RISKSA March 2013

2012

4 PICA AWARDS WINNER

MAGAZINE OF THE YEAR

THE VOICE OF THE INDUSTRY

BIG OIL 6 009900 153315

How ready are our refineries?

Oil tanker underinsurance Taxpayers brace for the inevitable

Insuring

The Coldest Journey RISKSA exclusive with Sir Ranulph Fiennes

contents March 2013

10 features

regulars

Insuring The Coldest Journey

10

short terM

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Delivering the goods

22

MEDICAL

48

When medical aid gives you toothache

54

F&i

57

life

65

All systems go: new vehicle tech 5 8 Insuring your blessings: longevity solutions

66

erm

75

Credit life insurance: who really stands to gain?

70

better business

87

SA’s oil refineries: an inconvenient truth?

78

lifestyle

119

Threading through the Binder Regulations

88

Resilient dynamism: Davos 2013

114

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2012

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MARCH 2013

THE VOICE OF THE INDUSTRY

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Managing editor Nicky Mark Copy editor Margy Beves-Gibson Feature writers Anton Pretorius Bianca Wright Grant Cyster Hanna Barry Nick krige Sarah Bassett Art director Herman Dorfling Design and layout Dries van der Westhuizen Vicki Felix

BIG OIL

Oil tanker underinsurance

125

6 009900 153315

How ready are our refineries?

ISSUe

Publisher & editor Andy Mark

Regular contributors Jenny Handley Kirsten Halcrow Rob Rusconi

taxpayers brace for the inevitable

Insuring

The Coldest Journey

Editorial enquiries

RISKSA exclusive with Sir Ranulph Fiennes

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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.

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from the editor Dear Reader, Our touch rugby league started a week ago. For the first time we are fielding a mixed side made up exclusively of COSIANs (COSA staff are called COSIANs James). It became immediately apparent that we had stumbled upon a winning formula. Not least because our Sarah, Hanna and Angelique are superbly fit and made our boys look a little, well, less so … but because the team interaction was a joy to watch.

Here was a high-performing team taken straight out of an office environment, put onto a playing field and they were working together like a well-oiled machine. Of course, there was the odd fumble as fingers got used to the unfamiliar (to some) shape of a rugby ball, but in the main the RISKSA Redsox played brilliantly as a unit.

With two key RISKSA Redsox players heading off to Johannesburg to open our new office there at the end of the month, we probably shouldn’t count our league chickens before they hatch. Our Johannesburg office is going to be headed up by our online editor, Hanna Barry and while we’ll miss her and Blake terribly – especially on the rugby field – the move will see an increase in editorial capacity as we shift up a gear, especially in the digital space.

We have some killer content in this issue, especially Hanna’s piece on The Coldest Journey, one of the riskiest endeavours man has ever undertaken. We also take a look at disaster management plans around our refineries and with Big Oil’s track record around the globe we wonder when it will be our turn…

Enjoy the read.

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“The ship has finally sailed and left the six of us with nowhere to run other than south. Next on the list, ski more than 2 000 miles in winter.” So begins a blog entry by Ian Prickett on Monday, 4 February, the day after the SA Agulhas bid farewell to the six-man Ice Team in Crown Bay, Antarctica. “

Hanna Barry

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Insuring coldest journey the

rickett is one of a group of explorers who will attempt to conquer what has been called the last great polar challenge: the first ever winter crossing of Antarctica.

Known as The Coldest Journey, the expedition will commence on 21 March 2013 and is led

by Sir Ranulph Fiennes, who has been described by the Guinness Book of World Records as “the world’s greatest living explorer”. Sir Ranulph, "Ran" to those who know him, was born in 1944 in the UK, brought up in South Africa and then returned to the UK. At 21, he was the youngest captain in the British Army.

P

The ground-breaking venture gets underway on the centenary year of Captain Robert Falcon Scott’s death in the Antarctic. A naval officer and explorer, Captain Scott died attempting to be the first to reach the South Pole.

In 1979, Sir Ranulph set out on the first circumnavigation of the world along its polar axis, together with British explorer Charles Burton. This three-year, 56 000-kilometre odyssey took intricate planning, 1 900 sponsors and a 52-person team to handle. One of the sponsors, Mobil, donated $6 million worth of fuel to the expedition. The circumnavigation has never been successfully repeated. Marine

insurance for the Transglobe Expedition, as it was called, was organised by Marsh and McLennan, together with CT Bowring and Company, through Lloyd’s. “After seven years of planning, Lloyd’s was approached to sponsor the insurance for it, which it did. Due to the extensive planning and preparation, Lloyd’s decided it was a low risk project,” Sir Ranulph told RISKSA. He was eating lunch on board the SA Agulhas at the time, the day before it set sail for the frozen continent from Cape Town’s V&A Waterfront on 7 January.

Jardine Lloyd Thompson is the broker on The Coldest Journey and has created and placed in the co-insurance markets of Lloyd’s and major insurance companies a bespoke policy to provide crucial cover for the expedition.

“This insurance turns on a requirement for the expedition to have adequate assets to clean up and remove all items used to support the traverse, so as to ensure Antarctica remains a pristine, virgin environment when the crossing is concluded,” explains Tony Medniuk, chairman of the board of trustees for The Coldest Journey. “It must also provide necessary funds for any search and rescue mission for the ice team, to the extent such an operation may be feasible in the hostile polar conditions.”

In partnership with insurers, JLT has constructed a unique policy to address these specific objectives. The precise policy limits and premium remain confidential to the expedition, but Medniuk confirms that the cover is counted in several millions of US Dollars. Medniuk first worked with Sir Ranulph and Anton Bowring, The Coldest Journey expedition co-leader, to create the wholly sponsored insurance programme for the Transglobe Expedition. He went on to maintain a career in the insurance industry, serving on the market board of Lloyd’s of London and creating the world’s largest specialist aerospace insurance company, Global Aerospace Underwriting Ltd. “This expedition would not have been possible without insurance,” says Bowring, adding that planning for The Coldest Journey has taken five years.

While this has minimised the risks significantly, it remains an incredibly high-risk undertaking, not least because there can be no search and rescue in the winter. Search and rescue operations are possible only at the beginning and end of the journey, as aircraft cannot fly in the cold conditions due to the threat of their fuel freezing. Should something happen to a member of the Ice Team in the middle of the crossing, they will have to wait until summer  before a rescue attempt can be made.

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Agulhas has the capacity to accommodate the heavy expedition vehicles, equipment, stores and fuel. The vessel is owned by the South African Maritime Safety Authority (SAMSA), but managed by Smit Amandla Marine.

The SA Agulhas arrives at Crown Bay, Antarctica.

Alone on the ice. The Ice Team bid farewell to friends on board the Agulhas.

Its insurance includes standard hull and machinery (H&M) and protection and indemnity (P&I) insurance. H&M insurance covers the vessel for damage to any part of its machinery or equipment, while P&I cover provides insurance for ship owners against loss due to legal liability arising from damage to cargo, injury to passengers and crew, and other legal liabilities not assumed under hull insurance. “No special insurance has been arranged for this specific voyage as the vessel is operating in her natural environment,” says Ian Calvert of SAMSA. Bowring was particularly impressed by the enthusiasm and commitment of the marine cadets on board the Agulhas. They are part of cadet training programme initiated by the South African Maritime Training Academy, a SAMSA-accredited training provider, and were part of the crew that dropped the Ice Team off in Antarctica. “This is an inspired programme.

Training marine cadets in South Africa is an excellent way to develop South Africa’s maritime economy.

This will enable African countries to access the vast mineral resources within their own continent, rather than having predominantly foreign shipping companies do so,” he notes.

Also on board the ship were researchers from the Council for Scientific and Industrial Research (CSIR), conducting various scientific research, such as monitoring wildlife numbers in the Antarctic and its surrounds.

Extreme risk management The SA Agulhas The SA Agulhas sailed from London on 6 December, sent off by Prince Charles and Absolutely Fabulous star Joanna Lumley, who is a member of the expedition’s board of trustees.

The ship is an ice-strengthened polar research and supply vessel that was built by Mitsubishi Heavy Industries in Japan in 1977 to replace the ageing RSA. For over 30 years, it has been

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used to service three South African research bases, on Marion Island, Gough Island and the Antarctic base SANAE IV. Weighing 6 123 tons and at 112 metres in length, the ship can cruise at 12.5 knots and has a range of 15 000 nautical miles and an endurance of up to 90 days at sea. With cargo holds of over four thousand cubic metres and a 17-metre, 25-tonne crane, the SA

The 2 000-mile (3 219 kilometre) journey across the continent of Antarctica has for many years been considered too perilous to try and the expedition team will have to overcome one of the Earth’s most hostile environments, exposing themselves to temperatures dropping close to -90 degrees Celsius and operating in near permanent darkness. The Foreign and Commonwealth Office has, up until this expedition, refused to grant permission to take on the challenge because it has been deemed 

The Cat with Stonehage House and the science caboose in tow.

too risky and the chances of disaster too high.

This decision was overturned only after it was shown that technological innovations could mitigate some of the risks of the crossing.

Extensive planning, organising and training began years before the actual expedition.

Before The Coldest Journey, there was never a need to develop clothing and equipment that could withstand such extreme conditions for such an extended period of time. In the absence of anything tried and tested, severe cold chamber testing was needed. When walking on the ice, the team will wear specially developed heated clothing and use breathing apparatus to protect them from the ever-present threats posed by such extreme temperatures.

Frostbite is the most likely hazard. This can be contracted at temperatures of -20 degrees Celsius, which seems mild in comparison to what the Ice Team will face. Simply inhaling air below -60 degrees Celsius can cause irreparable damage to the lungs and frostbite in a matter of seconds, if skin is exposed.

Bowring contracted frostbite while training with the team in Northern Sweden at temperatures

Finning engineer Spencer Smirl and Ice Team member Ian Prickett during the whiteout on 10 February, involving blowing snow verging on a mild blizzard and poor visibility.

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of -40. Despite thick gloves, his fingers ached with the cold. When he suddenly couldn’t feel the pain anymore, he removed the gloves and his fingertips were white and rock solid.

He had to place his hands in cold water to allow them to thaw slowly and then wait three months for his skin to regenerate and heal.

Should one of the tractor drivers experience frostbite, they will be unable to drive the tractors for up to three months.

A mobile vehicle landtrain, known as the Ice Train, will lead the traverse. It is made up of two Caterpillar D6N track-type tractors, which will pull two specially developed cabooses for scientific work, accommodation and storage, including aviation fuel designed not to freeze. Supplied by Finning UK and Ireland, the 20-tonne D6Ns have been modified by mechanics to help cope in the extreme weather conditions. For instance, a heating mechanism keeps the engines warm when they are not running, and tented garages, which unroll from the roof of each vehicle, will cover them each night, allowing for any maintenance and refuelling. They are each equipped with a variable-pitch power angle/tilt blade, which

can be used for moving snow, filling small crevasses and breaking down sastrugi during the traverse. Sastrugi are long wavelike ridges of snow, formed by the wind and found on the polar plains. They are usually up to several metres high.

“This is the ultimate engineering challenge, as no machine of this type has ever been exposed to these temperatures and the harsh environment. You have to consider how every single component is going to operate, assess the potential issues to man and machine and create the safest possible solutions,” says Andy Thomas, Finning design engineer.

When a spanner would immediately stick to the hand of anyone who tried to work on the machines outside of the tented garage, you can understand just how carefully risks need to be managed. Richmond Dykes and Spencer Smirl,  both Finning engineers, have volunteered to join the expedition.

Walking the entire 3 219 kilometre traverse on skis, Sir Ranulph will lead the team who will take turns to walk alongside him on the ice. The tractors will follow behind the two-man 

ski unit, which will be assessing the terrain for crevasses – one of the biggest threats to the success of the expedition. These cracks on the ice can be as little as a few millimetres to many metres across and they can be bridged by snow at the surface, making them very difficult to see. Since long distance vision will not be possible in the dark winter months and what is passable by the skiers may not be passable by the heavy Cat machines, in addition to careful route choice, the team will be using a ground penetrating radar.

This piece of equipment transmits a signal down into the snow and then reflects the data onto a screen on board the Cats. It exposes a change of density within the snow pack and is often used for ground survey work to detect subsurface structures such as pipes or cables.

Despite taking significant measures to reduce risk, advanced first aid and emergency rescue training was vital. In early October 2012, the ice team spent two days in England’s Lake District, receiving expert training on the use of their emergency rescue packs. “We will be taking these with us on the expedition in case of a crevasse fall or similar major incident.

The purpose of the training was to familiarise ourselves with all the equipment and learn how to use it to rescue not just other members

of the team should they fall into a crack, but also ourselves if we fall in and there is no-one around to help us out,” says Prickett.

Environmental impact The expedition route has been chosen based on routes used by other operators, to promote safety and prevent the spread of impacts to more pristine parts of the continent. It is expected that environmental impacts will have less than a minor or transitory impact upon the Antarctic environment. All waste, including sewage, will be removed from the continent at the end of the traverse, and whatever can be recycled will be.

The most significant negative impacts of the planned activities are atmospheric emissions and impacts on the ice environment (release of grey water, sewage and possible fuel spills), as well as noise and physical disturbance.

Carbon dioxide emissions can contribute to the greenhouse effect, and therefore climate change, both directly and indirectly, and may also affect air quality and the snow surface. In response to this, all activities will be planned to minimise fuel use: vehicles will be new and maintained to the highest standard to give the maximum possible fuel efficiency; the expedition will ensure regular maintenance of vehicles

It’s not all work and no play for Ian Prickett.

and equipment, as this is the best method of minimising emissions of carbon oxides, black smoke and unburned hydrocarbons; and clean, filtered fuels will be used to minimise emissions.

“Part of the British Commonwealth office’s permitting requirements to undertake the expedition was that we have a contract with an agency that can provide search and rescue extraction of the expedition come the summer time, should they not make it to the far side of the continent.

There is no getting out during the winter,” explains Adrian McCallum, marine science co-ordinator for The Coldest Journey.

“Another requirement of the foreign office was to have a mobile base with the facilities that would be standard at a static British Antarctic base.” The team had initially wanted to walk across Antarctica on foot, but the British Government considered this too risky, which meant the expedition grew tremendously in size and scope. The positive offshoot of this is the scientific research aspect that it now incorporates.

The White Mars project Scientists on The Coldest Journey will be conducting a number of experiments, including measuring the effects of global climate change on the polar ice caps. The research will include measurement of the thickness of the ice, mapping features of the ice during winter and sampling for bacteria to see whether they can live in these extreme temperatures. Among other research projects, the White Mars project will assess the physical and psychological effects of the expedition’s extreme nature on the team.

Twenty institutions from across Commonwealth countries designed compact experiments, which, through a range of tests before, during and after the expedition, hope to make unique discoveries about how humans adapt to such extreme conditions. For example, an altered day-night cycle enables research in relation to measurable changes in circadian rhythm.

The expedition also offers the opportunity to develop educational content for schools. 

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Over 143 000 schools worldwide will be able to access engaging, real-time content and students can follow the Ice Team’s progress across the Antarctic. School curriculum modules spanning a host of subjects including maths, history, geography, biology and physics, will be made available.

Through a user-specific subscription, schools will have access to downloadable education resources matching curriculum needs at every level from early years to post-16; blogs and interviews; videos and photographic material; and primary scientific data.

Mobile igloos Two customised cabooses will house the crew and science equipment for six months. These 8.5 metre containers will sit on sledges and be pulled across the snow by the two Caterpillar D6N tractors. The team will eat and sleep in one of the heated cabooses, known as the Stonehage House, after its sponsor.

The second caboose will house the science and mechanical workshops, as well as being a back-up living unit. Power for the cabooses will come from the vehicle engines when these are running, to supply heat, light, energy for snow melting, cooking and battery charging.

Eddy Oblowitz, CEO of Stonehage Financial Services, explains that there are a number of linkages between the expedition and Stonehage’s philosophies. “The Coldest Journey team will be going ahead despite all odds and this speaks to our clients, many of whom are entrepreneurs who venture into the unknown.

This imbued sense of self-determination, self-discovery and the ability to inspire and motivate yourself and others is at the epicentre of the expedition members and of our business.” Stonehage is a leading independent multi-family office, offering comprehensive wealth management and advisory services to an international clientele of ultra-high net worth families.

From left: Brian Newham, traverse manager; Sir Ranulph Fiennes; and Ian Prickett.

The cause The Coldest Journey aims to raise $10 million for Seeing is Believing, a global initiative that exists to help tackle avoidable blindness in the developing world. A collaboration between the International Agency for Prevention of Blindness and Standard Chartered, the lead sponsor of the expedition, Seeing is Believing aims to raise $100 million by 2020.

According to the initiative, 80 per cent of the world’s blindness is avoidable in that it can be prevented or treated, sometimes for as little as $30. Standard Chartered has committed to matching all donations made to this cause.

Visit seeingisbelieving.org.uk to learn more about the initiative.

Follow The Coldest Journey

RISKSA’s Hanna Barry with Sir Ranulph on board the SA Agulhas in Cape Town, the day before his departure for Antarctica.

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The expedition members will travel through the dark months of winter across the polar plateau, via the South Pole, at a height above sea level of 3 400 metres, where the temperature can be -70 degrees Celsius, or lower. In total, the team will spend an estimated 273 days on the ice, with the selected crossing from Crown Bay to McMurdo Sound taking six months. If all goes well, in February 2014, the SA Agulhas will collect the expedition members from McMurdo Sound, Antarctica at the completion of this epic journey.

All photos supplied by The Coldest Journey

Thanks to satellite technology, The Coldest Journey expedition team can be tracked and stay in touch. A live map on the website (www. thecoldestjourney.org) reflects the current location of the Ice Team. The team’s progress can also be followed via Facebook (The Coldest Journey) and Twitter (@coldestjourney).

At Centriq we see things differently. Where some see broker bases, we see people. Where some see money generators, we see relationships worth investing in. We’ve spent the past decade building relationships with the people at the heart of the country’s best underwriting management agencies, so that we can be the perfect partner for all of your insurance needs – from aviation insurance to pension funds, from progressive solutions to a personal handshake. Isn’t it time you introduced your people to ours?

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Delivering the goods

When it comes to goods in transit, brokers need to be clear on who is responsible for what. It may be wise to advise clients to carry some of the risk themselves.

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Eco disaster on the horizon

South Africa seems woefully underprepared to handle a major oil spillage on our shores. Insurance challenges abound, environmental damage and liability not least among them.

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Delivering the

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Nick Krige

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The chain of transporters in a shipment of goods presents a diverse range of risks. From trucks and rail, to on board the ships themselves, myriad misfortunes are possible. We take a look at how brokers can advise their clients operating in this space and what risk mitigation techniques they can use to limit their liability.

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How it works Usually, a marine insurance policy covers the cargo owner door-to-door, irrespective of who has custody of the load, whether it is travelling by truck, rail, ship, or sitting in a ship yard or warehouse. In the event that something should occur, the marine insurer will cover the goods and then attempt recovery from whoever caused the damage. “In this case, the contractual terms between the cargo owner and whoever caused the damage will determine how successful the recovery may be,” says Wayne Phillips, CEO of Genric Insurance.

According to Phillips, cargo owners who move goods locally may not have a marine policy and may then opt to transfer risk to the transporter. This should be done contractually and in writing. The terms of transport will also

help decide who is liable in the event of loss.

“Determining who is liable in the event of damage to goods carried should be as easy as reading the contract of carriage. The contract of carriage must state if the transporter excludes liability for damage caused to the load, or if the transporter will be held liable if the goods are damaged while in his custody and care. In practice, however, this is not always clear until there is an incident, and only then do people read the paperwork. Typically a Friday afternoon telephone conversation between a cargo owner and a transporter will not include the aspect of liability for damage, as both believe there won’t be any damage,” explains Phillips.

A transporter never owns the goods he is carrying for third parties, therefore he never attains direct insurable interest. “The transporter

is potentially held liable for damaging third party property. Thus a goods-in-transit policy held by a transporter is in fact nothing more than a very fancy policy covering the liability of the carrier. In our market this is known as a goods-in-transit insurance policy,” says Phillips.

Risk management The range of risks facing goods in transit is vast, but the most common is damage caused due to the conveying vehicle being involved in an accident or catching on fire. “The causes of the accidents vary from weather blowing a ship off course, to a truck’s brakes failing down a steep pass. If these eventualities happen, an adequately protected client will have no problems making a claim,” explains Phillips.

However, if careful investigation finds the cause to be a driver falling asleep, or freewheeling 

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down the pass, the transporter is likely to be found liable.

Sadly hijack and theft are a common risk, too.

In order to mitigate this, risk management of the transporter is of paramount importance, but in the face of a frail economy and tighter margins risk management is often the first cost cut. “With rising costs of running a transport operation on one side and pressure to reduce fees on the other, highly effective risk management becomes costly and it is often not adopted,” says Phillips.

If a client has no choice but to cut back on risk management, there are some basic principles that should always be followed regardless of the situation. “Driver management, vehicle maintenance and condition and hijack recovery systems will go a long way to preventing accidents and recovering vehicles and loads,” says Phillips.

Not all risks are covered by insurers, which is why sellers and buyers should look to reputable transporters to limit their risk. As with most things in life, you get what you pay for, so the cheapest option is often not the best choice.

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Mike Brews, COO of Associated Marine Underwriting, has a different view on risk management. “It might sound strange, but the insured should absorb some of the risk themselves and ensure that they have proper risk management systems in place. Often there is an agreement between the shipper, insurer and goods owner to share costs.” In this instance, it is important to have proper contracts in place. This helps to determine liability and insurance issues; and the transporter knows exactly what his responsibilities are in the transportation process.

Any transportation route will have areas that are more susceptible to risk than others. It is important to identify those areas in order to put an effective risk management plan in place. “Get the shipper to ascertain where the critical elements of risk are during the voyage.

At those times during transit, it would help to take photos of the goods and check the seals.

It may add cost, but depending on cargo it could be worthwhile.”

Tips for brokers The most important thing for brokers is to

keep clear and open lines of communication with their clients. They need to have accurate and complete records of all the goods being transported, how they are being transported and any agreements made between the buyer, the seller and the transporter.

All of these factors play a pivotal role in deciding whether or not a client’s claim will be approved. “If the goods need to be packed in a specific way, the broker needs to make sure this happens. Identify where the key transport areas are and make sure photographs of the goods are taken and that there are accurate records kept. If the goods perish naturally, such as fruit, make sure you are aware of how much product can be reasonably expected to be lost in transit so that you can protect your client.

The more the broker knows about the cargo, the easier it is to protect the client,” says Brews.

Clients may wrongly assume that their goods are covered because one of the other parties has taken out insurance, but the broker should scrutinise the policy to ascertain what is covered and if extra cover is needed.

Brews recommends that brokers place risk with 

encourage the creation of more local shipping lines and ship owners and charterers, so that the sea carriage performed by the relevant carrier generates income that would find its way back into South Africa,” adds Brews.

The flip side is that large multinational companies tend to centralise their insurance and logistics operations to benefit from economies of scale. They obtain cheaper insurance and cheaper freight rates, hence the preference for sales on terms that best suit the company globally.

But the value of a familiar face and firm handshake should not be underestimated here. “It is always better to have your own local broker and underwriter, who understand your business. Because when the chips are down, a personal relationship with your broker and underwriter trumps a cheaper premium every time,” says Brews.

South African insurers as much as possible and encourage clients to use local transport companies. “The idea is to encourage importers and exporters to contract on terms whereby the insurance of the goods is placed in South Africa,” explains Brews. For example, should an exporter sell on CIP (carriage and insurance paid) terms, that exporter has the obligation to insure the goods to the destination and arrange for the transport of the goods to that destination.

The exporter can perform those obligations by placing the relevant insurance through

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local brokers with a local underwriter, and by arranging the logistics through local service providers and carriers. The major benefit for the client and broker is that should something happen, claiming for loss with the transporter and the insurer will be a whole lot easier, as they are based in the same country.

Should the contract be for the purchase of goods, the operation would work in reverse: the South African buyer would try to take charge of the goods as soon as possible and arrange the insurance and transport of the goods using South African entities. “This is to

Brokers must have as much information as possible about the client’s products, or the client’s role in the transportation of the goods, to ensure that the client is fully protected in any contract. “An insurance broker must fully understand the difference between terms offered in the goods-intransit section of a commercial policy, and terms offered by specialist goods-in-transit underwriters.

The broker should know his client’s contractual obligations in order to determine if limited carrier liability is sufficient or whether broader cover is required,” concludes Phillips.

Eco

disaster on the Horizon Nick Krige

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The highly publicised Deepwater Horizon oil spill in the Gulf of Mexico in 2010 brought home the need for shipping owners and operators to have sufficient environmental liability insurance in place. But it seems as though shipments of oil being carried on South African waters are inadequately insured. ďƒ

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outh African costal economies, local business and the tourism industry would take a severe knock if a portion of our coastline was to suffer a major oil disaster. Despite this, according to Andrew Aubin, regional general manager for Eastern Cape at AON, South African marine authorities are failing to monitor the changing shipping environment in our waters. “They seem to have chosen a laissez faire approach to insurance covers, crisis management and response capacity when it comes to monitoring ships, particularly oil tankers in South African waters,” warns Aubin.

S

The truth is that because South Africa has not updated its legislation for the past 12 years, local oil companies are not paying the 3c on every ton of the oil they import to the International Fund, the insurance fund to which the world’s major oil companies contribute.

And, like all insurance premiums, if levies are not paid, claims cannot be made.

The only real solution would be the creation of a compulsory insurance fund that is certified by the state of the ship’s origin to avoid protracted legal battles and the realities that come from being dismally under-insured, or not insured at all. No insurance company in the world can fund a R23-billion oil spill clean-up, which is why the International Insurance Fund was set up.

“South Africa is lagging dismally in its approach to the range of risks that we are exposed to as a country and putting proper, bespoke risk mitigation strategies in place to counter the impact of worst case scenarios. Granted, understanding and getting a handle on these risks is massively challenging, as they often arise out of complex interdependencies which may not be immediately visible,” adds Aubin.

According to the South African Maritime Safety Authority (SAMSA), of the nine most recent shipping incidents, seven ran into serious insurance challenges. In the salvage of the Eihatsu Maru, authorities face salvage costs of R7.5 million, with more legal costs to come.

The ship is not insured and the south african maritime safety authority's (SAMSA) hopes of selling it and its contents to foot the bill will not even cover a third of the costs. The battle will now go to courts and South African taxpayers are left carrying the can.

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Damage to birdlife Whenever there is an oil spill it has almost become a cliché for the media to beam images of oil soaked penguins around the world, but the fact of the matter is an oil spill is a death sentence for sea birds.

When a bird is covered in oil, it makes it impossible for them to fly and destroys their natural waterproofing and insulation, which leaves them vulnerable to the elements, hypothermia and overheating. In addition, the birds will try to preen their feathers to restore the natural protection and are at risk of swallowing the oil in the process.

Damage to marine mammals

When we consider that clean-up costs for the Exxon Valdes were around R23 billion and the cost of BP’s Deepwater Horizon debacle continues to grow, tax-paying South African citizens will end up footing the bill if the unimaginable happened.

And it’s not just oil tankers that pose a major environmental threat. “Any ship has very large volumes of oil and fuel on board. The Eihatsu Maru, although only a small long-line fishing vessel, could have caused serious damage had the ship broken up after it ran aground off Clifton Beach in May last year. Not only are fuel and oil carried in significant volumes on ships, we know that ships are illegally flushing their bilge tanks at sea, leaving large slicks of oil in their wake,” explains Aubin.

sand, but if it washes into coastal marshes or wetlands it can be even more harmful, as plants and grasses will absorb the oil, potentially destroying the area as a wildlife habitat.

Environmental damage When oil is spilt into the ocean it has both immediate and long-term environmental consequences. The oil has an adverse effect on the surroundings, the birdlife, the ecosystems and the marine animals, sometimes for decades after the initial spill, if it was significant enough.

Damage to marine ecosystems Oil spilled from damaged ships and oil rigs or burst pipelines coats everything it touches and is not particularly easy to get rid of. Anyone who has eaten a greasy hamburger and tried to wash their hands without soap afterwards will have a slight inkling of what oil can do to the environment.

Oil hitting a beach is bad enough, as the oil clings to rocks and every single grain of

Water mammals are put at risk by oil entering their environment. The oil can clog the blow holes of whales and dolphins, making it difficult for them to breathe and hamper their ability to communicate. Oil coating the fur of seals and otters disrupts their natural protection, similar to birds, leaving them vulnerable to hypothermia. Mammals that are able to avoid getting coated in oil are still in danger, as the oil can contaminate their food supply. Mammals that ingest fish that have been covered in oil will be poisoned.

Damage to habitat and breeding grounds The long-term damage caused by oil spills, however, is in what it does to the habitats and breeding grounds of all of these animals.

They rely on these areas for the continuation of their species, and the damage done by oil is without a doubt one of the most significant environmental effects of an oil spill.

In the end, the overall cost and severity of environmental damages caused by a spill are difficult to calculate and depend on many factors.

Often the full impact is not seen or felt until many years after the event, but one thing is certain; oil spills are bad news for the environment.

World’s worst oil disasters Location Trinidad and Tobago Date 19 July 1979

Location Saldanha Bay, South Africa Date 6 August 1983 On a global scale, the Saldanha Bay oil spill ranks only eighth or ninth in terms of gallons of oil spilled, but it is easily the worst marine environmental disaster on South African shores. It started when the Castillo de Bellver oil tanker caught fire about 100 kilometres northwest of Cape Town.

The ship began to drift before eventually breaking apart and sinking 40 kilometres from the coast.

The rear portion of the ship sank with around 31 million gallons of oil still aboard, but the front portion was towed away and sunk further off the coast to minimise pollution. In total, just short of 80 million gallons of oil polluted the west coast of South Africa.

The collision between the Atlantic Empress and Aegean Captain in 1979 could have been much worse for the environment; the tankers were carrying 154 million gallons of oil between them. The two ships were caught in a tropical storm while moving through the Caribbean and caught fire after the crash.

Emergency crews were able to contain the fire on the Atlantic Express and tow it to shore.

Unfortunately, the fire on the vessel continued to burn unchecked and began to leak oil. This oil leak continued while it was being towed out to deep water, where it sunk on 3 August 1979.

In total, 90 million gallons of oil were spilled into the ocean.

Location Gulf of Mexico, USA Date 20 April 2010

Location Bay of Campeche, Mexico Date 3 June 1979

Location Persian Gulf, Kuwait Date 19 January 1991

This spill was very similar to the Deepwater Horizon event three years ago. The rig, also drilling in the Gulf of Mexico, suffered a wellhead blowout. This resulted in oil and gas fumes flowing out of the well, which exploded and caused a fire on the drilling platform. It is estimated that the well was dumping 10 000 barrels of oil a day into the water for nine months until workers were successfully able to cap the well. In total, 140 million gallons of oil was leaked into the ocean.

Interestingly the worst oil spill in history was not caused by a tanker accident or oil rig drilling accident; it was a calculated act of war. During the first Gulf War, in an attempt to prevent American troops from being able to land on the coast, Iraqi forces opened the valves of the Sea Island oil terminal in Kuwait and dumped more than 380 million gallons of oil into the Persian Gulf. The oil slick that was created was 10 centimetres thick and covered 6 500 square kilometres of ocean.

The Deepwater Horizon disaster is without a doubt the most high-profile spill of recent times.

It did not involve a tanker, but an explosion on an oil rig after high-pressure methane gas expanded into the drilling unit and ignited.

Most of the workers on the rig escaped, but 11 bodies were never found and the effect on the environment around the site was tremendous.

There were multiple efforts to douse the flames burning on the rig, all of which failed and the Deepwater Horizon eventually sank after burning for 36 straight hours. At first it was believed that there was no oil leak, but two days after the explosion, a large oil slick began to spread at the rig site. In the end, an estimated 210 million gallons of oil was split into the ocean and affected the coastlines of Louisiana, Mississippi, Alabama and Florida.

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Managing claims during Len Coetzee Certified fraud examiner and director, Censeo

catastrophes

Arctic warming and global warming With global warming and the change in weather patterns in the last two decades, underwriters, insurers and reinsurers alike have had to rethink cover, conditions of cover and underwriting risks in certain areas on our planet.

A recent study showed that Arctic warming is altering weather patterns. The study by Jennifer Francis of Rutgers University and Stephen Vavrus of the University of Wisconsin-Madison, tied rapid Arctic climate change to high-impact, extreme weather events in the US and Europe.

How Africa is affected In the last few years in sub-Saharan Africa, with South Africa not being unique to this, we have experienced extreme weather patterns with some major catastrophes in terms of cyclones, inland and coastal flooding, hailstorms, wildfires and higher sea levels causing damage to our coastal properties. Rainfall patterns and levels have definitely risen as well as the frequency of severe hailstorms as experienced in the Eastern Cape, KwaZulu-Natal Midlands, and the East and West Rand areas in Gauteng in the last quarter of 2012, costing insurers in South Africa with estimates in excess of half a billion Rand. This figure will still rise.

Catastrophe claims management Insurers and their claims departments are generally inundated with high claim volumes

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during periods of catastrophes, and premiumpaying clients definitely expect the same service as experienced in the normal course of business. It is therefore essential that insurers, internal claims assessing departments and assessing companies have catastrophe project planning as part of their business and claims risk management strategy.

•

• At Censeo, we mobilised multiple teams of experienced assessors to move to the hardest hit areas in the last quarter of 2012, to assist with the flooding in the Eastern Cape areas, predominantly Port Alfred and the severe hailstorms that were experienced in the East and West Rand areas, as well as the most recent hailstorms in Ladysmith in KwaZulu-Natal over the festive period. The Ladysmith areas were described by one assessor as “like a war zone” when he arrived there. The teams worked on average 18 hours a day to provide services to affected clients. In the Eastern Cape, major roads collapsed, houses were washed away and hundreds of people were cut off as heavy rain continued to pound away and 11 lives were lost over one specific weekend due to the floods.

Part of the catastrophe claims management process is to: • I dentify potential claim volumes and second the correct number of assessors to the specific area.

• Set up a 24-hour nerve centre for the disaster recovery team in that specific area.

• Have the correct equipment and administration support in place at the nerve centre.

• Identify and get the buy-in of preferred

• •

• • •

service providers in the area, and where additional service providers are required that they be drawn from other areas to assist.

Contact affected clients to set up appointments, assess and authorise emergency repairs to minimise any further damage which could exacerbate the loss for insurers.

Accurately cost and finalise the claims as expediently as possible so as not to inconvenience clients.

Arrange alternative accommodation for clients and their families.

Meet with senior insurer claims personnel to establish definitive loss management, communication protocols, and agreed loss management objectives.

Agree on standardised concise reports and settlement mandates.

Authorise finalised claims with service providers efficiently.

Get the buy-in from the local authorities where necessary.

An assessor from Censeo, who assisted in the recent catastrophes in the Eastern Cape and KZN, formed an integral part of the international team that assisted for a period of six months after a 7.1 magnitude earthquake hit the Darfield area just 40 kilometres west of Christchurch in New Zealand in September 2010. Besides hundreds of millions of Dollars in damages caused to properties in the region, 185 people lost their lives.

His view was that the insurance industry in South Africa manage catastrophe claims professionally and similar to that practised internationally.

rerate process

Understanding the

in the insurance industry

The rerate principle which insurers implement is a complicated concept to understand at the best of times. Many factors are taken into consideration in order to determine an accurate annual increase. The main determining factors are the claims experiences of each individual client and the claims experience of the insurer, with reinsurance costs also playing a role. The exchange rate, increasing labour costs and inflation are all factors that directly affect your clients’ rerating too. atters become a little more complicated when calculating a rerate on vehicle risks. The question often gets asked why a client’s vehicle premiums go up every year even though the vehicle’s value depreciates. Many vehicles and their parts are imported to South Africa; because of this the exchange rate has a direct effect on the cost of spare parts and repair expenses. As the Rand weakens against certain major currencies, the cost of repairs starts to increase, with labour costs also influencing vehicle premium increases. The wage disputes seen throughout 2012, and the resultant higher than inflation increases, unfortunately have an upward impact on vehicle premiums.

M

process in order to set their clients’ minds at ease with the annual increase?

Intermediaries must ensure that their clients’ details and insured values are up to date and accurately recorded by the insurer.

Excesses can be adjusted in order to provide a more amiable premium for the client. The intermediary can also help by contacting the client and confirming if everything is covered.

For example, has the client purchased new all risk items and have they been insured?

The value of a vehicle is usually relevant only when there is a total loss, which happens in the case of vehicle theft or a write-off. Since most claims are for accident damage, vehicle premiums will subsequently increase annually.

Momentum Short-term Insurance strives to simplify the process for its clients and intermediaries by automatically adjusting the values of vehicles, buildings and contents cover, taking the strain off our advisers’ shoulders. We give our intermediaries the option to review the adjusted cover prior to sending the details to the client. During this period, the intermediary can negotiate for a lower increase on behalf of the client.

Keeping all this in mind, how can intermediaries advise their clients on the rerate

Given our individual underwriting model, our clients are not wholly affected by factors that

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“Intermediaries must ensure that their clients’ details and insured values are up to date and accurately recorded by the insurer.” are not relevant to their unique risk profiles. As a result, we have been able to maintain rerate increases well below the industry average, underlining the value of our approach.

For more information on understanding the rerate process, please contact your specialist marketing adviser or our call centre on 0860 006 784.

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Drinking, driving

and claiming

from insurance Sarah Bassett

“Drinking and driving has become a socially acceptable practice in South Africa,” says Arnold van der Linde, executive chairman of IntegriSure. His comment follows the recent announcement by the Road Traffic Management Corporation (RTMC) that drunk driving and speeding remain the biggest contributors to accidents occurring on South African roads.

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he economic costs of South Africa’s high road accident numbers have been under scrutiny recently, with Minister of Transport, Ben Martins, calculating the annual cost to the economy at R306 billion (roughly 10 per cent of GDP). Seventy per cent of road accidents in South Africa are believed to be alcohol-related.

The insurance implications of a bumper bashing while over the legal blood alcohol limit are quite clear. In South Africa, alcohol exclusions are a standard clause of any vehicle insurance policy and should a driver be found to be over the legal limit, their claim will not be covered for any accident, however major or minor the damage may be.

“Our policy wording states that any loss or damage to the vehicle will not be covered

36

while any person drives the vehicle under the influence of intoxicating liquor or drugs, or your blood alcohol concentration exceeds the legal limit,” says Helen Szemerei, chief executive officer of IntegriSure. Should there be a delay in receiving the results of a blood test, “The claim will not be repudiated, rather, the settlement will be withheld until the final results have been received. The claim will then be paid or repudiated depending on the results,” adds Szemerei.

However, it is important to note that claims can be refused on the grounds of reasonable suspicion alone. The burden of proof is much lower in a civil case than in the case of a criminal charge.

The Ombudsman for Short-term Insurance affirms this, telling the Arrive Alive campaign,

“The rejection of liability will be upheld if the insurer is able to prove, on a balance of probabilities, that the insured driver was under the influence of alcohol or had a blood alcohol concentration in excess of the statutory limit.”

The same exclusions are applicable to the vehicle liability section of the policy, meaning that third party damage will not be covered in the event of a bumper bashing while over the legal limit.

Should a claim be refused on these grounds, Szemerei explains, “The insured has the right to appeal any repudiation. This appeal should be submitted in writing within 90 days from the date that the claim was formally repudiated.”

Minister Ben Martins has suggested that government will review existing legislative instruments with regard to drunk driving on South African roads, a move welcomed by IntegriSure. Should legal alcohol limits be reduced, it will be even easier for your clients to find themselves in a position where their claim will not be covered. According to Van der Linde, the average bumper bashing claim is R20 000.

If your clients have adopted a culture of drinking and driving, even just a little beyond the limit, it may be time to warn them of the considerable liability and expense they face.

Labour brokers could complicate liability claims

“A group of armed men entered a retail outlet, robbed the staff and took a cashier hostage. Members of the security company employed by the retailer fired shots at the robbers as they tried to make an escape, accidentally hitting the cashier in the arm.

The cashier sued the retailer for damages for personal injuries.�

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BRIGHT IDEA? B

rokers with clients who make use of labour brokers need to be fully aware of the implications, and where the client’s liability lays under various government acts that govern labour relations in South Africa.

“The issue of labour brokers is a very thorny and legally complex topic,” explains Etana’s general manager of strategic growth, Marius Kuhn. “When it is combined with the principles of liability insurance, it becomes even more difficult to navigate.”

Etana’s attorneys, Everinghams, shared the following case study – based on Crown Chickens Pty (Ltd) vs Rieck (2006) SCA 127 (RSA) – with Kuhn to show exactly how complicated a liability claim involving labour brokers can get.

A group of armed men entered a retail outlet, robbed the staff and took a cashier hostage. Members of the security company employed by the retailer fired shots at the robbers as they tried to make an escape, accidentally hitting the cashier in the arm. The cashier sued the retailer for damages for personal injuries. The court accepted that the retailer was liable because the security company had acted wrongfully while in the retailer’s employ.

What happened next was very interesting.

The retailer argued that the cashier’s claim was precluded by Section 35 of the Compensation for Occupational Injuries and Diseases (COID) Act, which states that an employee who is entitled to compensation under COID may not bring legal action against their employer. To complicate matters further, the cashier’s services had been supplied to the retailer through a labour broker.

The question that arose was not around the cashier’s status as the employee, but around the retailer’s status as the employer.

In short, the court ruled that there could only be one employer: in this instance, the labour broker, with whom the cashier had an employment contract and from whom she received her salary.

So, because the retailer was not the cashier’s employer, she was allowed to proceed with her damages claim against the business.

“This is not a cut-and-dried rule, though,” says Kuhn. “According to our attorneys, even though the retailer in this case wasn’t classified as the cashier’s employer under the COID Act, there are instances where the decision would have gone the other way.

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“For example, if she had committed an act of wrongdoing within the course and scope of her duties, the retailer would likely be construed as the employer for purposes of attracting vicarious liability,” he continues.

Marius’s advice to brokers is simple: “It’s a legal minefield out there.

As a broker, you want to ensure your business clients are adequately covered against liability claims. So speak to your broker consultant if you need advice on the best levels of cover for your clients. You wouldn’t want them to get caught short.”

WWW.INNOSYS.CO.ZA

+ 27 11 532 8300 | info@innosys.co.za 39

Mechanised

farms

provide growth opportunities for insurers 40

T

he agricultural sector could prove to be a potential growth area for insurers, as the sharp increase in sales of farm machinery shows that farmers are both confident in the future of their industry and making moves to mechanise.

Sales of agricultural machinery in South Africa are at their highest level since 1985, which is a good sign for the industry as a whole, as well as insurers that operate in that sector. Latest statistics from the South African Agricultural Machinery Association (SAAMA) indicate renewed optimism among South African farmers on the short-term future of the agriculture industry, as sales of key pieces of agricultural equipment reached a near 30-year high in 2012.

According to Gerald Burton, general manager: corporate division of WesBank, recent figures released by SAAMA show that the annual sales of tractors and combine harvesters in both 2011 and 2012 were significantly above average and are actually the most positive since 1983 and 1985, respectively.

Burton notes that this trend was also reflected

by WesBank’s book data, which shows an upward trend, indicating a measure of positive sentiment in the farming industry.

“The increased sales of tractors and combine harvesters bring some welcome news as other sectors of the South African economy continue to struggle.”

This is also good news for insurers, as farmers will want to protect the increasing number of expensive machines on their farms. Burton does not believe the increase in purchase of tractors and harvesters is related to recent strike action in the agricultural sector, as an increase was seen in 2011 before any strikes had taken place. Instead he maintains it is the positive attitude of farmers towards the future of their industry that is driving growth. “In 2009 and 2010 everyone struggled, so there was an understandable lack of investment. Now that things are looking more positive, and interest rates are extremely low, it makes sense that farmers are looking to invest again,” explains Burton.

According to WesBank book data, agricultural annual new business in 2012 was up 27 per cent in Rand value for the full calendar year compared with 2011. “Even more positive is the fact that we are up 41 per cent in Rand value for the period July to December when comparing 2011 and 2012,” says Burton.

Burton notes that the 2012 rise in numbers, when compared to data gathered by SAAMA since 1980, is significant as it follows two decades of relatively flat figures, since an initial tremendous spike in the sales of both types of machinery in the early 1980s. “Sales growth of agricultural machinery is a very good indicator of the health of the agriculture industry and news that farmers are positive about their own business needs is a good

sign for the ongoing health of the sector,” says Burton.

Looking ahead, there could be more reason for farmers to mechanise and buy additional machinery. It was announced in early February that the minimum wage for farm labourers would be increased to R105 a day from 1 March 2013. This announcement was quickly followed by 2 000 farm workers being issued with retrenchment notices, which indicated a swing towards further mechanisation on farms.

This begs the question whether South Africa’s farmers, who are generally under-insured, will take out additional insurance to protect new and expensive machinery on their farms.

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2012/10/25 4:41 PM

’ g n i d n ‘Trne

art

t f e h t i

Art theft claims have increased by a massive 43 per cent from 2011 to 2012, with claims for accidental damage up 21 per cent. This is according to recent figures released by niche art and collectables insurer, Artinsure.

A

rtinsure managing director, Gordon Massie, observes that claims for three types of theft are increasing in frequency. “We are seeing a high theft rate of alloy and metal pieces, which can be melted down and turned into door handles or ash trays, for example.

These items are sold for very little money, often only the weight of the metal, and melted down before they can be located and recovered,” Massie explains, referring to the recent theft of 37 coins from a corporate collection.

The stolen collection included gold, silver and copper coins from the 1400s to the 1700s. Because not all of the accessible items were stolen, Massie suspects those responsible targeted the coins and medals specifically. “Unfortunately, this quite important collection was not insured. We are working on establishing a value for it,” he told us before going to print.

Opportunistic theft is also on the rise. “The thief doesn’t have an endgame or clear plan on how they are going to sell the works. The risk with this kind of theft is that the works often end up being destroyed,” notes Massie. Since it is

42

extremely difficult to sell a well-known piece of art, it’s no surprise that targeted theft is on the rise, too. “These thefts occur not just because of the material value of the art, but because somebody wants a specific piece for their private collection.”

Johannesburg art heist In November 2012, artworks by Gerard Sekoto, Irma Stern, Maggie Laubser, JH Pierneef and Hugo Naude were stolen from the Pretoria Art Museum in Arcadia. Four of them were subsequently recovered in a cemetery in Port Elizabeth, but Sekoto’s R7 million Street Scene remains unaccounted for.

Massie suggests that the characteristics of this theft are similar to art heists in Europe, where a collection of works is taken and a number are recovered soon after, but the prized object disappears.

It can be difficult to decipher between opportunistic and targeted theft, since it’s impossible to know exactly what the rationale for the theft was, unless all the works are recovered or the thief eventually arrested.

Nonetheless, “There is definitely an increasing

awareness in the South African market of the value of South African art,” says Massie.

The R20 million pen collection In January, a private pen collection, valued at R20 million and originating from Montegrappa in Italy, was stolen in South Africa. While not the insurer of the collection, Artinsure was helping to recover the pieces at the time of writing. “When art is not insured through a specialist, the insurer often doesn’t have access to the same network that we do.

A number of stolen pieces listed on our art theft register are not insured by us,” says Massie.

The insurer provides full theft cover on an agreed value basis, pursuing the recovery of items and listing them on the art theft register on its website.

According to Massie, the increase in accidental damage claims can be attributed to tougher economic times leading to decreased expenditure on protecting artworks when they are moved or handled.

A

footprint per se Johan Wolhuter | portfolio manager at Renasa Insurance Company Limited, Klerksdorp

Understand what it is that intermediaries look for in an insurer The risk will not necessarily be placed purely on price, but rather with the insurer best suited to deal with any issue that may arise. Brokers want to deal with underwriters who can make decisions across the desk and address any issues swiftly, efficiently and effectively.

The principles of creating business partnerships with like-minded brokers and other intermediaries are all similar. Focus on realistic expectations as well as clearly defined concise communication, shared objectives and mutual respect/trust, aware of the fact that you will not always agree on everything. While it is important to know your broker, understanding their needs is imperative. Ensure that compliance with the new legislation and regulations are in place before starting a partnership, i.e. the Consumer Protection Act and the Protection of Personal Information Act. Address binder regulations where applicable. Information technology must assist intermediaries to efficiently manage their books without inhibiting their independence. For example, scientific underwriting and systemised

44

In order to establish a meaningful and sustainable footprint, it is essential to have a good understanding of the market in which you want to operate and how you are going to deliver to it. It is also important to understand how to segment the market and the brokers. claims cost control (an integrated data base) makes independent intermediaries as competitive as direct insurers. It is essential that insurers allow intermediaries access to alternative systems that are available to improve underwriting performance. Such a progressive approach to the traditional challenge of balancing freedom and control is a key advantage of an insurer’s offering.

“Brokers have a key role to play in bringing pressure to bear for innovation, on behalf of customers.”

With these tools, independent brokers can improve turnover while maintaining agreed profit margins. All this should be achieved without interfering with the intermediary’s own systems, operation and efficiency.

The tools, so to speak, operate in the background. Technology is what makes this possible (reinforcing what the independent intermediary needs).

Intermediaries need to align themselves with companies that are innovative, enabling them to deliver a specialised service offering and products that are necessary for customers in today’s environment.

Specialist cover offerings can be used as a vehicle to drive growth through, for example, cross-selling opportunities. Brokers have a key role to play in bringing pressure to bear for innovation, on behalf of customers. This may well be the power to introduce fresh ways of thinking into the insurance industry. The focus would be to cement relationships in meaningful ways. Relationships are what this business is all about.

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Providing advice is in the broker’s domain and is dependent on a clear understanding of what is on offer so they can make an educated proposal. Make sure that the broker understands that you are not only a commercial and personal lines company, but have many different value-added products. The service aspect is supposed to be a given.

This exercise could have a decided advantage for the broker and presents a real opportunity for the growth of both parties.

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Intermediaries should want to connect with insurers that offer a traditional personal service and still give intermediaries the benefits of advanced underwriting and claims technology, while preserving their independence without interference.

Raise the profile of the brand by adopting a high visibility approach to make your presence known and felt. Develop a strategy and tactics analysis to make inroads in the prevailing balance of existing market forces. Deployment of this plan should illustrate a real commitment to proving that the preceding sales campaign was not just another empty rhetoric.

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45

Petrol stations at risk as fuel price climbs

As fuel prices climb, petrol station owners are reminded to check their insurer’s criteria relating to fuel price increases, says Leslie Mitchell, managing director of Garagesure Consultants and Acceptances. Changes in fuel price significantly impact the value of inventory on-hand and station owners can find themselves suddenly under-insured as a result. petrol station with a 100 000 litre storage capacity would have seen an inventory value increase of R335 000 between January 2010 and January 2013. If insurance sums were not updated, this could mean under-insurance of as much as 30 per cent, leaving the petrol station owner vulnerable to significant losses in the case of a fire, for instance.

A

Ideally, the value of inventory insured should be checked and updated regularly to ensure it is accurately reflected on policy schedules, suggests Mitchell. “But this can become administratively onerous, given that there are sometimes monthly changes to the price of

fuel. To allow for this, Garagesure does not apply average to fuel inventory provided that the sum insured value stated on the schedule is within a 10 per cent margin.” In the past decade, the petrol price has burgeoned at an average rate of 11 per cent annually.

Analysts suggest that if the trend continues, petrol could cost R20 a litre in as little as five years. These price hikes leave petrol station owners feeling considerable financial pressure due to the negative impact on fuel demand. “Many people would rather travel less than pay more for fuel, which in turn has an effect on the volume of fuel sold and results in lower spending in the convenience stores at the petrol station forecourts. A petrol

retailer’s profit is fixed for every litre of fuel sold, regardless of the fuel price.” In addition, increases could put a petrol station owner’s cash flow under pressure, as some pay for their deliveries using cash up front.

“Dealers or franchises have contracts with their oil companies that compel them to keep a minimum fuel inventory level, so it is inevitable that your fuel inventory purchase will increase or decrease with fuel price fluctuations. “A solution would be to speak to your brand about fuel guarantees that are available in the market and which are accepted by them. This could help ease the extreme burden of a cash upfront purchase,” Mitchell advises.

Profiling driver behaviour to mitigate your risk.

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al t u nn mi A h Sumy t r u re nuar o F ca Ja R II alth to 31 He 28

NHI discussions dominate at

Healthcare Summit Sarah Bassett

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The Institute for International Research (IIR) held the fourth Annual Healthcare Summit from 28 to 31 January. The summit is a leading business forum for healthcare professionals including health authorities, hospital operators, government, health insurers, care organisations, research institutions, academics and pharmaceutical organisations.

Costs and pricing A key discussion addressed the topic of private healthcare costs and the pricing framework.

The discussion highlighted the fragmented and incoherent nature of regulations in this area. Importantly, any attempted collusion between State, providers and other role players will be seen as a contravention of the Competitions Commission and this remains a significant challenge in the face of finding a satisfactory resolution.

Draft regulation Samsodien’s presentation offered delegates an explanation of the draft regulation to demarcate health insurance and medical schemes.

he event drew attendees from across South Africa and featured distinguished speakers, dynamic panel discussions, special workshops, masterclasses and networking opportunities.

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The theme for this year’s conference was ‘Bringing together policy, strategy, partnerships and innovation to drive sustainable reform in healthcare’ and offered an exploration of the continuing evolution of healthcare in South Africa and of the leadership and collaboration needed to ensure that higher quality healthcare services become more widely available.

The summit served to provide an overview to keep key role players, including the various regulators, informed of industry developments and changes. A particular focus was on the differing levels of progress from individual arms of the Department of Health regarding the universal healthcare for South Africans in the form of National Health Insurance (NHI).

The diverse spectrum of challenges currently facing the healthcare industry was a focal point for discussion. Speakers from the Health Professions Council of South Africa (HPCSA), Council for Health Service Accreditation of Southern Africa (COHSASA), South African Medical Association (SAMA), Independent Physicians Association (IPA), Council for Medical Schemes (CMS) and other influential organisations offered clarity and direction for healthcare organisations regarding policy reform and implementation.

A key theme throughout the summit was how to bring together policy, strategy, partnerships and innovation to drive sustainable reform in healthcare.

Health authorities, hospital operators, government and pharmaceutical companies

together debated a compelling slate of topics impacting healthcare service delivery in South Africa, using the opportunity to discuss fresh solutions to the challenges they face in their respective organisations.

The NHI Information on the roll-out of National Health Insurance (NHI) was presented by Professor Morgan Chetty, chairman of the IPA. The presentation addressed how NHI can achieve more equitable healthcare funding and how the private health sector can contribute to making NHI work.

This subject was of particular interest for many delegates and explanations submitted suggested that it is not designed as an acute care system. The pilot phase will begin with a period of information collection, providing crucial clarity for the Minister of Health for the implementation of NHI. Clayton Samsodien, managing director of Genesis Healthcare Consultants, a speaker at the summit and an attendee, commented that he was particularly glad to have the opportunity to garner information and a better understanding of the current status in the efforts to achieve NHI and policy framework.

This information enables professionals in the industry to better inform and advise clients.

Medical schemes and the CPA A key outcome of the summit was the discussion surrounding the relationship between the Consumer Protection Act (CPA), Protection of Private Information Act (POPI) and Medical Schemes Act. The outcome tended towards the need for certain exclusions for medical schemes from the CPA.

“There were over 2000 submissions after the draft regulations were published and silence thereafter,” says Samsodien. “Healthcare intermediaries provided clients with advice for the 2013 medical scheme review without clarity on the draft regulations, and thus most advised on the basis that the status quo would remain.

In our experience at Genesis Healthcare, there was an increase of two per cent in medical aid benefit changes. Seventy per cent of benefit changes were upgrades. Short-term health insurance and gap products cannot be blamed for downgrades or members buying in at a lower level.”

According to Samsodien, issues such as affordability, particularly in the face inflation and increasing food and electricity costs, have not been adequately addressed. “There is no solution for the gaps in cover and products available for the low-income earners. The regulations cannot seek to ban these products without providing citizens with an alternative.”

Further areas of discussion at the summit included ensuring effective healthcare governance in an evolving healthcare system; investigating public private partnerships (PPP) between public and private healthcare organisations; analysing the critical concerns that need to be addressed in order to improve primary healthcare provision in South Africa; and an investigation of the Cuba learning initiative in relation to improving the curriculum and training of healthcare practitioners in South Africa.

Additional speakers included Dr Buyiswa Mjamba-Matshoba, registrar and CEO of HPCSA; Dr Monwabisi Gantsho, registrar and CEO of the CMS; Dr Phophi Ramathuba, chairperson of the SAMA committee for public doctors; and Professor Alex van den Heever, chair of Social Security Systems Administration and Management Studies at the University of the Witwatersrand.

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Owide pen paying for dentistry Hanna Barry

Dentistry benefits in medical aid plans find themselves in a tight corner. Whether thrown in with medical savings or other day-to-day benefit limits, the coverage for certain basic dental work leaves much to be desired. Even where dental benefits are paid from risk, they remain restricted.

This has left many South African dentists earning a living by the skin of their teeth.

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asic dentistry benefits on low-cost medical scheme options include limitations such as access to a dentist within the scheme’s network only, or the number of visits and fillings allowed per member. “Where such a risk benefit is offered, it will generally include benefits for check-ups and X-rays. These may be limited, for example, to one or two check-ups annually, but one is plenty for the average person. Fillings are also usually covered, but again sometimes limited to a maximum number,” says Dr Gareth Hayton, managing director of Denis Insurance Administrators (DIA).

DIA is one of a number of companies in the Denis Group, a leading private dental insurance underwriter and claims administrator.

Operating in the medical aid environment, Dental Information Systems (Denis) is the largest independent dental claims administrator in South Africa and provides dental benefit management to a number of schemes, including Bonitas, Medihelp and Thebemed.

In-hospital dentistry benefits (where a general anaesthetic is required) are generally offered on low-cost medical scheme options, too, but these will be subject to certain limitations with regard to tariffs and often a hospital network.

If members are on an option with a savings account, day-to-day benefits will almost always come out of their savings account.

Of course, dental costs paid from savings are not true benefits as they are dependent on the balance in a member’s account. “Some schemes add dental benefits to a group of other benefits that may have a maximum limit, like a day-today benefit for example. The problem with this is that, like a savings account, this limit may be reached early in the year,” says Hayton.

Obviously the more comprehensive your client’s medical aid cover, the greater their dental benefits will be. All options on all schemes differ slightly, giving medical aid brokers plenty of homework.

Overworked and underpaid Heidi Kruger, head of corporate communications at the Board of Healthcare Funders of Southern Africa (BHF), maintains that medical scheme budgets are under tremendous pressure when it comes to

providing for day-to-day healthcare, such as dental benefits. “Because our private health system legislation forces a hospi-centric approach to healthcare, most of the healthcare Rand is spent on hospitals and specialists, which also increases above inflation each year,” she says.

Dr Hayton says that dental benefits have declined considerably over the past few years primarily due to prescribed minimum benefit-treatment being funded at cost with no limits. This has reached the point where dental benefits per procedure are much lower than what a dentist actually needs to charge.

“Practice costs run at R600 to R1 000 an hour.

If a dentist sees you for half an hour he has to charge at least R300 to make ends meet, but the benefit for a consultation is about R150,” he says.

“Medical aid tariffs are relatively low compared to what we should be charging,” agrees Dr K Pather of the Colosseum Dental Studio in Cape Town. “Private consultation alone is R420, while medical aid pays approximately R260 for a consultation. For example, the Government Employees Medical Scheme (GEMS) offers only R1 750 for dental treatment per beneficiary per year. This will cover a cleaning and possibly three fillings. Advanced treatments are covered at very low rates and dental materials are generally very expensive.”

Dr Pather remarks that in previous years, several medical aids offered unlimited dental treatment and still offered a specialised fund to cover more advanced treatments such as crowns, bridges and chrome dentures. “I’m assuming that medical aids view dentistry as very expensive and have limited treatments in order to prevent huge expenditure from their side.”

Judging from expenditure on various healthcare professionals as detailed in the Council for Medical Schemes annual report for 2011, it may be as Kruger suggests that hospi-centrism is to blame. In 2011, dentists were paid 2.8 per cent of the total payouts of medical schemes.

This compared with R6.8 billion paid to general practitioners (7.3 per cent of total benefits paid by medical schemes); R34.1 billion spent on hospital services (36.6 per cent); and R21.3 billion paid to medical specialists (22.8 per cent), the latter reflecting a year-on-year increase of 13.5 per cent.

According to Maretha Smit, CEO of the South African Dental Association (SADA), dentistry received 8.8 per cent of the total payouts of medical schemes in the late nineties.

Smit said in a statement at the end of last year that the actual cover for dentistry by South Africa’s medical aid schemes in many instances does not even reimburse the costs of the actual material in dental treatments, let alone pay for the professional time of dentists. “The high outlay for basic equipment and the staggering costs of materials, most of which are imported from abroad, leaves very little room for a fair profit,” says Smit.

In a letter submitted at the end of January to the Health Professions Council of South Africa with input towards guidelines for consultative 

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fees for dentists, Dr Geys De Necker, of De Necker Dentists in Cape Town, shows that adjusting fees by the Consumer Price Index alone, accounts for significant increases. By his example, a consultation that was covered at a rate of R95 in 2006 should be covered at a rate of R149.60 in 2013 when taking CPI into account. A comprehensive oral examination, previously covered at R180, should now be covered at a rate of R283.46.

“This illustrates the impact that the inflation rate alone has on the fees to be charged,” says Dr De Necker. “Literature and articles in medical magazines indicate that it is an international phenomenon that the inflation of medical care outstrips the consumer price index.” Despite this, Dr Mehroon Khan, manager of coding and nomenclature at the SADA, says that the fees paid to dentists are calculated against CPI and not medical inflation. “The number of medical scheme members is shrinking, schemes are cutting costs and dentists seem to be bearing the brunt of this,” he notes.

Paying out of pocket “The rate at which medical aids reimburse dentists doesn’t cover the cost of practising,” agrees Dr Kaplan, a prosthodontist in Johannesburg. A prosthodontist is a specialist in cosmetic, implant and restorative dentistry. “It was fine 30 or 40 years ago, but inflation has taken the cost of dentistry higher and higher.

Anybody who practises at medical aid rates is committing financial suicide.” The expenditure on dental care by medical schemes remains low, since it is not a PMB and therefore not obligatory in terms of the Medical Schemes Act. It is perhaps understandable why medical aids cannot afford to make these benefits more comprehensive, but this often leaves members with no option but to pay out of pocket.

A dentist with a large practice in Johannesburg told us that he often insists that medical scheme patients pay upfront. “This applies to those schemes that offer extremely poor benefits or those that demand excessive pre-authorisations.

Medical aids will penalise patients and the dentist if they go ahead with certain procedures without being authorised to do so.

Unfortunately, they sometimes refuse to cover even basic treatments, such as root canal and posterior composite fillings, when patients need it.”

On the whole, he says that Discovery’s executive and comprehensive plans offer the best cover for dentistry. “Discovery has by far been the most proactive in designing

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comprehensive benefits for its members.

Compared to other medical schemes, it offers significantly more extensive coverage relative to monthly premiums. For example, each member of an entire family will be covered for a range of treatments independently on its executive and comprehensive option, whereas on the comparable options of other medical schemes, only one expensive treatment will be covered per family each year.” Dr Kaplan works only with Discovery, although insists his patients pay him first and then claim from their medical aid, while De Necker Dentists also say Discovery seems to offer the best dental benefits.

In Dr Hayton’s opinion, the only real value in medical aid is in the PMB benefits they must cover. “Out-of-hospital costs like dental can be managed and budgeted for. Low-cost insurance products take the sting out of these costs and I think the future for middle income private patients will be a hospital plan through a medical aid, which covers big ticket items like cancer and major operations, and a bouquet of low-cost health insurance products that assist with the cost of other health expenditure.”

Dr Hayton says that extra cover through insurance, rather than alternative funding mechanisms altogether, are probably the answer to covering shortfalls. But something has got to give. “Dentistry in this country is seriously underfunded.

Those dentists who can, work sessions overseas to supplement income. It is a very unhealthy situation. I believe that health insurance products are the most effective way to sustain private dentistry and private GP practice.”

For more on alternative funding mechanisms, read “When medical aid gives you toothache” on the following page.

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MEDICAL

When medical aid gives you toothache Sarah Bassett

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Dental benefits have declined alarmingly in recent years, says Dr Gareth Hayton, managing director of Denis Insurance Administrators (DIA). As a result, many patients turn to their brokers for help in assessing the alternative options available. RISKSA looks at what these alternatives are and what brokers need to know about them.

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he South African Dental Association (SADA) confirms that while medical aid has traditionally covered dental care, the current cover for dentistry offered by medical aid schemes frequently does not reimburse the costs of the actual materials used, let alone pay for the professional time of dentists. This may leave your client with a serious shortfall in cover, highlighting the need for other forms of financing.

Dental insurance Dental insurance is a short-term health insurance product regulated by the Financial Services Board (FSB) in South Africa. The concept is relatively new to the South African market, but it is widely available internationally.

Dental insurance products are designed to offer financial coverage for a portion of a patient’s dental care bill.

They can significantly reduce the immediate financial strain of a necessary and perhaps unexpected procedure, but will not cover the full cost.

Wisdom Dental Insurance, offered by DIA, offers four different packages, ranging from the basic to the comprehensive options. The basic care plan can be acquired for R23 a month and covers emergency procedures only; root canals, temporary crowns and jaw surgery.

The comprehensive cover is available at R210 a month and covers everything from cleaning and polishing to implants and crowns. It is important, as with any short-term cover, for an individual to select the cover option that best suits their heath condition and needs, so as to avoid under- or over-insuring themselves.

“As with any insurance,” notes Dr Hayton, “one can’t buy a policy in order to cover a procedure that you know you are about to have, so waiting periods are built into these products.” The waiting periods range from three to six months dependent on the procedure in question.

Yvette Schroder, team leader at DIA, explains that for each package, the premiums and benefits are set irrespective of the individual risk profile of a patient. Pre-existing conditions, however, are excluded. There is a maximum entry age of 65 and child dependents may

remain on a policy until a maximum age of 25-years old.

above R4 000. The average loan amount for dentistry at First Health Finance is R24 000.

Patients are free to choose which doctor or dentist to visit and what treatment to have. The choice of treatment will not influence the claim value, however. Wisdom Dental Insurance offers stated benefits, so regardless of the dentist’s charge or the cost of the treatment chosen, the stated benefit amount will be paid.

This is because insurers, by law, may only cover a condition or event; covering treatment would contravene the Medical Schemes Act.

Clients are assessed for credit-worthiness in much the same way a bank would, says Jason Sive, director of First Health Finance. Both finance houses apply their own internal scoring system in addition to a credit bureau check.

Unlike medical aid schemes, insurers may not pay benefits directly to the practitioner; they must pay the member who will then settle with the dentist. Patients will always be responsible for the cost of check-ups and X-rays, which insurers cannot legally cover in South Africa.

According to Dr Hayton, it is critical that brokers understand that it is not the intention of dental insurance to cover all treatment costs.

Brokers should also note that orthodontics for children is not covered by dental insurance.

Statistically over 70 per cent of children should have braces, making it too frequent an event for insurers to cover. “Expensive dental procedures are not that common, which is why they can be insured,” he explains.

Dental finance Dental finance is another common international alternative growing in the South African market.

Available through specialised medical finance houses, dental finance is a banking product that offers payment solutions for specific procedures. Payment plans can be structured over six, 12, 24 or 36 months. And interest will be charged at a rate between 18 to 26 per cent per annum, dependent on a person’s individual risk profile.

RISKSA spoke to two such finance houses to understand their offerings and the options available for clients.

Both Incred Medical Finance and First Health Finance will finance any procedure required, whether medical or elective, provided the loan amount is above their minimum loan value.

For Incred Medical Finance this is R10 000 (with a maximum loan amount of R150 000).

First Health Finance will finance any procedure

“This determines the maximum financeable amount per patient. The term of the loan is determined by the affordability of the client, which is also calculated upfront,” says Sive.

In 2012, First Health Finance received applications for dental finance in excess of R20 million. Fifty per cent of these were approved. Both finance houses promise an application response in less than 48 hours.

Warren Katz, chief executive officer at Incred Medical Finance, warns, “It is important for brokers to understand that it is up to them and their clients to research the procedures and doctors they would like to use. We do not give medical advice.”

If a loan is approved, the dental practitioner is paid directly on the patient’s behalf. No funds are paid direct to the client and patients are free to use any dentist or surgeon they choose.

“Putting off treatment can exacerbate an issue,” says Sive. “For this reason, many patients use First Health Finance to cover the large fee upfront. But, should the patient have access to the cash in a few months’ time, there are no penalties or additional charges for settling early.”

As much as 50 per cent of the loans dealt with at First Health Finance are for non-elective procedures, dispelling the impression that financing is useful only for cosmetic procedures.

According to Katz, it is a common occurrence for patients to use Incred Medical Finance to cover the gap between what their medical aid will pay and the cost of a procedure. Dr Hayton agrees, “For people who want to undergo massive cosmetic dental treatment such as crowning all of the teeth at the same time, a job that may cost in excess of R100 000, or orthodontics, usually over R30 000, financing is probably the best way to go.”

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finance& insurance S A LE S | T R EN D S | NEW S | i n f o

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All systems go

New vehicle security and claims technology has changed the car insurance landscape.

We take a look at the impact of analytics, microdotting and telematics on insurance risk.

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Rental market sends new vehicle sales soaring

January saw considerable new vehicle sales, the biggest contributor to which was rental cars. But WesBank says this is an exception and sales will likely normalise.

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All systems go Anton Pretorius

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More and more short-term insurers today are embracing new advances in vehicle security technology. New vehicle security systems like microdotting, telematics and analytics have the ability to deter vehicle theft, identify fraudulent activity, as well as speed up the claims process. But what is prohibiting these systems from becoming the norm?

Analytics: settling claims quicker

Microdot: for total peace of mind

The year 2012 presented some tough challenges for Santam’s claims division.

Fraudulent activity in the market, accounting for an estimated six to 10 per cent of all premiums, was starting to affect the company’s bottom line, and ultimately increasing the cost of premiums. Santam needed to assess claims carefully to avoid exposure to fraudsters, while at the same time settle legitimate claims quickly to keep its honest customers happy. The short-term insurer turned to New York-based IBM’s business analytic software, a system implemented to help enhance the insurer’s fraud detection capabilities and also enable faster payouts for legitimate claims.

As of 1 September 2012, following the implementation of the National Road Traffic Act amendments, the use of microdot technology has become compulsory for all newly registered vehicles and motor vehicles requiring police clearance.

“In the first month of using the analytic software, we were able to identify patterns that enabled us to foil a major motor insurance fraud syndicate. Within the first four months, we saved R17 million on fraudulent claims, and R32 million in total repudiations. The solution delivered a full return on investment almost instantly,” says Anesh Govender, head of finance, reporting and salvage at Santam.

IBM’s predictive analytics software has enabled Santam to automatically assess if there is any fraud risk associated with incoming claims and allows the insurer to distribute claims to the appropriate processing channel for immediate settlement or further investigation. Before using IBM’s analytics, it took at least three days to settle a claim. Now, Santam is able to settle legitimate claims within an hour, allowing the insurer to significantly improve customer services.

Always visible using just one sms...

The amendment is welcomed by Christelle Fourie, managing director of MUA Insurance Acceptances. “Last year, 64 504 vehicles were stolen and 10 627 cars were hijacked. This equates to 176 cars being stolen and 29 being hijacked every day in South Africa. As a result, new preventative measures and technological advancements are increasingly becoming a necessity, rather than a luxury,” she says.

But the recovery of stolen vehicles remains the biggest concern in South Africa. Statistics from Business Against Crime South Africa (BACSA) reveal that an estimated average of 90 000 vehicles to the value of R9 billion are stolen or hijacked each year, yet only 43 per cent of these cars are recovered. “As a result, the insurance industry has turned to two main vehicle security technologies: telematics and microdot,” says Fourie.

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Microdotting entails spraying 10 000 tiny microscopic discs (microdots), containing unique information, onto the body, engine compartment, interior and chassis of a vehicle.

As small as a grain of sand, the information on each dot functions as the vehicle’s DNA, allowing the SAPS to identify these vehicles and successfully prosecute the criminals involved. Microdot fitting company, DataDot 

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Technology South Africa’s general manager of sales and marketing Dax Menday, says that microdotting benefits insurers in the recovery of stolen vehicles. “BACSA studies have shown that the recovery rate for microdotted vehicles is 91 per cent compared to 52 per cent for other vehicles.”

“Microdots are applied both covertly and overtly, making it far more difficult for thieves to remove or conceal the microdots, or strip parts of the car for resale. Only one dot is required to trace the owner, whose details are registered on a national database,” Fourie adds. Menday says of all the vehicles recovered each year, between 12 000 and 16 000 are destroyed because they cannot be identified and returned to their rightful owner. This equates to about R1.2 billion. “With microdotting, these vehicles can be recovered and returned to the rightful owners, representing a significant cost saving for insurers.”

Viviene Pearson, general manager of projects at the South African Insurance Association (SAIA), adds, ”Insurers will have to ensure vehicles are microdotted in order to get police clearance certificates. The issue is whether insurers think it is within their interest to microdot all the

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vehicles on their books, either at their own cost or through incentives to the policyholders”.

Many forward-thinking insurers have already been microdotting certain vehicles for some time, such as stolen, recovered and/or accident damaged vehicles, and a few have been incentivising policyholders to microdot their own vehicles. “This will inevitably become a bit more topical as the legislation has changed.

Microdotting in Australia has proven to be a significant deterrent for criminals, and assists greatly in recovering, identifying and restoring vehicles to their rightful owners,” Pearson says.

“DataDot has been in physical contact with each and every vehicle fitted with DataDot. A microdotted vehicle is a vehicle that has been verified and has its identity protected, giving the insurer peace of mind that the vehicle on paper is the actual vehicle on the road,” adds Menday.

of vehicle characteristics, use of the vehicle, geographical location, horsepower, sales price, age and sex of the driver, and where they lived.

Telematics: accurately assessing drivers

Telematics is a machine-to-machine communication device, whereby a device (black box) is plugged into the on-board diagnostics (OBD) port of a vehicle, collects particular data and sends it via wireless communication to the insurance carrier.

In the past, only basic information was required by vehicle insurers to calculate insurance premiums. This included questions

Telematics now allows for usage-based vehicle insurance where technology is an important

component in calculating insurance premiums.

With telematics, insurance premiums are determined by actual performance on the road, determining real-time driving data to insurers, who then gain a more accurate picture of driving behaviour to set fairer rates for safety-conscious drivers.

This technology can also help insurers more accurately assess motor vehicle accidents. “A next step seems to be creating quite a bit of excitement in the industry and that is using telematics, mainly linked to tracking systems, in order to monitor and manage driver behaviour which more often than not is the most telling factor in motor accidents,” says Pearson.

Vehicle theft and hijacking numbers have since dropped, thanks to the effectiveness of these devices. As a result, the installation of these devices has not had as significant an effect on premium discounts as before. In the past, installing a tracking device would be a prerequisite for qualifying for vehicle insurance, but as crime numbers have come down this is no longer the case.

Pearson feels that although many companies are making full use of telematics, it’s still relatively new to the industry and many issues need to be resolved before it will become a run-of-the-mill insurance industry requirement.

“In fact, this is a global development. In an upcoming motor insurance conference in the UK, the use of telematics by insurers will be one of the main topics and the discussion will be around how this could be used by insurers to address certain issues. In my opinion, the issues of customer choice and privacy still need to be debated thoroughly in this environment as well.”

While insurers embrace telematics, consumer interest is somewhat tempered by concerns over data privacy. The length of time that an insurance company is permitted to hold data may have a significant impact on acceptance levels. According to a study done by Towers Watson, a global risk and financial management services company, 55 per cent of respondents said they would not be interested in a policy if the insurer were to hold personal data for more than five years.

Always visible in the palm of your hand...

If this retention period was reduced to a month, 23 per cent of the respondents would potentially buy a policy with telematics, while 26 per cent would reject the idea.There is no denying that the premiums calculated according to the risk your client presents is the way forward for vehicle insurance.

“Vehicle telematics devices are fast becoming the best, most effective and scientific way to calculate motor insurance premiums and are likely to result in usage-based insurance (UBI) becoming the future of the motor insurance industry,” says Fourie.

When these devices were first introduced to South Africa, they served as an effective way of tracking a vehicle when it was stolen, so that it could be recovered and the culprits apprehended.

Insurance companies subsidised the installation and subscription cost of telematics devices through reduced premiums.

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The verdict seems to be that new vehicle security technologies improve the chance of recovering a stolen or hijacked vehicle, which makes the motor vehicle a lower risk to insure and, in turn, reduces premiums for those clients utilising these technologies.

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Rental market sends new

vehicle sales soaring Favourable market conditions, low interest rates and the good value that the current new vehicle market offers are earmarked as reasons for the considerable spike in new vehicle sales for the month of January this year.

igures from the National Association of Automobile Manufacturers of South Africa (NAAMSA) shows a 14 per cent year-on-year increase in total industry vehicle sales.

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According to Chris de Kock, executive head of sales and marketing at WesBank, analysis of the data shows that the biggest contributor to the strong sales growth in January 2013 came from the rental market. Growth in the retail market was much nearer its 2012 mark at five per cent.

De Kock adds that the spike in rental sales was an exception and sales are expected to normalise during February. “It appears that some South African manufacturers chose to report rental sales in the New Year that were carried over from 2012.

“We are still seeing demand among consumers as a result of the ongoing conducive buying environment, as consumers continue to take advantage of low inflation on

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new vehicles, interest rates remaining at a 40year low and the good value that is still being found in the new car market,” says De Kock.

According to independent statistical service provider RGT SMART, out of the 52 775 disaggregated reported industry vehicles sales (excluding Mercedes-Benz South Africa), 76.9 per cent represents dealer sales, 16.7 per cent sales to the vehicle rental industry, 3.2 per cent to government and 3.2 per cent to industry corporate fleets.

Sales of vehicles in the medium and heavy truck segments of the industry, estimated at 700 and 1 223 units respectively, recorded an increase of 67 units or 10.6 per cent. New vehicle exports during January 2013 stood at 17 399 vehicles and registered a substantial gain of 49.9 per cent compared to January 2012.

At 39 738 units (including Mercedes-Benz), the new vehicle market reflected an improvement of 12.3 per cent (4 348 units) compared to the 35 390 new vehicles sold in January 2012.

De Kock noted that the Rand has been very visible over the last month, having experienced considerable weakness, with the result that consumers may be pre-empting a price increase in new models. “The fact is that price increases are inevitable and the weakness in the currency will begin to feed through to the CPI component on new vehicles.”

Continued strong demand by the vehicle rental industry, which accounted for 22.5 per cent of total new vehicle sales during the month, supported the market in January 2013.

Including Mercedes-Benz, sales of industry new light commercial, bakkies and mini-buses at 13 346 units during January reflected a massive increase of 20 per cent, compared to the corresponding month last year.

The prospect of an increase in interest rates by virtue of the inflationary implications of a weak Rand will have an impact in the coming months and may feed through to the market towards the end of the first quarter.

“This is evidenced by the large percentage of customers opting for fixed rates, with the expectation that rates will go up in the near term,” De Kock concludes.

SA’s COTY Awards

boasts unique voting process

outh Africa’s Car of the Year (COTY) competition – sponsored

by WesBank and supported by Total and Hollard Insurance – is different to the rest of the world’s COTY awards, according to the South African Guild of Motoring Journalists (SAGMJ). The awards are determined by three rounds of voting.

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Always visible from your computer screen.

The first round of voting is open to all full members of the SAGMJ and yields the semifinalists. After this, a second round of voting, open to only the jury, determines the finalists.

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.

Another significant change to this year’s competition is the manner in which the COTY’s jury was determined. Following a workshop held earlier this year, the jury is no longer compiled from only those SAGMJ members who had the greatest exposure to the eligible model ranges, by means of launch events and test cars. Instead, after casting a vote in the first round, each member had the opportunity to vote for 25 of their peers to serve on the jury.

The 2013 Car of the Year (COTY) finalists were announced in October last year, following a vote cast by 30 jury members belonging to the SAGMJ.

Intelligent Solutions www.ctrack.com

www.fishgate.co.za_CT3102

The 12 finalists are: BMW 3 Series 320i Automatic; Ford Ranger 3.2 XLT 4x4 Double Cab Diesel AT; Hyundai i30 1.8 Executive; Kia Rio 1.4 TEC Hatch MT; Lexus GS 350 EX, Mercedes-Benz B180 CDI BlueEFFICIENCY; Nissan Juke 1.6 DIG-T Tekna; Opel Meriva 1.4T Cosmo; Porsche Boxster; Range Rover Evoque Si4 Dynamic 5-door; Toyota 86 High Spec 6MT; and Toyota Yaris 1.5 HSD Xs.

Bloemfontein: Cape Town: Durban: George: JHB Boksburg: JHB West Rand: Nelspruit: Port Elizabeth: PTA Menlyn:

051 434 3743 021 801 3012 031 502 7665 044 878 1690 011 823 6177 011 472 6400 013 757 1167 041 373 0051 012 348 0613

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life i n si g h t | l i f e | i n v e s t m e n t | r e t ir e m e n t

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Insuring your blessings: longevity solutions

Advances in medical technology mean retirees may outlive their retirement capital. Yet many South Africans underestimate longevity and two new products on the market aim to address the risk it poses.

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Credit life insurance: who really stands to gain?

Credit life insurance policies often contain hidden costs, making them lucrative for credit providers but less beneficial for consumers. We engage various industry stakeholders on this type of cover.

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Longevity solutions

Insuring your blessings Insuring against the blessing of a long life may seem counter-intuitive, but as average life expectancies increase, investors are increasingly faced with the risk of outliving their capital.

Sarah Bassett

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hile South African retirees have traditionally had two vehicles in which to invest their retirement capital, a life annuity or a living annuity, the landscape of retirement investments is changing. RISKSA takes a look at trends in the South African annuity investment market and two new products on the market intended to cater to the needs of the current-day retiree.

The low rate of South African retirement saving has long been a concern, and this problem is likely to be further compounded as people live longer. A recent international study by the Organisation for Economic Co-operation and Development (OECD) on longevity funding shows that the proportion of the South African population over 65 will double by 2050 as a result of improved access to healthcare and improved disease management, as well as more savvy lifestyle choices.

Metropolitan head of investment products, Alex Ollewagen, comments that while this is good news for the economy and the person on the street, it means that South Africans will have to save more and start earlier. Even those who have made considerable investment towards their retirement may struggle to live more than 20 years without an income, particularly given that life expectancy is ultimately impossible to predict, and as many as 40 years of cover might be required.

A living for life The flexibility of living annuity products has seen them surge in popularity relative to life annuities. In 2003, 50 per cent of single premiums were used to buy life annuities, but by 2011 this had fallen to 14 per cent,

exposing many to the vagaries of market volatility with no longevity guarantees.

According to a recent paper by the National Treasury, ‘Enabling a Better Income in Retirement’, the high drawdown rates and elevated charges associated with living annuities mean that a high percentage of South African annuitants face a substantial risk of outliving their capital entirely. The paper suggests that “annuity purchase behaviour appears to be driven strongly by short-term considerations and sales incentives”. As people expect to live longer, many individuals prefer to take on investment risk at retirement in the hope of higher returns. Investors often prefer liquid assets and are disinclined to lock their money into an annuity and lose the ability to bequest it to their estate.

This short-term mentality suggests a tendency to underestimate longevity. Many investors considering a life annuity may not fully appreciate that the seemingly low dividends paid by the annuity reflects the standard of living that they can afford to sustain given their expected longevity and current rates of return on financial assets. This makes it easier for clients to undervalue the protection that conventional life annuities offer. According to National Treasury, financial planners need to

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In South Africa, financial advisers can help clients to achieve the same balance by investing only a portion of their funds in a life annuity and placing the rest in a living annuity. However, because there is no option for deferred payout, which would allow clients to put in less upfront, few clients will have the funds available to invest in this way. Two recently launched products in South Africa, while not quite the same as the longevity annuity offered in America, offer increased flexibility for retirement investors. These are the Flexible Annuity from Liberty Life, and the Myriad longevity added-benefit packages from Momentum.

Liberty’s flexible annuity The flexible annuity from Liberty Life is designed for investors at retirement age, usually 55 and up. The product combines the benefits of both life and living annuities; allowing for flexible liquidity and market-related growth, but with a built-in mechanism for ensuring lasting income, known as the income-enhancer benefit.

“The income-enhancer benefit is a voluntary commitment, at no additional cost, to a shared bonus pool,” explains Nico-Louis Minnie, head of wealth management platforms for Liberty Life. The investor commits a chosen proportion (anything from one to 95 per cent) of their retirement savings to the bonus pool.

do more to help investors consider this risk seriously and better manage it.

Independent financial adviser, Alan Mewett, agrees that the optimal solution is an inflationlinked life annuity income, but points to the reality that few South African retirees have the capital to enable them sufficient income from a life annuity. Worryingly, this short-term outlook is similarly evident in the way that South African retirees claim on their living annuities. The median policy has a drawdown rate of 7.5 per cent per year before charges. After charges, this may be closer to 10 per cent, according to National Treasury statistics. Drawdown rates at this level expose purchasers to substantial risks of declining real income. A living annuitant faces a two in three chance that their income will fall by 30 per cent in real terms while they are alive.

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The way others do it In the United States, the challenge of extended retirement years is no different. In response, the longevity annuity has emerged as a new option. This is essentially a deferred life annuity: a lump-sum investment, acquired at retirement age with guaranteed ongoing payouts starting roughly 20 years later, usually at age 80 or 85.

The time delay, and the decreasing longevity risk associated with age, allows investors an excellent “bang for their buck”, says American economist, Jason Scott. This means that only 10 to 15 per cent of an individual’s capital needs to be locked away in the annuity, leaving the remainder free to be placed in a living annuity for riskier investment and more flexible drawdown rates, but with the guarantee of an income from the age of 85 for as long as they live. However, should they die before 85 they will lose this investment.

“The benefit pools the committed funds from all of the flexible annuity funds and distributes payouts each year as investors pass away.”

Income from the pool is determined in relation to an individual’s committed amount. Investors can choose whether to use payouts from the pool as a boost to their income; they can opt to reinvest the amount into their annuity; or they can use it to increase their commitment to the income enhancement benefit fund. “The longer you survive, the bigger your share in the committed pool of funds because you will receive a payment whenever another annuitant passes away. This effectively protects investors from outliving their capital while still having the flexibility to manage the investment as they see fit.”

The portion committed to the pool will be foregone once the investor passes away, but any funds not committed to the incomeenhancer benefit will be paid to the investor’s nominated beneficiaries upon death. The flexible annuity allows for a drawdown of anything between 2.5 per cent and 17.5 per cent on non-committed funds, and offers investors a choice of underlying investment portfolios. “The advantage of the incomeenhancer benefit is that it does not reduce the amount of capital that the person has invested in the flexible annuity while they are alive,” Minnie points out, “which means that the individual does not lose out on the interest income that they would receive from the flexible annuity, by opting to have the income enhancer benefit, too.”

The Myriad longevity benefit enhancer The newly launched longevity benefit extension options from Momentum Life’s Myriad product line are designed to help clients of all ages mitigate and manage their increasing longevity risk, says Stephen van Niekerk, head of Momentum’s Myriad division.

The longevity benefit add-on can be attached to life insurance, disability income protector and critical illness policies. The product was developed in response to a recognition that “people are not just living longer, modern medicine is allowing people to live longer with permanent disability and as survivors of critical illness, too,” says Van Niekerk.

The addition of the longevity benefit enhancer will cost a client 20 per cent more on their existing policy premiums. Should your client reach retirement age without having made a claim, they will receive a booster to their retirement savings scheme worth 30 to 45 per cent of their total Myriad premiums to date. Should they reach age 80 without claiming, they will receive a further lump sum booster payment.

In the event that a claim on disability or critical illness policies was necessary, the longevity benefit offers added payouts for every five years a policyholder remains alive.

Should your client become permanently disabled, in addition to their monthly income, every five years they will receive a lump sum pay out to the value of 50 per cent of the total monthly benefits paid over the same period.

This will continue for the duration of your client’s life. Similarly, the critical illness policy will pay out a lump sum amounting to 10 per cent of the benefit amount for every five years that your client survives following a critical illness claim.

According to Van Niekerk, “The product also acts as a reward for clients who stay with us to retirement age and beyond. The longer a client stays with us, the more valuable their contract becomes. This is a way of rewarding clients for their loyalty.”

There is no particular target age for these benefits. “There is a nice balance of rewards for both younger and older clients because disability and illness can affect every age, and the size of a policyholder’s retirement booster payout will increase in proportion to the number of years they have paid in without claiming. Life expectancies increase at an average rate of one to two per cent per year,” adds Van Niekerk. Today, people have an 80 per cent chance of living past age 80, yet traditionally many aspects of financial planning still assume a life expectancy of 80.

This benefit enhancement helps clients begin managing longevity risks even from an early age.

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Credit life insurance

Who really stands to gain?

Grant Cyster

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Purchasing things on credit nowadays is as common as crackers and cornflakes.

For the most part, that's just how consumerism works in this day and age. But what happens when the purchaser is suddenly unable to honour their financial obligation due to unforeseen circumstances beyond their control? Enter credit life insurance.

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redit life insurance refers to a policy that is designed to settle a borrower's outstanding debt in the aftermath of events like death, or retrenchment (for a limited period). It is a practice that has become prevalent when a consumer arranges financial assistance in the form of credit for a purchase. On the surface, it seems to provide the borrower with great peace of mind and value for money. However, is there perhaps more at work here, and who really comes out on top? We dig a little deeper.

Beware the red flags Peter Atkinson is the national technical portfolio manager at the Financial Intermediaries Association of Southern Africa (FIA). Atkinson believes that while it is good to ensure financial security, having multiple policies with numerous institutions can easily result in a far larger cost for the consumer than if the total sum was covered in a broader life insurance policy.

Credit life in the cross-hairs A joint task force was established in 2012 to investigate business practices in the credit life arena. The task force is comprised of individuals from the National Credit Regulator (NCR), the Financial Services Board, national treasury and the Competition Commission. According to Rajen Devpruth, the NCR’s manager of research and statistics, who spoke with the Financial Times late last year, “Credit suppliers can’t be blamed for wanting credit life cover, but they must not charge too much for it.”

Institutions selling credit life insurance face real temptations to overprice their product. Marketed and sold to a captive market for the most part, credit life does not fall within the scope of the National Credit Act (NCA), meaning that it is significantly less restricted by regulations regarding interest rates and administrative costs.

Carl Fischer, marketing and corporate affairs executive at Capitec, has previously publicly expressed his criticisms of the credit life market. “What is happening is not in the spirit of the NCA. The act’s aim is to promote transparency, and that is not happening in many areas of the credit life market. A number of these institutions focus consumers’ attentions on the interest and admin fee charged as required under the NCA, but tuck the credit life insurance aspect of a deal obscurely at the bottom of the contract,” says Fischer.

The institution in question will of course sell the benefits of this kind of arrangement to the borrower, but it is hardly a philanthropic exercise on the part of the relevant company.

“Not only does it provide an added measure of security for the lender, as it ensures any debt will be paid, it also provides an additional source of income from the insurance sale. This type of insurance may in fact be more advantageous to the institution than the consumer at the end of the day,” says Atkinson.

of the loan is settled if the person is retrenched and unable to find alternative employment,” explains Atkinson.

The higher costs are partly attributed to the lack of underwriting, which means that the premium rate has to be increased to allow for possible poorer risks. Another cause of higher costs is the administration charges associated with taking out a number of separate policies.

“In some cases the premium may be further increased by the addition of extra forms of cover that pay out on disability and even retrenchment, where the outstanding balance

A broker's perspective

The National Credit Act (NCA) gives consumers of credit a great deal of protection, but they can exercise their rights only if they are aware of what those rights are. Far too many consumers have a hazy understanding of their rights under the act, and of their obligations in terms of their credit agreements.

To ensure that you (or your next of kin) benefit financially from credit life insurance, you have to die or become unemployed, depending on the details of your cover. Should none of these events occur, the premiums you have paid are lost. In this way the insurer wins. “I have no statistics but I guess that millions are made by insurers through credit insurance,” says Nico

van Gijsen, managing director of the Finlac Group. The Finlac Group is an independent financial planning and legal advice company, servicing primarily the agricultural sector and small business owners.

“The other side of the coin, of course, is that a creditor has a right to protect his risk (the loan), and life assurance is a sure way to cover that risk against the risk of the borrower dying or becoming unemployed before full payment is made. In the case of death particularly, the borrower's possessions fall into the estate, making them difficult for the creditor to access.

Life assurance pays out outside the estate, so it is an effective way for a creditor to cover any relevant risk,” says Van Gijsen.

Based on life expectancy tables, Van Gijsen determines that most credit insurance does not necessarily pay out because most people's debts come to an end the older they get. From 

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that perspective, credit life insurance can mean a waste of good money for the borrower.

The problem of course is that once money is borrowed, the borrower is at the mercy of the creditor to a certain extent.

“It would be wise to shop around for credit assurance, as prices vary significantly. However, you do not have to buy the insurance from the company providing the credit. The law gives you an option and the relevant company cannot force you take their policy. I am certain that most people do not understand what they are buying, and for that matter, even that they are buying assurance at all. Applicable terms and conditions are often not disclosed as they should be in terms of the law,” says Van Gijsen.

A more effective, if not ethical, approach According to Atkinson, all outstanding debt should be taken into account in a consumer’s overall financial planning when calculating the appropriate level of life cover that is required, as debts need to be settled in full on death. “However,” says Atkinson,

“arranging cover on the basis of a number of small decreasing term insurance policies, each attached to a particular loan, is not the cheapest way of doing this, even if it does usually have the advantage that no medical underwriting is required.”

The more sound approach would be to increase the amount in the overall sum insured within a permanent policy that has been taken out as part of an all-encompassing long-term insurance plan. “By doing this, consumers can benefit from buying the life cover at a rate based on their age at the time of taking out the policy, rather than being charged a rate based on their age at the time the loan is taken out, which would increase over time,” adds Atkinson.

From a credit provider’s point of view, in the case of Capitec, the bank does not sell credit life to its customers. What it does is insure its debtors’ book and claims itself in the event of the death, disability or retrenchment of a customer. In this way, insurance is priced directly into its credit offer and it doesn’t make any profit margin from insurance.

“Life assurance pays out outside the estate, so it is an effective way for a creditor to cover any relevant risk.”

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Consumers of credit do themselves no favours by entering into numerous credit life agreements with a variety of institutions. The most cost-effective approach is to pursue a holistic strategy that involves insuring all potential life risks under a comprehensively structured policy. Also important is seeking out expert counsel from an experienced broker.

Atkinson concludes by adding, “When it comes to structuring a suitable overarching financial plan, it is generally best to consult the services of an experienced and trusted insurance broker, rather than relying on the sales pitch of ad hoc credit providers to ensure the most affordable and appropriate cover is taken out.”

Several credit life insurance providers were approached for comment on this subject, but declined to offer any, citing reasons to do with the industry currently being at a sensitive stage.

Back yourself & your advice 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.

ocus on the benefits of your counsel, adviser and build confidence in this value. You may find that it transforms the way in which you approach those who need your services.

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THE VALUE OF ADVICE Advice costs money, sometimes in fees, but more often in the form of commission paid by the insurer to the adviser. You may be sure that this commission comes, ultimately, from the policyholder. It is right for consumers to be aware of this cost and for both advisers and insurers to disclose it. Wouldn’t it be helpful if, at the same time, we could put a value to this advice, to show whether it is worth its cost?

A paper presented to the 2007 Convention of the Actuarial Society of South Africa seeks to do just that. It’s not an easy task. The authors of the paper, Colin Dutkiewicz, Steven Levin and Anusha Dukhi, give it a good go. They identify four moments – critical decision points they call them – at which a few relatively simple pieces of advice can add tremendous value.

The first of these is the advice to start saving for retirement early and adequately.

The authors remind us that South Africa’s

We live in the age of scepticism. We’re not sure who to believe or trust. Financial advisers find themselves in the cross hairs of wary consumers increasingly sure that they can do it themselves. Consumers are right to be careful. Commission, after all, is an interesting incentive that can affect the motives of the used car salesman, Tupperware hostess and, yes, the financial adviser.

households do not save enough, by just about any measure and that people are prone to procrastination.

Consider a young lady who, at age 25, starts saving for retirement, increasing her contribution each year at the rate of inflation.

Imagine if, 10 years later, she stops saving and merely invests the accumulated saving for her retirement. Now consider her twin brother who ignored her sound advice for 10 years but starts saving at age 35, recognising that he had better get on with it. How long will it take for his saving fund to catch up with hers? Thirty-three years. Even though she stopped altogether when he started, they will be 68 before their saving pots have the same value. That gives food for thought on the value of the advice that the lady received in her mid-twenties to start saving.

The second type of crucial advice concerns the allocation of assets to investment classes.

Saving for the long term is good, but putting it in the bank is tantamount to destroying value because the rate of interest is seldom enough just to keep up with the erosion of purchasing power. It is better to invest in assets like shares. Even though their value fluctuates significantly on a day-to-day basis, over the long term they provide an excellent

prospect of positive real returns. That’s what we need of our retirement saving.

Third is the response to bad news. One of the most common ways for people to lose money is to panic. A long-term plan requires discipline and commitment. Too many people lose a great deal of their pension saving by reacting to news, moving money from asset class to asset class at the wrong time. Sound advice can prevent this loss.

Fourth is the discipline to leave pension money alone. Not only are we South Africans not saving enough, but on leaving one job and entering another, we frequently access our pension savings and spend it. The fact that we must pay tax in the process doesn’t appear to act as deterrent.

Of course, there are situations in which this is unavoidable, but it is generally not a good idea.

Financial advice can help to instil the disciplined behaviour that bears fruit in the long term.

These examples in savings have powerful equivalents in the protection space. Advisers have a crucial role to play in helping their clients to make good decisions to their own benefit. Sound advice has very high value.

Back yourself, adviser, to understand your customers’ needs and give them advice with value that greatly exceeds its cost.

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RISK RULE#8

KNOWLEDGE IS POWER “Your problem is risk... not insurance” - Henry Marsh, 1901.

Marsh’s respected benchmarking reports enable you to assess the robustness of your insurance cover against the benchmarks of the leading companies in your sector worldwide. This insight combined with the ability to utilise technology systems such as CS Stars, public cloud, private cloud and locally hosted solutions ensures that you are making decisions armed with the very best knowledge available from the leading insurance broker and risk advisor in the world.

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enterprise

risk

management s t ra t e g i c p l a n n i n g | g l o b a l t r e n ds | i n f o

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Running aground

From piracy and oil spills, to extreme weather, theft and damaged goods, cargo hauling companies face major hazards on the open seas.

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SA’s oil refineries: an inconvenient truth?

South African oil refineries face serious risks and they seem to have the risk management structures in place to combat them. But there may be risks lurking beneath the surface that require more urgent attention.

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Running aground Nick Krige

Shipping operators face a myriad risks out on the open sea as well as on the roads. We take a look at some of the major hazards facing cargo hauling companies.

Damaged goods

Oil spills

Lost cargo

The more goods are handled, the greater the risk that they could get damaged. Many goods are imported and exported from inland areas.

This means that the goods will need to be loaded onto trucks, potentially offloaded into a warehouse overnight, reloaded onto trucks, offloaded at the dock and reloaded onto a ship. That is a lot of handling before a shipment has even left South African shores.

All shipping vessels carry a large amount of oil and fuel on board and oil tankers and offshore drilling platforms need to worry about the effect an oil spill can have on the environment.

As mentioned in the environmental liability feature earlier in this issue, the impact on the environment is vast and far reaching, from killing birds, wildlife and fish to destroying natural habitats and breeding grounds.

Ultimately, the oil needs to be cleaned up and it is an expensive process. As of July last year, BP claimed the Deepwater Horizon disaster has cost $38 billion (R339 billion) and that did not include the reputational damage it did.

Through something as simple as a container falling off a ship in the middle of the ocean to an entire ship going missing, lost cargo can cause headaches for the shipping industry. Thankfully, with modern tracking technology, ships are less likely to go missing, but it does still happen.

The weather Adverse weather conditions can affect shipping operations for both local and international cargo operators. Natural disasters such as hurricanes, earthquakes and tsunamis can cause delays for ships as harbours are shut down, and ships that are already moored could be damaged. The destruction caused by the tsunami in Japan in 2011 or Superstorm Sandy off the western coast of the United States are evidence of the sheer power of Mother Nature and the shipping industry is not immune.

But it is not only major weather events that cause problems, if a ship is heading for an area that is experiencing cold weather, costs might increase for things like de-icing, paying crew overtime due to delays and having to redeliver goods.

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Piracy With most South African exports heading towards Europe and the US, piracy is probably not top of mind for local shipping companies.

However, as more business is done with Asia and other African countries, the need to ship through dangerous waters such as the Somali coast is likely to increase. Piracy and terrorism take a big toll on the shipping industry, and in 2011 alone there were 439 pirate attacks and 45 merchant vessels hijacked worldwide.

Thankfully, piracy numbers dropped through 2012, but the danger is still real.

Some reports claim that as many as 10 000 containers are lost at sea per year, mostly due to bad weather. Considering more than 100 million are shipped annually, this number does not seem too bad, but a container is the size of a truck and losing its contents could be game changing for a small company.

Theft It is a bit tricky trying to steal a massive container of goods off a ship, but with the supply chain involving truck routes and overnight storage in warehouses, the amount of vulnerable points where there is a greater risk of theft has increased. There are road dangers to consider as well, such as hijacking and drivers colluding with criminals to allow the goods to be lifted.

Trucking accidents It may seem like a strange problem but shipping of goods, and the insurance that goes with it, covers the process of getting goods from point A to point B in its entirety, including any overland journeys. This means that the cargo will face all the risks associated with travelling on road through South Africa, from crashes to goods falling off the back of a truck and driver errors. Most marine insurance policies will cover the overland part of the journey.

Human error Mistakes made by the people involved in the process of moving goods from one point to another will always be a problem. It could be an overworked ship captain who misreads the charts and runs his ship aground, to a lazy dockhand losing goods by not keeping clear and accurate records.

Mechanical breakdowns The nature of global shipping means that insurers have to worry about mechanical breakdowns for every part of the journey on land, sea and rail. Breakdowns cause delays, but more importantly, on the open sea, they can put the crew’s lives at risk. A ship’s equipment

could fail and they could be stranded or it could lose all communications with the outside world.

Insurers should insist on an effective and regular maintenance programme of all vehicles involved in the transportation process.

Over capacity A major potential problem facing shipping companies is having too many ships available and not enough products to move. Carriers that placed orders for new ships while the economy was booming have seen demand drop. This means that more ships are becoming inactive or having to depart less than full. Companies with more capacity than demand for their service will drop their prices to attract new business and that will affect the entire industry.

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An

inconvenient truth?

SA’s oil refineries Sarah Bassett

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Falcón, Venezuela, September 2012: 41 people dead and 150 injured. Texas City, United States, March 2005: 15 people dead and 180 injured. Buncefield, United Kingdom, December 2005: 41 people injured and 2 000 evacuated from their homes. hese are the dates and impacts of three of the biggest international oil refinery disasters in the last decade.

After Algeria, South Africa has the second-largest oil refinery capacity in Africa.

The country’s four refineries, in Cape Town, Durban and Sasolburg, were all built several decades ago. At the time of construction, they were situated in sparsely populated areas, but urban expansion has carried communities to their edges, increasing the risk of harm to people and property. There are multiple risks associated with any refinery, but in the local context, particular concerns include purported decreased maintenance expenditure; a shortage of suitably skilled engineers and operators to manage refineries; and increasing local fuel demands.

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Refinery risks The processing of crude oil into products such as petroleum, gasoline, diesel, kerosene and liquefied petroleum gas requires extreme temperature and intense pressure, creating risks for fire, explosion and the release of harmful contaminants.

“The greatest risk is vapour cloud explosion (VCE) and resultant fire damage,” explains Nicola Harris, senior vice-president of energy at Marsh Africa.”VCE is an explosion caused by the release of a large volume of flammable gas or vapourised liquid; mixed with air it will find an ignition source. In a well-maintained refinery, the likelihood of this is relatively low, but should a VCE event occur the severity is extremely high. Anything upwards of 70 per cent of the refinery’s physical assets would be heavily damaged and surrounding property would suffer serious impact damage.” The emissions from such an eruption could also have considerable environmental impact.

Further risks to consider are boiling liquid expanding vapour explosion (BLEVE), machinery breakdown, fire and the normal natural perils of lightning, storm and flood.

Liabilities Key liabilities covered for refineries are potential third party property damage, injury or death. “While South Africa isn’t a particularly litigious society, in comparison

to the USA for instance, the limits purchased are high due to the widespread damage that a VCE event can cause,” says Harris.

A growing area of concern, as society becomes more aware of ‘green’ issues, is the environmental impacts of river and water source contamination. “The refinery industry is developing ever-more efficient ways of cleaning and recycling waste water. But it is dependent on the individual refinery to find ways in which to implement those efficiency methodologies and that can be hampered by budget constraints.”

Standard commercial insurance excludes environmental claims and so environmental insurance has emerged. “Environmental insurance covers gradual pollution and third party damage, including clean-up costs; spills of gasoline, diesel, oil and chemical effluent causing on and off-site soil and groundwater contamination; air emissions causing harm to human health or damage to the environment; allegations of contamination of water supply from operations; and associated legal defence costs,” explains Guy Scott, CEO of Aon Risk Solutions, South Africa.

The impact of refinery effluent on water quality is of particular concern for environmental liability, given the proximity of three refineries to the coastline. Tests show that most refinery effluent is toxic and can be lethal, or impact species’ 

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reproductive abilities. There may also be a eutrophication or enrichment effect in water systems, which causes blooms of algae or waterweeds that are highly destructive to the balance of aquatic ecosystems.

Mitigation measures According to Marsh Africa, risk management of refineries is dependent on proactive, timely maintenance and implementing current industry best practices. “A get-it-right-first-time attitude should be instilled,” says Harris. “Continuous professional development schemes should include regular emergency scenario training.”

In the event of disaster, refinery personnel must know how to manage and implement a safe, secure shutdown. “In-house and municipal fire brigades should be familiar with the site layout and methods to contain the loss scenario.

There has to be a proper evacuation drill for personnel and an alternative control centre if necessary. A business continuity plan is necessary to minimise business interruption, including safely stored copies of all insurance and relevant documentation.”

John Watts*, a chemical engineer with over 20 years of experience in international and local refineries, offers insight into on-the-ground implementation. His impression suggests that the above protocols are indeed widely adhered to. “Most refineries these days will have their own maintenance crews, highly trained in safety,” says Watts. “In response to any fault, most commonly a gas leak, a system of sirens and speakers is activated across the plant, broadcasting information and instructions.

The information includes the nature of the problem, where it is, where employees should go and what the wind direction and speed is.

Employees are directed to a sealed, fireresistant safe room, as the first priority is to prevent or contain fires as quickly as possible.

“Air supply to the area is immediately shut off and automatic barriers called battery limit valves seal the air and fuel supply to the area.”

Watts’s description of South African refineries paints a picture of a vigilant and technologically up-to-date approach to safety. “Accidents happen when people respond instinctively rather than follow correct protocol.”

Despite what appears to be sound risk management practices implemented at refineries themselves, official policies concerning the disaster management plans of South African refineries seem near-impossible to access, despite the public risk. South Africa’s refineries fall under the National Key Points Act, which restricts public access to information on aspects of all national key points. This pre-democracy legislation is widely criticised for creating a convenient barrier for industry and government to hide behind. “If information is not in the public eye, then oil companies cannot be held accountable for it,” comments South Durban Community Environmental Alliance spokesperson, Desmond D’sa.

How comfortable should we be?

Evidence would seem to support Watts’s account. South Africa has not yet experienced a large-scale refinery disaster. While fires and explosions are not unheard of, they have been contained quickly and effectively.

In October 2012, Engen’s Enref refinery in south Durban was briefly closed following a fire in a processing unit. A nearby school was evacuated, but firefighters were at the scene within minutes and the fire was contained without serious damage. In December, a chemical leak from a maintenance manhole was reported on a Chevron refinery transport pipe in Milnerton. Chevron officials arrived on the scene promptly and conducted emergency repairs without delay. Nevertheless, D’sa suggests that ongoing budget pressures have led to disquieting reductions in maintenance and monitoring in recent years.

He points to a tendency to fixate on the risk of a major one-off incident, while the day-to-day damage to environmental and human health created by refinery processes, goes unnoticed.

“The causative link between refinery emissions, such as benzene and heightened instances of illnesses, asthma and leukemia in particular, is well-evidenced and oil companies have had to make third party payouts in other countries. One south Durban school has an asthma rate of 52 per cent and three pupils with leukemia. Accountability for third party liability for damage to environment and human health is significantly reduced in South Africa due to a lack of political will,” says D’sa. The comparative lack of litigious culture in South Africa may also be a protecting factor.

Recent legal action against Anglo American, to compensate workers affected by lung diseases such as silicosis and tuberculosis, may be a sign of change. If class action against Anglo Gold succeeds, it is speculated that the company could be liable for billions of Rands in damages. Should there be cause for similar action to be brought against the oil refinery industry in the future, the cost of liability for third party damage due to ongoing harmful air emissions could be significant. *Name has been changed.

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Hedging

longevity bets

Reinsurers seek market solutions Sarah Bassett

s global life expectancies increase, ensuring the ageing population’s financial security is a significant challenge facing society. Consequently, there is an increasing need to extend insurance industry capacity to ensure a sustainable funding system for longer lives. Global defined benefit asset longevity exposure is estimated at $20 trillion (R177 trillion). This far exceeds the capacity of the insurance industry, confirming the need for alternative solutions. Recent longevityswap deals, such as the Swiss Re deal with insurer LV= and Munich Re’s agreement with Pension Insurance Corporation (PIC), demonstrate that reinsurers will be likely to play a growing role in absorbing longevity risk. But Eva-Maria Keller, product manager of longevity, market data and analytics at

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Deutsche Börse, points out that reinsurers only have a finite capacity to offer.

A simply capital solution Swiss Re insists that the capital markets are the only source of capital and capacity large enough to support the world’s longevity risk transfer needs. According to Swiss Re’s recent publication, A mature market: Building a capital market for longevity risk, only the

capital markets have the capacity to deal with the scale of this liability long term. Such a solution would see insurers and reinsurers hedge aggregate longevity risk through indices to the capital markets, while retaining the basis risk between the indemnity hedge and the index.

“We strongly believe that a capital market for longevity risk is required to cover worldwide exposures.

Deutsche Börse is committed to providing data and risk benchmarks to make longevity risk become tradable.”

The Swiss Re report features a number of case studies and highlights the lessons learned from successful capital markets, such as the UK inflation market and the insurancelinked securities market. It also looks at the one successful transaction where longevity risk was securitised and transferred to capital market investors: the 2010 Swiss Re ILS deal in which $50 million (R442 million) of longevity trend risk was transferred to the capital market through Kortis Capital Ltd. Swiss Re highlights the importance of a broad range of investors to support a liquid capital market in longevity risk. The market would need secondary trading features to allow investors to offload or buy into the risk at any point in time. The report notes that investor education will be important to increase understanding of longevity risk as an asset class. This will simultaneously help the market come to better informed decisions about premiums, both from the investor point of view (how much they are prepared to accept to take on longevity risk), as well as what the issuer is willing to pay.

Keller agrees with the analysis put forward

by Swiss Re. “We strongly believe that a capital market for longevity risk is required to cover worldwide exposures. Deutsche

Börse is committed to providing data and risk benchmarks to make longevity risk become tradable.” She comments that standardising such transactions will be important in developing the new asset class. The more standardised the market becomes, the better the chance that a liquid market develops, something that is essential when dealing with maturities of 10 years and longer, according to Keller.

“Swiss Re highlights the

importance of a broad range of investors to support a liquid capital market in longevity risk.”

Sharing the load For the time being, analysts predict that reinsurers will continue to accept insurers’ longevity risk in ‘swap deals’ as has been the case in recent years, though only a small number of deals are predicted per year. In recent months, large deals were concluded in

both the United States and United Kingdom.

In February, Warren Buffett’s Berkshire Hathaway Inc. announced a reinsurance deal worth $2.2 billion (R19.5 billion). Berkshire Hathaway will reinsure the risks associated with $4 billion (R35.4 billion) of future claims for two of health insurer Cigna Corp’s run-off variable annuity businesses.

In December 2012, the world’s largest reinsurer, Munich Re, announced an agreement with PIC to take on £400 million (R5.5 billion) of longevity risk from the insurer. Munich Re has taken on the longevity risk associated with a portfolio of pension risks covered by PIC’s pension insurance business. PIC offloaded a total of £1 billion (R13.8 billion) in longevity risk to reinsurers in 2012.

Also in December, Swiss Re signed an £800 million (R11 billion) longevity insurance contract covering UK insurer LV=’s UK pension fund. Supporting 5 000 members, the deal was an innovation in the field as it is the first to transfer the risk of members yet to retire. Swiss Re has now completed longevity risk reinsurance deals worth more than $12 billion (R106 billion).

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The Third Annual Microinsurance Conference

Africa promises potential for

microinsurance

T

he African low-income market is among the largest in the world, with an estimated 80 per cent living in rural areas. Providing financial services products, particularly insurance, to this market poses a number of challenges including distribution, marketing and premium collection. Understanding the market for insurance to low-income individuals requires a clear knowledge of the legislation, possible pricing and distribution models, as well as the social complexities involved, comments the IIR. These were some of the key areas of discussion over the four days.

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The African market Vic van Vuuren, director of the International Labour Organisation, South Africa, gave an overview of the African microinsurance market.

Of a population of one billion, 60 per cent of the continent lives below the $2 per day mark, making them acutely vulnerable to risk.

According to Van Vuuren, microinsurance can offer a solution to the approximate 700 million African citizens classed as the working poor and vulnerable non-poor. The annual income of this group is $500 billion (R 4.5 trillion). Based on

an assumed potential for insurance spending levels of five per cent of gross domestic product (GDP), the value of the microinsurance market in Africa is $25 billion (R226.6 billion). Further estimates of markets for microinsurance products include 560 million lives for health insurance; 300 million lives for life products; 75 million lives for credit life cover; 65 million policies for agriculture, and 100 million policies for property.

Currently, 14.7 million lives are covered by microinsurance. This equates to 26 per cent of the target population, or one per cent of the

The third Annual Microinsurance Conference brought together international and local experts from the microfinance and insurance industries to share ideas on some of the pressing issues facing the sector today.

The conference was offered by the Institute for International Research (IIR) and took place in Johannesburg from 28 to 31 January.

programme aims to expand into Malaysia, Bangladesh, Indonesia and Africa.

Legislation Dr Daleen Millard, professor at the University of Johannesburg, provided an overview of existing and proposed microinsurance legislation in South Africa. It is not yet clear if microinsurance will in fact fall under the Financial Advisory and Intermediary Services (FAIS) Act. At present, microinsurance is not mentioned anywhere in the act. It also remains to be seen whether microinsurance service providers and products will be regulated by the Financial Services Board (FSB) or the Treasury.

A separate Microinsurance Act has been proposed which aims to promote easier access to affordable insurance products, to better match consumers’ insurance needs with appropriate products and to protect consumers from abuse with appropriate measures, says Millard. Features of the proposed act include defined benefit caps; policy term limits (12 months); technicalities of pricing changes; the restriction or limitation of waiting periods; and the prohibition of exclusions for pre-existing conditions. Subordinate legislation will later develop further standards.

South African trends Deno Pillay, assistant general manager for insurance marketing at AVBOB, presented changing trends in the South African market, highlighting the continued dominance of funeral cover within the market. A key point in his overview was the rapid growth of mobile usage in South Africa. Smartphone penetration is currently at 16 per cent; this is expected to increase to 80 per cent by 2014. Already, 82 per cent of South African adults use mobile phones and 11.5 million are data users. There are almost 4.7 times more households with access to a mobile phone than to a computer.

Mobile phones provide unparalleled direct access to the microinsurance target market.

potential value. The projected growth for the industry is 10 per cent per annum.

Learning from India Dr Arjun Sachidanand, managing director of Sachidanand Group of Companies in India, gave a well-received overview of the microinsurance market in India.

He focused particularly on the need for strategic partnerships between micro-finance institutions (MFI) and other financial services institutions, particularly in healthcare. An Indian programme, based on such a partnership, has

shown rapid success over the past two-anda-half years. Starting with 5 000 members in 2010, the programme currently has close to 400 000 members.

The model is scalable and easily replicable globally, according to Sachidanand. Technology has been the key enabler in reducing costs and creating efficiencies within the programme.

Studies indicated that poor people are willing to pay for good quality health services but do require mechanisms to pay over time.

MFI clients also value education on health and health financing, says Sachidanand. The

Other conference speakers included Gwen Njuri Kinisu, head of alternative channels and bancassurance at Pan African Life Assurance, Kenya; and Brian Richardson, founding director, WIZZIT. The conference was chaired by Robyn Lok, executive director at NMS Insurance Services, SA. Delegates included decision-makers from South Africa’s largest insurance companies and interested smaller insurers. Representatives from companies such as Multichoice, Sanlam Sky Solutions, Liberty Group, Standard Bank, Assupol Life, Mutual and Federal, Alexander Forbes, Telesure Group Services and Guardrisk were all in attendance.

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Threading through the Binder Regulations

At the time of going to print, much of the insurance industry was not yet compliant with the Binder Regulations. We spoke to some insurers, the SAIA and the FSB about what happens next.

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Growing pains: managing M&A

Mergers and acquisitions present a host of integration challenges and can leave staff members disillusioned. Aon South Africa tells us how it managed the acquisition of Glenrand MIB and a change management expert provides insight into the challenges of change.

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Threading through the Binder Regulations Hanna Barry

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D-day for compliance with the Binder Regulations came and went without much of a bang. No fines were levied nor punishment meted out and the Financial Services Board does not yet have figures as to what percentage of the industry is compliant.

The board is lending a hand to those who need it – and it seems that many do.

e are still scrambling to get everything legal,” the director of an independent brokerage told RISKSA recently. One insurance company that deals exclusively with UMAs was not able to provide comment on this article because “at this stage, we are still working closely with the FSB”; we were told late in January. Santam was also still in the process of crossing t’s and dotting i’s around the same time. “In certain instances, where historically the underwriting managers had given mandates to intermediaries, the process of ensuring that there are direct binder agreements between the intermediaries and us is still underway,” Andrew Coutts, head of national brokers and portfolio management at Santam, told us.

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The insurer managed to conclude binder agreements with its underwriting managers before the deadline and its outsourced business, representing all relationships with personal lines and commercial lines nonmandated intermediaries (NMI) operating without profit share, is fully compliant.

Non-compliance constitutes a criminal offence for insurers and binder holders, but an information letter issued by the FSB on 4 December last year reflects some measure of grace on the part of the regulator.

A guiding light Conflicting interpretations of what the regulations require left the FSB with no option but to issue further direction on two matters: activities constituting binder functions and the remuneration payable by the insurer to the binder holder in respect of these functions. It is particularly difficult to apply the regulations until there is clarity as to what counts as an intermediary service. This remains a grey area and a discussion document on intermediary services is expected in the first quarter of this year.

According to the South African Insurance Association, many of its members obtained legal opinion in finalising agreements, due to divergent interpretations applied by different industry participants. “Activities that could possibly be viewed as binder in nature are being included as outsourced services, resulting in decreased disclosure requirements to policyholders. The definition of intermediary services is still not clarified by the FSB, resulting in possible duplication of remuneration for the same activity,” says Coutts.

In the FSB’s December information letter, Binder Regulations: Guidance and Supervisory Approach, the board sets out the guidance

it will issue to facilitate implementation and compliance with the regulations. The letter is clear that despite the guidance issued, the onus is on insurers to apply their own judgement on how best to achieve compliance. Insurers will be required to complete a reporting template to demonstrate compliance and the registrar will conduct onsite visits to verify information in the reports. As a further means of monitoring compliance, it plans to undertake a detailed review of binder holder remuneration.

Regulatory action Insurers were expected to have been compliant with the Binder Regulations by 1 January this year. But there’s a caveat or two: when considering regulatory action, the registrar will take into consideration the extent to which an insurer “can demonstrate diligent efforts towards being compliant with the Binder Regulations by 1 January 2013”.

Where binder agreements are not fully aligned, insurers will be provided with a period of 90 days to align them. “Where non-compliance has been identified, this has been the approach,” explains Lesedi Letwaba, head of the insurance division’s compliance  department at the FSB.

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“It is recognised that facilitating full implementation and compliance with the information-related requirements of the regulations may take longer than other requirements,” the information letter states.

Where insurers have not managed to meet these requirements, they must be able to demonstrate that they have detailed action plans in place to meet the requirements as soon as practically possible, but by no later than 1 January 2014. “Failure to have such action plans in place or failure to make them available on request will be taken into account when considering enforcement action,” the letter continues.

The data-sharing requirement provides that binder holders must update policyholder and policy information in the records of the insurer to enable the insurer to contact policyholders and assess its liability under the policies. In the

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short-term insurance sector, this is required at least every 60 days.

The FSB says that compliance with the messaging standards developed for South Africa by ACORD, known as STRIDE, will be encouraged to meet the information requirements. The Short Term Insurance Data Exchange (STRIDE) project was launched by the SAIA in 2009, in collaboration with the Financial Intermediaries Association of Southern Africa (FIA), to assist compliance with the Binder Regulations. STRIDE provides a secure method of transferring customer information and underwriting data, primarily between insurers, intermediaries and underwriting managers.

“The SAIA, in collaboration with STRIDE, met with representatives of the FSB in 2012 to address challenges in compliance with this requirement by the deadline, which resulted

in the information circular issued by the FSB in December 2012,” notes Suzette Strydom, general manager: technical at the SAIA.

Taking stock It is too early to count what the cost of compliance has been and certainly too early to assess what the cost of non-compliance could be, but it’s safe to assume that implementing the binder agreements was no cheap trick.

“We had to acquire additional compliance capacity to ensure the successful analysis, implementation and monitoring of the Binder Regulations and other outsourcing legislation.

This will be an ongoing cost, and in all likelihood will increase to adhere to the legislation,” says Yurika Pistorius, head of legal and compliance at Centriq Insurance. “This is an operational cost and not only a compliance cost. Quantification of costs is not possible

seeing that it filters through to the insurer as well as the business partners.” Centriq currently has a 15-strong portfolio of UMAs.

ensure fair consumer outcomes will undoubtedly have a positive effect on the industry and policyholders.”

Bertus Visser, head of distribution and business development at Natsure, another insurer with a number of UMAs, said that while monetary costs are difficult to quantify, it did cost the insurer more in terms of time, resources, legal costs and IT developments, to name a few.

Strydom agrees that the implementation of the regulations led to inconsistent interpretations of the various functions performed by insurers, UMAs and intermediaries. “One of the reasons is the fact that the FSB is moving away from a rules-based supervisory approach to a principle-based approach. Once regulatory certainty is received on the outstanding issues, the SAIA will be in a position to reassess the situation,” she notes, adding that some of the positive effects of the regulations are an increase in responsible outsourcing and consumer protection.

Alongside these costs, tight deadlines for compliance were another issue. The proposed Binder Regulations were first published by the FSB in August 2011, although there had been talk of them for a number of years prior to that. The regulations came into force on 1 January 2012, giving the industry exactly a year to comply. “The industry has adapted very well to the regulations, bearing in mind the tight deadlines.

It is our view that the industry now knows what is expected of each role player,” says Pistorius.

In contrast, Coutts does not believe that insurers have coped successfully with the regulations.

“The response to the changes has been slow.

Discussions have centred on insurers and intermediaries and not the policyholder for whom the ultimate protection is intended.”

Policyholder protection, avoiding conflicts of interest where NMIs are involved, promoting the accountability of insurers and ensuring responsible outsourcing are the primary objectives of the Binder Regulations. Ultimately, they aim to ensure that binder arrangements do not undermine good governance and risk management of the insurer, nor undermine the fair treatment of customers.

This is definitely the right direction in which to move, and even though the industry has done a good deal of grumbling, this has not been without recognising the value of the regulations.

“We support the regulator fully with the Binder Regulations, which ultimately benefit the policyholder and will effectively lead to treating the customer fairly,” says Pistorius. Visser adds that on the whole, the Binder Regulations have clarified a number of matters around binding functions and remuneration. “I think time will tell whether it has a positive effect and Natsure embraces it in a positive spirit.”

“The fact that the Binder Regulations are only one part of the FSB’s ongoing project to review outsourcing holistically must be taken into account. The FSB is expected to expand this project to a full retail distribution review. Some of the outstanding issues include the consistent application and/or redefining of the definition of intermediary services in the short-term insurance and FAIS landscape; a review of the roles and responsibilities of product providers in respect to FAIS; the operations of third party cell captives; and remuneration in line with the TCF outcomes.”

Facing the future With or without guidance, the Binder Regulations have led to fundamental shifts in the business operations of insurers, UMAs and brokers. The compliance landscape, and by implication the operating environment, is tough. But even in this context, new UMAs are launching as others merge or shut down operations altogether.

Some have opted to become brokerages, which may become increasingly popular for commoditised UMAs. These underwriters are generally not serving as specialised a market and will therefore struggle to survive when competing for business with NMIs. The competition between

UMAs and intermediaries is likely to toughen and it could be argued that intermediaries have a distinct advantage in that they have a client base that they can interact with, whereas UMAs do not.

Whether or not all intermediaries are sufficiently qualified to act as binder holders is questionable and it’s here that the UMA’s competitive advantage lies. Many of them contain extremely specialised skills that will continue to attract the business of brokers and insurers.

Of course, this depends to a large extent on the complexity of the risk and varies from intermediary to intermediary. Some brokers have honed their craft over many years and have the necessary skills, which is what the binder regulations allow for. But this illustrates why it is important to distinguish an intermediary from a binder holder, as well as clarify what portion of the binder fee is already covered by remuneration provided under intermediary services.

At this stage we can only wait to see how the regulation is enforced, as it is through actual cases that the regulation will be clarified and better understood. As much as the FSB’s guidance is welcomed by the industry and can only lead to more effective implementation of the regulation, ultimately insurers must take responsibility for achieving best practice and putting their policyholders first.

Letwaba is positive of the industry’s effort to comply with the Binder Regulations, although notes that inconsistencies in interpretation must be dealt with through further guidance. “The proper oversight of binder agreements speaks to the governance and risk management of underwriting, operational, legal and regulatory risks to insurers, as well as consumers.

This means it is key to meeting both SAM and TCF requirements. Proper governance and management of solvency risks to

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the 2013

budget speech Money where the mouth is Grant Cyster

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By the end of February 2013, South Africans would have heard from the lips of Finance Minister Pravin Gordhan what the government's strategies are to stimulate economic growth and development over the next 12 months.

There's no denying that the country faced formidable economic challenges during the course of 2012, not least of which were due to prolonged and significant strike action across a range of industries. In light of Gordhan's key budget address, we examine what some influential South African economists are expecting to unfold in the year ahead.*

Insights from Old Mutual Investment Group

order not to put undue pressure on alreadyburdened taxpayers,” says Le Roux.

Speaking about the key areas that the budget speech is expected to address, Rian le Roux, chief economist at Old Mutual Investment Group SA, highlights a three-pronged focus:

As a priority, and in line with the first point above, Le Roux believes that the minister of finance must ensure the government sends the right signals to ratings agencies and foreign investors that we are intent on reducing our budget deficit further over the coming years, in order not to undermine confidence in our sovereign credit rating. There are a number of important issues that the Budget Speech needs to address. “South Africa’s healthy fiscal metrics (including the previously relatively low budget deficit) were key in attaining investment-grade ratings from rating agencies in past years. The deterioration in our fiscal metrics in recent years because of sluggish growth and exploding current spending by government (wage bills, grants and interest on debt) are starting to pose a serious threat to SA’s long-term ratings – sustained fiscal slippage will almost certainly

1. Ensuring future deficit reduction.

2. Shifting spending priorities away from current spending (salaries, grants, etc.) to capital spending (infrastructure investment).

3. How to balance the first two priorities in a sluggish economy with soggy revenue growth.

“The government will face some tough decisions around attaining this balance; with slow economic growth and therefore slow tax revenue growth, we are likely to see higher taxes being announced. Even here, Pravin Gordhan will have to proceed delicately, in

result in losing investment grade status some time in the future.” For this reason, Le Roux feels that getting the fiscal numbers under control is crucial, and government has to address infrastructure backlogs within this context. “This can be done only by strictly controlling current spending. This challenge will be closely watched. In the short term, further fiscal slippage risks more downgrades (even if we initially stay in investment grade), something South Africa cannot afford given our heavy reliance on capital inflows from abroad to finance our current account and savings shortfalls.” From a broader and a growth perspective, Le Roux concludes that the country now needs a tight fiscal policy and easy monetary policy: the former to anchor SA’s ratings and counterbalance the inflationary impact of the weaker Rand, and the latter to support economic growth and help support the currency at its more competitive levels. 

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A First National Bank perspective This year’s Budget Speech is expected to mirror the sentiments expressed in the medium-term budget policy statement that was released in October 2012. This, according to Sizwe Nxedlana, FNB chief economist. “I think there might be further downgrades to the Treasury’s economic growth projections.

There may also be disappointment concerning the projected revenue due to weak growth over and above the R5 billion downward revision in anticipated revenue,” says Nxedlana.

Thoughts around possible labour law changes In the view of Rob Cooper, director of legislation at Softline VIP, suggested changes to the SA Labour Relations Act (LRA) and the Basic Conditions of Employment Act (BCEA) look highly likely in 2013. This, as the country continues to reel in the aftermath of massive protest action. “Some of the proposed changes include the fact that minimum wages can be prescribed by the minister of labour.

Public officials are also proposed to have the power to prohibit strikes in their sectors. It is also proposed that unions must ballot and get majority agreement to strike or picket, but there is strong opposition from COSATU, which sees this as a curtailment of its freedom to strike, and we wonder whether this will be in the final legislation,” says Cooper.

The National Economic Development and Labour Council (NEDLAC) recently released Employment Equity Act proposals which will mean that the act continues to zero in on provincial targets as opposed to national demographic ones. “Increased fines and penalties are proposed in addition to the introduction of the concept of equal pay for work of equal value. These proposals could quite possibly be rolled out in conjunction with the BCEA and LRA amendments,” notes Cooper.

For the most part, according to Nxedlana, no major deviations from last year’s focus are anticipated. “There has been direction provided on the fiscal strategy.

Treasury has indicated that it aims to reduce expenditure growth by keeping growth in current expenditure slightly above inflation.

Treasury has also expressed its goal to realign expenditure from current expenditure towards capital expenditure in support of the infrastructure programme. Beyond that, the South African economy is supply constrained.

Our tradable goods sectors are underperforming and thus not employing our unskilled labour as much as they could be,” adds Nxedlana, who is of the opinion that a lot of this underperformance has to do with poor competitiveness. “The National Development Plan goes into great detail on how we can enhance our competitiveness.”

Tax considerations Alex Gwala is the associate director of corporate tax at Deloitte and Touche. “One of the proposed interventions is the rent resource tax (RRT), which is similar to the mining rent resource tax (MRRT) that was introduced in Australia in 2012. In terms of the MRRT, a company in Australia will have to pay tax of only 30 per cent when its annual profits reach $75 million (or R650 250 000). The RRT in South Africa could be triggered once an investor has made reasonable returns. However, what is regarded as a reasonable return will ultimately be defined by National Treasury, although it has been suggested that the level of return will be approximately 15 per cent,” says Gwala.

Gwala notes that the SA Government will need to be mindful of the observations from countries that have already introduced a similar tax. In the case of Australia, these include:

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• Taxes generated did not meet revenue projections, primarily because of the decreases experienced in commodity prices.

• Insufficient consultation took place with relevant industries/businesses.

• The backlash from the mining industry was drastic and the general consensus is that it has elevated sovereign risk in Australia.

• There was a threat to examine the constitutionality of the legislation in court.

According to Cooper, “Tax relief for medical expenses is expected to change in either March 2013 or March 2014, from a deduction calculation to a ‘medical tax credit’ method of calculation. Contribution expenses for all taxpayers are to be defined, while an assessment method to calculate the tax relief on total medical expenses is to be tabled. These proposals will result in a gradual reduction

of the value of our current tax relief which has been the trend over the past two years.”

Although the medium-term budget policy statement has remained silent on the subject to date, Cooper indicates that a Treasury discussion document is expected soon.

Almost two decades since its first democratically held national election, South Africa continues to crawl painfully slowly towards economic prosperity and justice.

Assuming, optimistically, that elected officials are committed to working responsibly and ethically with the resources that are made available to them, our country may yet have a shot at hitting this seemingly elusive target. * The comments in this article were made in late January/early February, prior to the Budget Speech.

FAIS compliance: Key focus areas for 2013

Reducing business compliance risk is an ongoing focus for advisors. Richard Rattue, managing director of Compli-Serve SA, provides some key focus areas for 2013.

Get qualified The FSB and INSETA are offering additional assistance to those advisors whose brains freeze up come exam time. A second-tier of product exams and continuous professional development loom on the distant horizon.

Barring fraud or a large exposure to Greek government bonds, this is one of your biggest compliance risks at this time, and should be addressed sooner rather than later.

Seek advice from the pros You need professional advice if compliance is to make any difference in your business. Most professional compliance officers are members of the Compliance Institute Southern Africa and this should be one of the first ports of call when managing your compliance risks.

Enter as evidence A record of advice must actually be entered into evidence, dated, signed by client and advisor, and clearly stipulate the needs and objectives, recommendations and motivation. If this is not the case, the document is useless.

Non-compliance is a no-no Non-compliance in submitting financial

statements, compliance reports or payment of levies results in penalty or notice of suspension letters from the Financial Services Board. It should be a simple task to note the deadlines and ensure that you meet them.

Cash at hand Some FSPs are required to keep a minimum amount of operating expenses in the bank, from four weeks to 13 weeks at all times, in terms of their fit and proper requirements. What you save in cash will certainly cost you a lot more in reputational harm.

Keeping record Recording advice diligently and clearly indicating your recommendations are essential.

A complaint to the ombud’s office will elicit a request for the financial documentation, and a dim view will be taken if you have no supporting evidence from the files.

Ensure you are legit Product suppliers are checking to ensure that contracts with advisors are licensed correctly and if underlying product categories reflect correctly. Failing to have correct categories, product suppliers will cease business and commission flows. Applying for a new product

category is a time-consuming task, and in most cases, it won’t be granted by the FSB’s registration department.

Remuneration disclosure In terms of FAIS, it is clear that a client should be made aware of the costs of any product and while a percentage is often shown, there seems to be continued reluctance to reflect the Rand amount, which usually means that an advisor does not want the client to think it is too high and may have difficulty explaining how the fee is earned. This is particularly the case in some upfront fee structures, as we are all aware.

Update register FSPs often do not remove representatives in time for the levy cut-off and therefore are being billed for individuals who are no longer in their employ. Please make sure that you check representative numbers at the end of July 2013 and forward notification to the FSB before the August deadline.

TCF on the cards Treating Customers Fairly (TCF) is going to affect everyone in the industry. You will no doubt hear more about this from the FSB and industry stakeholders in time to come.

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The new

broker

on the block

Hanna Barry

“I’d like to create a client-envy scenario. By creating a comfortable environment for our clients, our reputation will spread by word of mouth.” Warren Bolttler, chief executive officer of PFP Insurance Brokers, a wholly owned subsidiary of Price Forbes and Partners in the UK, which set up shop in South Africa in October last year, is confident that the brokerage has something unique to offer the local market.

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s an independent wholesale broker in London, Price Forbes and Partners relies on business from all over the world. The decision to set up a retail operation in South Africa was to defend its wholesale flow of business, which had been compromised after the Marsh/Alexander Forbes merger. Alexander Forbes had previously been its major source of wholesale business in the country.

Having spent nearly nine years at Dimension Data as group risk and business support manager, and close on four years at Deutsche Bank as a business risk analyst, Bolttler is used to being on the receiving end of financial services. “I think my non-insurance background is precisely the reason I was chosen to be chief executive. At the risk of generalising, large parts of the insurance industry have not yet embraced technology and innovation, continuing to deliver service in a tired way, playing on price more than anything else. At Dimension Data, a multinational IT-servicing organisation, we were exceptionally innovative in the way we delivered service. Service delivery in insurance requires similar innovation. My mindset is still that of a consumer of the products and services we sell and I will be active in ensuring we think like clients, too.”

Bolttler maintains that regardless of the size of the account, PFP places each of its clients at the centre of business operations. “We don’t want to grow too large, where our client base becomes anonymous. Each client is an asset and is treated as such.” Since the business is owned by management, it has far greater flexibility to change the way it operates in order to suit clients, rather than be dictated to by shareholders. “This is not necessarily the case with our larger corporate competitors,

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which have to deal with many other corporate stresses, such as shareholder metrics, maximising efficiency and people integration,” explains Bolttler. “We’ve seen them take their eye off their clients as a result. We are talking to those same clients and hearing stories of calls not being returned and balls being dropped.”

PFP is taking advantage of these opportunities to win clients and Bolttler says that much of the broker’s growth will involve taking clients away from some of the bigger players. “Through discussions with clients and prospective clients, we have learnt that it’s not difficult to keep them happy. But when brokers start to have other worries, such as trying to satisfy shareholders, clients can quickly be disappointed.” PFP’s three largest corporate competitors are Aon, Marsh and Willis; the former two boasting what Bolttler feels is an unfair share of the market as a result of acquisitions. “Aon and Marsh are the two biggest brokers in the world for a reason; they are obviously outstanding organisations.

However, their respective acquisitions have brought integration difficulties.”

Although the market is competitive from a cutthroat pricing point of view, Bolttler does not believe it is competitive from the perspective of clients looking for alternatives. “PFP plans to give corporate and commercial clients more choice in terms of broker selection than they had before. Especially in the multinational corporate market, where there are only a few brokers in South Africa that have local advisory expertise and in-house international market access.” PFP plans to utilise the local market to its full potential but it is beneficial to have inhouse access to international markets for large corporate and multinational programmes.

With Bolttler’s risk and technology background,

the tech sector will be a focus for the company and risk management consulting will be used as a key selling point. “Our tech clients and potential clients are intrigued by how risk was managed at Dimension Data. There is a lot of opportunity in the technology space and we want to build a reputation for excellence in the tech sector initially.” Bolttler plans to utilise his contacts to build an impressive offering, and they are looking at the mining, infrastructure and construction industries with keen interest.

Undoubtedly his biggest challenge for 2013 will be to bring the right team and talent on board to ensure that PFP can seize its market opportunity and build a solid platform for longterm survival. “A lot of people are available, but the trick is finding the right people who fit our culture and are committed to the hard work that it will require to accelerate us into the market as a competitive and viable player.”

Getting to grips with the compliance environment, bedding down business processes and practising excellent client service will be some other major focuses in 2013. A clear market share goal for the year is not high up on its list of priorities. “The commercial non-life broking market in South Africa is worth R4.5 billion; you don’t need much of that to create a sustainable business,” Bolttler remarks.

“2013 will be simple for us. We’ve got to create the right team with service capability.

Without that, we’re not worth much. My job as CEO is to ensure service delivery is enhanced through innovation and out-of-the-box thinking. Obviously the competitive nature of the broking market in South Africa is going to be a challenge, but while there are a few gorillas in the market and hundreds of smaller players, I believe that there is space for us to make our own.”

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Growing pains:

managing

M&A Anton Pretorius

Some notable mergers and acquisitions (M&A) have occurred in South Africa’s insurance sector over the past three years. Typically, companies merge to enter new markets, expand customer bases, acquire additional capabilities or because of financial hardships. If not managed carefully, however, these can have a detrimental effect on staff and management.

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more likely to look for another job. Failure to retain key talent or evaluate the quality of a cultural fit, like leadership style and working processes, can undermine or slow effective integration. “Even though business leaders understand that change management is needed, disappointment levels continue to rise,” says Aiden Choles, co-founder and managing director of The Narrative Lab, an organisational development and research consultancy.

Adapting to a new culture Change management is generally accepted as the process, tools and techniques used to manage the people side of mergers and acquisitions to achieve the required business outcome. “It has a lot to do with understanding how an individual experiences change, and how organisational tools are made available to support that transition,” adds Choles.

“Such tools include communication, sponsorship, coaching and training. What is often not evident is the complexity of effectively changing behaviour in human systems. Overcoming fear of loss and the unknown, complacency with the status quo, and moving diverse groups of individuals towards a common goal can be enormously challenging tasks.”

Change management efforts fall short of expectations due to major obstacles like ineffective change sponsorships from senior leaders, resistance to the change from employees, poor support and alignment with middle management, as well as a lack of resources and planning.

Aon South Africa’s executive head of human resources, Leo Morwe, says that Aon invested heavily into a multi-phase integration strategy after it acquired Glenrand MIB to engage employees, educate them on the benefits of the new combined company and get them excited about the opportunities for their career growth.

Changing hands In the financial sector, the critical role of proper management in mergers and acquisitions is widely acknowledged. Jeremy Robinson, senior executive in Accenture’s supply chain management service notes that commonly sought synergies, such as scale buys and purchase process consolidation often contribute between 25 and 50 per cent of targeted M&A benefits. But achieving these goals is far tougher than many companies think.

According to Robinson, even when companies get it right, most of them find the basic

improvements to be insufficient to validate the deal. He stresses that the big inhibitor is often lack of awareness and expertise in key sourcing and procurement areas, “such as blending company cultures, harnessing global talent, integrating e-procurement systems and maintaining a business-as-usual service for internal stakeholders”.

Even in the insurance sector, where employees are more positively inclined towards mergers and acquisitions, retention issues and employee perception can lead to voluntary resignations.

Research shows that employees going through mergers and acquisitions are significantly

Employees often imagine the worst in merger scenarios. “The strategy had to address the many challenges, such as resistance from the market to the brand shift; brand confusion; incompatible processes and marketing messages; negative perceptions of a deal, not just among customers but particularly among employees; and turnover of talented employees.

All these can easily put a bullet to the deal’s final value,” says Morwe.

From an employee’s perspective, Choles identifies two main categories of change faced during a merger or acquisition. The first, which he calls hygiene factors is the factors employees grew accustomed to in their previous department or company and now need to adapt to.

“This can range from parking and dealing with new peak time traffic patterns to what

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the quality of the office coffee is like,” says Choles. On the other end of the spectrum, employees could be adjusting to a new leave policy or figuring out how to get the best out of the IT department.

Aon says that putting people at the heart of a newly merged organisation meant more focus on two-way communication, consultation, obtaining ideas and concerns of staff and feeding it back into the planning process.

“Building enthusiasm and motivation across the new organisation was one of the key reasons why the entire staff complement of the merged entity was invited to the launch event in Sandton,” says Morwe.

Even Aon Group president Steve McGill made a special trip to South Africa to meet staff and clients and address critical issues. “This was the ideal platform for each employee to find out first-hand the vision and plan for Aon South Africa, to understand the role and contribution to the success of the new entity and, importantly, meet their new work colleagues in a relaxed environment.”

Choles says that the second category of change is more difficult to deal with. “It has the issue of identity at its root. Commonly referred to as a new culture, employees arrive in a new and different context with a particular corporate identity. A new company has its own identity, its own story. What makes most mergers and acquisitions prickly is that they are a process of melding two separate stories and converting them into one cohesive new story,” Choles explains.

Expect the unexpected It is the subtle changes that surprise or catch employers off guard during a merger or acquisition. They typically get answers to key questions prior to the change, but quickly discover new, deeper issues once the merger or acquisition is complete. These may be subtleties in the policies and procedures within the new company, but inevitably they come down to the way things work in the new environment.

“Most often, employees struggle to understand why certain things are done in a particular way. The new company’s ability to explain the rationale behind why they approach business in the way they do is critical to a smooth transition,” says Choles. He continues by saying that depending on how they are executed,

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M&As decreased in 2012 Today’s uncertain business climate has spilt over into mergers and acquisitions. Overall M&A activity in 2012 decreased and experts are saying that the ripple effect may continue throughout 2013.

Global mergers and acquisitions are at their lowest recorded levels both by value and volume since 2004, according to the Zephyr Annual M&A Report published earlier this year. In 2012, there were 65 060 transactions, totalling $3.1 trillion (R27 0105 trillion). This is the fifth consecutive year-on-year reduction, while volume has decreased by 17 per cent in that time.

Despite these figures, there have been some notable mergers and acquisitions in South Africa’s insurance sector in the past few years. Metropolitan and Momentum merged in 2010 to form MMI Holdings, while Aon South Africa acquired Glenrand MIB in 2011. Alexander Forbes Risk Services and Marsh, the wholly owned subsidiary of Marsh and McLennan, merged in 2011.

mergers and acquisitions can have either very little or a catastrophic impact for employers. “I recently heard a story of an entire department of people walking out and starting their own business shortly after being bought by a company.”

Morwe says that there are no magical solutions or silver bullets. “We vigorously engaged with our employees and supplier teams to create a high degree of positive energy throughout the organisation.” This was essential, as the hard work really began with delivering post-merger value for their clients and stakeholders.

“The actual acquisition and the integration phase was just the tip of the iceberg for us.

The real challenge was in the successful integration of the two businesses, the delivery on our promise to both clients and staff, managing our market position, avoiding the temptation of becoming internally focused, and taking the risk of any customer confusion out of the equation to avoid any competitors taking advantage.”

Choles firmly believes that things will generally go wrong when the acquiring company does not pay sufficient attention to the softer issues that arise. “Sorting out policies, structures and hygiene issues appear to consume the bulk of the time, while the issue of culture, emotion and people’s individual stories are disregarded and even thrown off the agenda completely.”

He adds that in most change projects, communication is a key focus area. Often,

the change message and the impact the change will have on individuals are not communicated in a way that addresses the inherent uncertainty that accompanies change.

“The vision for the change, the answer to the ‘why’ questions, is also not communicated in a compelling way that captures the hearts and minds of the people,” says Choles.

Communicate through story-telling Choles believes that by harnessing the power of narrative and creating what he calls a change story, organisations are able to solve complex problems in surprisingly simple ways.

“By knowing what stories people are telling about the change, and what metaphors they use to make sense of it, narrative becomes a powerful communication tool.”

A few years ago, The Narrative Lab provided change management assistance to the Department of Home Affairs (DHA) during its TurnAround Strategy Programme. “A change story was co-constructed with the DHA staff members and launched to all 7 000 employees through multiple channels.

The story, although fictional, provided the business with a new language about the change that opened up possibilities and allowed each individual in the organisation to identify with how the change was affecting them. The change story ultimately gave employers a basic human process in dealing with a massive change,” Choles comments.

Advisers are

Ian Middleton | Managing director of Masthead

In spite of difficult economic conditions and other headwinds, independent financial advisers are positive about their role and longterm future in the industry, according to the results of a recent Masthead survey.

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he survey, conducted among Masthead adviser members late last year, revealed that three-quarters of the advisers are positive about their future in the industry. More than 84 per cent said they intended to remain in the industry for at least five more years. Although 63 per cent of the respondents claimed that the current economic situation is negatively impacting their business, the majority anticipated an improved situation, with almost 82 per cent expecting growth over the next 12 months.

Other findings in the survey revealed that 93 per cent of the respondents felt it is important to market themselves as independent advisers.

Some 91 per cent said it is essential that they are able to offer their clients choice.

In the survey, advisers also rated the challenges they face. Their main concern was commission regulation. Those who rely on commission will struggle with business sustainability should commission no longer apply. Advisers should thus consider billing clients for their time and advice in the same way as other professionals

positive about the future such as doctors and lawyers charge consultation fees.

proposition remains relevant for the best chance of retaining clients.

Their second-largest concern was the administration burden on advisory businesses.

Increasing regulation has meant that more time and money are spent in the back office on compliance-related tasks, resulting in less time to see clients. An effective solution is to incorporate technology into the business and automate processes as far as possible.

Cash flow was identified as a minor concern; while finding a successor ranked as the least pressing issue. It is likely that succession planning did not feature highly as most advisers intend to run their business for several more years. However, it is wise to identify a successor early on, as a successful transition or handover of a financial advice business cannot be done overnight. There should be enough time to train a successor and for clients to get to know the successor so the handover is smooth at the time of your exit.

The volume and complexity of regulation ranked a close third. Local regulators are well on their way to creating a financial services industry in line with First World standards and further regulation is certain. As it is impossible to run an advisory business and remain abreast of all regulatory changes, Masthead informs advisers of changes and assists them to remain compliant. It’s also important to recognise that outsourcing this type of function to a compliance practice should be seen as an investment that reduces risk and frees up time, rather than an unnecessary expense.

Growing their businesses was the concern that advisers ranked fourth. Many started out as salespeople, yet today are required to build a business. Again, this can be done by consulting an expert. Consider that athletes and other people at the top of their game have achieved success with the help of a coach to guide and correct them.

Other concerns were client related, namely finding new clients and retaining clients. This highlights the importance of identifying the right target market and ensuring your value

In general, the survey findings reflect good news for both the advice industry and consumers.

With long-term commitment to their businesses, advisers will enjoy stability and clients can be assured of receiving ongoing advice. Their years of experience make them well suited as mentors to younger entrants to the industry and it will benefit consumers who seek objective advice from experienced professionals. Furthermore, advisers in general are proud of their independence and the opportunity to offer product choice. They are likely to continue building their businesses around pleasing clients.

Finally, all the issues advisers find pressing can be successfully overcome. Masthead has helped them to build their businesses and thrive for the past eight years.

To enjoy the benefits of implementing the best practice principles referred to in this article, please contact your nearest Masthead regional manager or visit www.masthead.co.za.

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Mazwi Cele Norton Rose South Africa

More regulation for the financial sector a brief view of some administrative aspects of the Omnibus Bill

he Financial Services Laws General Amendment Bill, which was tabled in Parliament, has been labelled by some as the Omnibus Bill. The bill seeks to close the regulatory gaps created by various financial institutions’ legislation, including the Long and Short-term Insurance Acts, and to eliminate the overlap caused by the Consumer Protection Act (CPA) by making the Financial Services Board (FSB) the lead regulator in areas of concurrent jurisdiction. The bill will introduce various administrative and other changes, a few of which are dealt with here.

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After the promulgation of the CPA, financial services as defined in the Financial Services Board Act (to include both short and long-term insurers) were carved out from the ambit of the CPA on the basis that legislation would be passed to govern them in the protection of consumers.

One positive amendment that will be welcomed by insurers is the carve-out that seeks to remove financial institutions from the scope of the CPA. The CPA will not apply to any person, function, act, transaction, goods or services that are subject to any of the acts referred to in the definition of financial institution. This was introduced on the understanding that financial institutions would put measures in place to afford consumers the same protection as provided for in the Consumer Protection Act.

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Financial institutions are not entirely exempt from the ambit of the CPA since there are certain sections of the CPA (ss60 and 61 relating to product liability and product recall) that will still apply regardless of an exemption from the application of the CPA. In its current form, the Omnibus Bill brings in changes to various pieces of legislation and increases the powers of the respective regulatory bodies.

The bill intends, in many respects, to do away with publication in the Government Gazette and now seeks to provide for publications “on the official website”, that being the website of the FSB. These publications range from the outcomes discussed above to publications of termination of registration of insurers.

This poses difficulties as the FSB website has sometimes proved difficult to navigate. The question that arises is whether the website will have a facility to archive information to enable retrieval of information published on the site in previous years no matter how long ago.

A further proposed amendment which has proved topical is the increase in fines to be imposed for contravention of the various pieces of legislation. The proposed amendment to section 65 of the Short-term Insurance Act seeks to increase the liability of a short-term insurer for contravention of the act from a fine of R100 000 to a fine of up to R5 million. This proposed amendment

if promulgated will have a massive financial implication and may potentially cripple the business of a short-term insurer in an instance where the fine is imposed to its maximum extent.

“In its current form, the Omnibus Bill brings in changes to various pieces of legislation and increases the powers of the respective regulatory bodies.”

Although various institutions and industry bodies have submitted comments to the FSB voicing concerns over the above amendments (and others not dealt with here), it seems that one way that the inequalities of the past can be addressed is by providing for a stricter and more stringent regulatory framework in an attempt to protect the consumer. This, however, must be done in a reasonable manner as the cost is ultimately borne by the consumer.

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

Assessment trends Kirsten Halcrow Managing director: EMPS (PTY) LTD

he curiosity of psychometric and competency-based assessments is always increasing, largely due to an increased awareness of the risk inherent in making bad employment decisions, the need to “make sure the right person is employed for the right job” and to attract and retain staff.

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Psychometrics is continuously evolving with new trends emerging all the time. At this time, increasing computerisation and digitalisation is a strong trend. Newer tests are developed with much more international context.

Another rising trend is to tailor tests to the demands of specific positions and industries; for instance, tests for sales roles or tests that are targeted at a particular aspect of a role, such as safety-consciousness.

Computer-based reports have become more sophisticated, while being user friendly – a welcome development for all. However, the increasing dependence on computer technology carries the risk that tests may become a commodity and, since tests are readily available on the Internet, they might be used by people who are not appropriately qualified, or the tests themselves may not measure up to South African requirements.

There is a need to balance the need for quick and Internet-based tests with an understanding of the value of more traditional face-to-face testing.

An holistic approach to assessment seems to have gained popularity in recent years. It traditionally comprises of at least cognitive (head), personality (heart) and competency/ skills assessments (hands). This head-hands-

heart model provides an indication of an applicant’s match to the requirements of a particular role and the questionnaires and exercises give an indication of how someone will behave on a daily basis, how they solve problems, how much attention they pay to detail and how they will cope with stressful scenarios.

Most employers are searching for employees who can control stress, manage colleague relationships well, and who will perform their duties in a diligent and cautious way.

Determining which assessments should be used is an essential part of the entire assessment process. This is where the expertise of the psychometrist comes into play.

Recently, we have seen the traditional psychometric assessment companies being replaced by companies that offer a range of management services, with assessments as only one part of their arsenal. This shows a shift in thinking and a movement towards psychometrics finally making its way into the business arena in a way that line managers and smaller companies can relate to.

We'll also see more companies extending their use of assessments to encompass staff retention and development instead of just recruitment and selection, making the most of tools that build team co-operation, staff morale and identifying staff members who are ready to move up and take on new challenges.

Achieving strong business results depends on hiring and retaining great people.

Organisations that recognise that people are their most important asset demonstrate that understanding by establishing effective processes to attract, place and promote the right people. However, even with the right processes in place, the quality and success of talent decisions is impacted by the quality of information used to make those decisions.

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Mark Berger is the CEO of Mark

Berger Training. He specialises in team building, motivational speaking, sales training and personal leadership. For more information, visit www.markberger.co.za.

e live and work in a fastchanging, ultra-competitive, technology-driven world where success is everything. In the sales environment, we live and die by the successful completion of deals. We compete against our targets, our opposition, our colleagues and sometimes even our own conflicting beliefs.

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Sometimes, we just need to stand still and remind ourselves why we do what we do and how we can obtain the best possible results while still enjoying the process.

So what is this profession of selling all about and how do those who sell survive and thrive in this cut-throat environment? In general, selling is not really regarded as a profession at all. You can’t study selling at most universities. You cannot get a higher degree, masters or honours in selling.

Selling is by far the most under trained of all professions. Yet I believe that professional salespeople are as important to our planet as the likes of doctors, lawyers, accountants, plumbers, architects, managers, electricians and engineers.

But because you cannot get a degree in it, selling often does not get the credit it is due. It is therefore an often criticised, misunderstood and underrated profession.

Many salespeople feel undermined and unappreciated by their organisations and somewhat abused by their customers.

They are often given uninspiring titles like ‘reps’ or ‘sales representatives’, yet they are expected to sit face to face with CEOs, senior managers, buyers and accountants, with years of study and/or experience behind them, and not feel intimidated.

It’s time to set the record straight. Successful selling is both an art and a science.

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Back to basics

the noble profession of selling It is: • T he art of reading people and adapting your selling style accordingly.

• T he art of being confident without being arrogant.

• The art of asking the correct questions.

• T he art of really listening to your customers.

• T he art of sensing when it is time to close the deal.

• The art of closing effectively.

Plus: • T he science of using all the available sales tools.

• T he science of working out the sales mathematics and sales ratios that apply to you.

• T he science of proper customer research and call preparation.

• The science of effective communication.

• The science of time management.

• T he science of devising and implementing a sales strategy

• T he science of closing the deal by using the appropriate closing technique.

We do what we do because we want to enrich people’s lives. It doesn’t matter if we are selling a refrigerator, a car or an insurance policy. We want people to benefit from what we have to offer.

That is why we take the time to learn our craft and hone our selling skills. We are experts at communication, negotiation, cultivation, motivation and persuasion, not to mention handling rejection. Not many other professions can boast such a widespread base of interpersonal talents.

So the next time someone asks you what you do, please don’t reply “I’m in sales” or “I’m a sales rep”. Tell them, “I’m in the profession of selling”, “I’m a sales engineer”, “I’m a sales guru” or even, “I solve my customers’ problems and enable them to sleep better at night”. Believe in yourself and your profession and others will believe in you, too.

How to build an

effective website

c. Flexibility and scalability to allow for costeffective additions and updates d. Optimised for mobile and tablet users e. Operational in all browsers, across all operating systems f. Liquid layout screen resolution so that no matter what your screen size, the site will adapt to it.

To ensure that embarking on a new website is painless, tackle it just like any other project, define the objectives, the process and the stakeholders, and set up a project plan with requirements, responsibilities and deadlines. Give your agency everything they need upfront. Far too often the client stalls the process as they have not supplied vital information. Here is a summarised guideline to the process, step-by-step: 1. Identify objectives 2. Define user experience and concept 3. Work concept and layout into wireframes

ar too often I have come across clients (large and small) who have paid a small fortune for their websites and are loathe to redesign and develop a new one. However, if a website is archaic and not functioning properly; if it doesn’t work in all browsers; has a bespoke back-end solution built eight years ago with more patches than a quilt; or is just plain off the brand positioning completely, change is a must.

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Having gone through this several times myself over the last decade as a client, I am thrilled to say that technology has advanced and so should your web presence. You never have to build anything cumbersome again. Think flexibility, scalability, integrated social plugins and beautiful designs with content and customer management solutions that are all cost effective.

big Cs: Concept, Creative and Content. We often hear the phrase ‘Content is king’, and it is. Be sure that you are using professionals to write search-engine optimised (SEO) copy and create content that is relevant to your brand and business.

“Perhaps the main objectives for any website – or any customer-facing technology for that matter – are to be engaging, interactive, easy to use and value-adding.”

It is important to define your objectives upfront with your agency. Perhaps the main objectives for any website – or any customerfacing technology for that matter – are to be engaging, interactive, easy to use and value-adding. Best practices for user experience (UX) are a must and together with the structure and architecture of the website, this will define the basis from which the layout will be created. Each of these stages should be signed off step by step, all with the core objectives in mind.

On the technical side, it must be decided whether the site will be created in open source software or proprietary software, and it is important to ensure a user-friendly, scalable and flexible content management system (CMS). The site should be developed with the following functionality, bearing in mind all best practices:

Once the above are defined and agreed, the creatives get to have their way with the three

b. Dynamic integration of content and creative

a. Search engine optimisation (SEO)

4. Include interactive elements and copy integration 5. Begin front-end development 6. Build back-end development, including CMS 7. Integrate various systems if required 8. Complete internal and external user acceptance testing 9. Go live and monitor 10. Identify and manage ongoing maintenance and updates.

There is no need to reinvent the wheel; creating or recreating a website should definitely not be costing you the time and money it did some three plus years ago. Time and technology are moving fast, but cost-effective, scalable and flexible solutions are on your side, so be sure to embrace and move with them.

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

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Opportunity knocks

“Opportunity is missed by most people because it is dressed in overalls and looks like work.”

Thomas Edison, American inventor and businessman

aking a quick break is a little like a power snooze that provides much-needed energy. It gives you the chance to rest and relax, to reassess and reflect, to revitalise and reinvent and to recharge your batteries. Your lunch break does not have to be filled with clearing e-mails. Gathering inspiration, some quiet time and perhaps even a lungful of fresh air out of your air-conditioned office, is a break. Take short, regular breaks.

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The most beneficial break is a complete break, one without access to the Internet or cellphone reception. What is more important than the ‘re-s’ are contemplation, concentration and creativity.

Inspiration comes only to a quietened mind and if we never allow it to quieten, it will never become inspired.

Balance in business and life is of paramount importance. Just like balancing the debits and credits, you need to balance the use of both sides of your brain: the left (logical) and right (creative) sides. By stimulating your right brain with creative activities such as playing the guitar or learning photography, you will become more creative in all areas of work – your solutionseeking will be more inventive and your report writing far more original. People who indulge in exciting pursuits are more interesting to work with, and everyone around them becomes more inspired and stimulated.

Weekly art classes may be enough to energise you and your team for an entire week. To factor in stimulation and right brain creative exploration is absolutely ideal, even for people in systematic, streamlined jobs. Find something that makes you feel creative; learn a new language or enrol for cookery classes.

Then evaluate the effect on your productivity.

Creativity in itself has a currency, as it will impact on the bottom line of your brand. Plus,

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you will meet other interesting people who have potential.

Think about whether you are taking the time to evaluate the potential in yourself, in other people and in opportunities that exist. When you open your eyes and start looking in the right places you suddenly realise how many opportunities and individuals there are out there to assist you in building your brand.

Business is about making a profit, but not only that. It is about doing good work and making a difference. Again, good work is rewarded with a good reputation, more good work and then financial growth and security. Provided there is solid management with good corporate governance as well as a foolproof game plan in place, it should ultimately be converted into profit. And that’s more than good, that’s great.

We live in a land that is alive with possibility and opportunities (often disguised as challenges). I cannot help but call them blue cars! Try never to look back on opportunities lost. Have no regrets. Life is made up of choices and when presented with too many options, too soon, opportunity overload is possible. Take for

instance very young professional sportspersons who are skyrocketed to instant fame. They are automatically expected to speak in public, develop a public persona, attract and maintain sponsors and speak to the media. They need to use their 15 seconds to fame in order to develop into a premium brand that will be sustainable after their first job, when their physical prowess lessens and other qualities become more important.

Keep thinking about yourself as a premium brand. You never want to be considered run of the mill. Do you make the most of opportunities to promote yourself? If you are not out there, you will not be seen or spotted, and you will not spot opportunities. Work will not come to you until you have raised and established your profile, so go out and get it by building the best reputation you can possibly aspire to have. Develop peripheral vision (the ability to look over your shoulder, more than 180 degrees or merely sideways).

Learn to look far and wide. Take your blinkers off. This is one skill that requires development.

When your brand performs well, so does the company.

Jenny Handley is a brand specialist and owner of a brand and performance management company. A member of the London Speaker Bureau, Jenny has addressed a wide variety of international audiences. She offers unique individual brand management consultations for top executives, leaders and entrepreneurs, based on her book Raise your Profile. Jenny facilitates brand and performance management, leadership development and communication workshops, with a focus on social media strategies. She has her own weekly column in the Cape Times. Visit www.jennyhandley.co.za for details.

Dress to

impress Georgina Hatch New You Image Consulting

“More than ever we live in an era of appearances. If you look like a million bucks, it shouldn’t take you long to make that much.”

hen people meet us for the first time, 55 per cent of their judgement of us is based on how we look; the type of clothes we wear, our attention to personal grooming and how we present ourselves. If we represent a certain company or type of industry, we are expected look the part. In other words, to dress in a way that invokes client trust and respect.

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The insurance and financial industry operates in a formal business environment, where certain social norms are expected of its players. Slops and shorts are not acceptable. Clients expect industry representatives to be professional and well dressed at all times. In the formal business environment, the key to dressing well is summed up in the word ‘tailored’, which sends a message of authority, confidence and credibility.

Clothing has remarkable powers. Think of how you feel when you are suited and booted, ready to make the sale, seal the deal and take on the world. Then think of how you feel when you are sloppily dressed, impressing no-one, not even yourself.

Our body language, self-esteem and personal image are significantly affected by the clothes we wear. In the formal business sector, dressing to look the part is easy. It can be summed up in one word: professional. We want to communicate authority, power, integrity and control.

Here are some dos and don’ts that will help you to look the part:

– Steve Reilly

Men should:

Men should not:

• W ear business suits in dark, neutral colours teamed with coloured shirts.

• Wear ties with small prints.

• Shine their shoes.

• Match their socks to their trousers.

• Pay attention to personal grooming, such as trimmed nails and neat facial hair.

• Wear novelty T-shirts or ties.

• Buy and wear shiny suits.

• Wear clothes that do not match; for example, clashing colours.

• Wear clothes that do not fit them, whether too tight or too loose.

• Smother others with excessive use of cologne.

Women should:

Women should not:

• W ear business suits or matching separates in neutral colours.

• Buy lots of tops that they can mix and match.

• Wear full-length pants.

• Wear shoes or pumps with conservative heels.

• Choose smart matching accessories.

• • • •

Bare too much distracting cleavage.

Wear miniskirts to work.

Don shorts or Capri pants.

Overwhelm clients with excessive jewellery or accessories.

• Wear jeans, no matter how expensive they are.

In fact, denim should be avoided altogether in the formal business workplace. At certain social events linked to work, jeans might be acceptable but even then they should be smart and dark in indigo or black.

For both sexes, attention to personal grooming is paramount. It is a good idea to keep a personal grooming kit in your office or car. This should include items such as nail scissors and a nail file, a sewing kit, spare deodorant, brush and comb, toothbrush and toothpaste.

‘Dress for success’ was a term first coined in John T Molloy’s book by the same name, published in 1975. We may have shrugged off our shoulder pads and sharkskin suits, but not much else has changed. Appearance still matters. www.newimageconsulting.co.za

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news New life insurance product to provide cover for early cancer treatment costs

Sizwe Medical Fund will be under supervision for 2013 After stubborn refusal to institute a valid board of trustees, Sizwe Medical Fund will remain under curatorship.

Specialist long-term risk product provider, Altrisk, has launched an early cancer cover benefit, to reduce the cost of treatment for the early stages of cancer.

Statistics from the insurer show that the incidence of cancer among South Africans is rapidly increasing. “Altrisk’s critical illness claims between January 2011 and December 2012 showed that 51 per cent of critical illness claims were caused by cancer. Of those claims, 36 per cent are related to breast and prostate cancer that can be detected early. With this rapid increase in the incidence of cancer among South Africans, it is vital to ensure that consumer’s finances will remain secure in the event of a cancer diagnosis,” the insurer notes.

Early diagnosis through new technology has improved patient prognosis, but has not necessarily reduced the cost of treatment, as many critical illness products do not provide cover for the early stages of cancer or in situ events.

The latter refer to localised cancerous growths which have not yet spread. The Association for Savings and Investment South Africa’s (ASISA) Standardised Critical Illness Definitions (SCIDEP) guidelines for tiered life insurance products exclude all malignant tumours not invading beyond the epidermis. “[The product] is different to anything else in the market, because it covers an extensive range of carcinoma in situ events, which are generally excluded,” says Altrisk.

The 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 provided with no exclusions or notifiable events and is available as an ancillary benefit to all of Altrisk’s critical illness benefits.

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Dr Monwabisi Gantsho, chief executive of the CMS and registrar of medical schemes

In a statement released by the Council for Medical Schemes (CMS), it was noted that the North Gauteng High Court in Pretoria ruled that the board of Sizwe Medical Fund remains improperly constituted and that a curator must continue running the scheme. Sizwe was placed under provisional curatorship in September 2012 after it emerged that its board of trustees had failed to address allegations of fraud relating to the election of two trustees in December 2010.

Dr Marshall Ngubekhaya Gobinca will stay on as curator of the fund, until it has appointed a board of trustees and a full governance structure is implemented. Dr Gobinca must investigate the alleged irregularities in the governance of the scheme and, within a year, furnish the CMS with a recommendation on how to address them.

Sizwe is an open medical scheme with more than 150 000 beneficiaries and a solvency (reserves expressed as a percentage of contributions) of 27 per cent, which is well above the 25 per cent required by law, making it one of the biggest and healthiest schemes in the country. Beneficiaries have been assured that the claims-paying ability of the scheme remains unaffected by the curatorship, which stems only from concerns over its governance.

The CMS has advised brokers to act with restraint. “Any advice brokers give must accord with the principles of best advice, have the best interests of their clients at heart, and be based on a proper assessment of the situation,” the council says.

Falling Aids mortality shifts focus to disability insurance Marked declines in Aids mortality rates are shifting the focus to higher disability claims, highlighting the need for corporates to redirect the savings resulting from lower group life premiums.

Old Mutual Corporate reports that there has been a 19 per cent drop in the Aids mortality rate. This conclusion is based on an analysis of 500 000 people a year, over four years, across various industries.

An insurance gap study by ASISA shows that South African families are under-insured for disability cover to the tune of R6 trillion,

suggesting that savings in group life cover premiums should be put into disability cover.

Many disability arrangements are outdated, according to group assurance actuary, Neil Parkin. Disability insurance had evolved considerably over the past decade and there are a number of new generation products.

“In the group market, premiums follow actual experience. Some clients have seen decreases of about 20 per cent. However, it varies by industry, region and the group’s profile.

Higher-earning industries or firms are less affected by Aids and will see a smaller impact on premiums,” says Parkin.

Old Mutual’s group risk scheme has shown that Aids is changing from a certain death sentence to a chronic, manageable disease, he said.

South African insurers ready for SAM deadline While Europe has deferred deadlines for Solvency II, South African insurers report they are set to implement the new Solvency Assessment and Management (SAM) regulatory framework by the planned January 2015 deadline.

Liberty Holdings financial director, Casper Troskie, says a significant amount of work has already been completed to ensure compliance with SAM requirements. If SAM is not delayed, Liberty Holdings will comply with effect from 1 January 2015.

Santam reports that for short-term insurers, the SAM regulations do not entail onerous capital requirements. “Santam is working towards implementing the requirements of SAM within the existing timelines and would prefer that SAM is implemented as planned,” says Santam chief financial officer, Hennie Nel. “The sooner the industry moves towards a risk-based capital framework, the better it will be for the security of short-term policyholders.”

MMI Holdings CEO Nicolaas Kruger, reports the firm’s SAM plan is on track, but echoes concerns of competitive disadvantage, saying, “A delay in implementation would afford [European] companies more time to make complex and costly decisions regarding systems.”

“Santam is working towards implementing the requirements of SAM within the existing timelines and would prefer that SAM is implemented as planned.”

“If regulatory framework is delayed in Europe but not South Africa, care is needed to ensure that local insurers are not put at a disadvantage to their international competitors,” says Troskie.

Old Mutual reports that it is well positioned for compliance by deadline and is sufficiently capitalised. “We would like to have implemented it as soon as possible.

We believe it is correct to allocate capital according to economic risk taken by the business,” says Old Mutual spokesman, William Baldwin-Charles.

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Survey shows over-emphasis on curative healthcare in South Africa An emphasis on curative care continues to outweigh a focus on prevention by South Africa’s medical schemes, according to a recent study.

“We envisage overseas expansion primarily for the larger South African companies as they seek relief from regulatory and political pressures and foreign currency controls.”

Health Quality Assessment (HQA), a non-profit organisation, has released the results of its eighth consecutive annual Health Quality Assessment Report. Several medical schemes participated and data representing 4.4 million lives, or 52 per cent of all medical scheme insured lives, is included in the report.

CEO of HQA, Louis Botha, says that one of the key findings from the 2012 report is that in the South African healthcare industry, the emphasis on curative health interventions outweighs the focus on prevention. “Having said that, the idea is not to point fingers or to lay blame; the issue requires industry debate and there are many possible answers as to why we don’t see the same emphasis on prevention and management of disease,” Botha explains.

The schemes which participated in the survey include Bankmed, Bonitas, CAMAF, Discovery, Engen, Medihelp, Momentum, Polmed, Remedi, Samwumed and Transmed.

The survey contains more than 179 measurements of scheme performance. “The purpose is to provide participating medical schemes with a test of their own clinical quality over time and relative to others,” says Botha.

Botha explains that the results of the report can be used by scheme managers to evaluate effectiveness of benefit design; scheme rules; arrangements with managed care providers; contracting of providers; communication with members/providers; and the quality of data and coding. “The results basically provide an indication of the value members are getting for the money they are paying.”

HQA’s members are representative of almost all spheres of the healthcare industry and collaborate as part of HQA’s Clinical Advisory Board (CAB) on an ongoing basis on the development of health quality indicators relevant in the South African context. HQA’s indicators are categorised into four main groups: primary care, hospitalisation, maternal and newborn and chronic conditions. Towers Watson (actuarial and clinical consultants) has been contracted by HQA to collect and analyse the data and to report on the results.

HQA is endorsed by the Board of Healthcare Funders of Southern Africa (BHF), the South African National Consumer Union (SANCU) and the Council for Medical Schemes (CMS).

AM Best special report examines South African insurance market South Africa’s sophisticated financial services industry and self-sufficient economy continue to ensure that the country’s insurance sector remains by far the largest insurance market in Africa, according to a recently released report from AM Best. Entitled Africa’s Diverse Insurance Markets Offer Growth Opportunities, Untapped Demand, the report notes that insurance penetration is high in South Africa as a result of its mature life insurance sector.

Carlos Wong-Fupuy, senior director of analytics at AM Best says, “An insurance market’s maturity can be gauged by examining proxies, including the size of the life sector, the balance in terms of lines of business and the extent to which motor dominates the non-life sector. South Africa stands out as 79.3 per cent of total insurance premium originates from life risks. Total insurance premiums in South Africa represent 12.9 per cent of gross domestic product (GDP), well exceeding insurance penetration in some European countries.”

While earnings are strong for some South African companies, competitive pressures in the property sector are reducing underwriting margins and challenging market conditions. AM Best believes insurers may need investment opportunities in different asset classes, given the low interest rate environment.

Yvette Essen, report author and director of industry research, says, “We envisage overseas expansion primarily for the larger South African companies as they seek relief from regulatory and political pressures and foreign currency controls.”

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new Stalker Hutchison Admiral

appointments

Technologies as managing director, where he was involved in insurance systems and third party claims and policy administration.

Gary Corke, current chief executive officer of Emerald Risk Transfer, has been appointed as the new chief executive officer of Stalker Hutchison Admiral (SHA), the largest specialist liability insurance underwriter in South Africa.

Quinten Matthew, executive head of specialist business at Santam, the risk carrier for both UMAs, says Corke led the Emerald team to new underwriting capability and business leadership in the corporate property space.

“The growth and results over the past three years are testament to his energy and vision, which has transformed Santam’s capability in this important market segment.”

Gary Corke

Emerald Risk transfer Bernie Ray, current managing director of Emerald, will take over as chief executive officer following Corke’s departure.

Managing director since 2009, Ray has worked alongside Corke to accomplish Emerald’s success. He has worked previously as a lawyer and senior legal adviser to Guardian National and later as a senior manager in the legal and client services divisions. Ray also spent some time at Maven

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regional support centres and a team of legal advisers. Previously he worked as a legal adviser for the firm.

Biddie Biddulph, managing director of Astute, says, “It is a great pleasure to welcome our new directors to the Astute board. They bring a significant degree of industry experience.”

Bernie Ray

Astute Laurence Balcomb and Gregg MacIntyre have been appointed to the board of directors at Astute, a specialist information technology company providing data exchange services to financial services companies and advisers.

Gregg MacIntyre

Balcomb, divisional director at Liberty Life, is responsible for cost and efficiency improvement initiatives across the South African retail businesses. A chartered accountant, he spent 14 years in financial services in various senior roles including sales and marketing, finance, operations and strategy.

MacIntyre is general manager operations: personal financial advice and broker distribution at Old Mutual. He was previously CEO of the group’s life company in Namibia. A certified financial planner, MacIntyre holds BA LLB LLM degree from University of Natal Durban.

Certified financial planner and qualified lawyer, Jaco van Niekerk, has been appointed as alternative director. Van Niekerk is currently adviser development manager at Old Mutual with responsibility for advice frameworks, and adviser training and development through

Laurence Balcomb

Jaco van Niekerk

events The Raging Bull Awards Some of South Africa’s top performing unit trusts were rewarded with Raging Bull Awards during a ceremony held at The Wanderers in Johannesburg on Wednesday, 30 January 2013. The Raging Bull Awards recognises the top performers in the collective investment or unit trust industry in terms of top outright performers and also risk-adjusted performers.

The awards cover domestic and offshore funds that are approved by the Financial Services Board (FSB) and can be marketed to South African investors. The Rezco value trend fund won in the prestigious category of Best Domestic Asset Allocation Flexible Fund on a risk-adjusted basis. This is the third Raging Bull award for Rezco Asset Management having won previously in 2008 and 2009.

The Rezco value trend fund achieved the highest PlexCrown rating over the past five years in the Domestic Asset Allocation Flexible sector. The PlexCrown system combines risk-adjusted returns based on performance statistics from profile data with standard risk measures, consistency measures, and measures of downside risk and managerial skill.

The equity exposure of the value trend fund since inception in 2004 has averaged only 65 per cent. The fund is balanced and can invest in a variety of asset classes such as shares, bonds, listed property and cash. Equity exposure is currently limited to 75 per cent and foreign exposure to 25 per cent.

Windall Bekker, head of distribution at Rezco Asset Management, says, “This award is testament to the fact that boutique asset managers can successfully compete against the large established players in the market on a consistent basis.”

“PSG Asset Management’s equity fund took top honours for Best Broad-Based Domestic Equity Fund, while the company’s flexible fund won Best Domestic Asset Allocation Flexible Fund.”

Other notable winners were Old Mutual’s real income fund, the Best Domestic Asset Allocation Prudential Fund. This encompasses the low, high, medium and variable equity categories. Sanlam’s balanced fund was awarded Best Domestic Asset Allocation Prudential Fund on a risk-adjusted basis, while its small cap fund won the Top Performance Award for Best Domestic Equity Smaller Companies Fund over three years.

PSG Asset Management’s equity fund took top honours for Best Broad-Based Domestic Equity Fund, while the company’s flexible fund won Best Domestic Asset Allocation Flexible Fund.

From left to right: Ernie Alexander, Pieter Koekemoer, Laura du Preez and Ryk de Klerk.

From left to right: Jeanette Marais, Pieter Koekemoer and John Karis.

Every Boob Counts Forget Iron Man, the Comrades or even Bear Grylls. On 25 January 2013, RISKSA’s team member Blake Dyason ran 110 kilometres through the George, Wilderness and Sedgefield areas in aid of raising funds and awareness for the Every Boob Counts breast cancer campaign.

Dyason was joined by 44 participants embarking on a 160-kilometre trail run through the Outeniqua Mountains, enduring steep, rocky paths, dense vegetation and crossing large expanses of water. Only four managed to complete this gruelling run over an incredible 33 hours.

At the time of writing, the Every Boob Counts initiative had raised over R95 000 during the marathon. Proceeds will go to those women who have had a mastectomy and cannot afford reconstructive surgery or prostheses.

The campaign also looks at getting involved with the volunteers dealing with breast cancer patients in government hospitals.

While he did not manage to finish the marathon, Dyason showed unbelievable fighting spirit. “Despite feeling sore, it felt really good doing it. The marathon is extremely tough, physically and emotionally.

However, those dark patches you go through, where you feel like giving up, is a small reminder of what breast cancer patients must go through every day,” Dyason says.

Avid runners, who took part in the Every Boob Counts initiative, attempted to run 160 km through the Outeniqua mountains to raise funds and awareness for breast cancer.

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Resilient dynamism Hanna Barry

At the time of writing this article, government and business leaders from across the globe had just left the small mountain resort of Davos, Switzerland where the World Economic Forum’s (WEF) annual meeting is held each year. esilient Dynamism was the theme of this year’s meeting – the 43rd of its kind – at which nearly 50 heads of state or government, and more than 1 500 business leaders were present. In the executive summary of the 2013 Davos agenda it notes, “We live in the most complex, interdependent and interconnected era in human history – a reality we know as the hyperconnected world.

system; and increasing global, national and industry resilience to major systemic and catastrophic risks. Chief risk officer of Zurich Insurance Group, Axel Lehmann, says that countries need to develop risk management frameworks in the same way that companies do. “This is a prerequisite for the early identification of risks and addressing them, on a cross-country, regional and global scale,” he notes.

Davos, Christine Lagarde, managing director of the International Monetary Fund, emphasised that momentum must be maintained on the policy actions needed to put uncertainty to rest. “For the Euro area, it means making firewalls operational; pushing ahead with banking union; continuing with the difficult but necessary fiscal adjustment at the country level; and supporting demand, especially with further monetary easing,” she told delegates.

This reality presents a new leadership context, shaped by adaptive challenges, as well as transformational opportunities. Yet efforts to rebuild confidence and restore growth remain vulnerable to looming political and economic shocks. Indeed, there is no risk-off setting for the global economy, but leaders from the public and private sectors need to adopt a risk-on mindset to catalyse dynamic growth. Dynamism in this context requires successful organisations to demonstrate strategic agility and to possess risk resilience.”

While the economic situation remains a key focus of business and political leaders and it must be mastered and managed, fundamental changes in the overall environment, such as climate change, will become increasingly important. “With growing economies, particularly emerging market economies, we are observing people moving closer to coastal areas, which will be more affected by natural disasters.”

Global agenda

The regional agenda includes adapting to leadership transitions among G20 members and understanding their geopolitical and geoeconomic implications; navigating the political and economic transformations in Europe, the Middle East and North Africa; and ensuring that protectionism and nationalism do not derail regional economic integration in Asia, Africa and the Americas. In her address at

“For the United States, it means pulling together in the national interest and avoiding further avoidable policy mistakes, such as failing to agree on increasing the debt ceiling, and, for the United States and Japan, reaching agreement on medium-term debt reduction.” Lagarde added that emerging and developing economies fared better in 2012, despite concerns of continued turmoil and a lack of decisive action in the advanced economies. But rebuilding the policy space that has been devoted to alleviating the crisis in recent times should remain a priority for emerging economies.

R

Through the lens of Resilient Dynamism, global, regional, industry and business agendas were integrated into the 2013 Davos programme.

The global agenda includes getting the economy back on to a path of stable growth and employment; addressing persistent vulnerabilities within the international financial

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Regional agenda

Industry agenda The industry agenda was captured as how to thrive when global competitiveness is increasingly driven by talent and innovation; how to ensure stable, sustainable and affordable supplies of critical natural resources;

and how to navigate a changing regulatory environment while pursuing new growth opportunities. In a session called ‘Leading through Adversity’, panellists questioned whether leaders are too risk averse in their efforts to bring the global economy back on track. “If you are in an environment where you don’t take risks, you will be left behind very quickly,” John T Chambers, chairman and chief executive officer of Cisco, USA, told participants. “The leaders whose companies do well are very much the risk takers, especially in tough times.”

Mike Duke, president and CEO of Wal-Mart Stores, USA, said that the key is not to get obsessed by short-term metrics. He said that while innovation is a key driver of success, lowering costs and increasing efficiency are, too. “The goal is not just to survive, but to be set up for growth,” Orit Gadiesh, the chairman of Bain and Company, USA added. In the same panel discussion, Martin Senn, CEO of Zurich Insurance Group, warned that the bottom line remains the bottom line. “It is very difficult to be gutsy when there is not enough clarity in what return you can expect.”

Business agenda Finally, the business agenda looked at how to

create new value in the face of generational and structural shifts that are reshaping business models; how to adapt to the future evolution of social technology in a business context; and how to leverage rapid and far-reaching advances in science, technology and medicine.

This year’s meeting became known as the Digital Davos, with an unprecedented number of sessions streamed live over the Internet. In the WEF’s blog, Noa Gafni writes, “Citizen consumers are using social media to redefine corporate norms. Clever organisations will leverage this opportunity to converse directly with their customers, listening to their needs and generating innovative new ideas.”

Take-home thoughts It was clear from Davos 2013 that global challenges cannot be met by governments or civil society alone, but must be tackled through a co-operative platform. “Instead of being pessimistic about crisis management, we need to look at the future in a much more constructive, positive and dynamic manner. At the same time, the interconnectivity and velocity of the global system represents ever-increasing systemic risk.

Combining a dynamic, bold vision and even bolder action with the necessary measures

to strengthen risk resilience, is critical for a successful future. Thus our theme: Resilient Dynamism,” says Klaus Schwab, founder and executive chairman of the World Economic Forum.

It is this kind of thinking around risk management and risk resilience – which is at the very core of insurance business and now more than ever before is enriched with a fresh sense of the wider environmental, social and governance issues at play – that is so vital in today’s risky world.

In an interview with now former Willis Group Holdings CEO, Joe Plumeri, at South Africa’s annual Insurance Conference last year, he argues that the insurance industry needs to reposition itself globally as a leader on resilience.

“In the wake of widespread natural and manmade disasters, we’re in a different world.

Companies have to ask themselves if they are going to be around 10 years from now and who the advisers are that will assess their risks, resilience and sustainability over that period of time. Insurers have the ability to lead that discussion, which transforms the industry from one that’s transactional, to one that addresses, advises and consults about the future of the world.”

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news international

If Brazil, China and India were to join the talks, the trade gains would expand by around 30 per cent, according to the report.

United States United States to open trade talks on global insurance, financial services

The United States Trade Representative’s office is expected to enter into talks this year with the European Union and more than a dozen other countries on an agreement to eliminate barriers to trade in finance and other service industry sectors.

The aim will be to remove barriers to trade and investment in sectors such as finance, insurance, telecommunication, computer services and express delivery; all areas in which the United States is a leading provider.

The United States, the 27-nation European Union and 18 other developed and developing countries have been exploring the idea of such an International Services Agreement for nearly a year. Emerging markets such as China, India, Brazil and Russia have so far avoided the talks.

The Peterson Institute for International Economics conservatively estimates the proposed agreement could increase annual services exports among 16 core members by $78 billion (R704 billion). “In absolute terms, the United States and the European Union would see the largest export gains, around $14 billion (R126 billion) and $21 billion (R190 billion), respectively,” the Peterson report shows.

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The Geneva-based negotiations could include Australia, Canada, Chile, Colombia, Costa Rica, the EU, Hong Kong, Israel, Japan, Mexico, New Zealand, Norway, Pakistan, Panama, Peru, South Korea, Switzerland, Taiwan, Turkey and the United States.

AIG signs $400 million reinsurance deal with Compass Re

In a bid to protect itself from future natural disasters like hurricanes and earthquakes, American International Group (AIG) recently inked a $400 million (R35 billion) catastrophe bond with reinsurer Compass Re in a single tranche.

The deal will provide fully collateralised coverage for AIG against catastrophe losses occurring through December 2014. AIG has sponsored $1.85 billion (R16.2 billion) in catastrophe bonds over the past three years.

“We expect this risk management effort by AIG to reinsure itself will help it sustain the sudden shocks of unpredictable weather changes in the upcoming period.”

The Bermuda-based Compass Re Limited, a special purpose insurer, issues catastrophe bond transactions and provides coverage against uncertain events, like hurricane and earthquake risks.

“We expect this risk management effort by AIG to reinsure itself will help it sustain the sudden shocks of unpredictable weather changes in the upcoming period,” it said in a statement.

In the fourth quarter of 2012, Superstorm Sandy left a devastating trail along the United States’ east coast, and hit the insurance industry hard with a loss of more than $25 billion (R219 billion). AIG estimates its loss from Sandy to be in the region of $1.3 billion (R11.4 billion).

China Chinese insurance industry’s assets reached $1.18 trillion in 2012

The total assets of the Chinese insurance industry increased 22.3 per cent in 2012 to a value of $1.18 trillion (R10.66 trillion), crossing the $1.12 trillion (R10. 1 trillion) mark for the first time, says the China Insurance Regulatory Commission.

Total insurance premium income of the industry increased eight per cent to $248.78 billion (R2.2 trillion), with property insurance premiums up 15.4 per cent to $85.56 billion (R772.5 billion).

The top three Chinese non-life insurers all witnessed double digit growth rates in premium collected.

Haiti

Europe

United Kingdom

Haiti launches micro-finance catastrophe

European Union insurance watchdog will

Typhon launches private maritime security

insurance programme

review proposed Solvency II regulations

service against piracy

When Hurricane Sandy struck Haiti late last year, the majority of Haitians had no insurance cover with which to rebuild their lives.

The European Union’s insurance watchdog has launched a study of proposed capital and risk management rules.

In an effort to show the feasibility of protecting the poor through insurance, International Finance Corporation (IFC), a division of the World Bank, will place $1.7 million (R15.4 million) in funding, plus technical assistance, to support the local Microinsurance Catastrophe Risk Organisation, (MiCRO) programme.

Insurers expect the study to show that a major rewriting of rules applying to life insurance will be needed, adding to repeated delays in the introduction of the new regime.

Typhon Maritime Security Service announced the launch of its first marine convoy escort service, designed to enable ship operators to transit the Gulf of Aden, Arabian Sea and Indian Ocean in unprecedented safety while saving time and money.

MiCRO, the first natural catastrophe insurance scheme of its kind in Haiti, was founded by Fonkoze, the international relief organisation Mercy Corps and a number of other partners after a devastating earthquake in Haiti in January 2010. One of the most weather disaster-prone countries in the world, Haiti’s most vulnerable residents rely on small-scale farming and are at constant risk of losing their livelihoods.

MiCRO’s activities are supported locally by Haitian insurer Alternative Insurance Company SA (AIC), along with global reinsurer Swiss Re.

The European Insurance and Occupational Pensions Authority (EIOPA) does not expect that Solvency II will come into force earlier than 1 January 2016. Germany’s insurance watchdog suggests that a 2017 start may be more realistic.

The private naval protection service is the first to be formed in over 200 years. It’s the brain-child of Simon Murray, the chairman of commodity giant Glencore, with the backing of a number of other UK businessmen. It recruits former military personnel to man a mother ship and high-speed patrol boats, charged with protecting convoys of merchant ships as they transit the waters off Somalia.

“If these seemingly technical details of the new regime are not correct, the impact on the European insurance industry, its clients and the economy would be severe,” says Olav Jones, deputy director general of Insurance Europe, the European insurance and reinsurance federation.

“To date, the only effective commercially available counter-measure has been provided by ride-on guards otherwise known as VPDs (vessel protection detachments or details),” Typhon said.

Some life insurance companies predict that Solvency II will make their products unviable because of requirements forcing greater capitalisation and products with guaranteed returns to customers.

The system will operate by detecting potential pirates using radar, satellite and through an onshore operations centre. Through early detection, Typhon believes it will be able to deter a pirate threat before it becomes a danger.

While similar disaster micro-insurance schemes exist elsewhere in the world, they don’t operate under the same model as MiCRO. The funding is viewed as an experiment, which, if successful, will be replicated elsewhere.

"Haiti’s most vulnerable residents rely on smallscale farming and are at constant risk of losing their livelihoods."

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Risksa regatta

Twenty racing yachts, 20 financial services companies racing for the FIA trophy at the inaugural RISKSA Regatta.

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Hanna Barry

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In the lap of luxury

The ocean is home to some of the world’s most luxurious fleets. Here is a selection of cruises to get you yearning for a holiday on one of these floating resorts.

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In the lap

of luxury Bianca Wright

The perfect getaway? It has to be a cruise on a luxury liner. A cruise ship is a floating resort, complete with staff ready to cater to your every whim. Whether you want to do nothing but laze by the pool all day or are looking for a whirlwind of entertainment, cruising is the ultimate holiday experience. Forget the Titanic – and the Costa Concordia – and feast your eyes on some of the world’s most luxurious fleets.

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Crystal Clear While Cunard offers a nostalgic glimpse into the cruise experience of yesteryear, it is by no means the only luxury liner on offer. Crystal Cruises certainly puts its guests in the lap of luxury. As its web site explains, “Staterooms and suites are sanctuaries of refined comfort and style with indelibly soft 100 per cent cotton linens, feather beds and plush duvets, pillow menu, Frette terry cloth robes, Baltic bath linens, wood and padded hangers, and flat-screen televisions. Penthouse suites feature Jacuzzi tubs, Villeroy & Boch china and classic Riedel crystal.”

Dining on board is an equally regal affair with specialty restaurants by famed chef Nobu Matsuhisa and wine expert Piero Selvaggio. tables are exquisitely set with Schott-Zwiesel crystal, Villeroy & Boch and Wedgewood china, Royal Doulton dishware, Sheffield and Sambonet flatware, table linens by Garnier Thiebaut and Frette. Crystal’s extensive wine cellar offers more than 300 vintages, with a special reserve list showcasing rarities such as Screaming Eagle and Château Lafite Rothschild.

While the accommodations and dining are, of course, top-notch, Crystal Cruises also offers a range of on-board entertainment, from filmmaking classes and lectures on a variety of topics to Broadway-style spectaculars. The ultimate Crystal experience is its 89-day world cruise with such exciting port stops as Hawaii, Vietnam, Morocco and Ghana. An inside cabin starts at US$39 280, while a suite will set you back US$197 610.

Famously infamous While every cruise ship offers a unique and special experience, true luxury is an elevation beyond the everyday, a sense of attention to detail, elegance and uniqueness that ensures you feel like the only passenger on board. Mass market cruise lines may offer value for money, but luxury liners offer once-in-a-lifetime experiences that have no equal.

The opulent interior of the dining area on board the Queen Victoria

The most famous cruise ships in the world have to be the Queen Elizabeth, the Queen Victoria and the flagship Queen Mary 2 (QM2), all from the infamous Cunard cruise line; the line’s most famous ship is the Titanic. QM2 strives to combine the elegance and class of a bygone age with the amenities of modern cruises. The result is a fusion of the best of both eras. Large balcony staterooms or duplex suites offer luxury accommodations. The ship was purpose-built for transatlantic crossings, but a range of itineraries are on offer, including several that feature Cape Town, Durban and Port Elizabeth as port stops.

The 119-day world cruise starts at US$21 995, with suites costing upwards of US$50 000. The itinerary includes stops in Hong Kong, Mauritius, Egypt, Indonesia and Australia. 

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Celebrity culture

A silver star Startle.com recently rated Silversea cruises one of the most luxurious cruise lines in the world, with its ocean-view suites, Bulgari bath products, Egyptian cotton linens and butler service. The smaller, more intimate ships mean personalised service that caters to your every need as well as greater variety of port options that its larger competitors.

Silversea describes it as, “The ultimate in luxury cruise accommodations. You can even have dinner in-suite served course by course by your butler. Then, when it’s time to retire, curl up beneath Egyptian cotton linens and a fluffy duvet, with your choice of nine different pillow types.” Now that’s luxury.

To experience this personal service, choose the Ancient Cultures and Exotic Wonders cruise, a 115-day, 52-port, 28-country extravaganza aboard the Silver Whisper. The journey from Los Angeles to Fort Lauderdale (with a few stops in between) in a Visa class suite costs US$49 999. The Owner’s Suite costs US$153 018.

Perhaps more affordable, but still offering luxury touches is the Celebrity cruise fleet and its sister line Azamara. Celebrity ships are large and modern, but offer the kind of service that sets them apart from mass-market offerings.

Azamara, on the other hand, aims for an adults-only experience with few child-friendly amenities and exotic itineraries that feature destinations such as the Amazon.

Celebrity is well-known for firsts in the industry, from the first real grass lawn to the first glassblowing studio and show at sea. A Celebrity cruise is always unique and always a treat in terms of service. Other luxury cruise options include Seabourn and Regent Seven Seas.

If you have the means and are looking for a truly unique holiday experience, you can’t go wrong with a luxury cruise. The ultimate indulgence and an opportunity to learn about new cultures and new places, cruising is holiday perfected. Just don’t forget the seasickness medication.

An ocean of opportunities For mid-sized ships that offer luxury on-board activities and amenities, Oceania cruise liners are a good bet. The Riviera and Marina ships, the newest additions to the fleet, offer top-of-the-line entertainment and enrichment programmes. The Canyon Ranch SpaClub offers everything from acupuncture to body wraps and shiatu. Both ships have a hands-on programme for budding artists in the Artist Loft, a well-equipped enrichment centre, “where superbly talented artists-in-residence offer stepby-step instruction in their areas of expertise”.

Crystal is also the home to the only cooking school with hands-on instruction. Produced in conjunction with Bon Appétit, America's premier publication catering to fine food and wine, the Bon Appétit Culinary Centre features expert master chefs who provide instruction in a professional kitchen atmosphere with 12 individual cooking stations that can each accommodate two guests. “From great regional cuisines to the secrets of homemade pasta, our hands-on classes are perfect for every aspiring chef.”

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One of Oceania’s signature Grand Voyages is the Path to the Rising Sun, a 65-day cruise from Papeete to London on board the Marina.

The website describes the itinerary as one of exotic escapes and one-of-a-kind experiences: “Explore the Pacific’s best-kept secrets, transit the Panama Canal, dive into the Caribbean and then glide through the hidden coves of Canada and New England before the Emerald Isle opens its welcoming arms. Begin by strolling the sun-kissed beaches of Tahiti and conclude by kissing the famed Blarney

Stone. In between, see the monumental moai of Easter Island and ascend to the pre-Columbian Inca city of Machu Picchu. Admire the Dutch architecture of Aruba and savour low-country cuisine in charming Charleston. Hobnob with Bar Harbour’s yachting jet set; then trace Newfoundland’s early Viking settlements. Revel in knowing that on this voyage, you can do it all.” The brochure fare for an inside cabin is US$46 826 and US$132 826 for the Owner’s Suite.

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.

A lesson in

African democracy Anton Roux

“My beloved and I were preparing Christen for the worst as best we could, but we could not have anticipated how well prepared she would be.”

M

y seven-year-old daughter has been living in Africa too long.

You see, when Sushi, her much loved and only fighting fish passed away, four hours before my flight to JFK, she took it upon herself to make sure that the household would replace the pet.

Sushi had been sick for a very long time in fish years (about three days) and had been swimming the backstroke. My beloved and I were preparing Christen for the worst as best we could, but we could not have anticipated how well prepared she would be.

So when Sushi finally drowned his sorrows at the bottom of the glass brick that he called home, I was adequately prepared for the funeral around the porcelain palace. I even had a speech prepared, “Sushi was a good fish that liked fighting other fish.”

Christen was having none of that. Before we could agree on the funeral time and venue, we had to agree on who would replace Sushi in the household. I was due on a flight to New York and needed to pack so, when we could not agree on a replacement pet, we agreed to freeze the entire glass brick including Sushi up until a time we could all agree on a way forward.

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While I was packing, Christen presented me with a ballot form, complete with pictures of potential replacement pets instead of words so that those who cannot read could still vote.

There was a face of a dog, a cat, a fish and a bird. We already had enough dogs, so I told her that I would not be voting for a dog.

I also told her that I could not vote for a cat as our dogs would most likely eat the cat. I also could not vote for a bird, as my beloved does not like birds, so the only option left was another fish.

My beloved took one look at the ballot form and instantly put her cross next to the fish as well. She did not even feel the need to justify her vote with an explanation.

It did not take long for Christen to work out that, even if her elder sister voted for a dog, the best outcome that she would get was a stalemate of two votes for a dog, and two votes for a fish.

This is when she applied her local knowledge and invoked African democracy. She announced to the family that she would be taking the ballot form to school the following day to allow all the kids in her class to vote as well.

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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