following: • Keep a written record of advice. All correspondence occurred telephonically. There were no transcripts or recordings of the telephone conversations. • Carry out research to ascertain the financial soundness of the scheme. • Disclose to the client that it was a high risk investment. According to the Financial Advisory and Intermediary Services (FAIS) Act, there is an obligation on providers to maintain a record of advice and this becomes a written memorial of what transpired during the rendering of advice. “The only reasonable inference that one can draw, where there is no record of advice, is that there was no compliance with the code of conduct for FSPs,” Bam says.

Blue Zone In the first case, Martha de Bruyn vs Marianda Cronje and Gert Cronje Brokers, Bam held Cronje and the brokerage jointly and severally liable to pay De Bruyn the amount of R120 000 plus interest at the rate of 15.5 per cent accruing from 13 May. At the age of 65, De Bruyn was advised by Cronje to invest her entire pension savings in the Spitskop project marketed by Blue Zone. De Bruyn specifically queried if this was an investment scheme and was assured that her money would be protected. However, Blue Zone turned out to be a property syndication and Spitskop was eventually placed under liquidation, with the result that De Bruyn lost all her money. In her ruling, Bam pointed out that a scheme that promises in excess of 10 per cent income while the property is still being developed and before it is operational and earning money should have raised concerns in the mind of any diligent broker. She said a cursory investigation by Cronje would have alerted her to the possibility that investors were paid on their own capital. “This should have prompted the broker to probe further into the inner workings of the Spitskop/Blue Zone syndication as all the signs spelled trouble.”

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Brokers optimistic

for the future

Despite some concern about the economy, the majority of brokers are relatively upbeat about business conditions in South Africa, according to the Broker Confidence Index recently released by CIB Insurance Administrators (CIB). he Broker Confidence Index (BCI), which measures the confidence levels of insurance brokers on a number of issues concerning the South African economy and insurance industry, revealed that confidence levels on the outlook for the South African economy over the next 12 months fell to 59 per cent in the first quarter of 2013 compared to 61 per cent a year earlier.

Strike action According to Jon-Jon Smit, sales director at CIB, the results are not a surprise given the volume of negative news in South Africa this year. “At the end of 2012, we saw waves of strikes across a number of industries and this seems to have carried through into the current year. These strikes have a significant impact on the local economy and it is no surprise that brokers too are concerned about the impact that this may have on the wider economy.” Some of the strikes over the last year include the infamous Marikana miners’ strike, the truck drivers’ strike and the farm workers’ strike. Recently, municipal bus drivers went on a nationwide strike, stranding thousands of workers for more than three weeks. The survey reflects that brokers’ confidence regarding the improvement of business conditions for the local insurance industry over the next 12 months has fallen by three per cent to 60 per cent in the first three months of the year. “For brokers who specialise in domestic insurance, in particular, the deteriorating economy is likely to be a major concern. This is reflected in other data collated in the survey that shows the impact of direct insurers is once again a major source of unease.”

Regulation the biggest challenge Data revealed that 31.9 per cent of brokers cite legislation and regulation as the biggest

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challenge for insurance brokers in South Africa in the year ahead, down from 47.8 per cent a year ago. Some of the looming legislation includes Solvency Assessment and Management (SAM), retirement reforms and Treating Customers Fairly.

“At the end of 2012, we saw waves of strikes across a number of industries and this seems to have carried through into the current year.” The first quarter survey did have some positive news with brokers recording a confidence level of 79 per cent on the retention of existing clients, marginally higher than the 78 per cent recorded last year. “This is a very high figure and is the highest since the fourth quarter of 2011. In the current economic conditions, brokers recognise that it is easier to retain existing customers than to acquire new business. This is good news for consumers, as they should see increased service and better pricing from brokers and insurers,” says Smit. Brokers also recorded a confidence level of 72 per cent on the likelihood of attaining new clients over the next 12 months, unchanged from a year earlier. When asked where they thought the bulk of their business would originate from in the next year, most brokers (64.6 per cent) cited individual consumers, followed by SMMEs (23 per cent) and corporates (11.5 per cent).

Jurie Erwee

Marsh’s man for Africa Neesa Moodley-Isaacs

On a warm, bright Cape Town morning, RISKSA caught up with Jurie Erwee, the chief executive of brokerage giant, Marsh Africa.

rwee bustled into the meeting, obviously a man with a great deal on his mind and a hectic schedule. A firm believer in balance, and with his family always close to his heart, he had just spent the weekend in the idyllic town of Paternoster on the West Coast.

He was in Cape Town for the World Economic Forum on Africa, a high profile conference that included speakers such as President Jacob Zuma, Nicky Newton-King, the chief executive of the JSE, and high profile delegates from the US Agency for International Development (Usaid), Turkey, the United Arab Emirates and Zimbabwean Prime Minister, Morgan Tsvangirai. “There is a lot of excitement around opportunities in Africa, and the forum provided healthy discussion for the collective insurance industry and the country as a whole,” he says. Marsh Africa offices are already bristling with excitement ahead of a visit in June by Daniel Glaser, the president and chief executive officer of parent company, Marsh & McLennan. This will be Glaser’s first visit to the continent since his appointment as CEO of Marsh & McLennan in January this year. Erwee says while here, Glaser will spend time witnessing different elements of the Marsh business and his trip will

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involve both colleague and client engagement. “He is here as keynote speaker for the 2013 International Insurance Convention at Sun City and we are thrilled to be his host,” he says.

has different regulatory requirements. For example, the insurance landscape in Nigeria is very different from the insurance landscape in Malawi,” he notes.

African footprint

In response to this changing environment and to boost its offering, Marsh has started a regulatory division with specialist skills to advise businesses and clients on country-specific regulatory requirements. “This is an important value add for both existing clients and also prospective clients who want to do business on the continent,” he says.

In terms of expansion in Africa, last year, in the first phase of an acquisition deal, Marsh acquired the Alexander Forbes risk businesses for South Africa, Namibia and Botswana. In the second phase, it acquired Alexander Forbes Risk Services’ Zambian, Malawian and Ugandan operations. This is an exciting time for Marsh as the company expands its footprint and offering to clients across the African continent. “This provides us with opportunities to give clients access to broadened solutions and deeper industry expertise as they expand their companies,” he says. Regarding the Marsh acquisition of Nigerianbased Femi Johnson and Company, Erwee says Marsh has received all the necessary clearances and he is hopeful the transaction will be concluded before the end of June this year. Once finalised, the Nigerian acquisition will mean that Marsh owns operations in nine African countries, including a business in Zimbabwe. Through its extensive correspondent network, Marsh Africa can respond to clients’ requirements in 39 countries on the continent. “Although greater Africa has a reputation for being a difficult market, we have the advantage of strong local management in the different African regions. The fact that we bought known businesses previously part of the Alexander Forbes network has made for a seamless expansion process. Of course, every territory

Specialist skills Erwee points out that Marsh’s multinational and South African clients are active and investing in the African continent. “With capable and competent local management in the different regions with access to global industry and specialist practice teams, we are well positioned to provide a professional service. We pride ourselves on the specialist skills we have cultivated in different fields such as energy, power, mining, construction and aviation.” Erwee adds that there are no plans for further acquisitions but that they are always on the lookout for opportunities. For now, Marsh Africa’s focus will be to bed down and integrate acquisitions made over the last year. “Already, the business in Zambia has settled down and is functioning at full capacity,” he says.

Black economic empowerment A broad-based black economic empowerment (BBBEE) deal earlier this year saw the BEE holding in Marsh climb to 25 per cent. Kapela Holdings, which acquired 13 per cent of Marsh

SA, joined another BBBEE partner, Parmtro Investments, which already holds 12 per cent of Marsh SA. In line with this, the Marsh SA board has been reconstituted with the head of Kapela, Israel Skosana, stepping in as chairman of Marsh Africa. The new Marsh SA board has eight directors made up of six black and two white members. Montsi, a non-executive director of Marsh SA, who leads the Parmtro consortium, says Marsh has a sustained and strong commitment to the black economic empowerment process and this will continue to be a cornerstone of the group’s future development. “When Marsh acquired the Alexander Forbes risk services business last year, we made a decision to review the BBBEE shareholding overall. We went through a process. We had keen interest from a number of players and Kapela was selected as a preferred partner. Parmtro was very supportive of this process,” says Erwee. Marsh currently has a level three BBBEE rating. “Going forward, we want to improve our rating,” he says. Marsh Africa is pleased with the support provided by the shareholder consortium and their engagement with the business. “We are looking forward to a close working relationship and Kapela has a track record of active involvement in the companies it invests in,” he notes. “What really drew us to the company was its integrity and track record of staff members rolling up their sleeves. It is a partner that wants to be involved.”

Market developments On developments in the insurance market, Erwee says a number of direct players are now entering the commercial SME (small and medium enterprise) space. “The South African market is traditionally a strong broker market. As it evolves, there will always be a role for the intermediary, who has the specialist knowledge to advise clients and add value with risk management skills which will assist them to mitigate and manage the risk effectively. There might be risk for players who want to work in this space but lack the skills to differentiate their offering. Broking houses, on the other hand, which invest in specialist skills and systems, are positioned to add value and make a difference because of their skill set. “Most direct insurers venturing into the commercial space have to offer business interruption cover and extensions. If there is a business interruption claim, it could result in a fairly complicated assessment being required. Some direct players do provide their clients with access to specialist skills but these are outsourced. It represents a high risk for the client not to use a provider who has these specialist skills,” Erwee concludes.

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Business interrupted

Every year one in 500 businesses will experience a severe disaster. Of those, 43 per cent will never re-open and 23 per cent will close within two years. his is according to US-based assurance, tax and consulting firm, McGladrey and Pullen. Head of independent brokers at Etana Insurance, Justin Naylor, highlighted this research in his presentation at the recent Insurance Bootcamp business interruption seminars. Presented in Cape Town, Durban and Johannesburg in mid-April, these seminars saw industry experts unpack the technicalities of business interruption insurance, assess the impact of business interruption on clients’ businesses and demonstrate a new tool that enables brokers to accurately calculate the gross profit sum insured.

THE VOICE OF THE INDUSTRY

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Providing an insurer’s perspective on the topic, Naylor noted that a survey conducted by Etana revealed that 95 per cent of its clients were underinsured for business interruption and most were underinsured by 30 per cent. Along with providing an overview of business interruption insurance, he discussed areas of cover that brokers need to carefully consider when placing this type of cover for clients. For example, when it comes to deciding how long the indemnity periods should be, three to six months is seldom enough. “Most brokers don’t request more than 12 months of BI cover, but 18 or 24 months may be required for big risks,” he said.

Settling the claim and having the insurance company admit to liability takes time, as assessors need to be appointed and forensic investigations conducted around the cause of the loss. “This can take up to a month or two on a complex claim,” Naylor added. Further, the need to find alternative premises, order new equipment and reconnect to public utilities, such as electricity and Internet, takes time. “Losses arising from business interruption can put an insured out of business.”

A broker’s perspective

The BI Calculator

The Sasria view

Billy Neethling, a director at Holburn Insurance Brokers, agreed. “It is almost impossible for a business to survive a catastrophic loss; when the business ceases to trade, the expenses and overheads still continue,” he said. Neethling discussed factors that brokers need to consider when placing business interruption cover, such as ensuring that it is based on the insured’s audited financials and that the business is protected against total closure in the event of a disaster.

Different perceptions of what constitutes gross profit are often a stumbling block for brokers and clients, because of the difference between insurable gross profit and accounting gross profit. For this reason, Etana co-operated with the Australian-based LMI Group, in the creation of an innovative web-based tool for use in South Africa, which streamlines the calculation of the sum insured on business interruption policies.

Speaking from the point of view of South Africa’s special risks insurer, Sasria, Mokgadi Sebola gave brokers a refresher course on the perils that Sasria does and does not cover. When it comes to business interruption, fixed costs of the business, including net profit, can be covered. But a Sasria material damage coupon must be in place in order for a business interruption claim to be paid. Lockouts are covered where employees cause material damage to the premises while being locked out. On domestic policies, the minimum indemnity period is 12 months and the maximum period is 48 months. On commercial policies, the maximum period is extended to 60 months and, in both cases, a claims costs clause is automatically included.

He looked at defined events that are typically covered in these policies, various definitions relevant to policies, automatic extensions and clauses, as well as the conditions of cover. For example, Neethling noted, “Business interruption cover ceases if the business is wound up, carried on by a liquidator or judicial manager or permanently discontinued, unless otherwise agreed in writing by the insurer.”

The Business Interruption Calculator assists brokers in determining the correct gross profit sum insured without having to remember, what Naylor describes as the “idiosyncracies involved in the calculation”. Chartered accountant, Denver Furmage of Online Broker Tools, unpacked Etana’s BI calculator at the seminars, which he confirmed takes the worry out of ensuring that the gross profit is accurately calculated and covered. He highlighted certain mistakes to avoid, such as failing to add VAT to the sum insured and the exclusion of certain fundamental expenses.

CPD Charmaine Koch of the Insurance Institute of South Africa gave a brief overview of the IISA’s CPD programme, which will include the ability to obtain CPD points for professional reading from perusing and answering questions on certain key articles in RISKSA magazine. The IISA plans to enforce its CPD requirements towards the second half of 2014 and Koch confirmed that online CPD programmes would be developed by the IISA in future. Insurance Bootcamp is a joint venture between RISKSA Magazine, the Insurance Institute of the Cape of Good Hope (IICoGH) and the Financial Intermediaries Association of Southern Africa (FIA). A big thank you to our diamond sponsor, Etana Insurance; platinum sponsors, Sasria and the Insurance Learning Academy; and silver sponsor, ContinuitySA, for their support.

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(011) 678-0807 kirstenh@emps.co.za Visit www.emps.co.za

Kirsten Halcrow Managing director: EMPS (PTY) LTD

e do what we do in the recruitment process to make sure we hire the best person; the best person for the job, the best person for the company. We want them to be successful in the job and a positive reflection on the company. They need to perform well in their new position and within the culture of the company. Assessments can be used to predict productivity and performance. According to the report Assessments 2012: Predicting Productivity and Performance (released in June of 2012 by the Aberdeen Group), best-in-class organisations with a formal assessment strategy see new hires meet time-to-productive goals quicker, experience greater employee engagement, higher firstyear retention numbers and higher overall organisational performance.

Developing your assessment strategy Centralise results Collate all assessment data in one place. Assessment data allows the business to compare individuals, careers and job families to gain further insight into how and if assessments are correlated to ongoing business performance.

Measure what is important to your company Use a wide variety of assessments throughout the talent lifecycle and for all levels of the business. The assessment type should match the decision being made. Skills tests may be required for an entry-level position while highlevel assessments are more applicable when selecting executives.

“They need to perform well in their new position and within the culture of the company. Assessments can be used to predict productivity and performance.”

Trust the process Take the right steps to ensure the assessments are valid and reliable. Step one is validation to correlate your company’s performance. Assessment outcomes should always be related to business outcomes.

Having a formal assessment strategy within an organisation is imperative.

Give assessment a purpose Top-class businesses use assessments for preemployment screening as well as a means of career planning, development and promotion.

Get in line with the vision and mission of the company Any assessment that is selected as part of an assessment strategy must achieve a business purpose. Competency definitions that cut across hiring, development and performance management form a common language that guides assessment use throughout the talent cycle.

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“We want them to be successful in the job and a positive reflection on the company.”

finding out more about a product or service, which requires the user to fill in their details, thereby building your database and your online following. If your agency sets up the campaign and analytics correctly, users can be traced right through to sales and cost per acquisition.

“Eighty-one per cent of all traffic on the Internet starts with a search query and Google Search advertising allows your company to appear when people are proactively looking for your product or services.”

The power of pay

per click advertising O

ne of the most effective ways to market your products and services online is through paid search marketing on Google and Facebook. Pay per click advertising models are targeted and they work. That is how these two companies built their multi-billion Dollar empires in less than 15 years. Eighty-one per cent of all traffic on the Internet starts with a search query and Google Search advertising allows your company to appear when people are proactively looking for your product or services. It runs on a cost per click basis, so you pay only if someone clicks on your advert, making it a highly targeted form of online advertising. And you can cap the spend according to your budget. But it is not all about text and keywords; the Google Display Network (GDN) reaches 90 per cent of Internet users and is also offered via this pay per click model. The GDN lets you place ads on a variety of news sites, blogs and other niche sites across the Internet to reach more potential customers. Advertisers can target individual sites that have partnered with the GDN, by user interest, location and demographics, resulting in a very cost-effective medium for brand

awareness campaigns, while still focusing on building your database and driving sales.

YouTube Google has extended its pay per click model to YouTube, which it purchased in 2006 for $1.65 billion. This online channel offers TrueView advertising, which targets specific viewers of videos by topic, keywords searched for, location and demographics.

Facebook Over 90 per cent of the South African Internet user base has a Facebook account. Facebook’s advertising platform works on a similar pay per click basis, and it has fine-tuned its targeted advertising based on content that users are liking and sharing. You will notice ads appearing on your Facebook wall based on what your friends have liked, including sponsored stories and engagement ads.

Choosing the right agency So what does this mean for you? These ads are traceable and should link to specific call to actions, like entering a competition, or

When choosing an agency to run these campaigns for you, they should offer the following minimal management services: • S tructure the campaigns to include all your products or services. • A variety of advertising copy based on your products or services. • Deep-linking of users to your website and landing pages, by including all product or service content within the URL. • Identifying which keywords and phrases cost less and adding them when necessary to lower the overall costs of the campaign. • Investigation of using xml files to produce automated product feeds based on your website inventory. Depending on the quantity of products and services you offer, this will allow an automated set up on the paid search accounts. • The potential to bid on competitor keywords, by including your competitors’ names and products in your targeted keywords so that when a user is searching a competitor, your advert appears. • Retargeting users who have not clicked as yet. If a particular user has been shown your advert, but has not clicked on it, they can be shown that same advert again or a new advert, enticing a response. If your goals are to enhance and build your brand’s online presence, drive qualified traffic to your web pages and convert that traffic into a database, try paid search, it’s just a click away.

Cheridan Inglis is managing director at touch digital, a digital marketing agency

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Self-esteem in the workplace Georgina Hatch New You Image Consulting www.newimageconsulting.co.za

ow self-esteem is the number one career inhibitor. If you feel that you do not deserve success, you are unlikely to achieve it.

Self-esteem, which is a term that is used to describe our appraisal of our self-worth, plays an important role in our ability to function as happy and fulfilled people. It includes beliefs, emotions and behaviours. There are many factors that play a role in our self-esteem. These include our personality traits, the way in which we process information and the influence of others. For many of us, our work contributes to our self-esteem. We love to feel valued in the workplace and to have our contributions acknowledged. Nowadays, however, the pace at which work demands must be met means that employers rarely stop to acknowledge even excellent performance.

who never contribute to discussions and are the last to volunteer for projects. Why? Because they have no faith in their own capabilities and are therefore reluctant to be put to the test. These people are consistently overlooked for promotion. They believe they are not important, competent or worth much, their image reflects this and so others treat them in the same manner. It can be difficult to overcome self-doubt when you have been conditioned to think negatively about your own potential. It can be particularly difficult in the work environment, where high-quality output is expected but seldom acknowledged. This is why it is so important to learn to value ourselves. Only we can appreciate who we truly are and if we believe in our own abilities, the path to career success will be so much easier to navigate. Here are some tips to boost and maintain your self-esteem in the workplace:

• Ensure that your personal image reflects a person who believes in themselves. Dress smartly, work on your body language and project your voice. • Stop feeling guilty about things you haven’t achieved, skills you haven’t acquired and tasks that you did not accomplish. This will keep you from moving forward. • Be proactive; inject passion into what you do and become a contributor. Companies reward people who are passionate about their work and focus not on the problem, but on solving it. • Keep a gratitude journal, documenting what you are grateful for and why you are happy to be you. Learn how to use your self-esteem muscle and eventually negatives will turn into positives. Remember that life is 10 per cent what happens to you and 90 per cent how you respond to it.

All the more reason then, to believe in ourselves and not allow the stress of our working life to impact negatively on our self-worth. This can be difficult to do, given that so much of our self-esteem lies in the opinion and behaviour of others. But the more we believe in ourselves, the more others will believe in us. Natural leaders rarely doubt their own abilities. They behave in a confident, assertive manner, which is evident in the way in which they speak, behave and act. Because they believe in themselves and project an image of proficiency, poise and assurance, others believe that they know what they are doing and treat them accordingly. Conversely, think of people in your company who project self-doubt. These are the people

New You Image Consulting is based in Cape Town. Formerly an award-winning journalist, owner Georgina Hatch is a public speaker and runs workshops and seminars on personal branding and corporate image, style and presentation. She offers personal and professional one-one-one image consultations. Georgina trained as an image consultant with the renowned Colourworks International and is affiliated to the South African Image and Style Academy. She is a member of the Professional Speakers Association of Southern Africa and the author of the book, Change your Image, Revamp your Life.

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Be committed to leadership “Enhanced performance requires enhanced behaviour. Enhanced behaviour requires enhanced leadership. Enhanced leadership creates the right environment. The right environment gives real meaning to work.” – Phil Hayes, CEO, Laser Group

artnerships form the foundation of so many businesses. Mine is no different. I recently had the pleasure of being partnered by the Laser Group in the writing of my third book, Raise your LeadersTM. Like me, they believe that the future of our country lies in the hearts and hands of the youth – the next wave of leaders. They will not lead the way we have. The world has changed. The future is now. I wrestled with what to call the last chapter in my book, on complexity and change ... contemporary, future, tomorrow, holistic, creative, evolved or evolutionary leadership? In a partnership there needs to be synergy, you need to be on the same page, and definitely when writing a book.

As above, I take pleasure in quoting from Phil Hayes’ foreword: “Of course some would argue it a little strange that a business such as ours be partnering in this way. After all, Laser’s business is about handling parcels and freight on behalf of our customers. Lots of people, lots of vehicles, technology, systems, processes and the like. Surely not raising leaders? But interestingly for me, it seems right for us to be doing so. Yes, our relationship with Jenny has evolved and this initiative is one consequence of that. But actually, it’s a part of what we take seriously at Laser – the development of our leadership capability; the development of our leaders. We started our drive towards this priority three years ago with the formation of our leadership academy. We were clear on our five objectives: 1. An opportunity for our leaders, managers, supervisors to spend time together in business mode but also socially. 2. A consistent forum that enhanced collaboration between leaders from across our different businesses.

3. A platform that would enable strategy and business updates. 4. A forum that would accommodate learning in economic, industry-related and topical matters of interest. 5. A forum that would provide for collective and personal leadership development. It is the fifth objective that for me has taken on new meaning – or greater importance if you will. Gary Hamel, one of the world’s most influential business thinkers debates in his latest book What Matters Now – How to Win in a World of Relentless Change, Ferocious Competition, and Unstoppable Innovation.

Leadership development leads to raising our human spirit and potential – and with it we will achieve and sustain our organisational competitiveness. And so to our collaboration with Jenny. After many hours of conversation with her, I sense we share a passion and determination to develop leadership potential – not just for the organisations that we represent but for the leaders themselves. Through this medium of Raise your Leaders TM, Laser hopes to illustrate its commitment to investing in our leadership teams.”

I had the pleasure of spending a day in the company of Gary Hamel at the London Business School last year. I spent four of the most rewarding weeks of my career at LBS – developing my own leadership capacity through the interaction with 50 participants from across 37 countries and among some of the most inspiring leadership thinkers. Of course, I don’t know, nor could we be expected to know, what the exact answer is to Gary Hamel’s rhetorical question. But he emphasises some factors that we at Laser recognise and believe we have to address through our leadership development: 1. We have to rethink the fundamental assumptions about management, the meaning of work and organisational hierarchy and life. We must challenge first principles. 2. Innovation is still a buzzword rather than the responsibility of every single individual. This must change. 3. In a world of accelerating change, we must create a more adaptable organisation – one more relevant to today’s operating environment. 4. Organisational competitiveness will depend on finding new ways to raise the human spirit at work.

Brand, leadership and high performance facilitator, Jenny Handley, has developed a large following through her own weekly career column in the Cape Times. She is a member of international speaking platforms and regularly inspires audiences on brand, performance management, personal development and leadership. Her previous books Raise your Game® (co-authored with Gavin Cowley) and Raise your Profile, were bestsellers. Raise your Leaders™ is available as an in-house leadership academy for companies, and the book will be in retail outlets from May. For details of Jenny’s books and courses visit www.jennyhandley.co.za.

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news Zurich South Africa forms strategic partnership with New Wheels Underwriting Agency Zurich Insurance South Africa has formed a partnership with an underwriting agency focused on the minibus taxi sector, New Wheels Underwriting Agency, an associate of Wheels Underwriting Managers Proprietary Limited. “This transaction is an exciting opportunity for Zurich. New Wheels has a wealth of knowledge and experience in the minibus taxi sector and the partnership is expected to present exciting growth opportunities for both Zurich and New Wheels,” says Colin Blane, head of UMA at Zurich South Africa.

Unit trust inflows break records Strong investor confidence in the first quarter of 2013 drove the second-highest ever quarterly net inflows of R47 billion into unit trusts and other collective investment schemes. The highest ever net quarterly inflows of R63 billion were recorded in the third quarter of 2012. The three consecutive quarters of record-breaking net inflows for unit trusts and other local collective investment schemes resulted in the highest net inflows for any rolling 12-month period. A total of R166 billion in net inflows was recorded for the year ended March

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2013. According to ASISA, the industry’s assets under management have almost doubled over the past five years from R611 billion at the end of March 2009 to R1.28 trillion in 988 funds at the end of Q1 2013. Investors continue to favour funds in the South African multi-asset category (previously domestic asset allocation). This category holds 44 per cent of industry assets (excluding worldwide, global and regional sectors). In the first quarter of this year, SA multi asset funds attracted R26.2 billion in net inflows.

Only 25 per cent of assets were invested in pure equity and real estate funds. Over three years the SA multi-asset – low-equity category delivered 10 per cent compared to the 13 per cent achieved by the SA equity – general category. Over five years, both categories returned nine per cent. For the 10-year period, the SA multi-asset – lowequity category returned 12 per cent, while SA equity – general delivered 21 per cent. Over all these periods, inflation ranged between five and six per cent.

Cashback rewards paid out to responsible taxi drivers Vulindlela Underwriting Managers (VUM) has presented Makhashile Trading with a Zuzimali cashback benefit to the value of R22 183. The Zuzimali Cash Back Benefit is one of the distinctive features of VUM Taxi Insurance, underwritten by Santam. The automatic benefit pays back 10 per cent of the comprehensive premium to the client if the vehicle runs claims free for 24 consecutive months. VUM reports it is proud to be an insurance provider that rewards sound business practice and client loyalty, having paid out R4.8 million to date.

Adult ADHD incidence on the rise The frequency of attention deficit disorder (ADD) and attention deficit hyperactivity disorder (ADHD) persisting into adulthood is on the rise. According to adultadhd. net, almost 60 per cent of children will carry their ADHD characteristics over into adulthood, where they will need to adapt to a different set of pressures and responsibilities. The symptoms of adult ADHD change according to the lifestyle and preferences that come with adult living. Classified as a heterogeneous behavioural disorder of an uncertain cause that becomes evident before the age of seven, ADHD is considered one of the most common childhood neurological disorders, but no longer is it an affliction of only the young. ADHD affects between four and seven per cent of adults globally. Some experts believe that as many as one in 10 adults living in South Africa display ADHD tendencies. Adults are less likely to experience hyperactivity but are more likely to feel restless, fidgety and have difficulty relaxing. This difference in symptoms is one of the reasons why adult ADHD has only recently been recognised as a condition. Fedhealth experts reveal that those who battle with concentration and may have ADHD tendencies will benefit from a diet that is rich in high quality protein, contains a healthy amount of monounsaturated and polyunsaturated fat, includes complex carbohydrates, is low in saturated and trans fats, and contains lots of fresh water daily.

New professional benchmark for compliance officers The Compliance Institute of South Africa has been recognised by the South African Qualifications Authority as the professional body for all compliance officers. “This is an incredible milestone for the compliance profession. Internationally, the compliance officer function has evolved into an executive role and is being recognised by organisations as an important component of their regulatory regime,” says Julie Methven, CEO of the Compliance Institute SA. The professional body recognition included the registration of two professional designations for compliance officers: compliance practitioner (NQF level six) and compliance professional (NQF level eight).

The Compliance Institute SA has introduced its Board I exam which will measure the compliance officer’s knowledge and skills; but before the compliance practitioner professional designation can be conferred, the work experience requirements have to be met. This exam is based on the Institute’s Generally Accepted Compliance Practice framework, a set of principles, standards and guidelines for the establishment and maintenance of an efficient and effective compliance function. The Board II exam for Compliance Professionals will be available in mid-2014.

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First pharmacy quality measuring tool released Metropolitan Health Risk Management has developed the first industry tool to provide tangible evidence documenting outcomes from pharmacy services. “Quality service is a watchword for any large medical scheme, but definitively measuring quality standards, especially by service providers, is not always easy,” explains Ahmed Bayat, pharmacy networks manager at Metropolitan Health Risk Management. “The role of pharmacists is shifting from dispensers of medication towards patient management. Measurable quality management in this emerging environment is key.” The focus of the tool is to ensure the profiling process does not add operationally to the workload of pharmacists, but increases compliance with profiling measures. The tool, which allows for accurate self-assessment, was developed after wide consultation and in-depth investigation. Quality indicators are selected on the basis of their relevance to the medical scheme for which profiling is implemented, as well as ease of implementation at pharmacy level. The measures selected provide specific quality indicators around ICD-10 coding compliance for over-thecounter dispensing; acute-to-chronic conversion of drugs that qualify for reimbursement from chronic benefits; and generic as opposed to branded drug dispensing. Ongoing development and enhancements will see the addition of new measures, in consultation with the relevant stakeholders that will further demonstrate the quality and value of pharmacy services.

Global legal practice Norton Rose Fulbright launches after merger Norton Rose and Fulbright and Jaworski LLP has announced its formal combination, effective Monday, 3 June, creating a new, global legal practice, Norton Rose Fulbright. This transatlantic merger is one of the largest in the history of the legal profession. Norton Rose Fulbright has close to 3 800 lawyers, making it one of the world’s top 10 legal practices by number of lawyers, with offices in 54 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia. It is also a top 10 global legal practice by gross revenue. The focus of Norton Rose Fulbright will be on the provision of world-class legal skills in dispute resolution and litigation; corporate, M&A and securities; intellectual property; and banking and finance. The firm also includes an investigations practice, with highly experienced regulatory lawyers in all of its principal locations. The combination of the two practices’ industry teams means that Norton Rose Fulbright has significantly enhanced depth and breadth of resources across its key industry sector strengths: financial institutions; energy; infrastructure, mining and commodities; technology and innovation; transport; and life sciences and healthcare. Global chief executive, Peter Martyr, will continue to lead the global executive management team.

New UMA in a box technology solution launches from SSP SSP, provider of general insurance technology solutions, has developed a set of technology solutions in a box, aimed specifically at UMAs. In today’s market, the most successful UMAs differentiate themselves by shaping lean and cost-effective operating models that deliver superior underwriting results. Harvesting underwriting acumen, driving business flexibility and achieving operational efficiency and effectiveness all require the right technology platform. However, many UMAs are struggling with inefficient processes and poor data quality caused by inflexible legacy IT.

Ahmed Bayat 126

The technology platform provides UMAs with everything they need to create and manage an insurance operation end to end. All capabilities

are Internet enabled, making it simple to link relevant back office processes to the front office. A range of predefined automated processes across key insurance functions ease interaction between UMAs, channel partners and insurers. SSP solutions are also suited to capital providers that support the UMA market, giving providers a centralised view of their UMA portfolio and the management controls to monitor their performance. Users have the option to extend the front office portal framework to selected trading partners, giving those partners access to extended business acquisition and servicing functionalities through a variety of electronic media.

Santam partners with local government on fire-prevention and risk management Santam, the South African Local Government Association (SALGA) and the Department of Co-operative Governance (DCoG) have cemented a strategic partnership with the aim of building disaster risk management capacity within municipalities. This is part of the Business Adopt a Municipality (BAAM) initiative. Municipalities are responsible for managing disaster when it strikes and their ability to not only respond, but more importantly, to mitigate the risks is required. The parties are engaging with municipalities to gather insights on the critical needs required for the development of an effective programme, with response to firefighting identified as a first priority for 2013.

Insurance complaints rising – ombudsman’s annual report The Ombudsman for Long-term Insurance’s annual report reveals that more than R94 million was recovered for consumers last year. The office said the complaints reached a record high in 2012, mainly for disputes relating to life, disability, medical and burial insurance. This shows that consumers are less willing to take no for an answer, even when a ruling is passed in favour of the insurance company. The ombudsman could not elaborate on why complaints had shot up in 2012, but said consumers have had varied degrees of success, with their queries. “Thirty-seven per cent of the complaints we received in 2012 were resolved either wholly or partially in favour of the consumer,” said ombudsman, Judge Brian Galgut. “When we say they were resolved, there were agreements reached; settlements were reached after the complaint came to our office and we mediated a settlement, or after we made a recommendation to one or other of the parties.”

John Melville, risk services executive head at Santam, notes the devastation caused by fire last year. “We value the need to develop meaningful ways of working with local government institutions to help communities deal with increasing risks. Fire and fire protection systems; safety and security; building regulations and building accessibility; climate change; adaptation to climate change and an increase in natural disasters all form a suite of systemic risks, which must be addressed in a collaborated effort.” Five municipalities will receive firefighting goods and equipment to the value of R2 million, to be used by local fire stations.

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O C . news round up M O .C The cream of .com content

Hanna Barry

We’ve put together a news roundup containing RISKSA’s most popular online content, as selected by you. Here is a collection of articles from our website (www.risksa.com) that received the most hits; tweets that received the most retweets; and Facebook posts that received the most Likes and Shares. Happy reading!

RISKSA WIRED (SUBSCRIBE ON OUR WEBSITE) Every Friday, we send out a newsletter containing the week’s top stories. Here are the past month’s most popular newsletters and stories. NEWSLETTER WITH THE MOST HITS SUBJECT: Life insurer changes radio ad after consumers take offence Date sent: 3 May Summary: The lead article, which received 530 clicks, was about life insurer, BrightRock, inviting consumers to script a new radio ad after there were complaints that an ad it had flighted, in which a proud new father panics that his son may prefer the clarinet to rugby, was offensive. The ‘you change our ad’ campaign was launched on Talk Radio 702’s Jenny Crwys-Williams’ show in the middle of March. The winning script, selected from a pool of 80 entries, was chosen based on the one that best reflected the fears, hopes and aspirations of a father for his newborn son. Jessica le Roux, from Port Elizabeth, wrote it.

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O M

SUBJECT: For the real story behind investigation into glass cartel Date sent: 12 April The lead article, ‘Shattering the concerns around windscreen costs after glass cartel exposure’, received 340 clicks. Summary: After a Competition Commission ruling that six glass-manufacturing firms had been found guilty of price collusion, concerns were rife within the insurance industry that this might include and impact on the cost of automotive glass. One of the companies identified, Glass South Africa, is part of the PG Group, and its chief executive, Stewart Jennings, cleared the confusion. “All the businesses mentioned in the (Competition Commission) press release are building glass suppliers and none of them supply auto glass.” RISKSA conducted an independent snap survey canvassing windscreen quotes from glass suppliers in branches across the country and found that windscreen replacement costs for the same car varied widely across suppliers and branches, indicating that there was no price collusion in the auto glass sector. We also spoke to Trudi Makhaya, deputy commissioner at the Competition Commission of South Africa, who told us that cartels are prevalent in South Africa, preventing competition and keeping the economy in a low economic growth situation, while extracting higher prices from the consumer. Makhaya said at the time that the commission had finalised its investigation and referred the case to the Tribunal for adjudication.

TWITTER (FOLLOW US: @RISKSA) Hippo penalised R1.5 million for noncompliance Published: 10 MAY

Clicks: 63 Responses: “@PennyvdM: This is what happens when you try cut out the broker.” “@SimonPColman: Hippopotamustn’t?” Summary: Hippo Comparative Services was ordered by the Financial Service Board to pay R1.5 million for selling short-term insurance policies on behalf of several shortterm insurers to clients via its call-centre and failing to provide these clients with a complete list of quotations. By providing only the cheapest quotation, the FSB said that Hippo followed an approach that gave preference to quantity of business over quality of service. The registrar also found that between December 2008 and August 2010, in some cases Hippo had failed to disclose that it was an FSP. Amanda Thomas, general manager of Hippo Comparative Services, pointed out that Hippo fully co-operated with the registrar and that contraventions related to sales consultants and not to website or marketing material. Large insurer appoints KPMG partner to head up finance Published: 30 April Clicks: 38 Summary: Mutual & Federal announced the appointment of KPMG partner Jaco van der Sandt, to the position of finance director. Van der Sandt has been involved in M&F’s audit for a number of years and undertook a major review of the business in 2010. Local reinsurers hit hard in 2012 Published: 26 April Clicks: 24 Summary: Speaking at the Insurance Institute of South Africa’s Insurance Forum in Johannesburg on 26 April, CEO of reinsurance broker Aon Benfield, Simon Chikumbu, noted that 2012 was one of

the worst years for local reinsurers, with an average combined ratio in excess of 100 per cent as a result of flood, hailstorm and fire-related losses. The event, entitled 'Lloyd’s Vision for 2013 and beyond', was held to coincide with a visit to South Africa by Lloyd’s CEO, Dr Richard Ward. Chikumbu provided an overview of the local and global reinsurance industry, saying that local catastrophe losses in 2012 pushed pricing up for the January and April renewals, but that reinsurer capacity remained almost too high, with reinsurance supply exceeding demand in all regions of the globe. Six days left to apply for RE Level 1 exemptions Published: 25 April Retweets: Four Summary: An announcement from the FSB saying that advisers had until 30 April to apply for an exemption from their RE Level 1 exams. This applied only to those representatives and key individuals who had written the relevant RE exam at least once before 30 June 2012. Retweeted by @LloydsofLondon, among others: “@RISKSA: Our differentiator is our underwriting talent, says @LloydsofLondon CEO, Dr Ward at the #IISAForum.”

FACEBOOK (LIKE OUR PAGE: RISKSA) Album with the most shares Insurance Bootcamp Business Interruption Seminar, Johannesburg (four shares). Post with the most Likes The announcement that key account manager and brand evangelist, Riccardo Raciti, had (finally) proposed to his girlfriend … and she said yes! (27 likes).

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new

appointments

CIB CIB Insurance Administrators (CIB) announced the appointments of Wilhelm von La Chevallerie as managing director and Steven Munro as financial director, in line with company strategy to become a fully fledged short-term insurer. A qualified actuary, Von La Chevallerie joined CIB three years ago. He brings previous experience in the reinsurance sector, where he dealt with health and short-term business and as chief uunderwriting oofficer at Compass Insurance. A qualified chartered accountant, Munro joined CIB over seven years ago and has been instrumental in the development and implementation of sound financial processes during a period of major change and growth for the company. He brings the technical skills and knowledge required and his time as financial manager has equipped him with ample experience of insurance and reinsurance.

Peter Jennett

Wilhelm Von La Chevallerie

CENTRIQ INSURANCE Martin le Roux and Peter Jennett have joined Centriq Insurance as managing executives. Le Roux, previously the executive head of outsourced business solutions at the company, will oversee the underwriting management agencies, underwriting and information technology business clusters. Jennett, previously the group head of reinsurance at Hollard Insurance Group, will oversee the group finance, group actuarial services, risk finance solutions and alternative distribution market business clusters of Centriq. “Both Le Roux and Jennett have a wealth of knowledge and experience in the insurance industry. I believe they will be of great value to the overall growth and ongoing development of Centriq,” says Gareth Beaver, CEO at Centriq.

Steven Munro

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Martin le Roux

AIG AIG has appointed Wayne Abraham as managing director of South Africa. Abraham has over 15 years’ experience in the general insurance industry with particular focus on Africa, as well as the Middle East and South Asia. As a key contributor to AIG’s growth plans in Africa, Abraham was responsible for the significant advancement of initiatives, particularly in West Africa. He previously served as AIG CFO and then COO for Africa. “Abraham is a trusted, dedicated and respected leader with an exceptional record of managing talent,” says AIG MEA president, Michael Whitwell. “He brings an invaluable blend of knowledge, experience, energy and leadership to this critical role.”

FISA Advocate Khayelihle (Khaya) Thango has been voted to the position of deputy chairperson of the Fiduciary Institute of Southern Africa (FISA). Thango is an advocate at the KwaZulu-Natal Bar with a practice representing government departments at a local, provincial and national level. His previous work experience includes head of executor legal compliance at BoE Trust KZN, legal manager at Absa Trust KZN, and acting deputy master at the Department of Justice. “We congratulate Advocate Thango on his appointment and are looking forward to working closely as a team this coming year,” comments Angelique Visser, chairperson of FISA.

TRC/0146/E

INSURANCE

MARSH AFRICA Israel Skosana has joined Marsh Africa as the non-executive chairman. Skosana currently also serves as the executive chairman of Kapela Holdings and independent nonexecutive director of Transnet SOC, where he is the chairman of the audit committee. He was previously an independent non-executive director of Old Mutual and chairman of its audit committee.

Khaya Thango

INNOVATION GROUP

HOW IT WORKS:

The Innovation Group has announced the appointment of Gabriel Rakosa as business development manager of the technology division. Israel Skosana

Bringing 10 years of industry experience to the task, Rakosa will be responsible for taking the recently launched short-term insurance business analytics tool, Insurer Analytics, to market. “We are pleased to welcome Rakosa to the Innovation Group team,” says Christine Sheffield, chief information officer of Innovation Group South Africa. “The appointment will strengthen the sales capabilities of the technology team.”

ACE GROUP ACE Group has announced the appointment of Quinton Kotze as head of financial lines for South Africa. Kotze will lead the financial lines underwriting team, manage the development of broker relationships and take responsibility for the performance of the financial lines portfolio in South Africa. Kotze has more than 10 years of underwriting experience in a range of financial lines products. Most recently Kotze was the South Africa financial lines manager at AIG.

Gabriel Rakosa

Find the Tracker ‘T’ and win a TomTom worth R1399 Look for the Tracker T hidden in this magazine and stand a chance to win a TomTom Start 20 Southern Africa Edition Go to tracker.co.za to fill in the entry form The winner will be contacted by Tracker and announced in the next issue of Risk SA and on tracker.co.za

Go to tracker.co.za for more info T&Cs apply.

“Kotze, with his extensive underwriting Quinton Kotze experience both locally and abroad, and his strong market relationships, will be a great addition to our team,” comments Gary Jack, chief operating officer at ACE South Africa.

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South Africa’s

best product providers acknowledged by their peers Hollard and Etana, which have merged to form the second-largest short-term insurer in the country, dominated the short-term insurance category at the 15th annual Financial Intermediaries Association of Southern Africa (FIA) Awards gala dinner. More than 1 000 people attended the highprofile, black tie event on 30 May 2013 at the Sandton Convention Centre. Hollard scooped two of the three accolades in the short-term insurance space, while Etana Insurance won the award for Short-Term Insurer of the Year – Corporate for the second year running. Justus van Pletzen, CEO of the FIA says the comprehensive independent survey results present an opportunity for product providers to

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benchmark against their industry peers across the four financial disciplines, including employee benefits, financial planning – risk and investments, healthcare and shortterm insurance.

winner in the UMA of the Year category, while Liberty Corporate held off the competition in the Employee Benefits Category. Allan Gray took the honours for Investment Products Single Premium.

There were a few surprises at the 2013 FIA awards. Financial services giant, Discovery Limited, bagged a hat-trick of awards; Discovery Life won Long-term Insurer of the Year – Risk; Discovery Invest won Investment Products Recurring Premium; and Discovery Health was the winner of Healthcare. South Africa’s largest open medical scheme administrator has now won the award in each year since its introduction.

“We would like to extend our heartfelt congratulations to each of the category winners at the 2013 FIA Awards,” says Van Pletzen. “And we offer a special word of thanks to those product providers that continue to back the model of intermediated distribution and consistently put their clients first.”

Aquarius Underwriting Managers was the new

The FIA Awards is acknowledged in the industry as a leading measure of financial product provider excellence, independently rated by practising finance and risk advisers.

events

IIG CHARITY AUCTION The Insurance Institute of Gauteng (IIG) hosted its charity auction at the Barnyard Theatre in Rivonia on 26 April. The event’s theme was ‘Abba, Bee Gees and Queen’, and sponsors and guests arrived dressed in this fashion. They were treated to a musical performance incorporating music from these three iconic bands. An auction, with MC and auctioneer for the evening, Rick Alan, raised R478 000. Sponsor PM.Ideas added R23 000 to this total, to bring the amount raised to R501 000, matching the amount raised in 2011. Etana Insurance then added an impressive R100 000 to this total. Cheques of R23 000, sponsored by Mutual & Federal, AIG and PM.Ideas, were handed over to Frederick Place, Oasis Haven and Wetnose Animal Rescue Centre, by IIG president, Michael Dash.

Guests were entertained by a night of music from the BeeGees, Abba and Queen.

From left: Natasha Wyborn, Tim Timmerman (FIA) and Sandra Snowball.

IICOGH INAUGURAL DINNER The Insurance Institute of the Cape of Good Hope (IICoGH) inaugurated a new president at the beautiful President Hotel in Bantry Bay on 30 April. After two successful years at the helm, outgoing president Sandra Snowball welcomed Natasha Wyborn as the 2013 council president. Congratulations from all at RISKSA. 

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FMI BPE LAUNCH More than 150 people attended the FMI BPE launch at the African Pride Crystal Towers Hotel and Spa in Cape Town on 23 April. FMI’s chief executive Brad Toerien unpacked the recently released True South

report on the gap in disability cover in South Africa. According to the report, there is a 62 per cent underinsurance gap which is estimated as a shortfall of R11.1 trillion in the disability market. The wildly popular

Durban-based entertainer, Aaron McIlroy was MC for the day and entertained the crowd with his amusing impersonations.

IISA INSURANCE FORUM WITH LLOYD’S The Insurance Institute of South Africa hosted an Insurance Forum at the Glenhove Conference Centre in Johannesburg on 26 April. The forum was entitled 'Lloyd’s Vision 2013 and Beyond' and featured Lloyd’s of London CEO, Dr Richard Ward, as a headline speaker. Simon Chikumbu, CEO of Aon Benfield, gave a reinsurance broker’s perspective on the local reinsurance market and on Lloyd’s, while economist at Stanlib, Kevin Lings, presented a global and local economic overview. Charmaine Koch of the IISA gave delegates a brief update on CPD.

C-Track’s MD Mark Rousseau (left) handing over a donation to SANParks’s honorary ranger Snowy Botha.

CTRACK CHARITY GOLF DAY

CEO of Lloyd's of London, Dr Richard Ward, speaks about Lloyd's' underwriting talent and appetite for risk at the IISA Insurance Forum.

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The annual Ctrack South Africa charity golf tournament was held at Centurion Golf Club on 15 March. As usual, the competition was supported by a full field of local golfers and businessmen to the delight of the supported charities. The tournament raised more than R120 000 through sponsorships and activities on the day and has been donated to Ctrack’s long-standing major charities, SANParks, to support services provided to combat rhino poaching, as well as Cotlands to help it with its wonderful work in aid of children.

Spreading the word about

good financial advice

In celebration of its fifth anniversary this year, the overarching theme of the 2013 FIA Regional Conferences is focusing on the next five years, with financial advice as a sub-theme.

THE VOICE OF THE INDUSTRY

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The series of conferences – also known as the FIA Autumn Conference – got off to a flying start, with packed venues at Middelburg, Klerksdorp, East London, Port Elizabeth, Pretoria and Johannesburg.

Heard at the conference

Conference attendees benefited from a full programme, including presentations by the Financial Services Board (FSB), Etana Insurance, Masthead and Sasria Limited. An extremely positive pre-recorded message from Jonathan Dixon, deputy director of insurance at the FSB was just one of many highlights.

“The FIA is a member organisation that represents the collective interest of intermediaries and intermediation, because intermediation itself is under threat.”

A valuable addition to your financial bookshelf Financial Advisory and Intermediary Services Act (FAIS) expert, Anton Swanepoel, treated audiences to an hour-long message based on his latest publication, The Business Manual for Key Individuals. The manual was commissioned by the FIA as a benefit to its members. Each attendee received a copy to place alongside the FIA Code of Conduct, published and distributed to FIA members in 2012. FIA president Brian van Flymen and CEO Justus van Pletzen were on hand to share recent developments with members, while Gavin Came, chairman of the FIA Financial Planning Exco, discussed matters of interest to the life insurance and investment disciplines.

The following are a few of the key issues discussed at the 2013 FIA regional conference.

– Brian van Flymen

“One of the reasons for the formulation of the FIA was the first round of discussions around remuneration on savings products – today, five years on, we are getting ready for the retail distribution review.” – Justus van Pletzen “We are all familiar with the eight steps that a financial adviser must follow to ensure compliance with FAIS. The question is whether the adviser is sufficiently compensated to follow these steps and still make a good living.” – Justus van Pletzen “You need to believe in your business, because if you do not believe in your business and its future, how can you expect anyone else to. The FIA plays a massive role in bringing you together, combining your interest and providing a platform from which you can work together with the regulator and product providers to ensure your future success.” – Paolo Cavalieri

thtehe Meaettch ho s W manrvwid w e e r e t u iinns w IA F n e i h t T e frtohm rrse.nce e w e o f T n coe call him W Big Joe

WWW.YOUTUBE.COM/RISKSATV

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INTERNATIONAL

TCF: Learning from the UK HANNA BARRY Financial advisers have a unique role to play in a Treating Customers Fairly (TCF) world. Introduced in the UK 10 years ago, South African insurance companies are gearing up for its legislative implementation in January 2014, which is the target date set by the Financial Services Board (FSB). What can we learn from the UK experience?

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peaking at a Glacier Regulatory Seminar earlier this year, head of investment solutions at Sanlam UK, Rick Eling, shared insights on the impact of TCF on brokers in the UK. He emphasises that certain TCF outcomes affect advisers just as much as they do product developers. For example, Outcome Two of TCF reads, “Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly.” This outcome highlights the role that advisers play in selecting the right products for their clients. “Segmentation is key for advisers. Advisers must know the make-up of their client base, including their income, needs and objectives,” Eling explains.

Advisers are in a unique position: if they put in the time and effort, they are able to know and understand their clients well enough to recommend the right products for them. In as much as fund managers have the market insight to blend and balance portfolios, advisers have the wherewithal to match the risk profile of their client to the portfolio that best suits that client. In order to measure how well they are matching clients with the right products, advisers may have to monitor such metrics as, how many of their clients disinvested within two years of investment, as well as the difference between client risk profiles and the risk profiles of investments. They also need to develop a view of outliers, i.e. those accounts that have surprisingly low or high amounts invested.

Managing expectations Eling notes that managing client expectations is another important role of the adviser under TCF. Outcome Five of TCF says Eling, “Customers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect.” Only an adviser, through the unique relationship they have with their client, can ascertain what risk category that client falls into. Clients should, for example, know what returns to expect in a typical market, as well as what a poor performing year might cost them, why they are taking on a certain amount of risk and how their portfolio is designed for different outcomes.

Creating a TCF culture The UK’s Financial Services Authority (FSA), which at the time was the regulator of all financial institutions in the UK, designed TCF as a cultural framework, outlining certain behaviours that it thought would lead to the right outcomes for customers. The FSA has since become two separate regulatory authorities, the Financial Conduct Authority

and the Prudential Regulation Authority, or the Bank of England. “TCF is a cultural issue and it is only through the right culture, that it can be implemented by senior management,” says Eling. “But what the FSA found was that, while most senior managers could explain TCF, very often the firm’s intermediaries failed to deliver the outcomes of the framework.” Eling believed that this was because intermediaries lacked guidance from senior management, highlighting the need for clear communication throughout the firm of how that firm’s culture relates to TCF.

“Incentive schemes sometimes don’t include TCF and when they do, it is often given insufficient weight next to other objectives.” The FSA further found that some employees were unwilling to challenge the decisions of senior management, which in their view led to poor customer outcomes, often because a parent company had made the decision and they were concerned about speaking up. “Employees must, in this context, feel empowered to speak out without fear of action being taken against them,” continues Eling. In this vein, some UK firms have developed policies that protect those employees who do speak out against decisions that they feel are not aligned with TCF. Another means of ensuring that TCF is a part of the daily running of the business is through incentives. “Incentive schemes sometimes don’t include TCF and when they do, it is often given insufficient weight next to other objectives.”

TCF assessments Warren Radloff, a consulting attorney at Edward Nathan Sonnenbergs (ENS), worked for the FSA prior to 2008, when he joined an asset management consultancy in London, Kinetic Partners LLP. He was in the UK at the time that TCF was being implemented there. In an article on the subject published by Esselaar Attorneys, where Radloff worked prior to ENS, he writes that the FSA incorporated TCF assessments into its inspection visits to firms. While not formulaic in its approach, the FSA required that firms provide a range of material to inform their overall assessment, as well as complete questionnaires that provided examples of their delivery of fair outcomes. While the FSB is still to decide on its reporting requirements, Radloff notes that judging by the policy paper published in 2001, outlining the TCF roadmap, the regulator would like to have both non-public reporting (e.g. regulatory returns and compliance reports) and public

reporting (e.g. claims statistics, complaints volumes and investment performance against benchmarks). “I would be interested to see whether the FSB will adopt some of the FSA’s more intrusive supervisory techniques such as mystery shopping, which is only hinted at in the policy paper,” he writes. Despite the initial jitters, Radloff says that TCF was adopted without much fuss by the UKregulated community. “This outcomes-based initiative blended well into the FSA’s principlesbased regulation and the UK’s customer service-oriented business culture. I believe the FSB will find it more of a challenge to adopt an identical policy in South Africa; however, if the fair treatment of customers is important to the FSB, then it must take tough decisive action and persevere with this initiative.” Let’s hope that South Africa’s financial services institutions are able to adopt TCF in the spirit in which it is intended, for the ultimate benefit of the consumers it serves.

Putting its money where its mouth is Some examples of the FSA’s TCF enforcement in the UK during 2012, provided by Deloitte, may be instructive to South African firms. In one instance, the FSA fined an institution £10.5 million for misselling insurance products, failing to treat its customers fairly and not providing clear information to its customers. The company sold its card protection product by emphasising that customers would benefit from up to £100 000 worth of insurance cover, despite the fact that these same customers were already afforded this cover by their banks. The company further overstated the risks and consequences of identity theft during sales of its identity protection product. The company estimated that an additional £14.5 million was required to pay affected customers. In a separate incident, the FSA fined the chairman and CEO of a mortgage brokerage, £50 000 and £10 000 respectively, for putting undue pressure on advisers to sell PPI (income protection insurance in South Africa) to customers. The firm had a panel of over 20 mortgage lenders and purported to consider all of them when advising on a mortgage. Instead, management encouraged sales advisers to sell a particular lender’s mortgages without considering whether these products were the best for customers. The chairman was also banned from the industry.

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news international

be made to the country’s insurance act to shift from compliance-based supervision to risk-based supervision in order align with global standards.

AFRICA Agri-experts call for public sector

In line with the Basel III regulatory standard in Europe, the new supervisory regime will require levels of debt, liabilities, inflation and monetary policy in the computation of risk faced by insurance players.

be properly taxed is also proposed. The programme requires unanimous approval from all 27 EU members. Austria and Luxembourg have long held up regulation, but increasing international pressure from the US and its European peers has swayed them.

insurance subsidies

World Economic Forum agriculture experts at the WEF Forum on Africa stressed the need for public subsidies for agricultural insurance in order to transform agriculture from a subsistence activity to a commercially competitive one. Establishing banks that would focus purely on financing agriculture was not a sustainable option but improving the bankability of the sector was deemed necessary by sector leaders from different countries.

SWITZERLAND EUROPE EU to shift bill for bank failures to creditors

Experts said establishing agriculture financing institutions would create expectations of lower interest rates and the risks of economic shocks such as droughts and floods would challenge the sustainability of such institutions. “We must make agriculture a competitive industry that competes with the other sectors instead. We have to formalise the agriculture business.”

European Union governments have proposed shifting the cost of rescuing troubled banks from taxpayers to the banks’ creditors, including the holders of large deposits as a last resort. The proposal is part of wider project to set up a banking union to strengthen the financial sector. The plan is to have the banking union running by 2015, well before the initial deadline of 2018.

The risks presented by increasingly unpredictable weather and other hazards is of far greater concern to banks than standard credit risks. Insurance for livestock loss, weather damage and many other risks had been successfully developed and the public sector must subsidise the cost of this cover if Africa is to reach its target to become a net exporter by 2030.

Banks’ shareholders and capital would be first in line to carry losses, followed by junior and senior bond holders and, ultimately, the banks’ clients. Holders of deposits of over £100 000 (R1.2 billion), the EU’s deposit insurance ceiling, could be asked to suffer losses but only as a last resort. All deposits below £100 000 will remain secure. Calls for clarity on bailout rules followed the recent Cyprus crisis.

UGANDA Ugandan insurance regime to be amended

The Insurance Regulatory Authority (IRA) of Uganda has announced that amendments will

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EU finance ministers have argued that in addition to existing capital requirements, larger banks should be forced to hold a certain amount of investments that can be bailed-in to pay for potential rescue operations. Reducing tax evasion is a further priority. The implementation of a programme to set up an automatic exchange of banking information between countries so that interest income on various types of savings accounts can

Zurich profits fall in first quarter

Switzerland’s Zurich Insurance Group has reported a seven per cent fall in its first quarter profits after a challenging business environment hit investment returns. Net income after tax dropped to $1.06 billion (R9.8 billion) from $1.14 billion (R10.6 billion) in the year-ago period, the Zurich-based insurer said in a statement. Zurich shares lost 1.2 per cent in opening trade after its net income missed analyst expectations.

UNITED KINGDOM UK health insurance losing young members

A report commissioned by UK health insurer, Aviva Health, shows a rapid decline in the number of people aged 20 to 29 taking up health insurance policies. It found overall membership had fallen to 45.7 per cent in December 2012 from 50.9 per cent four years beforehand. British economist Colm McCarthy confirms that there has been a sharp change in the age

composition of the market over the last five years, describing the change among the 18 to 39 age groups as a destabilising shrinkage, having decreased by 194 000 customers. Membership in the over-60s category on the other hand has increased, now accounting for 18.5 per cent of total enrolment. Commenting on this shift, Aviva Health chief executive, Alison Burns, notes that the claims cost of a customer over 70 years is almost 10 times that of a customer aged 20, posing a serious challenge for the industry. Aviva predicts British health insurance premiums will rise by up to 30 per cent by 2015 if the government plan to charge private patients for occupying public beds goes ahead. Aon releases the latest terrorism and political violence country risk ratings

Aon Risk Solutions has released its 10th annual Terrorism and Political Violence Map to help companies assess risk levels of political violence and terrorism. Produced in collaboration with the Risk Advisory Group, the 2013 map is complemented by an online, interactive version which provides a clear global and country level view on terrorism and political violence ratings. The map provides colour-coded ratings for 200 countries. Territories measured act as a gauge for the overall intensity of the risk of terrorism and political violence to business in each country.

â&#x20AC;&#x153;Data and analysis depicted by the map suggest businesses looking to expand need increased awareness of the risks. â&#x20AC;?

The 2013 map points to a continued threat of a terrorist attack or political violence, revealing that 44 per cent of countries measured have an identifiable risk of terrorist attacks. This is a trend particularly prevalent in African countries. Globally, 19 countries show improved terrorism and political violence ratings, including the United Kingdom and Germany. Data and analysis depicted by the map suggest businesses looking to expand need increased awareness of the risks. North and West Africa and the Middle East stand out as

regions of increasing risk. Civil wars in Libya and Syria in particular have contributed to violent risks in nearby countries. Egypt returns to the highest risk rating this year due to persistent civil tumult, political instability and terrorism. While Northern Europe has seen some improvements, evident in the UKâ&#x20AC;&#x2122;s improved rating, fiscal and economic pressures mean businesses in southern European countries still face a higher level of risk associated with civil disruption.

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lifestyle BALANCE

ADVENTURE

AND NHI EVENTS

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THE WEALTH OF A WOMAN

A recent poll by the Luxury Institute showed that 41 per cent of women in the United States earn more than half their familyâ&#x20AC;&#x2122;s income. As women the world over exercise their independence and increase their earnings, RISKSA asks what it would cost to insure the everyday possessions of a wealthy woman.

Hanna Barry

NEWS

154

DIARY OF A TRAVELLING INSURANCE SALESMAN

Sport has a funny way of breaking barriers, stirring emotions and breeding camaraderie where none existed before. Our travelling salesman finds out how casual sports conversations can help you pick your way out of a potentially sticky situation.

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The keys to a 2010 Audi TT R2 400

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The

wealth of a woman Neesa Moodley-Isaacs

A Rolex Oyster Perpetual Datejust Lady 31 watch R85 400

An iPad R8 999

We’ve all seen that woman. She is featured in celebrity magazines and lives a life most women only dream of. She’s the high maintenance woman every man wants on his arm. But spare a thought for the risk her insurer takes on when she needs insurance cover. RISKSA examines the insurance risk a high  net worth woman carries on a daily basis.

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RISKSA created a subject profile, Mrs Dollars, who carries luxury items on her person Most women carry a handbag and there is no better high-end handbag than a classic Louis Vuitton. The Neverfull MM in the iconic Louis Vuitton print, measures 32 cm x 29 cm x 17 cm and would cost R8 650. However, the Elysée wallet in the same iconic print would set Mrs Dollars back R12 200.

Shimansky Millennium platinum engagement ring with a one-carat diamond R168 500

The wallet is more expensive than the handbag because the wallet is from a new line and is made of leather. The handbag, on the other hand, is made of canvas because it is more durable. Only the handbag trimmings are leather. This is a hallmark of Louis Vuitton goods – the designer initially became famous for using canvas instead of hide for his bags. One of the main reasons was that the smell of the hide frequently impregnated the bag contents.

My Jimmys Mrs Dollars would definitely be wearing a sexy pair of Jimmy Choos. The handmade designer footwear is the ultimate in luxury retail. Often referred to as “my Jimmys”, Jimmy Choo worked its way into pop culture after repeated references in the popular Sex and the City television show. Fans include Gwen Stefani, Natalie Portman and Julia Roberts. The rather stylish Damek shimmer suede sandals with hotfix crystals are priced at R14 828 a pair.

Matching Shimansky platinum micro-set diamond wedding bands R29 900

In her handbag are the keys for her 2010 Audi TT. The cost of replacing the keys if stolen would be approximately R2 400. However, if she were driving a different car, the cost of replacing her car keys could increase dramatically as most modern cars have keys that are individually coded to the vehicle. The car manufacturer uses the vehicle identification number (VIN) to custom-make a new set of keys. For example, an Echelon client lost the keys to her Mini and it took two weeks for her keys to be replaced as they had to be specially ordered using the VIN. These were cut and coded in Germany and the eventual cost was about R15 000.

Must-have items

Shimansky Millennium earrings with 0.5 carat diamonds R89 780

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A Rolex Oyster Perpetual Datejust Lady 31 bracelet watch is priced at R85 400. The Oyster was the first waterproof watch invented in 1926. In 1935, Rolex perfected the ‘perpetual movement’. The timepieces have an internal motor that winds the watch by driving energy from wrist movements, keeping it perpetually wound. The must-have phone this season is the iPhone

5, which retails at R10 799 for the 64G model. Mrs Dollars also has a 128GB iPad valued at R8 999 to catch up with her favourite fashion magazines online. “A man should set aside the equivalent of three months’ salary to buy an engagement ring,” according to diamond jewellers. Mrs Dollars is wearing a Shimansky Millennium engagement ring with a 1.01-carat diamond, colour G and clarity VS2 set in platinum, valued at R168 500. She has two matching Millennium platinum wedding bands with 15 micro-set diamonds, valued at R14 950 per band; and the Millennium earrings to match with a 0.5 carat, colour D, clarity SI1 diamond on each ear set in platinum and valued at R89 780 for the pair.

Asset all risks Willem Coetzee, an executive business consultant at Zenith Insure, says the items on Mrs Dollar’s person all fall within the definition of household goods in terms of the Zenith policy. “As such, items one to seven would be covered under the asset all risk extension without any need to specify it under the all risks section,” he says. However, Zenith will insure her iPhone and iPad under an all risk item, ‘Unspecified cellphones and portable computer equipment’, with a sum of R30 000 per event and a monthly premium of R135. “This will provide cover for any other items of this description without the client having to specify any of it,” Coetzee adds. The Zenith policy automatically includes cover for up to R10 000 for keys and locks of vehicles at no additional premium, or the need to specify the same under the all risks section of the policy.

Individual risk cover Darrel Dawson, director at Echelon Private Client Solutions, says its strategy is to provide risk cover on an individual basis. “We would assess the individual’s risk rather than provide risk cover for each item on its own. Very often a person’s age and occupation will reveal their appetite for risk and this then shows in the items they purchase. For example, a highflying 30-year-old hedge fund manager is more likely to buy a sporty BMW M3 than a 50-year-old bank manager,” he says. Dawson says an Echelon policy allows a client to select a large sum insured under unspecified all risks. “They are highly unlikely to lose all those items at the same time unless the loss takes place on holiday or while on an airplane,” he says.

A Louis Vuitton handbag R8 650

Christelle Fourie, the managing director of MUA Insurance Acceptances, says there is no need to specify items on the MUA policy as the general all risks section provides cover for all the items carried by Mrs Dollars. “We would normally advise our clients to choose a sum insured with the highest value for which they are exposed and then use this as a guideline to determine their all risks sum insured. In this example, we would use the ring of R168 000 as a guideline and perhaps suggest R200 000 as the all risks sum insured,” she says.

Jimmy Choo sandals R14 828

An iPhone 5 R10 799

No item limits Another important consideration is that the MUA policy does not have any item limits, so if Mrs Dollars has a sum insured of R200 000, she will be able to claim up to R200 000 for any one item. “R200 000 of all risks cover will cost in the region of R4 000 per year or about R350 per month with no need to specify all those items. If she did specify each item, it would add up to a substantial monthly premium. As a broker, you should

A Louis Vuitton wallet R12 200

remember that the client may also run the risk of forgetting to include new items purchased in her list of specified items,” she cautions. Fourie adds that it is imperative to remember that all insurers require updated valuation certificates. “The onus is on the client to lock expensive jewellery items away in a safe when not worn – usually when the value is in excess of R50 000,” she warns.

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Diary of a travelling

insurance

salesman

The sometimes sad, sometimes funny observations of Anton Roux, CEO of Aon South Africa, and his colleagues on their travels through Africa.

Touring with Manchester United – part 1 Anton Roux

Believe it or not, Americans do not appreciate it when a flight lands early, as I rediscovered on a trip to the United States to follow Manchester United on their North American tour.

left South Africa on a Sunday afternoon and, after a pleasant flight, arrived in Barrack Obama’s backyard 30 minutes early. From past experience, I know this is not a good thing. To compound the problem, another flight from Ghana landed just after ours, an hourand-twenty minutes early. This was bad news for all of us.

You see, in the country of the American dream, they never start work before 06h00. Never. So we were left to stand in a queue after an 18hour flight until immigration officials arrived for duty. Eight of them arrived at 06h00 on the dot, together with ‘Mr Plod’ the manager on duty. Mr Plod then explained to passengers from both planes that we caused the problem by arriving early and allocated six of the immigration officers to the ‘USA Citizens only’ queue. This left just two of them for the 400 Bafana Bafana and BaGhana BaGhana supporters. What Plod doesn’t realise is that anything in Africa that arrives early, should be celebrated. Although, with all the crowds of people queuing, I was grateful for all the garlic bread I ate on the plane – it gave me some muchneeded personal space. Ninety minutes later, when all the USA citizens had gone through, the other six officials assisted us lesser mortals. It is a good thing that my

154

mother was not on board that flight. She would have explained to Mr Plod, in no uncertain terms, how to treat guests. I was expecting a grilling at the immigration desk, as my ticket had been booked with my European passport, but I was arriving with my USA passport and a visa in a third, expired passport. I was ready to explain my way out of the predicament, when the official said, “Fantastic World Cup, it must have been great to be there.” I was at a complete loss for words. We struck up a conversation about Landon Donovan’s goal against Algeria. Then he asked, “Why are you here and what is your final destination?” I responded that I was there for Manchester United’s North American tour and I was going to a game at the Linc (Lincoln Financial Field, home of the NFL’s Philadelphia Eagles). To which he replied, “Welcome to the USA, sir, and enjoy the game.” This made me realise two things: • N one of us in South Africa have digested how big the World Cup was and what it has done for us a nation. • A on is on the verge of a brand explosion that will exceed its wildest expectations because of its link with Manchester United. Unfortunately this is where my good fortunes ended.

Austrian daredevil Felix Baumgartner became the first man to break the sound barrier in a record-shattering freefall jump from the edge of space, The 43-year-old jumped from a capsule more than 39 kilometers above the Earth, reaching a speed of 1,136 kilometres per hour before opening his parachute and floating down to the New Mexico desert.

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