RISKSA November 2011 by COSA Media

CONTENTS

NOVEMBER 2011

102

in this issue 10

Telematics: big brother or best friend?

Kidnap and Ransom - Your money or your wife

The shape of things to come â&#x20AC;&#x201C; Medical Schemes 2012

The face of life insurance fraud in 2010

102

The risks of insuring airlines â&#x20AC;&#x201C; On a wing and a prayer

112

Passing the buck

116

How to excel at the workplace

146

Happy holidays

regulars Short-term insurance

Medical

Finance and insurance

Life

Enterprise risk management

101

Better business

111

News

134

Lifestyle

143

riskSA Magazine

Publisher & editor Andy Mark Editorial director Angelique Ruzicka Managing editor Nicky Mark Copy editor Margy Beves-Gibson

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

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

riskSA from the publisher Dear reader, At the time of writing, cracks are appearing across the globe in anticipation of an escalation in the Eurozone crisis. As we look at the seemingly futile politicking taking place round the world, the threat of a violent backlash against the financial sector is starting to appear inevitable in those countries hardest hit. Protests against the so-called financial fat cats and against proposed austerity measures are growing in frequency and violence and it’s the ordinary citizens who are getting involved. The repercussions of this backlash could have wide-ranging consequences for insurers and reinsurers alike as investment values erode and claims escalate. While our government would do well to pay close attention to its service delivery obligations, we can take comfort from the fact that we are poised to see a period of great economic growth in Africa and our fellow BRICS countries. Our biggest trading partner is now China – and as long as that country continues its upward economic growth trend, we will be somewhat shielded from the recession some analysts fear is inevitable. We watch with bated breath.

riskSA Magazine

Every now and again new technology comes along and revolutionises the way we do business. Think fax machines, cellphones and GPSs. While not really new tech – the application of vehicle telematics is being used by actuaries to scientifically calculate motor premiums in a way that would have seemed impossible just a few years ago. Behaviour-based insurance is here to stay and early adopters are coining it abroad. We take a look at telematics and its implications locally. Enjoy the read.

Andy Mark – publisher

riskSA Magazine

TELEMATICS:

big brother or best friend?

by Andy Mark

elematics is changing the motor vehicle insurance landscape in ways that would have seemed impossible just a few years ago. When an invitation arrived at the RISKSA offices from Harry Louw, MD of Altech Netstar, to join him on a visit to Italy to visit Octo Telematics S.p.A, the largest telematics player in Europe, we jumped at the chance. While we were there, we found out that we have more than a few things in common with our European insurance cousins and that both internationally and at home, technology is being used in increasingly clever ways to reward driver behaviour and scientifically rate premiums. Insurers are smiling and responsible drivers are saving money. Is this the perfect win/ win scenario?

riskSA Magazine

The victors in this telematics revolution were always going to be the insurance companies. Here was technology that could accurately measure policyholders’ driving habits and provide millisecondby-millisecond accident reconstruction in the event of an accident claim – and even be used to locate and recover the vehicle should it be stolen or hijacked.

the units fitted to our cars were programmed with a ‘vanilla’ version of the Octo solution which had some of the bells-andwhistles reporting turned off. Many leading telematics providers supply solutions which are infinitely customisable to their insurance clients requirements and ours was set with a reporting bias towards consumer-type reports.

In order for us to get a handle on the technology and how it all fits together, Louw arranged to have Netstar loan units fitted to nine of our staff cars. My original idea for this story was to collect our team’s driver data over a month and then see what an actuary would make of the numbers. I was keen to find out how close our actuary could get to arriving at a realistic premium using driver behaviour alone, without two key pieces of information: age and sex. Traditionally actuaries have relied on historical data to rate risk. With this model, a driver’s age and sex were essential to the calculation (along with how long the applicant has held a driver’s licence and their past claims history). I was disappointed to find

These units, while providing loads of information (distance travelled; percentage of travel on urban/highway/country roads; time of day; average, highest and lowest speed attained on each journey; amount of time parked, etc.) simply didn’t provide enough data for us to ascertain which of our sample of drivers was guilty of harsh acceleration, braking and cornering – critical behaviour when it comes to rating risk. Undaunted we supplied what information we did have to our actuary and asked him if he could have a stab at guessing (calculate?) the two missing bits of info: age and sex (see panel alongside).

Our actuary... Matthew Weaver is 25-years old and studied actuarial science as an undergraduate and postgraduate at the University of the Witwatersrand. Following these degrees he completed his exams through the Institute of Actuaries. Weaver is a member of the Actuarial Society of South Africa and serves on the Short-term Insurance Committee of South Africa. He is with Munich Re and has spent a fair bit of time travelling between its Princeton USA and Germany head offices. What Weaver found “It was my understanding that acceleration/braking as well as cornering data would be available. This data is very important in the pricing of insurance risk as it can accurately gauge driving behaviour. Therefore, the only data that I could use to estimate the age and gender was driving speed, the timestamps of driving dates/times as well as the vehicle make data. This is a bit limited given that the insurance companies would be using far more data to price their premiums.”

“It was my understanding that acceleration/ braking as well as cornering data would be available. This data is very important in the pricing of insurance risk as it can accurately gauge driving behaviour.” 12

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Weaver also made another key observation – one that UK insurer Insurethebox is using to attract only the clients they really want on their books. He asked us if the nine people involved were aware of the reason for installing these devices in their cars. He suggested this could have altered their usual driving behaviour and that he expected people using these telematics devices for insurance purposes to drive differently or improve their driving over time in order to reduce their premiums. Which is precisely what Mark Grant, business development director of Insurethebox told us. As Weaver explains “It was not easy to attach an exact age to each of the drivers without a sample of data to compare to. I would have liked real data from an insurance company with age and gender to identify true trends and then use these trends to estimate these characteristics of your drivers. For this investigation, I used the available data and applied my own expectations to obtain the estimates of age and gender.” Fair enough, but how close did he get to guessing sex and age?

Table of estimates: ID Name of driver 1 Gareth Grey 2 Blake Dyason 3 Andries van der Westhuizen 4 Robyn Schaffner 5 Riccardo Raciti 6 Michael Kaufmann 7 Hanna Barry 8 Andy Mark 9 Angelique Ruzicka

Estimated gender Male Male Male Male (no, definitely female) Male Male Female Male Female

Estimated age <25 (29) <25 (24) <25 (27) <25 (24) 25-35 (27) 25-35 (30) <25 >35 (49) >35 (32)

Assumptions Weaver made for our investigation • I was not able to accurately estimate the age of each driver but I did take a stab at placing each driver into one of three age bands – under 25, between 25 and 35, and over 35. • The vehicle driven by each driver was, in some cases, the most important determinant of age and gender followed very closely by the driving speed (maximum speed and average speed for journeys greater than 10 minutes). • Timestamp data such as time of day and weekend/weekday were used to further confirm the results. • The results are quite subjective – I speculated the estimates on Friday and today and got a few differences based on various interpretations and combinations of the results. As an example, on Friday, I expected ID4 to be female based on the vehicle (Nissan Micra) but this morning, I placed more emphasis on the driving speed data – thus changing my decision to male. This was not an easy exercise simply because there was a lot of subjectivity which could be removed with more telematics data as well as a standard sample with which to compare. Notwithstanding this, Weaver was clearly right on the money seven out of nine times. Seventy-eight per cent is a successful result in my book. The Octo units fitted to our vehicles do have full reporting capability – we were just not able to extract the data in the time we had available for this article. During the demonstrations at the Octo head office in Italy, we were shown this functionality first hand. The units fitted to our vehicles offer full blow-by-blow accident reporting with GPS positioning and a three-axis accelerometer which measures G-force across three different planes in the event of an accident.

How does telematics work? Nearly all telematics devices work in a similar fashion. At the heart of it all is a small box which is fitted into an inconspicuous space inside the vehicle. The fitment position does have a small effect on the readings so fitment personnel will general try and install the unit as close to the vehicle’s centre of gravity as possible. Sensors in the box measure G-force across three axis; X, Y, and Z. The X axis (or longitudinal axis) measures G-force along the length of the vehicle. Typically acceleration would result in +X or a positive reading, braking would give a -X or negative G-force reading. The Y axis would run across the doors of a vehicle from left to right. Here the accelerometer might give a +Y G-force reading when the vehicle executed a left turn and a -Y reading when the vehicle was turning right. The Z axis measures up and down force and this can be translated as +Z when the vehicle hits a bump and -Z if the vehicle makes a sharp downward movement (for instance falls into a pothole).

“Through Octo we have data on 175 000 real crash scenarios, 75 billion kilometres driven and 1 080 million active customers, and these numbers are increasing all of the time – at a rate of 1 350 a day.” It was interesting to note that both Deon du Randt, executive director of strategic products at Digicore, developers of the C-Track system and Mauro Cantoni of Octo Telematics in Italy told us that the data gathering in-car units actually played a relatively small role in the process. The units are, of course, clever devices, having to filter out general ‘noise’ and plot and report position and other metrics using the latest GPS/GPRS technology. The real skill lies in the interpretation of the data gathered. While G-force can be measured very accurately using these devices, the effects of G-force on a person can be quite subjective. For example, if there were two passengers travelling in a vehicle, one passenger weighing 50 kilograms, the other 100 kilograms and both were placed under a -7 G event (remember -7 on our Y axis denotes deceleration) and we use Newton’s Law (force = mass X acceleration) to calculate the force exerted on each passenger, we can see that Mr Skinny would experience almost no discomfort (a mild 347 N) while Mr Fatty would be experiencing double the force, and probably be haranguing the driver for his bad driving after having a massive 695 N applied to his torso. This illustrates the importance of scientific data analysis, especially where the units are used to dispatch medical assistance in the event of a suspected accident. Correctly interpreted, this data can be used to develop unique insurance solutions which work for clients and insurers alike. We chatted with Mark Grant, business development director at Insurethebox – one of the early adopters in the UK. Grant was part of the team that developed a unique solution using the Octo telematics solution. The Insurethebox product offering is simple. The clients buy a standard insurance package which covers them for 6 000 miles (around 10 000 kilometres). They can top this up at any time – just like buying airtime for a mobile phone – as they need. Good driving behaviour is rewarded with extra cover of up to 100 bonus miles (160 kilometres) each month. Future purchases are calculated using driving behaviour gathered by the telematics device. Grant told us during the interview that the real benefit of the telematics solution they developed is that they attracted only the right kind of business. Insurance fraud is rife throughout Europe and the UK is no exception. The crash-for-cash pandemic is widespread throughout the UK. Typically tow truck drivers and even medical professionals are in on the scam. A minor accident is engineered (either by pulling out in front of an unsuspecting motorist or staging a bumper bashing). Immediately the ‘victim’ institutes a whiplash claim against the other party’s insurer. Mauro

Cantoni of Octo Telematics told us that as much as 20 per cent of all whiplash claims in Italy are fraudulent, and this was likely true for most of Europe. However, Grant has confidence in Insurethebox, “Our drivers know that we are monitoring their behaviour. In the event of an accident, we know how severe the impact was, the direction and at what speed the vehicle was travelling. Using this data we can quickly piece together what actually transpired and sniff out fraud. The public knows this and the customers we attract are not worried. They are confident they qualify for better rates.” With improved loss ratios and a growing book of responsible drivers, Insurethebox has used telematics to create an attractive business model that has extended into online and high street shopper rewards programmes. It has also allowed younger drivers access to affordable insurance where premiums for young drivers could often exceed the value of the car they drive. Here in South Africa though we are no strangers to innovation. Hollard pioneered the usage-based insurance model a few years ago using Tracker’s Skytrack technology. The Hollard Pay-as-you-drive solution is geared at low usage clients (typically less than 1 500 kilometres a

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month) and the marketing message is simple: why subsidise higher mileage users with their increased risk profile? Discovery Insure’s recent entry into the market with its innovative DQ points-based insurance relies heavily on telematics-driven data (along with points allocated for advanced driving programmes and regular vehicle safety checks) to reward policyholders for safer driving. The backbone of the Discovery telematics system is the Ctrack NX40 (which Discovery calls DQ-track) and Ctrack’s Deon du Rand regards its selection as technology provider as something of a coup. Modern telematics heralds an exciting new era for suppliers and insurers. In South Africa, falling vehicle hijack and theft numbers, while good news for the public, has left tracking companies with a dilemma – where to find growth. Although, as Tracker’s Michael Nieuwoudt is quick to point out, the success reported in recent crime statistics on vehicle theft has largely been driven by the success of vehicle tracking companies and any let off in the fitment of these devices is likely to see a swing back to negative territory.

“Gathering telematics data and scientifically underwriting risk is clearly the fairest system of arriving at a premium.” An overview of the market shows several M&As (mergers and acquisitions) in this sector as the various players jostle to increase their competitiveness. The acquisition by Ctrack of second gross product provider MotorOne in July this year has increased its footprint into the 18 MotorOne branches around the country. Actis and RMB Ventures recently acquired Tracker in a R3.9 billion buyout deal which saw Remgro and Wesbank relinquish their shareholding. The deal is said to give Tracker a little more flexibility internationally and, with its giant footprint in the local market which boasts an impressive recovery and criminal arrest record, the competition is increasing. Altech Netstar’s MD, Harry Louw, said it all comes down to the data. “Octo Telematics has the biggest database of its kind in Europe,” said Louw, who is putting his money on the Octo telematics solution. “Through Octo we have data on 175 000 real crash scenarios, 75 billion kilometres driven and 1 080 million active customers, and these numbers are increasing all of the time – at a rate of 1 350 a day.” As Cantoni jokingly put it, “Add a credit card trail and cellphone records and there will be nowhere to hide.” Homegrown solution Digicore (Ctrack) also boasts some pretty impressive numbers. With development going back to 1995, it has sold over 600 000 GSM/GPS devices worldwide since its first fleet management/vehicle-tracking devices rolled off the line. While information gathering is important, it is really what users do with the data that counts. Another advantage for insurers adopting telematics-driven underwriting is that should we introduce gender equality issues when rating risk similar to Europe (the much-awaited judgment from the European Court of Justice was made law recently, effectively ruling that the use of gender in rating insurance risk will not be lawful in any of the 27 European Union countries after 21 December 2012). Given the propensity for South African lawmakers to adopt international policy (think Re exams, Solvency II, etc.), it may not be long before we are faced with similar legislation. Rhys Collins, head of African operations for insurance technology provider SSP, said that South African insurers should take note of the ECJ’s ruling, despite its being specific to the European market. “Over the next few years the ruling will create a significant change in the UK and European insurance markets. Certain aspects of product, marketing and distribution management will have to change, which will have wide-ranging implications for insurers and consumers, particularly those that target women drivers.” Women drivers are better than their male

counterparts. This has resulted in women being left out of pocket as these discounts have been discontinued. According to SSP, the French finance ministry recently published statistics claiming that introducing unisex motor insurance there will lead to a premium increase of 30 to 60 per cent for young female drivers. Shocking statistics from the UK in 2009 show men were responsible for 95 per cent of all dangerous driving cases. They were also responsible for 83 per cent of careless driving cases and, across the entire spectrum of all offences committed, they were behind the wheel for 84 per cent of them. No wonder female policyholders would prefer not to subsidise their irresponsible boyfriends, brothers and husbands. Gathering telematics data and scientifically underwriting risk is clearly the fairest system of arriving at a premium. Santam recently deployed a Vodacom GSM-driven system called LiveTrack to its commercial motor customers and, even without the benefit of accelerometer-based G-force information, is able to offer these clients a 20 per cent saving on premium. I must admit to being a little uneasy in these Orwellian times. So much information is available and our every move can already be plotted by our credit card usage, our mobile phones, social media pages and now even our cars. A little birdie told me that there is a European sports car which automatically notifies the local agent whenever it is driven into a predefined no-go area. Not a bad thing you might think, but when that ‘bad’ area happens to be Kyalami race circuit, effectively banning owners from participating in club member track days, then hasn’t this all gone a little too far? Not that the benefits of telematics don’t far outweigh the risks, especially when that same little device has summoned help when you have had an accident registering significant G-force all without human intervention. The key, of course, is who has access to this information. In 2011, several multinationals had their systems hacked – including Qriocity and the PlayStation Network. Are clients happy to share their personal information? “Clients are happy about the data collection,” said telematics supplier Cartrack’s SA directors John Edmeston (managing) and Juan Marais (sales), when we asked if they had experienced pushback from clients about the amount of data being gathered. “Especially when they realise the full benefits of the Cartrack system; benefits like reduced premiums, AARTO, log books, stolen vehicle recovery and Internet tracking, etc.”

But is the data safe once it has been processed? “The data is safe,” assured Carel Wessels, engineering director at Tracker. He outlined some of the protocols Tracker employs to safeguard its clients’ data: • We have implemented physical access control to our campus and biometric access to our buildings. • To enter into our IT system, you have to be registered on

Tracker’s domain. On the domain we enforce a high degree of security around aspects like passwords, according to best practice. • We do a monthly reconciliation between our domain users, our biometric system and payroll. • Once inside our IT system, access is rolebased. In other words, users are allowed access to only the information pertaining to their roles. • From a network perspective the sensitive systems are isolated either logically or physically. We do have a firewall in place with a DMZ topology. • We keep a complete audit trail on any IT system access. • We do polygraphs on a random sample for all personnel at all levels. • We further have an annual security review performed by one of the four large auditing firms in SA on our general/ application controls and perform an external penetration test.

data sets and then only would they be able to see related data to client information. Is Telematics everyone’s new best friend? After speaking to several key people in the industry locally and abroad, it is clear that the technology is a game changer. Personal lines clients who refuse to allow insurers access to their driving data (probably those habitual speedsters who have removed their

number plates to avoid traffic cameras) will certainly migrate to the insurer slowest off the blocks in adopting the new tech. The benefits to clients are significant, the benefits to insurers enormous. Expect competition in this sector to hot up during 2012 and the tech to become a compulsory installation in your clients’ cars in the very near future.

“To gain access you would have to go through the specific customdesigned interfaces which transfer the data based on a unique client numerical identifier.”

When we pointed out the recent hacking saga at Sony, Digicore’s Deon du Rand told us that unlike Sony, Discovery and Ctrack run ‘closed’ systems that require no access from outside partners. Similar to the big players, Ctrack also employs high level security protocols. These help protect the data interfaces between the Ctrack server and the Discovery servers. Du Rand pointed out that Digicore does not open the client or tracking databases to the outside world. To gain access you would have to go through the specific custom-designed interfaces which transfer the data based on a unique client numerical identifier. Even if data was intercepted, it could not be compromised as no relevant or useful information could be divulged. He added that the data messages are protected in the same way banks protect their Internet banking messages. For hackers to access Ctrack client information they would have to get access to the Discovery CRM system, the Ctrack CRM system and the Ctrack tracking system databases, link the relevant

Vehicle tracking companies in South Africa Altech Netstar www.netstar.co.za Head office: +27 (0)11 207 5000

MiX Telematics www.mixtelematics.com Head office: +27 (0)21 880 5500

PFK Electronics www.pfk.co.za Head office: +27 (0)31 274 7200

Cartrack www.cartrack.co.za Head office: +27 (0)86 122 7872

NEO-TRAC www.neo-trac.co.za Call centre: +27 (0)87 150 0915

SMM Telematics www.smmtelematics.co.za 24-hour call centre: +27 (0)86 111 5217

Ctrack www.ctrack.co.za Head office: +27 (0)12 450 2222

Orchid Telematics (powered by Global Telematics SA Pty (Ltd)) www.globaltelematics.co.za Head office: +27 (0)11 313 9050

iTrack Live www.itracklive.co.za Head office: +27 (0)21 551 5715

riskSA Magazine

Tracker www.tracker.co.za Head office: +27 (0)11 380 0300

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idnapping and demands for ransom are on the increase. This problem is experienced all around the globe, on land and on the seas. Angelique Ruzicka delves into the murky world of kidnapping and asks what kind of advice brokers should be giving their clients.

No-one really knows the exact number of daily kidnappings worldwide. There are statistics bandied about regarding this heinous crime but it is apparent that in South Africa the rate of kidnappings is increasing. Currently, around one to two people a month are being kidnapped and there are many reasons why. Some are gang related and some are for monetary gain; while others are for more bizarre and inexplicable reasons. The story most fresh in South Africans minds is that of Bruno Pelizzari and Deborah Calitz, who were kidnapped in October 2010. Somali pirates snatched the couple and demanded a ransom of $4 million (approximately R33 million) according to the Times Live website. Sadly, it’s the South African Government’s policy not to pay ransoms but it is not the only country that has adopted this stance. Plenty of research has been conducted to analyse the increase in piracy and kidnapping. Aon Risk Solutions, the risk management business of Aon Corporation, issued an in-depth piracy report in September (Aon Piracy Update), which documents piracy data from 2009 to 2011.

Criminals have realised that it’s far too difficult to kidnap a wealthy or well-known person as they have protection. In 2006, Zurich’s private clients division produced research that supports this theory. It showed that Britain’s liquid asset millionaires are spending up to £5 billion (R61 billion) on security measures. The report said that over 90 per cent of millionaires have invested up to £30 000 on security, with a fifth (21 per cent) concerned that they will be targeted by criminals. Nearly three quarters (72 per cent) of millionaires feel that the number of muggings and kidnappings has increased over the last 10 years. While it’s more the fear of being kidnapped, and not the actual increase in kidnappings in Britain, which has contributed to this need among the rich to protect themselves, it has resulted in criminals having to change their tactics. Kidnappers are shrewd enough to adapt their demands. They are no longer demanding ransoms in the millions but now in the thousands, which is more easily accessible by the potential victims or family.

The report confirms that there is an increase in overall piracy activity. The only good news is that there is a general decline in the number of successful attacks on vessels over the last year. The update also highlights a shift in regional activity, which has been attributed to an increase in anti-piracy measures. The most notable shift has been reported in the Gulf of Aden, historically a piracy hotspot, to the Arabian Sea, which has experienced a shocking 267 per cent increase of attacks year on year.

Keeping schtum While there are insurance products available and companies and individuals are increasingly buying cover, the providers are hesitant to talk about it for fear of endangering their clients’ lives. One provider who offers a kidnap and ransom extension refused to be named but told RISKSA that it can’t divulge any information as potential syndicates will know that they can claim from insurance companies. “It’s the type of cover that we can’t advertise. If we do, criminals will realise the extent of the people who are covered and will extort companies even more,” said the source.

Not just the rich and famous Contrary to popular belief, it’s not just the rich and famous who are abducted for ransom. Professional criminals are increasingly resorting to snatching middleclass and poor victims to extort money from their families, friends and companies.

The importance of cover Frank Ponnen, head of Etana Marine and chairman of the Association of Marine Underwriters of SA (AMUSA), explained that kidnap and ransom cover is crucial. “The purchase of kidnap and ransom cover may result in an early release of the vessel.”

“Contrary to popular belief, it’s not just the rich and famous who are abducted for ransom. Professional criminals are increasingly resorting to snatching middleclass and poor victims.” riskSA Magazine

Piracy and kidnapping facts • According to the International Maritime Bureau (IMB), across the world pirates hijacked 53 ships and kidnapped 1 181 people last year. • Eight soldiers were killed in 2010 and the IMB said this was because armed attackers are becoming increasingly violent. • Hijackings off the Somali coast accounted for 92 per cent of all ship seizures in 2010, with 49 vessels captured and 1 016 crew members taken hostage. • The IMB has stated in its report that global pirate attacks have increased every year for the past four years with 445 incidents reported in 2010. This was up 10 per cent from 2009. • Various cities and countries have been described as the kidnapping capital of the world. Since 2007, that title has been awarded to Iraq with around 1 500 foreigners kidnapped. In 2004, that dubious title belonged to Mexico; and in 2001, Columbia was the kidnap capital of the world. • In 2009, the Los Angeles Times reported that Phoenix Arizona was America’s kidnapping capital. • In all likelihood the victims know their kidnappers. In the United States, 203 900 children were reported as the victims of family abductions and 58 200 of nonfamily abductions.

Etana, as cargo insurers, does not offer this kind of insurance but Ponnen pointed out that it is available through Lloyd’s of London as well as some company markets. In South Africa, insurance commentators point to Chartis, referring to the company as the leader when it comes to kidnap and ransom product. On its website, Chartis refers to its CrisiSolution offering as a comprehensive package of vital services and insurance protection, which can respond to a number of crisis events that can occur while travelling or residing in various hot spots and major centres worldwide. The company said that an expanded list of insured events now include disappearance, hostage crisis, threat, kidnapping, extortion (against persons and property), wrongful detention and hijacking. It offers round-theclock coverage for insured persons and relatives whether business or pleasure related. The product offers continued high primary and excess limits of up to $50 million (R398 million) and medical expenses cover extended for up to 36 months, postincident. Worldwide coverage is available for high-risk industry including oil and gas, mining, non-governmental organisations, war zone contractors, etc. The harsh reality While kidnap and ransom cover has become crucial, the reality is that payment of ransom does not always guarantee the release of victims and this is a vital

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“While kidnap and ransom cover has become crucial, the reality is that payment of ransom does not always guarantee the release of victims and this is a vital message that brokers need to convey when advising clients.” message that brokers need to convey when advising clients. Kidnap and ransom cover should not be considered only for those who are travelling to hotspots but is vital for those clients who are negotiating the transportation of cargo, whether imports or exports. “Enquire whether the shipping lanes that will be utilised are monitored by the Navforce. In addition, they [brokers] need to ask whether the vessel will have armed guards on board,” advised Ponnen.

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The Association of British Travel Agents (ABTA) revealed last month that 20 per cent of travellers are running the risks of sky high medical bills when travelling abroad through not taking out travel insurance in spite of recent high profile cases. This was revealed when ABTA unveiled its Consumer Trends survey at the Travel Convention in Palma Mallorca.

Your clients could be travelling uninsured Around 17 million South Africans leave home at least once a year to go on holiday according to Statistics South Africa’s 2004 General Household Survey. This December and January should again see many South Africans do some travelling locally or abroad. If the United Kingdom’s statistics are anything to go by, the likelihood of your client being uninsured while they are on their travels is extremely high.

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Less than half of consumers (44 per cent) bought travel insurance for trips within the UK, exposing them to the risk of losing money as they would be unable to claim for cancellation charges if they fell ill or lost their job before travelling. “It is very worrying that so many people are putting their health and finances at risk by travelling abroad without insurance. Many wrongly assume that it is the Foreign Office’s responsibility to pay for their hospital bills, particularly younger travellers. In the current economic climate, customers should be careful to purchase insurance at the time of booking their holiday to obtain cancellation cover for redundancy as well as any potential illness prior to travelling,” said John de Vial, ABTA head of financial protection. In the run up to the festive season, brokers will have spent time with clients to ensure that their home and goods are covered while they take a well-deserved break. However, some may have neglected to ensure that clients are also covered for unforeseen accidents or cancellations. During these tough economic times, many people might be willing to risk travelling uninsured this holiday season. But such a choice could only exacerbate the situation should tragedy strike. The broker should be able to provide practical and accurate advice. Santie Stevens, short-term insurance manager at InsuranceBusters explained that when extending travel insurance, the insurer will request detailed information from the insured before underwriting or even quoting.

costs. Most short-term policies won’t cover client’s belongings if they are taken from their house. The client’s camera, valuables and luggage will therefore not be covered under the existing policy. Once you’ve assessed the weight of the client’s coverage under existing policies, you can make recommendations on what additional cover needs to be taken out. “We calculate our rates based on how many people need to covered, where they are travelling to as well as the duration of their trip,” Stevens said. “This information is captured by the client completing a questionnaire. At this stage the insurer will seek to identify any medical conditions that might be considered a high risk, so that an endorsement can be placed on the policy,” she continued. “The second function of the questionnaire is to show the client the extent of cover offered by the policy. If the client does not want to take all the types of cover offered, the broker’s advice will help them make an informed decision.” Myths about travel insurance Some believe that the travel insurance offered along with a credit card purchase is sufficient. Most credit cards today offer some sort of limited travel cover as a perk to entice take-up. This will seldom include baggage protection, trip cancellation coverage and other basic cover though. Assess the coverage offered and inform the client of any additional coverage that is required.

Your clients may also forget to take out car rental insurance. Clients might be discouraged from taking out this type of insurance for fear of their standard auto insurance premium increasing should they claim. A broker needs to explain that travel insurance which covers rental cars is handled separately from their personal vehicle insurance and will not affect their claims history. Travel medical cover doesn’t always include emergency assistance. The policy wording should be studied, because in many cases emergency support needs to be taken as a supplementary coverage. A comprehensive travel insurance product should offer the client medical and emergency assistance even for activity-related accidents. If clients are going to be engaging in any extreme sports, such as skiing, ensure that they are covered for this, too. Travel insurance should cover the client in the event of delayed and

cancelled flights. Recently, striking workers almost brought Australian airline Qantas Airways to its knees. This affected many travellers who had booked flights. Many products also offer a cancellation insurance option, which will cover all nonrefundable expenses should the client cancel their trip. This cover usually needs to be taken before the flight and accommodation bookings are made. How to advise clients considering travel insurance Whether the client will be travelling outside of South Africa or inside the country’s borders, they will need to be covered for any risks. But how can a broker best advise a client when it comes to travel insurance? It’s best to start by looking at what cover they already have. Check with the client’s life, medical and short-term underwriters to see what they are currently covered for. For example, if they are travelling overseas, does their life insurance policy cover them in the region of the world where they are headed? It’s also good to check if your client’s medical scheme will cover them overseas. Often medical expenses are covered when abroad, but not emergencies or ambulance

Additional advice to give the client Instruct the client to keep a copy of the policy number and claims details on their person while travelling. Additionally, the client should leave these details with the broker, as well as a relative or friend back at home. That way, if for some reason the client cannot contact the insurer, the broker or a relative will be able to do this on their behalf.

“If the United Kingdom’s statistics are anything to go by, the likelihood of your client being uninsured while they are on their travels is extremely high.” Inform the client that the insurer must be made aware of any incident that could result in a claim. Often the insurer will want to approve any expenses beforehand – especially medical – so it’s best to notify the underwriter immediately when something has happened.

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Ask the experts

olatility in global economic markets, compounded by an increase in worldwide natural disasters and stricter regulation and legislation, all make for a challenging insurance industry environment that highlights the importance of careful risk management, the crucial role played by brokers and the need for specialist insurance. Quinten Matthew, Santam’s executive head of specialist business, said that although South Africa has to a large extent been protected from the global economic crisis and natural disasters, these events have in fact had a positive spin-off on the insurance sector because companies have become more prudent about their risk exposure and are managing their assets with more care. He explained that the benefit of proactively managing risk and understanding what part of that exposure to transfer to an insurer is a key driver in obtaining lower premiums. Finding your niche Although brokers are increasingly facing tougher competition from the direct market in personal insurance, the value of the broker, especially in a more complex specialist business segment, will continue to grow. “We don’t expect the value of the broker to erode in the specialist market, as these professionals are a critical source of information and advice that help clients navigate the complexity of the specialist insurance industry,” he said. A thorough understanding of your client’s business, and the industry challenges and risks they face, are the key requirements for insuring clients in the specialist business sector. Specialist insurance is far more complex than everyday off-the-shelf insurance and requires a set of distinct underwriting skills and industry experience. “Specialist insurance is far more complex than personal cover because the environments that the clients’ businesses operate in are affected by a very different set of risks,” commented Matthew, adding that brokers

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and insurers who understand their client’s business and the challenges faced by the specific industry, are best placed to navigate the inherent complexities involved with insuring such businesses. “Clients in the specialist business sector need to be treated differently. They expect to work with brokers and insurers who understand their business and who also offer bespoke insurance and risk management solutions. “Companies that offer a one-size-fits-all insurance offering are not sustainable in the specialist business sector, which is driven more by individual, expert advice, efficient claims resolution and an insurance solution that is tailored to match the risks that they face,” said Matthew. “Clients want to know that their risk is secure.” Future focus Although the local and African specialist market is set for exponential growth, both brokers and clients face some tough challenges in the year ahead. Matthew said that both large and small companies are increasing their liability insurance to meet the requirements of the Consumer Protection Act (CPA). Inconsistencies in regional municipal service delivery, widespread fraud and corruption have also meant that companies have had to become more serious about insuring against risks. Underinsurance and non-insurance is still a major concern for Santam. “It is worrying that during the floods of the beginning of this year, less than a third of those impacted were insured,” highlighted Matthew, adding that viewing insurance as a grudge purchase is old-fashioned and individuals cannot afford to lose livelihoods to such once-off catastrophes. Brokers and the insurance industry also face the challenge of complying with stricter regulations and legislation. Matthew expects that smaller brokerages and insurance companies will consolidate to manage these challenges.

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Cheap,but not so cheerful C by E L V O R N E P A L M E R

utting costs has been priority for most people over recent years. The recession and slow economic turnaround has taught South Africans the value of living frugally. But brokers should warn clients to beware of cheap insurance products as it could cost the consumer more in the long run.

“They engineer adverts to show their products in a certain light, to appeal to the consumer’s want to cut costs“

This is according to Peter Atkinson, national technical portfolio manager at the Financial Intermediaries Association (FIA).

“The Ombudsman for Short-term Insurance insists that brokers ensure consumers understand the policy they are contemplating. The client must know that they are covered for their specific risk needs and not be fooled into purchasing an insurance product purely because it offers a lower premium,” Atkinson said. Atkinson was referring to several new motor policies offering substantially reduced premiums, supposedly to help reduce the number of uninsured vehicles on our roads. He pointed out that such products may not offer much protection to consumers, however, and may actually lead consumers into a false sense of security. “A recent trend is to sell cover that extends only in the event of a complete loss of the vehicle through an accident or hijacking. There’s no cover if the car is not a write-off,” Atkinson said. According to Albert van Wyk, marketing manager and operator of short-term insurance brokerage Sureline Insurance Services, this is where brokers are invaluable to clients. He feels it’s the broker’s place to educate clients. “There are many new products being offered – especially through direct insurers. They engineer adverts to show their products in a certain light, to appeal to the consumer’s want to cut costs,” Van Wyk said. “A broker needs to continuously inform the client about what is happening in the industry, or they could be swayed by

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adverts and go direct,” he added. “One direct insurer is offering the client cash or discounts if they can’t match their current premium. This sounds attractive to the customer because he doesn’t know the industry. This is a farce because any insurer will match your current premium. But does your client know that?” Van Wyk feels that brokers need to use Internet and media to communicate with their clients. The average age of brokers in South Africa is between 40 and 55 years. But younger brokers are increasingly making use of social media to update clients and open the channels of communication. “We post comments on Facebook every day and then send out a Tweet to everyone with a link. This way we can survey the media and identify half-truths and offers and communicate the facts to our clients.” Explain to clients that in the world of insurance, they literally get what they pay for. “Premiums are calculated to compensate the insurer for taking on a certain amount of risk. That risk is quantifiable. Therefore, a lower premium often means that the degree of risk being transferred is correspondingly low,” Atkinson said. Both Van Wyk and Atkinson agreed that there is an immediate need to communicate with the market and have people understand how insurance works. “Those seeking to cut insurance premiums are typically the ones who can least afford to carry any of the risk themselves,” Atkinson concluded.

illing up with the wrong fuel could leave your client with a huge insurance bill – even if the fault is that of the petrol attendant.

“We estimate that around 15 per cent of all petrol forecourt owners in South Africa are affected by this each year,” said Leslie Mitchell, managing director at Garagesure Consultants and Acceptances, a specialist insurance underwriter writing on behalf of Compass Insurance. Mitchell said that he sees an average of about 60 cases a year of the wrong petrol being put into vehicles, and vehicle owners are often left to pick up the tab. Over the last year, the average claim of wrong fuel being used in a vehicle amounts to around R9 700, with the highest claim that Garagesure paid out amounting to R132 000 . “The underwriter or insurer of the petrol station concerned should be held completely liable in this situation; however, the reality is that not all insurers or underwriters do accept liability when such an event occurs,” noted Mitchell.

expensive purchases many people make. It is therefore important that customers take due care, especially during busy periods when the attendant is more likely to make a mistake,” advised Mitchell. “Customers should get out of their vehicle when they park at the pump; make sure that the pump has been zeroed and that the correct nozzle has been placed into their vehicle.” Mitchell added that petrol stations can take a number of precautions to minimise the risk of this occurring by ensuring that all staff are properly trained. “It may be an idea to make attendants responsible for a portion of the first amount payable in the event of a claim, so that they become more aware of the importance of paying due care on the job.” Motorists should also be aware of other possible errors, such as ill-replaced oil caps and bonnets not closed properly. “Both of these can result in serious damage yet not all insurers will cover this. However, if negligence can be attributed to the attendant, then it is important that the insurance policy does pay out,” concluded Mitchell.

“Some insurers of fuel stations put a cap on the amount that they can be held liable for in each individual case, with a further cap on the amount one station can claim in a year. This is often fine, provided they do not have a large claim. Other insurers take it a step further and apportion liability to the owner of the vehicle on the legal basis that there is an onus on their part to ensure that the correct fuel has been dispensed.” This means it largely depends on who the station is insured with, as to whether the car owner is left to pay the bill. While it is not feasible for every motorist to ascertain with whom their local fuel stations are insured, practical precautions can be taken. “Aside from buying a home, a motor vehicle is one of the most

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“Insura companies cnacne afford to benot complacent w working towahen the deadliner.”ds

Price and prejudice European Union (EU) legislation inevitably impacts the South African financial market. The Financial Services Board (FSB) admits it considers EU laws when drafting legislature. Elvorne Palmer looks at the latest regulation and asks industry stakeholders if other EU rulings are set to apply here soon.

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hen asked if the FSB is currently considering any recent EU rulings for implementation locally, its deputy executive officer, Jonathan Dixon was vague. “Not specifically, but the EU is a jurisdiction that the FSB always looks at when assessing lessons that can be learned from international experience that may guide our own regulatory reforms,” he said.

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The Solvency Asset Management (SAM) legislation, to be implemented soon, is a recent example of an EU directive being adopted for South Africa. SAM is based on the European Union’s (EU) Solvency II directive, intended to help guarantee that insurers are solvent and hold capital equal to the risks they are undertaking. SAM legislation has been widely recognised as a necessary step for the financial services industry of South Africa. Senior manager of planning and strategy at Lion of Africa Insurance, Mashudu Mamathuba, said that the majority of South African insurers should by now have made significant progress toward identifying and planning for the required business changes. “Insurance companies cannot afford to be complacent when working towards the deadline. It will position our insurance sector in line with international regulation,” Mamathuba said. While the roll-out of SAM legislation is set for 2014, Deloitte has issued concerns about the lack of preparedness some companies and executives are displaying. Read what they and the FSB have to say on page 108. Gender-based pricing The European Court of Justice (ECJ) made a ruling to ban insurers in Europe from calculating prices based on gender earlier this year. This followed much debate surrounding a 2004 directive outlawing discrimination based on sex. The ban will be implemented in December 2012. This ruling is likely to impact European women adversely as they could end up paying more for vehicle insurance. But this gender ruling has not only impacted women. Men could pay even more for life insurance. Traditionally, men paid less as statistics proved that

on average they tended to live shorter lives than women. RISKSA informed readers about the impending regulation in the April 2011 issue (see page 25). However, 1st for Women Insurance Brokers managing director, Robyn Farrell, argued that the ECJ’s ruling will not affect South Africa and that the organisation would continue to offer lower premiums to women. Age-related bias Some organisations which are advocating equality in Europe are pushing the EU to make a similar ruling on age-based premium calculation. Traditionally, younger people have heftier premiums, particularly when it comes to motor cover, because they are more likely to have accidents than older, more experienced, drivers. As yet, there is no directive on age discrimination; it will be some time before we see the ECJ considering a ban on pricing based on the age of the client. So will South Africa follow suit and adopt these rules? Dixon doesn’t think so. “Section 9(5) of the South African Constitution as well as the Promotion of Equality and Prevention of Unfair Discrimination Act, allow for discrimination that is reasonable, justifiable and fair. To date, there’s no significant evidence to suggest that our insurance legislation is not consistent with our Constitution,” claimed Dixon. “Pricing risk and insurance premiums differently for gender groups can be considered fair and justifiable discrimination if based on and validated by the statistical analysis of risk profiles between females and males.” Ian Kirk, CEO of Santam said that it will not be following the

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“We will probably see a change in the way that insurance is modelled in the future.” European model (pricing based on risks and claims of the pool of clients, now minus the gender component). “Our statistics consistently prove that the majority of women are safer drivers than men. It doesn’t make sense at this point to change the way that we do things. Instead of penalising women, we should want to reward all our customers for good driving,” Kirk said. Kirk reiterated that although we might see some regulatory changes, the focus will remain on the individual. “We will probably see a change in the way that insurance is modelled in the future, but it makes sense that this change takes individual behaviour, lifestyle, circumstance and location into account. We have already started to do this in our business, and it makes sense. It is good for the customer, and that is good for us,” he stated.

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Behaviour-based systems Driver behaviour monitoring systems (see our cover story on page 10) could be the answer to traditional pricing structures, while maintaining the focus on the individual. Even though Santam is adamant about cheaper premiums for women, it’s no secret that it is equally optimistic about this technology. While introducing its LiveTrack device in partnership with Vodacom, Santam head of personal lines underwriting, Shehnaz Somers, said that the technology calculates insurance premiums not on traditional criteria (such as age and gender) but on the driving behaviour of individual motorists.

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“It provides us with an empirical database of information from where we can assess driver behaviour,” Somers said. “The device records speed, acceleration, braking and distance travelled, without recording age or gender. It is set to be the ultimate equaliser in motor vehicle insurance; rewarding people for safe driving and potentially lowering vehicle premiums by up to 20 per cent.” Again, it’s not very likely that this technology will take over from the traditional pricing structures, said Dixon. “Driver behaviour is liable to be one of the factors that insurers will consider in pricing, but it won’t be the only basis,” he concluded.

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SHORT-TERM sustainability no cause for concern

he sustainability of the South African short-term insurance industry has been hotly debated in recent months. In an increasingly competitive market, the traditional short-term insurers have been struggling to retain market share and curb loss ratios as costs continue to escalate. These fears were highlighted anew by tax advisory firm KPMG’s recent industry survey findings (see page 32 of RISKSA, October 2011 issue). The study showed that top short-term insurers struggled to achieve real growth and could face a crisis going into 2012. However, while current market conditions are tough, this is actually part of an existing insurance cycle, not just a downward trend. This is according to Lance Moroney, business unit head of Non-life at Aon Hewitt South Africa, who said that the insurance cycle is a pattern that has existed for many years and will continue to do so in the future.

“The insurance industry has always been cyclical in nature and we see periods in which profits are squeezed and new players offer low premiums to attract customers, thereby exacerbating the impact on margins,” Moroney said. “However, absorbing lower margins over a continued period of time is not a sustainable business model and eventually premiums do have to correct. When this happens, the smaller or unprofitable competitors are often bought out by larger industry players. This results in a return to a more profitable business model.” Moroney does however feel that this teething process will eventually lead to a fitter and healthier industry. “Twenty years ago premiums were calculated using a very linear pricing structure. Prices were roughly similar and not based on the individual or their risk. The industry was based on relationships between clients and their brokers,” he said. “Then came direct insurance (10 years ago), with its actuarial pricing techniques and competitive business models, to force

Growth has been hampered recently by the economic downturn and Moroney is convinced that the industry’s performance will continue to be limited by the economic climate. However, he believes the pressure on the industry is compounded by a cycle of increased competition. New companies entering the industry in recent years attempt to capture market share by offering lower rates.

years y t n e “Tw emiums ago pr culated al were c g a very usin ricing p linear ture.” struc

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traditional insurers to implement more sophisticated pricing structures. Most insurers are now pricing more accurately and based on the individual’s risk.” Likewise, the industry is now going through a competitive cycle that should see insurers focusing on becoming more efficient to remain profitable. This means they will likely be aiming to cut expenses, improve claims processes and structuring business for optimum profitability. “The company’s operating model will be what sets it apart in the future,” he said. Moroney had an equally optimistic outlook on upcoming legislative requirements. “Those companies that ensure compliance and optimise their risk management and governance processes will be more successful,” he concluded.

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he soft short-term market experienced in recent times has been with us for a while and has lingered longer than anticipated. Rates across most classes of insurance are at an all-time low and, just when we think we have seen the lowest rate, some insurer comes in at an even lower rate. Underwriters are very aggressive in competing for business and we are faced with a rate war not equaled before in terms of intensity. Historically conservative insurers are now openly supporting the rate war; they are highly competitive in their attempts to gain market share. Is the current situation sustainable or are we likely to experience an even softer market? The answer is probably yes, in the short term, the market will remain soft but rates will, in time, have to be adjusted upwards to cater for increased claims and higher operating costs incurred. The main source of income for insurers is the premium they receive which, after stripping out operating expenses, must be sufficient to cater for payment of claims by the insuring clients. The challenge faced by insurers is that the cost of repair/ replacement is increasing all the while and, unless checks and balances are in place to keep such costs to the minimum and ensure that suppliers deliver in terms of what was agreed, there will be continued downward pressure on the premium reserves. The global recession has also impacted on South Africa and the short-term insurance industry has not been immune to this. Daily reports confirm that businesses are collapsing and this compounds the problem

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of unemployment, which in turn contributes to an increase in criminal activities (breakins and robberies, etc.) as people try to survive in tough economic conditions. Due to the same recessionary pressure, new business ventures are few and far between. Insurers are negatively affected as they need to deal with a shrinking existing base of business coupled with greatly reduced premium income but ever-increasing costs as mentioned earlier. Intermediaries are also feeling the heat because they are losing out on their income as the rate war continues and their attitude and response to this is that they will rather have a substantially reduced income than have no income at all and that approach cannot be faulted. Ironically, while insurers find themselves in very soft distribution market conditions due to low premium levels, a depressed world economy with little light on the horizon and the highly committed onslaughts of the direct insurers who previously contained their attack on personal lines but are now also looking at commercial risks, many factors have maintained the pricing of their

re-insurance supply so that margins are squeezed. A plethora of natural disasters and a highly circumspect world investment market have supported reinsurance costs so that the trend has not mirrored that in the distribution market. One reinsurer, a year ago, indicated that it expected the market to harden by the end of last year due to a spate of claims reported. Seemingly this has applied only in the reinsurance market and, although we have been very fortunate to be spared the impact of natural disasters as experienced elsewhere in the world, nonetheless, the impact of the worldwide experience is felt in our reinsurance costs. So, how should insurers deal with this squeeze on margins? Well, one way is to contain overheads as many have attempted. But the effectiveness in the face of depressed premiums is limited. The only remaining way is to act on claims costs driving out the inefficiencies; the impact is more meaningful and there are many opportunities, particularly in the motor class.

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Underneath the paint insuring code 3 vehicles

he saying goes: one man’s junk is another man’s treasure, and that is certainly true of scrap metal and salvaged vehicle wrecks. Despite the trauma of serious accident and/or theft, many vehicles are given a new lease on life after they had been written off. The repercussions for the current owner and insurer and future owners and insurers often can’t be hidden simply by a new coat of paint.

The important thing is to be aware that the insurer owns the wreck and policyholders must be prepared to pay for it. “Your insurer will then decide what the salvage is worth to them and whether your offer is worthwhile,” said Dombo. In all instances, weighing up the options of whether to buy back and repair a written-off vehicle or whether to cut your losses and start over is a difficult decision with far-reaching consequences.

Once a client has been paid out for a vehicle that has been written off, the rights to it transfer to the insurer who may dispose of the property as they see fit.

Any vehicle that has been written off and rebuilt will be registered as Code 3. Since vehicle agents will not deal in these vehicles and many finance houses will not finance them, the market value of a Code 3 vehicle is less than regular vehicles. Insuring such a vehicle may prove challenging as well, as many insurers are hesitant to accept these vehicles.

In certain instances though, if a policyholder requests to keep a written-off vehicle, and if the salvage company agrees, the insurer may decide to amend the settlement so that “the policyholder keeps the written-off vehicle, while the insurer pays the difference between the salvage value and the undamaged price of the vehicle” said Gari Dombo, managing director of Alexander Forbes Insurance. Alternatively, the insurer may agree to pay the policyholder out in full and then assist the policyholder to buy the wreck from the salvage company. Sometimes a policyholder will feel that a repairable vehicle is written off too easily, especially if the sum insured is low. A vehicle is usually considered uneconomical to repair if the repair will cost more than 60 or 70 per cent of the sum insured to repair. The exact percentage may differ from one insurer to another and is usually stated in the policy. However, replacing a vehicle with a low pay-out sum may be beyond the means of the policyholder. In such an instance the owner may prefer to buy the vehicle and have it repaired with cheaper parts (either second hand parts or new, generic parts) to bring the cost of repairs down.

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While some insurers will not insure Code 3 vehicles at all, an insurer who is prepared to cover a Code 3 vehicle is likely to insure it at 30 per cent less than the current value of the same vehicle that has not been Code 3 registered. Similarly, vehicles with South African Police Vehicle Identification Numbers (SAP VIN) are also valued at 30 per cent less than regular vehicles. SAP VIN numbers are prefixed by AAPV. These numbers are attached by the police when the original VIN numbers have been defaced (which is sometimes the case when a stolen vehicle is recovered). As such, anyone who purchases a used vehicle or any broker seeking to insure such a vehicle should check for SAP VIN numbers and Code 3 registration. “This is the only way to make sure that they don’t end up paying and then insuring a written-off vehicle at its full undamaged price,” warned Dombo, a mistake that could cost policyholders dearly in premiums and in future claims.

NEW LAWS

COULD PLACE HOMEOWNERS WITH SWIMMING POOLS IN HOT WATER

he warmer weather reminds us all that summer is just around the corner. However, this also presents an opportunity to remind your clients that swimming pools require all-year-round maintenance or they risk having a claim rejected if the damage is determined as a result of neglect. It is vital to inform your clients that when it comes to swimming pools, only damage considered sudden and unforeseen will be covered by their insurance policy. This is also provided that they have included the proper value of the swimming pool in their home insurance policy. The rule of thumb when it comes to home insurance cover is that anything deemed to be wear and tear, or maintenance related, is not covered by the insurance policy. It is up to the client to ensure that the condition of the property, including all building structures from swimming pools and spa baths to garages and other outbuildings, is well maintained. Swimming pools and pumps, like most items, will need to be replaced and upgraded over time, so it is advisable to keep the pool and other building structures in a good condition to ensure any claim will not be repudiated. From a legal perspective, it is important that your clients are aware that there are two types of cover under building insurance policies. The first covers the actual damage of the structure,

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while the second is legal liability cover, where the homeowner protects themselves legally against something happening to guests, trespassers and/or their tangible property on the insured property. Currently, the owner of the pool is held accountable under South African Law of Delict in the event of a drowning incident. South Africaâ&#x20AC;&#x2122;s civil liability laws mean a civil claim can be charged against a pool owner for any damage suffered as a result of drowning, whether fatal or not. Internationally, pool safety laws are very strict and South Africa is following this trend. A draft â&#x20AC;&#x2DC;By-laws for the Safe Guarding of Swimming Poolsâ&#x20AC;&#x2122; has been proposed to the City of Johannesburg (COJ), which is legislation based purely around the safety-proofing of swimming pools. The new by-law aims to regulate the access to swimming pools and is intended to protect members of the public from drowning. Following the promulgation of these by-laws, anyone who wants to have a pool installed on their property must apply to the city for approval and all pools must adhere to strict rules according to the by-laws. Those who already have pools in their property will have two years to notify the council about the existence of their pools following the promulgation. All pools will have to be safeguarded in terms of the regulations. This means that all swimming pools must be maintained

Christelle Fourie Managing Director of MUA Insurance Acceptances and fenced off and children should not be able to climb over the fence. All outdoor pools will be required to have a pool cover or must be fitted with a floating pool alarm when the pool is not in use. If homeowners with swimming pools do not comply with the statute in the proposed by-law, they can face criminal charges such as fines or even imprisonment. Additionally, the insurance policy will not cover the homeowner if they have not complied which could potentially be a huge financial loss if the homeowner is found guilty of negligence. It is a good idea for all brokers to ensure they are up to date with the legal requirements of home maintenance and security. Should this by-law be passed, it is critical that clients are informed of the necessary requirements to militate against the risk of non-compliance. By providing this kind of added value to a client, a broker differentiates himself from others and thereby creates clients for life.

ADVERTORIAL

THE LAUNCH OF OCCUPATION RATING RESULTS

in lower premiums

new addition to the Santam offering yet again demonstrates its leading edge in the short-term insurance market. This October, Santam introduced a client’s occupation as a rating factor for motor premiums. By doing this Santam is empowering clients to not only understand and better manage their risk specific to their occupation, but ensures that the client’s premium is appropriate for their occupation. Liz de Villiers, Santam manager of motor underwriting said that as from 1 October 2011, Santam will be the first player in the market to have implemented this rating practice. “This rating practice impacts how we calculate premiums, allowing us to give an appropriate premium for a motor item

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taking into consideration the occupation for which the vehicle is used.” De Villiers explained that in conjunction with Santam’s Vodacom LiveTrack offering that allows an immediate 20 per cent discount in premium, Santam now has a very competitive and compelling commercial motor insurance offer. “If your commercial client is a high risk occupation, they can manage their risk and premium by installing Vodacom LiveTrack. By managing driver behaviour, clients are able to impact on their risk profile which means a reduction in their premiums that are appropriate to their occupation. “However, should a client find themselves in a low risk occupation they can further capitalise when installing Vodacom LiveTrack. Not only do clients benefit from a lower premium according to their

occupation, but they can also get a further discount on this premium if Vodacom LiveTrack is installed. By doing this, the client will ensure that they can continually monitor driver behaviour and keep their premium down.” Prior to the use of occupational rating, Santam used only actuarial rating to determine a vehicle’s risk factors. “Investigation done by our actuaries showed that occupation plays a big role, as the average time spent on the road varies from occupation to occupation. By better differentiating and adding a rating factor for an occupation to our premiums, Santam’s premiums are positioned to be more client-centric. The outcome is that the client is paying the right premium for their risk and less cross subsidisation between occupations,” concluded De Villiers.

ADVERTORIAL

DON’t Play Russian roulette

client phones in, agitated, angry or in shock because they have a broken windscreen from an accident, an item bouncing off the tar, or they have hit a guinea fowl. You refer them to a glass replacement company and give authorisation for the repair or replacement to be done. You may just have done something else for your client … signed their death warrant.

Windscreens and their correct fitment make up one of the safety critical components on a vehicle. Inferior windscreens and poor fitment can result in potentially fatal accidents. Shatterprufe Shatterprufe windscreens are manufactured according to original equipment specifications. Shatterprufe for the aftermarket is manufactured in the same production facility as product for vehicle manufacturers. This means that the windscreen is checked against a battery of quality tests and standards, both during and after the manufacturing process. Shatterprufe for the aftermarket also complies with the SABS standards, the European standards (E-mark) and American standards (DOT mark). It is important to take note of the DOT mark – manufacturers are issued with a unique number for traceability purposes. Shatterprufe is DOT 122. All our windscreens will reflect this number. Some branded windscreens have varying DOT numbers – this is indicative of product being sourced from different manufacturers. Correct fitment It is critical that the fitment of a windscreen is done with precision and according to a standard. Fitters must also be adequately trained and accredited to ensure that they are competent. The correct primers and bonding agents must be used to ensure the safe installation of the windscreen. What can go wrong? A windscreen that is of poor quality or incorrectly installed can have the following consequences: a) Airbags will not function properly Airbags rely on a windscreen to stay in place when they are deployed. Should a windscreen pop out, the airbags will not have a solid surface to push against. This will result in the airbags flying out of the vehicle and the passenger may be crushed against the dashboard. b) Vehicles structural strength will be compromised Windscreens contribute up to 30 per cent of the vehicles strength. Should the windscreen pop out, the vehicle’s strength will be compromised and it can cause the roof to cave in – crushing occupants in the vehicle should the vehicle roll. c) Wind noise and leaking An ill-fitting windscreen will result in excessive wind noise while travelling. Windscreens will also leak resulting in damage to the dashboard and interior electronics of the vehicle. In some cases, the windscreen could delaminate due to water leaks. d) Rust on body Omitting the use of primers on the aperture of the vehicle will

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expose unprotected paintwork to normal weathering. This creates major problems on the coastal areas where rust is an issue. Rust ingress will cause the windscreen to detach from the body and can result in airbag failure and leaking. e) UV damage Black ceramic bands run along the edges of the windscreen. If these are not the correct specification or if they have been fitted using no primers and incorrect bonding agents, the windscreen may come loose due to exposure to UV rays. All of the above will compromise the bonding strength of the fitted windscreen. Don’t play Russian roulette with lives. Expect the best from PG Glass. For more information, please contact Bernice Bailey on bbailey@pg.co.za

Figure 1: Wavy moulding is indicative of the of the incorrect fitment of a windscreen.

Figures 2 and 3: Incorrect bonding agent has been used and shows shoddy workmanship.

Figure 4: Excessive rust due to primers not being used.

Playing with fire Eastern Cape – businesses need to take the necessary steps to ensure that all fire safety assessments are conducted and that standards are met.

ver the course of the past few months, Long Beach Mall, Maynard Mall, as well as stores in the Tokai on Main shopping centre in the Western Cape have all been shut down temporarily after fire safety inspectors found their fire detection systems and smoke detectors not in working order. In Cape Town alone, in recent years, there have been a number of prominent stores and restaurants that have burned to the ground, causing severe losses. This is true throughout South Africa, since fire is an ever-present risk and accounts for millions in losses every day. Manuel Chikwanda, senior risk engineer at Lion of Africa Insurance, said that these incidences raise some major concerns regarding the readiness of many businesses to deal with unexpected fire. He said that as fire season approaches – especially in fire-prone areas such as the Western and

“The cost of non-compliance far exceeds the cost of compliance when you consider the loss of profits, operational delays and reputational damage that occurs when a centre is shut down by the authorities. Businesses must not fool themselves that they are saving money by ignoring firesafety requirements,” said Chikwanda. Shopping centres and big retailers should regularly assess their fire safety procedures. This means ensuring that there are approved fire protections in place and provision of safe passage for all people in an emergency. Chikwanda recommended a number of bodies, such as the Automatic Sprinkler Inspection Bureau, Fire Detection Installers Association and Fire Protection Association of Southern Africa that can be approached for professional assessment of fire safety. According to Chikwanda, some aspects of fire safety require daily attention and should be included as key operational tasks and routines. “Checking that exit doors and escape routes are free of obstacles and work smoothly as well as testing public address systems should become a part of daily routines. However, a full fire safety

assessment should be scheduled for a shopping centre at least once every year.” In many cases business owners are not aware of the insurance implications of not having sufficient fire protection in place. Not having sufficient fire protection in place could therefore be construed as a breach of the insurance contract and at worst could result in claims not being honoured. “Inadequate fire protection always results in the severity of loss being much higher than it would otherwise have been. This high loss ratio consequently results in an increased cost of insurance in subsequent periods,” said Chikwanda. All businesses have a legal and moral obligation to assure the safety of their employees and anyone visiting their premises. The Occupational Health and Safety Act gives employees the right to a healthy and safe working environment and non-compliance can result in stiff penalties, not to mention claims from employees or the public which may arise from injuries, or even death, in the event of fire. A successful fire strategy should include measures to prevent a blaze, assessment of risk, installing detection and containment measures and implementing an evacuation plan. Ensuring that these measures are in place will not only reduce claims and losses, but minimise the knock-on effects of potentially devastating fire damage.

Wal farmers FEEL THE PINCH?

ith reports that South African farmers are set to feel the pinch as a result of the Walmart/Massmart Holdings deal, RISKSA wondered whether giving up on insurance would become a money-saving tactic in the agricultural sector. For many individuals, insurance is the first thing to go should they need to save money and farmers are no different. They too view insurance as a quick way of mitigating cash flow issues, especially since big ticket insurance items, such as flood and fire cover, mean big ticket insurance premiums. However, one insurer warned that this is an unwise and short-sighted route to choose as it exposes farmers to far worse risk. Rather look at client’s risks together, deciding which are prime and key to their survival and at least maintaining insurance of those. If your client has to cut back, rather look at giving up on the nice-tohaves, rather than need-to-haves. According to agriculture minister, Tina Joemat-Pettersson, local farmers may be faced with severe cash flow issues. She told City Press that the department was very apprehensive about the Walmart/Massmart intervention, as bringing cheap food into the country will underscore local farmers. Joemat-Pettersson explained that Walmart reduces prices dramatically in the first few years, putting other retailers out of business

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and demanding cheap goods from producers. Prices then shoot up once they have the monopoly, by which time South African production prices will be unable to meet Walmart’s requirements, leading to imports from cheap and subsidised Chinese and Taiwanese farmers. “Cheap subsidised agricultural products will flood into our country and I don’t think our farmers have thought about it. They say they will procure locally, but not everything,” she commented. Joemat-Pettersson said this concern emerged from an SMS she received from a local olive farmer who said: “I contacted them but they say they are going to import their olives and olive oil and not make use of us because they buy cheaper overseas.” Unfortunately, farmers can’t insure against the possibility of there being no willing buyer who will purchase their goods or against producing an oversupply of goods. According to the Congress of South African Trade Unions (COSATU) general secretary, Zwelinzima Vavi, the Competition Act required the Competition Tribunal to consider the competition and publicinterest effects of a proposed merger – whether it promoted employment and advanced the social and economic welfare of South Africans – and not just the narrow interests of the firms who intend to merge. One commentator noted that the entrance of any new players into the retail market

is going to have an impact, but that competition of this kind is always healthy. “You have to appreciate the sheer size of the deal and of the players involved, which dictates that they will place pressure on producers to deliver goods at beneficial levels to consumers, who will have access to cheaper goods across the spectrum.” However, agriculture cannot be directly compared with other retail sectors in that the produce that the agricultural sector delivers into the market is influenced by factors such as time frames and freshness. Should certain produce be outsourced (as is the concern of the minister), the cost of getting it into South Africa in time, especially when South Africa is already one of the biggest players in the agricultural sector worldwide, will negate the cheaper prices that Walmart/Massmart may be able to secure. While you can appreciate the minister’s concerns, there could be positive spin-offs. For example, it creates opportunities for those farmers that can deliver in a costeffective manner. Not only will they have a mass market to sell into, but they will also become part of the bigger network of supply-chains. Farmers may not get top dollar for their goods, but should they be able to produce them effectively, there is definitely a market, especially since Walmart/Massmart prefers dealing directly with producers.

InsuranceBusters on the move

By Angelique Ruzicka

RISKSA talks to the CEO of Intelligent Debt Management (IDM) group to find out why the company is moving its employees to another venue. We find out that it’s a tenant’s market out there and that brokers could get more office space for less money if they really put their minds to it.

nsuranceBusters, a member of the Intelligent Debt Management (IDM) group, has moved its offices to Buitengracht Street from Burg Street in Cape Town last month. InsuranceBusters specialises mostly in shortterm insurance; however, it does provide advice on life insurance, too. Ian Wason, chief executive officer of IDM said that this was one of the best times to move if business owners want to get more space for less money. “Rents are soft and we are now paying less per square metre than we were five years ago and have 60 per cent more space than we had in the other office.” If brokers want to save money, Wason advised them to negotiate the rent with their landlords if they don’t want to move. “Now

is the time to renegotiate your rent and get a reduction as landlords are desperate. You can say that you will stay on longer as a tenant if they decrease their rent.”

“Now is the time to renegotiate your rent and get a reduction as landlords are desperate. You can say that you will stay on longer as a tenant if they decrease their rent.” Wason said the move to the Buitengracht offices was also to facilitate IDM’s burgeoning staff. The company now employs 110 people. “Being on one floor

with a bar, lunch area and television means that people can interact more,” added Wason. “We were running out of space [in the previous office] as we, particularly DebtBusters, are growing so fast.” “We are all very excited because the group is no longer divided into separate office floors. This will open the communication lines between the debt consultants and us, which in turn will result in providing better service to our clients,” said Santie Stevens, short-term insurance manager for InsuranceBusters. InsuranceBusters was formed in November 2007 and IDM is one of South Africa’s leading debt management companies. The group is divided into three separate groups: BondBusters, Debtbusters and InsuranceBusters.

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2011/06/02 10:58 AM

age fighting has become a hit in the United States and Europe and is growing in popularity in South Africa and in the rest of Africa. While fighters in America are insured through the Ultimate Fighting Championship (UFC) organisation, South African fighters are not so lucky. Elvorne Palmer finds out why fighters are struggling to get good cover.

When the American mixed martial arts (MMA) promotions company, Ultimate Fighting Championship, (UFC) started in 1993, many dismissed it as simply cage fighting. Its entertainment value, however, lay in showcasing bouts between highly trained and conditioned athletes. It was greatly concerned with safety and maintaining high standards. As a result, it grew in popularity. Today, the UFC is a $2 billion (R16 billion) company with offices spanning two continents. It holds contracts with 370 of the world’s top athletes. In conjunction with numerous live events, it broadcasts to around 430 million homes in 132 countries worldwide. More importantly, the UFC now offers its contracted fighters complete medical, life and disability insurance cover. The Extreme Fighting Championship Africa (EFC Africa), is based on the UFC model and has grown exponentially in popularity both locally and in the rest of Africa. But its fighters are struggling to get the right insurance. Think again MMA has grown globally as a sport in recent years and developed its own set of regulations, the Unified Rules of MMA. EFC Africa subscribes to these rules and has standardised world-class safety measures. President Cairo Howarth is convinced – as are all MMA fans – that EFC Africa will soon be to this continent, what UFC is to America and Europe.

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M But getting insurance companies to award their fighters with cover has not been easy. Howarth said he has approached many insurers about getting exclusive insurance for fighters during tournaments. They have been turned down time and again. “People don’t understand what we do. They still think of MMA as cage fighting. This is frustrating because our athletes are fitter and better conditioned than most rugby and soccer players out there,” Howarth said. “They have to be versed in at least four Olympic sports to compete at top level.” Are South African insurers mistakenly passing up an opportunity to create a niche product and grow the market? Howard believes so. Considering how fast the sport is growing, the safety measures in place and the individual athlete’s training and fitness levels (see ‘A day in the life of a champion’), it might warrant a second look. Big business EFC Africa started in 2009 and its first event (12 November) drew 2 500 spectators to the Coca-Cola Dome in Johannesburg. This year, EFC Africa hosted 11 events at several Johannesburg venues; each drawing crowds in excess of 7 000. Ticket prices range between R225 to nearly R900 according to the EFC Africa website.

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A quick calculation will show that this translates to minimum ticket sales earnings in excess of R1.5 million at each event. Nu Metro cinemas are broadcasting the events live at 23 of its theatres countrywide (at R50 a head); while EFC Africa has just signed a deal with e.tv to broadcast the events live in 2012. “Few people realise that e.tv is the biggest English broadcasting channel in Africa,” said Howarth. “It broadcasts to 49 countries and its viewership dwarfs DStv’s. And e.tv traditionally broadcasted only two sports, football live and pre-recorded wrestling shows, making EFC Africa one of only two live sports available to this huge African viewership.” EFC Africa has grown remarkably in just three years and is likely to continue doing so. This goes hand-in-hand with high earnings for fighters. EFC Africa increased the prize-money (purse) a fighter receives for a win from R10 000 in 2009 by 500 per cent in 2011. A top-ranked fighter can now earn R65 000 for a win. It holds contracts with 74 fighters, who compete in 11 events (at least one fight per event) every year. At these rates, an undefeated fighter, like current heavyweight champion Ruan Potts (13 wins), will have earned just under a million Rand this year. This does not include the sponsorships and advertising deals. “UFC events draw some of the highest numbers of viewers worldwide. For the past three years, seven of the 10 biggest payper-view nights are UFC events (the others are a boxing and two wrestling events). EFC Africa is well-positioned to do the same here in Africa,” Howarth said. Medical and safety standards EFC Africa’s events and safety is overseen by Dr Ewoudt van der Linde’s Event Doctors. Van der Linde is best known as the registered physician for the Sharks Rugby Union. He continuously compiles and submits medical reports to EFC Africa, which it uses to train referees and athletes on methods to increase fighter safety during matches. Apart from bimonthly HIV/Aids, the hepatitis B surface antigen, steroid and drug tests, EFC Africa requires its fighters to undergo X-ray computed tomography (CT) scans. “Following international standards, we require fighters to undergo a pre-fight CT brain scan to test for midline shifts, cerebral haemorrhages and other neurological disorders,” Van der Linde said. “The risk of getting injured during one of

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our events is no less than that of a rugby player, but it’s definitely safer than boxing. We don’t have the standing eigth count rule in MMA; if you’re knocked out the match ends,” Howarth explained. “We’ve had only one serious injury in three years and only two recorded deaths in MMA’s 18-year history worldwide, compared to numerous boxing-related deaths recorded every year.” Individual cover EFC Africa’s fighters have had some good news recently in that they can get individual medical aid to cover their injuries. This is according to Travis van Zijl, senior financial planner at CIB Life, who commented in his private capacity. He has put his expertise to good use and arranged cover for several fighters. Not every insurer will take on an EFC fighter though. “On the medical aid side there are some options available. However, finding the medical aid that matches the client’s needs is an involved process. The last thing a fighter needs is to be on a medical aid and not knowing what they are covered for. Matching client needs with a product is an essential part of the medical aid planning process,” Van Zijl said. He believes that the insurance industry will start producing tailor-made products for fighters, but that it might take a while. “MMA is currently the fastest-growing sport in South Africa, offering mammoth marketing potential for insurance companies. I feel that there is a bit of a negative stigma attached to it, but the more people attend EFC Africa events, the more they’ll realise that MMA is not barbaric. It’s a group of highly skilled professional athletes competing against one another to entertain the paying spectators,” Van Zijl added. According to Howarth, roughly 50 per cent of his contracted fighters now have suitable medical cover. So what is lacking? EFC Africa is looking for a medical insurance solution it can take out on behalf of its athletes to cover them during tournaments. “We are particularly keen to strike a branding deal with an underwriter, as our bouts are going to be broadcast live from 2012,” he said. While EFC Africa currently holds contracts with 74 fighters, this number is expected to increase as the sport grows.

“That’s the number we are comfortable with right now,” Howarth said. “Considering our broadcasting deal with e.tv and the rate at which the sport is growing, we are aiming to emulate UFC’s success. It has paved the way through 18 years of hard work and I’d be happy to see us reach that level in the next few years.” Fighters also struggle to get risk cover, such as capital disability or income continuation benefits (ICB). Van Zijl said that he has considered several companies offering products similar to ICB products. “I have found what we consider to be a suitable alternative,” he said. He declined to elaborate though, but mentioned that it took a lot of convincing to get insurers to re-evaluate risks. “EFC Africa and its fighters take every precaution to make fights as safe as possible. We want to ensure that, in the unlikely event of a fighter getting seriously injured, they will be able to continue living the life they’re accustomed to. These guys put their bodies through tremendous stress and training to entertain us,” he concluded. At the time of going to print, RISKSA was aware that Old Mutual has made life, illness and disability cover available to EFC Africa’s fighters. The deal was brokered by Ryan Coskey of Life Sense Financial Services and entailed months of negotiating and compiling detailed medical reports. Whether Old Mutual will strike a deal with EFC Africa or insure each fighter individually has not been finalised. Watch for updates in future RISKSA editions and our website (www.risksa.com).

M A day in the life of a champion Current middleweight champion Garreth ‘Soldierboy’ McLellan gave some insight into what his training regimen entails. McLellan starts his day by doing laps in the pool at 4h30 before doing strength and clinching (the tactic of holding an opponent in place so he can’t get away) exercises. This is followed by intensive physiotherapy and a wrestling and skills training session. After this, he takes an hour-long midday nap. In the afternoon, he does judo training followed by Jujitsu and a five-kilometre sprint. He ends long after sunset with skills training consisting of pad work (manoeuvring and training with the use of cushioned pads), more clinch training and a follow-up Jujitsu session. He does variations of this every day of the week. Saturdays include much the same, compacted into a half-day programme. McLellan rests on Sundays by doing a 15-kilometre run. It’s worth noting that McLellan is surrounded by experts. He has a separate trainer for each individual skill, including wrestling, Jujitsu, striking and boxing. He has a dedicated physiotherapist as well as a dietician. “We take what we do very seriously,” McLellan commented. “Although a fighter needs to believe that he is invincible in the ring, the risk of getting hurt is always on my mind. “That’s why I don’t just train to win; I train to be on top of things and micro-manage my own risks. I know my team mates do the same.”

“On the medical aid side there are some options available. However, finding the medical aid that matches the client’s needs is an involved process. The last thing a fighter needs is to be on a medical aid and not know what they are covered for.”

Ferdi Booysen, risk product manager of Old Mutual South Africa, confirmed that Old Mutual was to offer MMA athletes insurance. “Old Mutual will provide life and disability cover for the EFC Africa through independent brokerage Life Sense. Different levels of cover will be provided to professional and amateur fighters,” Booysen said. “Although the professional fighters will be fully covered for life and severe illness, they will not have any cover under the occupational disability benefits in our product range. Amateur fighters will receive life and severe illness cover as well as occupational disability based on their full time professions, but this will exclude disability cover for their involvement in mixed martial arts.”

Industry calls for consultation on domestic worker compensation by A ngel i que Ruz i c k a

omestic workers have, for a long time, not been awarded good quality insurance cover. The Democratic Alliance wants them to be able to claim from the Compensation Fund, but the insurance industry wants to be consulted on the matter.

The insurance industry has called for government and the Democratic Alliance (DA) to consult it before passing a law that could result in domestic workers getting compensated by the Compensation Fund. “To my knowledge insurance companies have not really come up with a cheap offering that employers could consider and, while I would welcome domestic workers being paid by the Compensation Fund, I would also like to ask them and government to consult the insurance industry for advice. In theory, compensation through this fund is a great idea, but before they pass this onto law they should talk to the industry,” said one commentator who refused to be named. Ian Ollis, DA shadow minister of labour, has called for domestic workers to be awarded the same level of protection when they are sick or injured but wants domestic workers to be compensated by the Compensation Fund. He aims to take this plan to Parliament and put pressure on the national government to implement it as soon as possible. He agrees that the insurance industry should be consulted but added that there was a need for urgency to get this matter addressed. “Government should always consult the industry when legislation is drafted. Currently, however, all other occupational groups have the same benefits

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from the Compensation Fund, except domestic workers. Thus the DA wants urgent progress on this matter.” Insurance, such as medical cover, is not often considered by employers when they hire domestic workers in South Africa and, as a result, protection for domestic workers is woefully lacking. An article compiled by non-profit news agency, the South African Civil Society Information Service, last year claimed that there are around one million domestic workers in South Africa. SACSIS found that one of the areas woefully neglected is the area of health and safety. There is little evidence that there is any medical aid or medical insurance for domestic workers. The agency said that at best, workers injured on duty report that they get assisted to get to the nearest public facility. When pregnant, registered workers generally only get what the Unemployment Insurance Fund pays them during the period when they give birth to children. Domestic workers demonstrated that they were aware of and expected the same rights as other workers.

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“If the DA gets its way it will mean that whenever a domestic worker becomes injured or disabled because of work, they will be eligible for compensation of their medical expenses, compensation for loss of income and could potentially receive punitive damages.” The DA has formulated an action plan to expand the rights of domestic workers. Its aims include: • Expanding the Compensation Fund coverage to include domestic workers. • Ratifying the International Labour Organisation (ILO) convention on domestic work in Parliament. • Driving an information campaign via the Compensation Fund and the Department of Labour to inform domestic workers and their employers of their rights. Ollis warned that there was an imbalance and that domestic workers are treated as second-class citizens. “If workers become injured or disabled at work, they are protected by the Compensation Fund and receive pension pay-outs to compensate for losses in income. Besides members of the South African National Defence Force and the South African Police Services (who have their own fund), domestic workers are the only category of workers excluded from the Compensation

Fund’s coverage to include domestic workers.” If the DA gets its way it will mean that whenever a domestic worker becomes injured or disabled through work, they will be eligible for compensation of their medical expenses, compensation for loss of income and could potentially receive punitive damages if employers were negligent or knowingly complicit in any injuries to domestic workers. Contributions to the fund would be made by employers on a monthly basis. “Individual employers will pay a small fraction of the total value of domestic workers’ salaries into the fund – this will likely be below one per cent of the domestic worker’s salary,” explained Ollis. Ollis concluded: “Domestic workers have been treated as second-class citizens for too long. It is high time that their role in building our nation is properly acknowledged and they are afforded the same rights as other workers. We will push for these reforms with vigour in the weeks and months ahead.”

Forensic delays means

insurance won’t pay

n the early hours of 7 September 2005, Blue Bulls rugby player Ettienne Botha lost control of his car along the N1 north highway in Centurion and was killed. There were reports that Botha’s blood-alcohol content exceeded the legal limit; however, more than a year later the magistrate in charge of the judicial inquiry had not yet finalised the case due to forensic test delays.

Waiting room A significant backlog at a number of the State’s forensic laboratories has meant that some consumers are being forced to wait up to two years before test results are finalised, according to the Financial Intermediaries Association of Southern Africa (FIA). As a result, any insurance claim that remains dependent on such test results could potentially end up being considerably delayed.

has a car accident or damages property while under the influence of drugs or alcohol, an insurer can repudiate a claim. However, this may need to be proven through a forensic test which can potentially delay any settlement.”

“Forensic test results are often essential in severe cases such as those where someone has been killed or seriously injured in an accident. This is particularly relevant if alcohol or drugs are thought to be contributing factors,” explained Justus van Pletzen, chief executive officer at the FIA.

National technical portfolio manager at the FIA, Peter Atkinson, said that while insurers claim that there is not really a problem as they apply alternative methods of investigation, the FIA has seen examples of delays. “But you can never be sure that these are not cases where there is sufficient evidence upfront to suggest that there is some reasonable doubt. What’s more, there is no real description in the wording that defines the process that will be followed, so it is a murky area,” he added.

Van Pletzen said such results can also be vital if an insurance company is investigating claims for damage to property. “If someone

Fighting the client’s corner What recourse do clients have in this situation? Atkinson explained that although

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individuals are legally governed by the wording of their insurance policy, so limiting their rights, they could rely on the support of, for example, the South African Insurance Association’s (SAIA) Code of Conduct, which seeks to ensure fair play for customers. Treating Customers Fairly (TCF), when it comes into force, will provide another avenue of assistance to clients. However, Atkinson explained that once the system is engaged, very little can be done other than to try bypassing it through the above-mentioned suggestions. Nevertheless, it is important that your clients are aware of their rights in such a situation. “Insurers should not repudiate a claim on the basis that the insured needs to provide satisfactory proof that they did not have traces of drugs or alcohol in their system,” said Van Pletzen.

Brokers can play their part, too. “Act as an intermediary on behalf of the customer to encourage insurers to look to apply other methods of assessing the validity (or otherwise) of claims, or even to perhaps consider partial payment in the meantime,” suggested Atkinson. Solving it Van Pletzen noted that the FIA has been assured by a number of insurance companies that they are aware of the situation and will take every possible step not to delay decisions regarding the settlement of such claims. He said it is positive that insurance companies are choosing not to simply wait for the official test results before deciding whether to settle on a claim, even though this may often be a stipulation of the policy.

condition that an acknowledgement of liability statement is signed, guaranteeing that the amount will be paid back to the insurer should an eventual analysis find traces of alcohol or drugs. “These delays are frustrating for all parties involved and cases that require forensic pathology tests are often by their nature traumatic. However, by working together, consumers and insurers can attempt to alleviate some of the stress involved to ensure a speedy resolution, even if a test result is not available,” concluded Van Pletzen.

“Insurers should not repudiate a claim on the basis that the insured needs to provide satisfactory proof that they did not have traces of drugs or alcohol in their system.”

“Insurers can obtain relevant information in a number of other ways including police reports, witnesses and family members, as well as examining the particulars of the event and past history in order to reach a reasonable conclusion,” he added. He said in some cases the outcome may be a partial interim payment, while other insurers have agreed to meet a claim on

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The shape of things to come MEDICAL SCHEMES 2012

Itâ&#x20AC;&#x2122;s that time of the year again when medical schemes dust off their PR hats and go all out to make the most of announcing their results from the past year and introduce their bright and shiny offerings. Lize van Coeverden looks at what medical schemes have to offer for 2012 and some trends and issues close to their hearts.

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Tongues have been wagging since the Department of Health published its policy paper on the proposed National Health Insurance (gazetted in August 2011). While much praise has been forthcoming for the noble intent of making good quality healthcare available to all citizens, the question of how the scheme will be funded and the thousands of vacancies that will be filled remain cause for concern. The removal of tax rebates for contributions to private medical aid has also caused public outcry and many are concerned that they will not be able to afford to contribute to the NHI and maintain their medical aid as they would prefer to do (for more on the NHI, see the September issue of RISKSA). That said, despite the challenges of such a bold and revolutionary move in a country such as South Africa (where the accessibility and affordability of healthcare doesn’t come close to meeting the need for it), medical schemes appear optimistic about their security going forward. The 14-year period during which the government aims to phase in the NHI promises to be a time of inexorable change, but steady rather than abrupt, allowing medical schemes and their members time to adapt and adjust their expectations and policies in line with the new climate.

et’s talk benefits Giving members flexible and affordable products that they really need and want is a key strategic component for any scheme that wishes to remain competitive. The following benefits and changes are new and/or noteworthy for 2012:

• In 2012, Discovery will count up to only three children in calculating premiums for a family. The Medsaver benefit (in partnership with Clicks pharmacies) will ensure members receive cash back on all schedule 1 and 2 medicines following a Vitality Check. Enhanced flexibility and breadth of chronic cover, unlimited cover for oncology treatment, and simplified and enhanced dental benefits are on the cards with plan-specific enhancements. Allied and therapeutic benefits have been redesigned to offer enhanced cover for nursing and psychiatric treatments, more flexible cover across different medical disciplines and to provide unlimited cover for serious conditions. Access to the adult-dependent rate has been redefined to include only spouses, ex-spouses, disabled adult dependents or full-time students up to the age of 25. • Momentum’s complementary product, HealthSaver, supplements access to private healthcare, including treatment that is excluded by the scheme. Momentum has retained all existing benefits of its policies for 2012 and has introduced a new trauma benefit that provides cover for certain day-to-day claims from risk benefits following specific traumatic events. • TopMed has increased medical savings on its incentive comprehensive option, which has been renamed Professional. Further changes include a widened range of benefits to be paid from risk such as maternity benefits, TTO medications and up to 75 per cent of the TopMed tariff for dental treatment (changes are option specific). The 25 per cent co-payment on non-CDL medications has been removed on the Professional option and co-payments on out-of-hospital MRI and CT scans have been reduced. It should also be noted that full-time students can now be included in the lowest cost category. • Fedhealth has increased its network of general practitioners, specialist partners and pharmacies to ensure that GP visits don’t draw from members’ savings, no co-payments will be required for specialist partners in and out of hospital and the closest pharmacy to most of its members will have no co-payment on dispensing fees.

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The total number of medical aids in South Africa has been steadily decreasing over the last decade and many schemes that were previously self-administered are opting for mergers and/or outsourcing their administration. From the merger between Momentum and Metropolitan, a new entity has emerged that is already one of the most prominent administrators of medical schemes in South Africa with a market share in excess of 30 per cent.

benefits such as mammograms and expansion of preventative dentistry payments to include gloves and sterile equipment. Hearing aid limits have also been increased on specific options and the income categories on the Pulse 1 and Pace 3 options have been revised. Solvency and sustainability Discovery is one of the largest medical schemes hovering on the cusp of the acceptable and recommended solvency ratio for medical aids. At 24.7 per cent, Discovery just misses the required 25 per cent mark and in an effort to push its solvency ratio up, the scheme submits management reports and proposals to the Council of Medical Schemes on a regular basis. Momentum’s solvency ratio has improved dramatically, from 16 per cent at the end of 2009 to nearly 20 per cent at the end of 2010.

• Medshield has consolidated its position in the retail and group market and has expanded its product offering to address different needs. Options on offer in 2012 have been expanded to four new generation plans, a hospital plan and three traditional options. • Resolution Health has replaced the Progressive Select option with the Progressive Saver option. Progressive Saver is a hybrid plan that provides cover within a fourth generation managed care model and includes the convenience of a limited savings facility. A number of other enhancements to other options have been added. The Prestige option, for example, will now feature unlimited GP visits within the preferred provider network, nine additional ResoBaby Maternity programme consultations at any provider, oncology benefits at any provider and increased specialist visits, among other enhancements. ADHD is now included as a chronic condition on the Prestige and Progressive Saver options. • Pro Sano has dropped the income band on their ProVider option and its ProElite option will now offer unlimited hospitalisation at 200 per cent of Pro Sano tariffs in-hospital for GP and specialist consultations and visits, maternity (delivery), operations and procedures. • Medihelp has introduced the HPV vaccination benefit against cervical cancer as part of its preventative care benefit package, increased its benefits limits across most of its options and decreased co-payments on hospitalisation and endoscopic procedures on the Dimension range of products. Medihelp only counts a maximum of two children. • A new look logo and renamed products have been announced by Bestmed for next year. Product enhancements include improved wound care and prosthesis benefits on various options, a broader definition of contraceptives, inclusion of preventative care

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According to TopMed, its reserves are at a staggering 167.1 per cent. Fedhealth has also maintained healthy reserves, ending 2010 on a solvency ratio of 29 per cent. More than a century of experience in the industry shows in Medihelp’s results. This scheme is the third largest open medical scheme in South Africa and has a healthy solvency ratio of 27.4 per cent. Bonitas Medical Fund remains under curatorship, having garnered the funds behind its good solvency ratio (36.5 per cent) from somewhat dubious sources under the management of former principal officer, Bafana Nkosi. Increases in contributions With the National Health Reference Pricing List (NHRPL) a thing of the past, increasing contributions and setting co-payments has been left to the discretion of each medical aid. Medical inflation has risen to a record high of nine per cent, while external factors such as rising fuel and food prices put increasing pressure on members. In light of these facts, the following average increases have been announced for 2012: Fedhealth – 7.1 per cent Momentum – 8.8 per cent Medihelp – 8.9 per cent Discovery – 8.9 per cent Bestmed – 9.81 per cent Topmed – 9.96 per cent Pro Sano – increases range from 7.8 to 12.2 per cent on the various options A year in review – growth, GEMS, age profiles and membership Momentum reported that it has seen its membership more than double in the past five years, with principal membership numbering

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For more information about TopMed Traditional, TopMed Professional, TopMed Savings, TopMed Hospital and TopMed Network, please visit www.topmed.co.za or call 0860 00 21 58.

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While the consensus seems to be that the world will not end as predicted by the Mayan calendar at the end of 2012, it may indeed prove to be the beginning of the end of the world as we know it. At the Medihelp launch at the end of September, Daniel Silke spoke of the rise of cities bigger than nations and more powerful than governments; the impact of women and nanotechnology on industry; the increasingly youthful population; the empowerment of developing countries; and the future of Africa (predicted to be home to a quarter of the world’s population by 2050). Of biggest interest though is the growth of accessibility of mobile Internet technology and the pervasiveness of instant communication and social media and the effect these have on consumers. Consumers have become hyper-sensitive and supremely aware of their rights and take products and service delivery more seriously than ever. Peer reviews are more powerful than television ads, said Silke, and product loyalty is built on word of mouth, much of which is disseminated via social media and other online networks, which can make or break a brand. With the media and the consumer in a constant state of flux, Silke advises brands and businesses to adapt and interact, lest they be left behind with the old guard, relics of a world gone by.

in excess of 90 000 for the year to date. The scheme is also reported to have the lowest GEMS exposure amongst the top 10 open schemes and has succeeded in consistently lowering its age profile over the last six years to its current standing at 42.7. Medshield, South Africa’s fourth largest scheme, took on Oxygen and Gen-Health members in 2010 and now boasts a membership of over 100 000 principal members. As at June 2011, TopMed’s membership stands at 12 192 principal members, with an average age of 49.5 years. Medihelp reported membership growth of more than 11 per cent during 2010. Discovery has maintained the highest rate of growth during the past

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year and is currently the largest scheme in South Africa with over a million members. It also has a lower than average age profile. Resolution Health has announced membership growth of 16 per cent for the year to date. New members have an average age profile of 28.8 years, bringing the scheme’s overall average age profile down to 31.9 years. Pro Sano’s curatorship was lifted towards the end of 2010 and the scheme is currently in a transitional phase between curatorship and trusteeship. Pro Sano is one of South Africa’s smaller schemes; however, during its curatorship the scheme generated approximately 14 000 new members.

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The power of incentives Discovery’s Vitality is an established product in the market with many new added benefits springing from new partnerships with Pick n Pay, Clicks, Adidas and Totalsports to encourage healthy activities and positive behavioural changes in its members. Savings and cash back rewards are increased depending on Vitality status and Clicks clubcard membership, sciencebased product recommendations are made to members and savings on active gear and sports equipment have been introduced. Discovery has also increased the number of Vitality points members will earn by taking steps to improve their health and to achieve specific health goals. Momentum offers members the opportunity to earn cash rewards for going for free health assessments, complying with appropriate treatment and being active, as part of its HealthReturns programme. Momentum also has a wellness programme – Multiply – which sees members receiving attractive discounts and benefits from 30 providers such as Virgin Active, NuMetro, Dis-Chem and Garmin.

Resolution Health has realigned the brand to focus on encouraging its stakeholders to ‘Embrace Life’ via participation initiatives with a specific focus on the environment, education and entertainment. The expansion of the service, lifestyle and rewards programmes, Zurreal, offers members, partners and intermediaries various value-added options. Technological evolution Many medical schemes are embracing the technological evolution evident in the way they do business and communicate with members and the public. This is a key part of their success, if we are to believe the trends globally, and a must for any business hoping to survive according to political analyst, futurist and keynote speaker, Daniel Silke. Momentum launched its mobisite in February 2011, compatible with all WAPenabled cellphones, already used by thousands of visitors and registered users. Medihelp announced the launch of its mobisite and a new online broker platform

allowing brokers to monitor their clients’ personal, claims and payment information. Discovery has announced that in 2012 it will be rolling out a range of advisory tools for members to use online to help guide members through the healthcare system and to identify when they can make full cover choices. These advisory tools will include a calculator for hospital visits and a system to find healthcare professionals with which Discovery Health has agreements in place. These tools will also include information on how a member is covered for medicines, pharmacy locations and when to expect and how to avoid shortfalls in dispensing fees, as well as a benefit adviser to assist members in managing their day-to-day healthcare costs more efficiently. Discovery has also introduced HospitalXpress, an online service to enable seamless authorisations for hospital visits, express pre-admissions and a range of additional value-added services. This system will function alongside Discovery’s MedXpress, PracticeXpress and AdviserXpress tools for members and financial advisers.

Due to various launch dates, the review and approval processes of the medical aid schemes and the scope of this feature, we are not able to specify or even mention every noteworthy development. It should also be noted that in some instances, at the time of going to print, some of the changes mentioned were still subject to approval by the Council of Medical Schemes. For more detailed information and to familiarise yourself with any particular terms and conditions tied to particular benefits, options and products, RISKSA recommends that you contact the medical schemes directly and/or visit their respective websites.

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fighting health insurance fraud T

he number of fraudulent health business and hospital claims increased from 404 cases in 2009 to 649 in 2010, with an increased value of R3 million, according to the Association for Savings and Investment South Africa (ASISA). ASISA started collecting data for health business and hospital claims fraud in 2009, which means that this is the first time a comparison can be made. Hospital cash plans pay policyholders a daily cash benefit for each day spent in hospital. This amount is paid irrespective of medical aid payments or sick leave available to the person hospitalised. “Hospital cash plans offer good value for money and help alleviate the financial burden of having to take time off work if you are self-employed or having to hire help if you are a stayat-home parent,” said Peter Dempsey, deputy chief executive officer of ASISA. “Unfortunately, however, we have seen a consistent increase in fraudulent claims where doctor and hospital administrator collusion is helping dishonest policyholders make claims they are not entitled to,” he added. Life insurers have come across cases where patients being treated for minor conditions are kept in hospital for much longer than needed, enabling them to claim from a number of hospital cash plans with several different insurers. “While some of these cases were spurred by desperation, where the money was needed to repay debt, in many other cases the goal was blatant self-enrichment. Life insurers are currently pursuing criminal cases against two female policyholders accused of fraudulently claiming from their hospital cash plans,” said Dempsey.

Fraudulent health business and hospital claims at a glance Category

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2009

Number of cases

Rand value

Number of cases

Rand value

Health business and hospital claims

649

R12.6 million

404

R9.6 million

Misrepresentation/ material nondisclosure

604

R10.7 million

390

R9.3 million

Fraudulent documentation

R1.9 million

R0.3 million

Syndicate involvement

R17 300

Source: ASISA

2010

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Quality products from Japan boosts sales Significant improvements in stock quality and competitive offers helped boost new vehicle sales for September, according to the National Association of Automobile Manufacturers of South Africa (NAAMSA).

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FI Despite NAAMSA having earlier expressed a reserved outlook on growth for the remainder of the year, September was a strong month for all new vehicle segments. NAAMSA director Nico Vermeulen attributed the positive results to Japanese producers having delivered good quality stock and offering competitive deals. He also noted that car rental companies had maintained the high levels of demand for new vehicles seen in August. “We again saw one in every five new cars being sold to the car rental industry,” Vermeulen commented. Better than last year Sales in all segments had registered surprisingly strong gains on the corresponding month last year. On aggregate, the September 2011 domestic sales had improved by 12 539 units or 30 per cent to reach 54 364 vehicles. This compared to 41 825 vehicles sold during September last year, when sales had been severely depressed by stock shortages as a result of industrial action. Total year-todate domestic sales in 2011 remained 16.2 per cent ahead of the corresponding nine months in 2010. Export sales for September showed huge improvement over last year. At 25 933 vehicles exported, it registered an improvement of 13 399 units or 106.9 per cent. This compared to the strike-affected total of 12 534 export units in September 2010. Manufacturing had also improved over the same month last year. Overall, out of the 54 364 vehicle sales reported, 77.8 per cent (or 42 279) units were sold out of dealerships, 15.9 per cent went to the car rental industry, 3.5 per cent sales to government and 2.8 per cent represented industry corporate fleet sales. New cars New car sales at 37 832 units reflected an improvement of 7 851 or an increase of 26.2 per cent compared to the 29 981 new cars sold during September 2010. The September 2011 new car market had again received support from strong demand by car rental companies. It accounted for 21.4 per cent of all new car sales. The strength of the new car market in September 2011

could be attributed to a number of factors. Consumers are getting back on their feet and improving their financial positions while interest rates remain quite low. Vehicles are continuously becoming more affordable in real terms and the positive influence of aggressive marketing and sales incentive programmes helped sales.

“The strength of the new car market in September 2011 could be attributed to a number of factors. Consumers are getting back on their feet and improving their financial positions while interest rates remain quite low. Vehicles are continuously becoming more affordable in real terms and the positive influence of aggressive marketing and sales incentive programmes helped sales.“ “Consumers might have been encouraged to bring forward purchases they had planned for later in the year. The weaker exchange rate could put pressure on prices and this tendency

could continue to help boost October sales figures,” Vermeulen commented. “It’s worth noting that the trend could reverse. Despite the Rand having weakened, it seems to have stabilised quickly. This means it could well recover as the year progresses,” he added. Trucks and exports New light commercial vehicles, bakkies and minibuses sales had exceeded expectations. At 14 006 units sold during September 2011, it registered an increase of 4 109 units (or 41.5 per cent) compared to the 9 897 units sold in the corresponding month last year. For the first nine months of 2011, new light commercial vehicle sales were ahead by 10.9 per cent compared to the same period last year.

Vehicle sales in the medium and heavy truck segments closed at 854 units and 1 672 units, respectively. This is an increase of 237 units or 38.4 per cent in the case of medium commercial vehicles and a gain of 342 units or 25.7 per cent for heavy trucks and buses, compared to the corresponding month last year. Total year-to-date sales of medium, heavy commercials and buses remained 24.6 per cent ahead of the corresponding nine months of last year.

Looking ahead September’s sales figures had exceeded expectations and were cause for optimism. The new car market for 2011 was likely to show an improvement of about 15 per cent, in volume terms, on the 2010 figures. Additional consumer interest is expected going forward as a result of numerous model launches at the Johannesburg International Motor Show held at Expo Centre, Nasrec, which took place last month.

Over the medium term, domestic sales are expected to continue to register growth, albeit at a more subdued rate. Global economic conditions remain uncertain and international financial markets are characterised by extreme volatility and turbulence. This could impact on future export sales. However, there are no indications of impending cutbacks in export orders at present.

Exports of motor vehicles produced in South Africa during September 2011 increased by 106.9 per cent. At 25 933 units, it increased by 13 399 vehicles compared to the depressed base of 12 534 units exported during September last year.

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Auto production THE WAY FORWARD

ncreased competitiveness and efficiency will be vital to ensure that the South African auto manufacturing industry remains sustainable. This is the general consensus among industry stakeholders as they look to a future where auto production and export has the potential to play an increasingly important role in the economy. This is despite the National Association of Automobile Manufacturers of South Africa (NAAMSA) September new vehicle sales report (see page 82) and the TransUnion Auto Vehicle Price Index (see page 85) lauding imports for high domestic sales and low prices. South Africa currently produces less than one per cent of the world’s cars, so how healthy can the local manufacturing industry really be? The answer is very healthy. Amid the turmoil and uncertainty of the global economic crisis recently, it was easy to overlook that the local vehicle manufacturing industry is actually sitting pretty. Production in North America, Western Europe and Japan dropped dramatically by 2010, and South Africa was one of the countries that has picked up the slack and gained a few big contracts. Roughly 600 000 units are produced for export and some 30 per cent of vehicles sold locally come out of South African factories. TransUnion Auto CEO Mike von Höne explained that South Africa’s manufacturers are largely focussed on international contracts though. “Our manufacturers compete for international contracts to supply models to the world against other factories within the same brand. For example, Volkswagen Group South Africa (VWSA) produces all the right-hand drive Polos for the world out of its factory in Uitenhage. It had to compete for this contract with other VW factories around the world,” said Von Höne. “There are similar success stories for local manufacturers of Toyota, Mercedes-Benz, BMW and General Motors. Cars manufactured here are of the highest quality and we should all be proud of our domestic manufacturers’ efforts.” “Those international export contracts are critical to manufacturers,

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because it allows them all kinds of credits and rebates from government, to help them compete in the domestic sales environment,” he added. But there is a catch. Local manufacturers are under tremendous pressure to decrease production costs while the cost of energy, transport and labour keep surging upward. Four years ago, the local industry was at a cost competitiveness index level of 124, where 100 was the benchmark (the standard cost competitiveness of manufacturers in Europe). Today, they are at 110 on the index. This is a huge improvement, but it still means cars cost 10 per cent more to make here than in Europe. The bad news is also that competitors such as India are at a cost competitiveness level of 84 (or 16 per cent cheaper than South Africa). Thailand is at 92, Brazil at 102, Mexico at 89, Russia at 105, China at 92 and Eastern Europe at 93. This is why imported models can be so competitively priced in our market. This is also why the auto manufacturing industry needs to find ways to significantly cut production costs to compete. The South African Government has announced that it will launch an Automotive Industry Development Programme (APDP) by 2013 to help address these issues. In the meantime, NAAMSA and other industry players are meeting with Eskom and Transnet to discuss lowering energy and logistics costs respectively. “The quality of vehicles South Africa produces is impeccable,” said NAAMSA director Nico Vermeulen. “The industry exports all over the world and South Africa’s products are of the highest standards, but there is a need for sustained competitiveness,” Vermeulen added. “Bringing down production costs and improving overall efficiencies is critical to secure a sustainable future for the South African automotive industry.”

South African motorists

favour buying new

overall brand image and the like. Yet price and value remain key competitive elements. If one manufacturer puts up his prices and others don’t follow suit, he potentially risks losing market share to his competitors,” he added.

What is causing this low inflation in new cars? According to TransUnion Auto CEO, Mike von Höne, new vehicle price inflation has been slowing over the past couple of years as competition in the auto industry increased.

The Rand has weakened somewhat recently though. Should this persist, Von Höne warned that the trend in new car pricing could reverse as imports become more expensive. Roughly 70 per cent of all new vehicles sold in South Africa are imported into our market and it is these imports – mainly more affordable models – that drive down price inflation.

ew vehicle price inflation has hit a five-year low. At 1.8 per cent in the third quarter of 2011, low price rises in new cars have put pressure on the sales of used cars, according to the latest Vehicle Pricing Index (VPI) released by TransUnion Auto Information Solutions.

“In recent years, the Rand has been relatively strong (and in the opinion of many actually overvalued) relative to the Euro and the Eastern currencies, lowering the cost of importing new vehicles,” Von Höne said. “This coupled with the tough economic environment means manufacturers are actively finding ways to keep prices down to entice consumers back into market. “South Africa has grown to be a highly competitive market for vehicle sales. Manufacturers actively compete against one another with features and benefits offered by their models, after-sales service,

National Association of Automobile Manufacturers of South Africa (NAAMSA) director, Nico Vermeulen, commented that Japanese imported vehicles contributed greatly to September new vehicle sales (see the report on page 82). Naturally the low new vehicle prices have put pressure on the used car market. While used car price inflation reached 3.8 per cent, its highest level this year, the trade data is much lower than expected. “Consumers are increasingly aware of what is available in the market. They know what they can afford and they are prepared

to shop around for the best deal. Given the low inflation and highly competitive new car environment, many consumers are opting for a new vehicle over a used vehicle. There’s a shortage of clean, good used stock of one to three-year-old models. The majority of used vehicles purchased by consumers are priced between R80 000 to R160 000,” Von Höne said. There are some very competitively priced new vehicles available in that price bracket. Many discounts and favourable financing schemes are now available on new vehicles, some of which include extended repayment periods and prime or belowprime interest rates. The ratio of used cars to new cars being bought in South Africa has decreased since end 2009. It is currently at 1.64 used vehicles for every new car financed. TransUnion Auto publishes its VPI quarterly, using a year-on-year market weighting basket of new and used vehicles. This means that it bases inflation on the performance of a basket of vehicles representative of the percentage of each manufacturer’s market share. This basket is set to change for the next quarter, as new models have been launched and others discontinued.

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2012

Car of the year

finalists announced

he Johannesburg International Motor Show (JIMS) at the Nasrec Expo Centre was a highlight in the calendar of auto industry and car enthusiasts alike. Some 200 exhibits were on display, new vehicles were launched and some important industry issues were tackled in seminars and talks.

categories including whether it reflects value for money, safety, dynamics, technology and aesthetics. The winner will be announced in March 2012. The finalists are:

One of the highlights was the announcement of Wesbank’s South African Guild of Motoring Journalists (SAGMJ) Car of the Year finalists for 2012. Only vehicles launched between October 2010 and the end of August 2011 were eligible for the competition. Some 320 plus vehicles from entry-level hatchbacks to high-end passenger and sport utility vehicles were vying for a spot on the final list. Ahead of JIMS (now considered one of the world’s top motor shows), these were cut down to just 26 hopefuls, before the SAGMJ members voted for the top 10. The finalists will be measured according to each one’s performance in their own class – and not compared to each other. They have to stand up to evaluation in a variety of

Alfa Romeo Giulietta,1.4, 125 kW, MultiAir Distinctive Audi A6, 3.0, TDI, Quattro S tronic Citroën DS4, THP, 200 Sport Ford Focus, 2.0, TDCI, Trend Sedan Powershift Hyundai Elantra, 1.8, GLS Kia Picanto, 1.2, EX Mercedes-Benz SLK, 350, BlueEFFICIENCY Peugeot 5008, 2.0, HDi, Active M/T Suzuki Kizashi, 2.4, SDLX, M/T Volkswagen Jetta, 1.4, TSI, 118 kW, Highline

JAC Motors set for move into South Africa

hina’s number one exporter of light trucks has said it will enter the South African commercial vehicle market.

As a specialist in manufacturing and exporting light trucks, JAC took note of the recent growth in demand for commercial vehicles (nearly 23.3 per cent higher in 2011 over 2010, according to sales reports*). It is actively looking for local partners and plans to open up an office in South Africa this year.

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After more than 40 years of development, JAC ranks among the top 10 Chinese automotive manufacturers. JAC Motors is a Chinese Governmentowned company, the second to attempt a move into the South African market. Chery, which launched in South Africa in 2008, has had reasonable success despite reports of poor quality imported products. JAC has an annual production capacity of more than 700 000 vehicles and 500 000 engines, and the company has maintained an annual

growth rate of around 50 per cent for over 10 consecutive years. It looks set to bring yet more competitively priced commercial vehicles to South Africa. While this will be good news for consumers looking to buy new rather than second hand, it will put further strain on our local manufacturing industry. *According to the National Association of Automobile Manufacturers of South Africa (NAAMSA) new vehicle sales reports.

Supporting green machines

his month sees dignitaries from around the world gather in Durban for the United Nations’ 17th annual conference on climate change (28 November to 9 December). Though the topics discussed will vary greatly, the overall tone will be that climate change is a reality and even developing nations cannot afford to drag their feet when it comes to ensuring humanity’s existence. The world’s eyes will once again be on South Africa.

The South African Government has committed to reduce carbon omissions as part of a national climate change response policy programme. The targets of a 34 per cent reduction in emissions by 2020 and 42 per cent by 2025 will hinge greatly on our ability to turn our transport industry ‘green’.

the limits set in the new emissions tax issued last year. The South African Revenue Service (SARS) sought to encourage environmental consciousness by implementing tax penalties for emissions exceeding 120 g/km. Absa Green Vehicle Finance seeks to do the same by rewarding eco-friendly consumer choices with discounts. “Absa is taking significant steps to embed environmental citizenship in its strategy and operations in order to decrease its direct and indirect impact on the environment,” Qoma said. “The Absa Green Vehicle Finance offering is an example of how Absa is contributing to the fight against global warming,” he added.

This is why banking group Absa’s introduction of special finance rates for customers buying low-emission vehicles looks like another step in the right direction.

He was quick to point out that in addition to the price and interest privileges, Absa has undertaken to plant a tree for every vehicle sold. The banking group has initiated several projects aimed at decreasing its own carbon footprint.

Absa spokesperson Khulani Qoma explained that Absa Green Vehicle Finance offers discounts for financing vehicles with carbon emissions below 120 grams of carbon for every kilometre travelled (g/km).

One evident hurdle to this project is South Africa’s severe lack of quality fuel. Both petrol and diesel available locally is well below the standard needed to run many low emissions engines.

“Customers will enjoy a 0.25 per cent interest rate concession for any financed vehicle with a carbon output of less than 120 g/km, and a further 0.75 per cent payment discount for any passenger car with an output below 100 g/km,” Qoma explained.

Electric car technology still has a long way to go to replace traditional cars. Optimal Energy, the company behind the locally designed Joule electric car, recognises there will be little demand at home and that almost all its production will be exported. Hybrid cars aren’t selling very well in South Africa, meaning clean-burning combustion engine technology will for now be the

The carbon output threshold is similar to

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frontrunner for a greener auto industry. “South Africa is lagging the rest of the world when it comes to fuel quality,” said Nico Vermeulen, director of the National Association of Automobile Manufacturers of South Africa (NAAMSA). “We will be moving to import Euro (V) quality (the grade of fuel developed countries have been using for years now) by importing it by 2013. At least one of our refineries will be producing it by 2015,” Vermeulen said. The industry aims to have Euro (V) grade fuels produced in all local refineries only by 2017. That means it won’t be practical to import most of the world’s cleanest motors for some time. Nevertheless, Absa’s Green Vehicle Finance is available on a number of qualifying models. The list will be continuously updated as newer and cleaner burning vehicles become available. Under the 120 g/km threshold there are a few qualifying Audi, Citroën, Fiat, Ford, Honda, Kia, Peugeot, Smart, Toyota and Volkswagen models, as well as a Daihatsu Charade and diesel Volvo S40. The Toyota Prius, diesel Volkswagen Golf and Polo and the Lexus CT 200h qualify for the 0.75 per cent rebate with below 100 g/km. Reduced tax and financing rates seem to be good incentive for drivers to opt for buying a ‘green’ car. It will be interesting to see how other credit providers and perhaps even insurers react and if they too will start offering concessions for environmentallyconscious choices.

Actis and RMB Ventures acquire Tracker in R3.9 billion deal

ctis and RMB Ventures have acquired Tracker following a R3.9 billion buyout deal announced last month. The deal will see some restructuring in terms of Tracker’s shareholding, but spokesperson of the tracking company, Gareth Crocker, said that it is a positive sign for both the business and the industry. Crocker added that the deal saw the departure of two of Tracker’s largest shareholders, “Remgro, which has been with us for a very long time, has decided along with Wesbank to cash-in on its investment. “We are, however, very excited to welcome two new shareholders who have realised the value that Tracker holds for consumers, insurers and all industry stakeholders.” The new shareholders are Actis Capital (Actis), who acquired Remgro’s share, and RMB Ventures, a private equity company within the FirstRand Group. John van Wyk, co-head of Actis’ Investment Committee Africa, said that Tracker’s management team had built a powerful brand, known for highquality customer service. “We are looking forward to reinforcing Tracker’s position as the marketleading vehicle tracking and monitoring company

in South Africa,” Van Wyk said. Actis invests solely in emerging markets and its portfolios include companies in Asia, Africa and Latin America. But Tracker’s new shareholder, Actis, has not always been looked upon favourably. It is perhaps best known as the company whose sale in 2004 led to London parliament members blasting Gordon Brown in 2007. The company had been created with money from the United Kingdom’s Commonwealth Development Corporation (CDC Group), a government initiative that invests in developing economies. According to several 2007 newspaper reports, it was sold off to CDC Group staff along with an umbrella guarantee that Actis will keep managing the CDC Group’s investments for a set period. Actis grew phenomenally since and the MPs felt Brown shouldn’t have allowed the sale.

resonate strongly with RMB Ventures,” said Eutychus Mbuthia, co-head of RMB Ventures. Jannie Durand, chief investment officer of Remgro, commented on the company’s decision to sell its interest in Tracker, saying that it was pleased with Tracker’s performance throughout the years. “VenFin, which is now part of Remgro, was one of the founding shareholders in Tracker in 1996 and our commitment to this investment over the years has delivered significant returns to our shareholders. We are delighted to see the company enter its next phase of development with the committed support of new and existing shareholders and Tracker’s very capable management team,” Durand said. Crocker echoed sentiments that the change in ownership and shareholder structure meant the way forward for Tracker’s expansion.

RMB Ventures focuses on providing experienced management teams equity and debt funding for buyouts of established businesses with established track records. Recently it has participated in several other large private equity transactions.

“There are no retrenchments taking place,” Crocker said. “Instead we have many plans to grow our business. I’m not going to give too much away, but we are very excited and ambitious. If anything, we are going to raise our game.”

“In a dynamic industry, Tracker has demonstrated a consistent ability to innovate and provide relevant solutions to its customers. These qualities

In addition, the Mineworkers Investment Company (MIC) announced that it has increased its stake in Tracker, improving the company’s BEE credentials.

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t n e m e r i nt t e e em fo r i r t | tin re n n io nsigh o s i i s en p e n lif e p | e f li riskSA Magazine

Where there’s a will there’s a way Car crashes, freak accidents and natural disasters remind us how unpredictable life can be. Living in such a volatile reality makes provision for an uncertain future essential, which is why advising on wills, trusts and estate planning is a vital, and often undervalued, element of a broker’s role.

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“Brokers are often the first point of call,” said Charles Evison, director at Legacy: Fiduciary Services and Estate Planning, which is why they need to attend to these issues and ask the important questions. Enquiring whether your client has a will and a succession plan in place may seem simple enough, but often brokers fail to address these areas. Since you understand the financial situation of your client, you are in a position to give sound advice, refer them to the right professional and perhaps ultimately be the difference between an easily settled estate and a family feud. A broker or financial adviser can ensure that the will is correctly signed and witnessed, thereby securing the validity of the document and its contents. A small error in a will, such as a beneficiary signing as a witness, thereby disqualifying them as a beneficiary, can cause your client’s estate to be distributed against their wishes, which is why professional assistance is so vital.

Andre Calitz, attorney at Hereford Group of Companies, described wills as one of the most effective vehicles to get confidential information out of a client as it’s a simple yes/no answer as to whether they have one. Asking this question immediately gets the client thinking about their situation, and more likely to ask for financial advice. As a broker, you can provide a safe haven for a duplicate or original of the will. This means that every time the client amends it they will have interaction with you, and since this is often during life-changing events such as births, marriages and deaths, this will further cement the client-broker relationship and connect you to their family, too. While wills do present a fantastic way to converse with your client and maintain a good, and ongoing, relationship, be aware of the potential pitfalls associated with these documents. When it comes to liquidity, estate planning and trusts, proper precaution should be taken and careful planning is required. The trouble with liquidity One of the most important factors in an estate plan is to provide for liquidity in your client’s estate, as this is usually the most pressing issue for their family following their death. Often the executor has no alternative but to sell the family home of the deceased in order to pay the costs and taxes of the estate, as there is not enough cash or other liquid assets to meet these expenses. It is imperative to ensure that your client’s estate is liquid to avoid the heartache this can cause. “It is important that there is sufficient liquidity in the estate to pay all liabilities (such as outstanding debts, estate duty, capital gains tax and executor’s fees) from the estate,” said advice proposition manager at Old Mutual, Lizl Budhram. “This would necessitate a calculation of total assets and liabilities, including the estate duty, capital gains tax and executor’s fees.” Budhram advised discussing methods to minimise these liabilities with your clients. Methods of securing liquidity include taking out a life policy, the beneficiary of which is the estate. Head of Legacy’s deceased estates department, Chris Murphy, noted that while insurance policies are a good way of providing liquidity, they can take a few weeks and sometimes months before they pay out. This is because many insurance companies now require copies of the letters of executorship before they will process the claim, which brings us to the appointment of an executor: a crucial part of winding up an estate. Estates and executors The Administration of Estates Act, 66 of 1965, specifies that if you are not a family member, an attorney, accountant or trust company, then you cannot act as executor unless you provide security to the Master’s office. “We have found that some brokers

appoint themselves as executors of their clients’ estates,” noted Evison. This may lead to delays as either the broker has to obtain security, which is time-consuming and expensive for the client, or they have got to waive their appointment as executor and ensure that someone else is appointed. Since an executor is the only person empowered to wind up an estate (i.e. establish liquidity, pay accounts, meet debit orders, etc.), delays are not something you want your client’s family to be facing. The executor can wind up the estate only once officially appointed by the Master of the High Court and the Master will make this appointment only once all the correct documents and forms are before him. Murphy explained that delays of even a few days in an executor reporting an estate can cause exponential delays of weeks or even months at the Master’s office. To trust or not to trust Brokers may not always be directly involved in setting up a trust, but they still need to be clued up, since they are transferring information to clients. “Although trusts can be a cost-effective solution, people are sometimes over-eager to jump into a trust when it might actually be to the client’s detriment,” commented Calitz. Trusts can be a very good vehicle, but they are expensive to establish and laborious to maintain, requiring auditing, independent trustees and registration with the Master.

“Since you understand the financial situation of your client, you are in a position to give sound advice, refer them to the right professional and perhaps ultimately be the difference between an easily settled estate and a family feud.” The main reason to establish a trust is for asset protection, the need for which is determined by the business structure and needs of your client or the assets they possess (as in the case of high net worth individuals). Trusts place a corporate veil between your client, their assets or business, and their creditors, as assets in your trust don’t form part of your client’s estate and therefore cannot be attached by creditors. However, since the tax implications and the cost of the trust may outweigh the benefits, each individual situation should always be carefully considered.

affordability of setup, maintenance cost of the trust, purpose and benefits of the trust, and the ages and situations of heirs,” said Budhram. “Clients who have growth assets in the estate and would like to remove these assets from their dutiable estate may consider creating an inter vivos trust, while clients who would like to leave a single asset to more than one heir may want to consider creating a testamentary trust,” she explained. Importantly, trusts must be treated as separate entities in order to perform their function and protect the assets they hold. Alarm bells should sound if your client begins treating their family trust as an ‘alterego’, dealing with its assets as if they belong to him or her, as the assets may then be deemed to be part of the client’s estate. The implications of this was seen in the recent Badenhorst v Badenhorst case, a divorce case in which a trust was attacked on the basis that one of the parties was treating the assets in the trust as though they were their own. The case went something like this: Mr Badenhorst told Mrs Badenhorst he wanted a trust for protection from creditors and estate planning. The trust was founded by his father, and he and his brother were appointed trustees. The beneficiaries of the trust were Mrs Badenhorst, in respect of income, and Mr Badenhorst’s children, in respect of capital. Certain assets were transferred into the trust but during the divorce proceedings, Mrs Badenhorst claimed that the trust was her husband’s alter-ego, in that the trust assets were under his control, and therefore should be included in the pot for the divorce order. In order to verify Mrs Badenhorst’s claim, the court considered the terms of the trust deed and how the affairs of the trust were conducted. The judge found that, amongst other factors, Mr Badenhorst seldom consulted his brother as a trustee, insured the trust property in his own name and had included trust assets in his application for credit from the local co-op. In the end, it was determined that Mr Badenhorst had failed to treat the trust’s property as the trust’s and not his own. The assets held in the trust were included in the divorce proceedings and Mrs Badenhorst had a claim against them. The above case illustrates the importance of the broker or financial adviser’s role when it comes to giving advice about wills, trusts and estate planning. This advice may save your client from insurmountable debt and a string of litigation, and it will certainly strengthen your relationship with them.

“Factors to be considered include income tax, donations tax, capital gains tax,

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The face of life insurance fraud

in 2010

“The life industry paid out benefits of more than R190 billion in 2010 to consumers as a result of death and disability claims, maturity pay-outs and pension, annuity and other payments.”

outh African life insurers managed to prevent 5 792 cases of claims fraud during 2010, worth R638 million.

Peter Dempsey, deputy chief executive officer of the Association for Savings and Investment South Africa (ASISA), said while there had been a slight decrease in 2010 in the total value of the attempted claims fraud from 2009, the number of cases had increased substantially by 1 204 from the 4 588 cases recorded in 2009*.

“Fraudulent death certificates are the most common fraudulent documentation submitted.”

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He said that the rise in the number of claims fraud cases detected can be attributed to the increasingly sophisticated fraud detection mechanisms applied by many of the forensic departments of the long-term insurance companies. However, it indicates that for many policyholders and beneficiaries who are struggling financially, fraud is seen as the easy way out. Dempsey pointed out that the vast majority of claims submitted to life companies are honest and legitimate. The life industry paid out benefits of more than R190 billion in 2010 to consumers as a result of death and disability claims, maturity payouts and pension, annuity and other payments.

“While the R638 million seems almost insignificant when seen against the R190 billion in benefit payments, it is important that the life industry fights claims fraud. Unbridled fraud would substantially increase the claims experience of life companies and ultimately force companies to recover these losses from customers through increased premiums,” he noted. While the R638 million represents fraud detected, there are bound to be cases that did not appear on the radar screens of the forensic departments. It is impossible to estimate how much, but it is a given that millions are lost to fraud and dishonesty each year.

Death and funeral claims

The death and funeral claims category continued to experience the highest number of fraudulent and dishonest claims in 2010. Life companies foiled 4 636 cases to the value of R321.7 million. It is also the only category where there has still been some, though very little, intermediary involvement in fraudulent claims. Brokers and advisers were responsible for 24 fraudulent and dishonest claims. “Since the introduction of the FAIS Act, and subsequently the FAIS examinations, we have seen a steady reduction in fraud involving brokers and advisers,” explained Dempsey. While the overall number of fraudulent and dishonest cases in 2010 was much higher than in 2009 when 3 579 cases were recorded, the fraud amount is substantially lower by R122.1 million. The bulk of the cases in this category were for misrepresentation and material non-disclosure. Dempsey pointed out that misrepresentation and non-disclosure almost always have serious consequences for policyholders and their beneficiaries. “While withholding important information may result in lower premiums or in cover without exclusions, the life insurer is entitled to declare the policy void if, at claims stage, it is discovered that critical information was not disclosed.” In 412 cases worth R23.3 million, fraudulent documentation was submitted in an attempt to gain access to death or funeral policy benefits. Fraudulent death certificates are the most common fraudulent documentation submitted. “We also come across cases where the date of death has been changed to fall outside the waiting period of the policy. More ruthless beneficiaries have been caught presenting unclaimed bodies at mortuaries as the deceased covered by the policy,” said Dempsey.

Disability policy claims

During tough economic times some consumers resort to fraud and dishonesty to access their disability cover. “In extreme cases, policyholders harm themselves to qualify for a legitimate disability pay-out. But most commonly, policyholders take out disability or income protection cover while already suffering from the condition they would later claim for. Others misrepresent material information such as their income with the aim of claiming more money in disability than they had actually been earning while able to work,” he explained.

Retrenchment claims

Given the more than one million job losses in South Africa since the start of the financial crisis in 2008, it is surprising that only 13 fraudulent and dishonest retrenchment policy claims to a value of R531 567 were detected. In 2009, only eight such claims to a value of R172 684 were recorded.

“In extreme cases, policyholders harm themselves to qualify for a legitimate disability pay-out.” Fraudulent and dishonest policy claims statistics for 2010, compared to 2009** Death and funeral claims Category

2010

2009

Number of cases

Rand value

Number of cases

Rand value

Death and funeral claims (total)

4 636

R321.7 million

3 579

R443.8 million

Misrepresentation/ material nondisclosure

4 101

R292.5 million

1 648

R352.2 million

Fraudulent documentation

412

R23.3 million

1 238

R74.2 million

Syndicate involvement

R1.5 million

150

R3.8 million

Beneficiary involvement in death

R1.7 million

460

R6 million

Adviser involvement

R2.4 million

R1.2 million

Broker involvement

R0.3 million

R6.3 million

Disability claims Category

2010 Number of cases

Disability claims (total)

2009

Rand value

Number of cases

Rand value

494

R303.5 million

597

R240.8 million

Misrepresentation/ material nondisclosure

490

R302.1 million

575

R230.9 million

Fraudulent documentation

R1.4 million

R9.9 million

Retrenchment claims Category

2010

2009

Number of cases

Rand value

Number of cases

Rand value

Retrenchment claims (total)

R0.5 million

R0.2 million

Misrepresentation/ material nondisclosure

R0.3 million

R0.1 million

Fraudulent documentation

R0.2 million

R65 384

2010 TOTAL

2009

Number of cases

Rand value

Number of cases

Rand value

5 792

R638.3 million

4 588

R694.3 million

(Total includes fraudulent health business and hospital claims. See page 78.) Source: ASISA *Reference is made to the adjusted 2009 claims fraud statistics, which are marginally lower than initially reported. The adjustment was made after it emerged that one insurer had included cases that fell outside of the reporting spectrum. **Figures have been rounded up.

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THE VALUE OF

good advice Some insurers have broken with tradition to use direct sales channels to sell long-term products, while new competitors constantly appear. Elvorne Palmer finds out what life insurance brokers can do to convince clients of the value they offer and prevent them going direct.

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The direct insurance market in South Africa is not exhausted just yet. This was one of the notions expressed by KPMG director of financial services, Gerdus Dixon, when the tax advisory firm published its survey of the insurance industry 2011. In fact, despite the long-term insurance industry looking rather healthy, having recorded an increase in total assets of nine per cent in 2010, industry players aren’t very bullish about the immediate future. Life assurance has always been a competitive market, where even the best known brands fight over the same spoils. Apart from new regulatory and taxation requirements (Solvency Asset Management, micro-insurance regulation and the National Health Insurance proposals), the industry now has to deal with non-traditional competitors. Direct insurer Outsurance launched a life product late last year, while MTN announced that it will sell life insurance on a pilot basis in partnership with Hollard. Then there’s 1Lifedirect and Instant Life. Other established life assurers are branching out from their traditional distribution models. Liberty is selling life and disability products through Frank.net while Santam’s MiWay has started offering term, credit and full life cover. It could only be a matter of time before Old Mutual starts offering life products through its direct insurance channels at iWyze. What does this mean for the broker? Will customers care where the business comes from, or through which channels? Do insurance companies still care about appeasing brokers? Direct selling, for some, is considered more cost effective as the industry is searching for ways to curb expenses. To add fuel to the fire, recent studies have shown that the consumer market for most insurance products is made up of individuals that are comfortable using the Internet and other types of technology that provide access to the web. So where does the broker fit in today? And where will they be in 10 years’ time? Lessons from short-term insurance It’s not a case of either brokers or direct sales, said Albert van Wyk, marketing manager and operator of Sureline Insurance Service, a short-term insurance brokerage. “There is a place for both distribution models in the insurance market, because essentially they serve two very different types of client, each with their own needs,” Van Wyk said. Van Wyk’s comments might well prove helpful to life assurance brokers. He specialises in short-term products but he has extensive experience in competing for business with an increasing number of direct sellers. He believes that direct distribution has helped reduce premiums in recent years, but that brokers will have to up their game to compete with this model. “What is important to grasp is that the direct sellers are saving on broker commissions and investing those savings in huge marketing campaigns,” said Van Wyk. “They are very competitive and fine-tune their marketing to show up their product as the best (because it’s all about the take-up). The result is that they often show only the shiny side of the rock.” This leads to the consumer, even the broker’s client, being educated by biased advertisements in the mass media. Van Wyk feels that the broker’s place is to continually reinforce communication with the client and serve as an educator. “We use social media, Internet, e-mail and SMS-technology to continually communicate with our clients, because it’s easy for them to be misled by what they see on television or hear on the radio,” Van Wyk said.

“My view is that if your client is shopping around for cheaper rates via a direct insurer then he shouldn’t be a client at all.”

“It’s not so much that the direct insurers are miscommunicating or wrongly educating the masses, but rather that they are hammering on savings, discounts or benefits which are part of their strategy. The client sees this and wonders why he’s not getting this type of benefit from his current insurance,” Van Wyk added. No revolution Van Wyk points out that direct insurers are constantly innovating their offering and are, for example, luring customers by offering no excesses on claims. Clients see this on television and demand that the broker secures them the very same deal. “They make this sound like it’s something new, when all (or at least most) insurers already offer this service through excess waiver,” Van Wyk said. “The waiver would have been offered to the client at additional cost when he took out the insurance – and perhaps he turned it down in favour of a lower premium. And they have probably just included that waiver cost in all of their premiums to pass it off as some huge revolution.” It’s the broker’s responsibility to enforce trust and build a relationship with their client, while continually educating the client. “We don’t use Facebook and Twitter to try and gain new clients,” Van Wyk explained, “but rather to continually educate them. Keep them abreast of what’s happening in the industry and you won’t have a client so easily swayed by what they see in advertisements.” Despite this, there are the individuals who are just not broker clients. “A young, single person renting a home

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might not be as open to dealing with a broker as the middle-aged person with a house and two cars,” he said. “I’ve had clients swayed by direct distributors’ adverts who’ve left and gone the direct route,” he added. “But they often come back to us within a few months. Many clients who leave for a better premium are disillusioned come claims time.” “Many say they feel much more comfortable dealing with one person with whom they have a relationship, than a call centre where they speak to a different person every time.” Keep in touch Unfortunately, brokers don’t have that luxury when it comes to life insurance. So what can the life insurance broker do to maintain relationships and gain new business while direct providers are lurking in the wings? “I talk to my clients continuously through newsletters and other media because direct insurers’ offers sound attractive, but they often don’t disclose everything,” a broker told RISKSA. “You’ll often find that someone thinks they are getting full life cover when they are actually buying only accidental life cover. Or they are not made aware of the fact that their policy might not cover their medical expenses, etc.” He noted that the younger generation generally prefer to go the direct route with both long- and shortterm cover. “People don’t realise that some direct insurers underwrite only at claims stage. This means that while the policy was approved and the client had paid their premiums in the meantime, the underwriter could pick up at claims stage that

something wasn’t disclosed and turn it down. By that time it’s too late.” Mark Flanagan, a certified financial planner and member of Plan for Life, a financial service provider, agreed that there’s a stark difference between the broker client and the direct client. “My view is that if your client is shopping around for cheaper rates via a direct insurer then he shouldn’t be a client at all,” Flanagan said. “What value has the call centre agent added or have they merely flogged a policy? Long-term products on the market today are complicated and the client will need some level of advice. If it is just a simple life policy then he wouldn’t be the type of client that I am looking for and he might be better off via a call centre. However, the test for them is at claim stage.” Flanagan added that he is open with prospective clients. “I make it clear that I want their business and that it’s a life-long relationship. Mr Client has now employed me. Until death do us part.” People value the human touch. Brokers wouldn’t be around at all if this wasn’t the case. It’s important to inform clients that they are making a trade off when they go for direct insurance. They’ll be swopping the years of financial advisory experience of a broker for that of a voice on the other side of a phone that, in some cases, has less experience and may not ask the right questions. For now, it seems that the best a broker can do is to make as many clients aware of this fact as they can and be open and honest about the costs and benefits of being advised by an expert.

TIMING THE TRANSITION

Rob Rusconi Rob Rusconi is General Manager of Lombard Life, a licenced long-term insurer that seeks to meet customer needs through partnerships. Lombard Life is a member of the Lombard Insurance Group.

e looked last month at the challenges of the retiree’s decisions. Some of the questions that must be considered by those approaching retirement include what to do with life savings, how much you can afford to spend, how to invest and whether to purchase an annuity. These boil down to the management of two risks, investment and longevity; in simpler words, the risk of poor returns and the risk of outliving your wealth. This month we ask whether it is ever appropriate to convert retirement savings into a guaranteed annuity and when it might be appropriate to do so. THE HUMBLE ANNUITY Guaranteed annuities are not at the top of the pile of popular financial products. We should pause to make sure that we understand one another. By guaranteed annuity, I mean any insurer-provided product that pays out an income – however that income is defined – for as long as the annuitant is alive, and sometimes also to a nominated beneficiary like a spouse. It is guaranteed for life. I refer specifically to the pay-out phase, not the build-up. I’ve not often heard the guaranteed annuity declared at the braai or water cooler as ‘the latest thing’. Even the name fails to get the pulse going. We tend to consider the annuity a little boring, perhaps even a sure win for the insurer, who ‘takes your money if you die early’.

“I’ve not often heard the guaranteed annuity declared at the braai or water cooler as ‘the latest thing.’” All of this risks seriously misrepresenting the enormous benefits of this product to its purchaser. This annuity is not mainly about investment return or sharp market timing. A guaranteed annuity is about insurance, protection against the risk of long life. And the thing about this product is that it achieves what nothing else can, an income for life and no more. A study of the environment for guaranteed annuities shows a broadly competitive marketplace offering good value for money and a secure income.

different, of course. This argument applies to a healthy retiree with reasonable life expectation at retirement.

Why do annuities receive generally bad press? First, the focus of the retiree is too frequently on the event that we might fear the most, an early death, rather than the event that, financial speaking at least, we should regard with the deepest concern, a very late death. Second, incentives too frequently lead the intermediary to lean away from the annuity, a subject I cover in more detail next month. Third, longevity risk is conceptually very difficult to consider, let alone manage. Fourth, this is not only about life span, it is also about the allocation to investment classes, considerably complicating the decision. Fifth, we tend to think of these decisions in two parts, preand post-retirement, rather than as part of an integrated whole.

So buying an annuity too early may be a bad idea. This is because the longevity risk is not severe early on and the returns are not much above the equivalent on the underlying assets. But the longer you leave it, the less likely you are to achieve similar returns elsewhere, as the return to annuitants rises. You should not leave it too late: you are running inordinate risk without the benefit of longevity protection. Research suggests that, for healthy retirees, between 70 and 75 is a good time to convert your accumulated savings into longevity insurance.

ONE LIFE, NOT TWO Let’s start by considering the investment risk, then, across an entire lifespan, not separately for the working life and retirement phases. Research shows that the optimal allocation to broad investment classes, over an entire life with an overall expectation of around 80 years, puts about half in equities at the time of retirement, say 60 or 65. This implies that while it is probably inordinately risky to keep the whole portfolio in the market at retirement, as some do with their living annuities, it may also be unduly conservative to convert everything into a guaranteed fixed annuity backed by government bonds. Every person’s needs are

Is there anything similar we can learn about the annuity purchase decision? This is technically rather more complex. An annuity is a form of insurance rewarding the survivors with an income. The annual return to these survivors tends to increase with their increasing age, because more of their peers fail to live out each year.

Does this tell us anything, then, about the type of annuity we should be considering? Indeed it does. We should plan our investments around our life decisions, running down our equity exposure over time and choosing an annuity that, at the time of purchase, matches our portfolio. Fixed guaranteed annuities are more conservatively invested. With-profit annuities involve more investment risk but are likely to provide a better return on the back of their higher exposure to equities. Good advice demonstrates an understanding of the context of each decision as well as the technical tools for making these decisions intelligently. Think of the annuity as primarily about insurance but offering an investment mix in the underlying assets. This allows separation of the two key risks and a smoother transition into retirement.

riskSA Magazine

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On a and a prayer W 102

ith the very prominent and public dispute between South African Airways (SAA), its insurer Chartis and former CEO Khaya Ngqula on our minds and new airline, Santaco, getting ready to take to the skies, Lize van Coeverden looks at the risks of insuring airlines and their directors.

riskSA riskSAMagazine Magazine

Take your mind back to 28 November 1987. A catastrophic in-flight fire in the cargo hold of SAA flight 295 caused the Boeing 747 to crash into the Indian Ocean east of Mauritius, killing all 159 people on board, destroying the plane and causing the loss of 43 225 kilograms of cargo and baggage and 149 000 kilograms of fuel, according to the South African Civil Aviation Authority. It resulted in an official inquiry and one of the deepest successful salvage operations ever undertaken. Of course, there were conspiracy theories, and it was brought back to public consciousness when Carte Blanche covered the story in 2000 and a now-retired member of SAA management at the time came forward to speak to the Afrikaans newspaper, Beeld, to â&#x20AC;&#x2DC;clear his conscienceâ&#x20AC;&#x2122; about the fateful events of that day.

$40 billion Amount the insurance industry forked out after the events of 11 September 2001. Sticks and stones

“The risk of terrorist attacks is very real but that is not the only danger. Air disasters have a lasting impact and demonstrate just some of the myriad factors that affect airlines and can cause catastrophic loss of life, property and revenue.”

This was by no means the worst plane crash in recent memory, but has captured South Africa’s interest. It was perhaps the events of 11 September 2001 that represents the most significant air disaster of all time and still strikes a chord with the world 10 years on, as the memories of that day are still fresh. However, the insurance industry bore the brunt of the disaster when we look at the financial losses. According to London-based Insurance Times, the industry had to fork out $40 billion and is the second biggest insurance loss on record. Sadly, personal losses were also experienced as a number of the industry’s employees lost their lives, too. Brokers Aon and Marsh both occupied space in the World Trade Centre and lost hundreds of people. A lot has changed since the attacks and the insurance industry has certainly learnt lessons from it.

The risk of terrorist attacks is very real but that is not the only danger. Air disasters have a lasting impact and demonstrate just some of the myriad factors that affect airlines and can cause catastrophic loss of life, property and revenue. Earlier this year we saw the volcanic ash clouds over Europe cost airlines billions. Although no lives or aircraft were lost, cancellation of flights and the costs to passengers and companies, who needed their officials to travel during that time, was astronomical. Negligence, faulty equipment, even a flock of birds can bring a plane down and bring an airline to its knees. Increased safety measures and better technology means that plane crashes of this kind are not frequent, but there are more pernicious factors that affect the wellbeing of airlines and the risks of insuring them. The 2010 Airline Fraud Report by Deloitte showed that on average, airlines internationally each lose around US$ 2.4 million annually because of fraud. The report further demonstrated that even though crime has been increasing, up to 70 per cent of airlines had no plan to actively tackle fraud and no way to track its exact impact. For example, while the widespread uptake of the Internet has made booking procedures easier, more accessible and less labour intensive, it has also made the process less secure. Millions in revenue is lost as a result of weak technology controls, which allow hackers and fraudsters to obtain tickets illegally. Added to this is the

theft of credit card details via payment systems and the subsequent damage to an airline’s public image. These are risks and damages that airlines are not assessing or preventing properly.

A double-edged sword

Not only are thieves committing crime against airlines and stealing seats, but fraud by high-ranking officials in all industries is on the increase. A recent global study by KPMG reported that a typical fraudster is: • Male • 36 to 45 years old • Commits fraud against his own employers • Works in the finance function or in a finance-related role • Holds a senior management position • Employed by the company for more than 10 years • Works in collusion with another perpetrator. This profile points a disturbing finger to those who hold the purse-strings in many of South Africa’s corporate entities. The KPMG report concluded that, frequently, lapses in internal controls are one of the most alarming factors that contribute to fraud taking place. Combine this with the ability for these individuals to protect themselves legally and companies that can insure against the losses brought about by their officers’ indiscretions and we are confronted with a disturbing reality. June’s issue of RISKSA asked whether directors’ and officers’ liability

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products encourages directors and officers of companies to be less committed to the wellbeing of their companies and whether it is a necessary tool to protect senior officials in situations where they may be wrongfully held accountable. This has proved to be a double-edged sword for South African Airways and may lead to many similar debates in the near future. After the conclusion of a forensic investigation by KPMG, South African Airways instituted action against ex-CEO Khaya Ngqula for the recovery of approximately R27 million in respect of monies Ngqula allegedly spent on retention bonuses to employees, in excess of the budget he was given for the bonus scheme. He is also being sued for a further R3.3 million in respect of the hiring of hospitality suites in various sports stadia around the country and the cost of free junkets granted to his personal friends and associates amounting to at least R500 000. SAA, during Ngqula’s tenure, spent R141 million on sports sponsorships when only R3 million was budgeted for and further action may yet be taken against Ngqula for this robust overspending.

Trial and error

Ngqula countered the allegations with the defence that SAA had insurance against such losses just as it has insurance against crashes and mismanagement. However, Chartis is reported to be refusing the claim on the grounds that the company did not disclose that it was investigating Ngqula. Regrettably, at the time of going to press, the matter is still sub judice and as a result, none of the parties were able to comment. It is clear that if SAA loses the case and cannot recover the losses, the company may take significant strain going forward. And although SAA has recorded a net profit of R782 million (a 77 per cent increase from last year’s R442 million), with all airlines constantly walking a financial tight-rope in the current economic climate, there is clearly a lesson to be learned from this incident.

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From a public statement by the SAA board regarding the action being taken, we are led to understand that: “Whereas the KPMG forensic investigation was prompted by allegations largely against Dr Ngqula, the outcome of the forensic investigation also outlined various weaknesses in the company’s internal controls and procurement processes. As a consequence of this, the company has already introduced measures to improve financial and risk management in its business, as well as further internal controls in relation to procurement. The process of enhancing financial and risk management is an ongoing one and the systems which are currently in place will continue to be reviewed and refined to ensure that the risk of loss or harm to the company is minimised.” The need for appropriate risk assessment and cover for every eventuality is therefore essential and an important lesson for all corporate entities working with tight profit margins, and airlines in particular.

New breeds, new risks

With the volatile global markets and ever-rising fuel prices, entering the market is an ambitious task for anyone wishing to operate a new airline and grab its piece of the pie. In September we saw the launch of Santaco, South Africa’s new low-cost airline and the first to be operated by the taxi industry. Its proposed use of provincial airports rather than airports operated by the Airports Company of South Africa (ACSA) may save on costs passed on to consumers, but if these airports, runways and hangers are poorly maintained, it may end up costing Santaco when it comes to its insurance policies. Offering a new service to a new breed of customer is bound to attract new risks and higher insurance premiums. The risks of insuring all aspects of airlines are to be carefully considered.

“SAA, during ex-CEO Khaya Ngqula’s tenure, spent R141 million on sports sponsorships when only R3 million was budgeted for and further action may yet be taken against Ngqula for this robust overspending.”

Top 15 worst airline crashes by number of fatalities Source: http://www.planecrashinfo.com No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Fatalities Date Place Airline carrier 2 907* 11/09/2001 New York City, New York American / United Airlines 583 27/03/1977 Tenerife, Canary Islands Pan Am / KLM 520 12/08/1985 Mt Osutaka, Japan Japan Air Lines 349 12/11/1996 New Delhi, India Saudi / Kazakhstan 346 03/03/1974 Bois d’ Ermenonville, France Turkish Airlines 329 21/06/1985 Atlantic Ocean West of Ireland Air India 301 19/08/1980 Riyadh, Saudi Arabia Saudi Arabian Airlines 290 03/07/1988 Persian Gulf Iran Air 275 19/02/2003 Shahdad, Iran Islamic Revolution’s Guards Co. 273 25/05/1979 Chicago, Illinois American Airlines 270 21/12/1988 Lockerbie, Scotland Pan American World Airways 269 01/09/1983 Sakhalin Island, Russia Korean Airlines 265 12/11/2001 Belle Harbour, Queens, New York American Airlines 264 26/04/1994 Komaki, Japan China Airlines 261 11/07/1991 Jeddah, Saudi Arabia Nationair / charter Nigeria AW

RISKSA: What advice do you have for new airline operators like Santaco? JD: It needs to do a thorough risk analysis, not only of the obvious hazards such as hull and liability insurance, but also various leasing and other contracts to ensure that it has absolute clarity relating to who carries what responsibility regarding maintenance of the aircraft, ground-handling liability, actual insurance of the aircraft and adequate passenger liability insurance. I assume that in Santaco’s case, the aircraft is leased. In terms of the lease, areas to look at would be who supplies the pilots and crew, who is liable for their errors or negligence and so on. Then there is also the business side of the venture, it should consider fraud and misappropriation of funds; loss of revenue if for some reason they cannot operate; confiscation of the aircraft if flying into neighbouring territories; and of course D&O. RISKSA: Do you believe it is better for corporates to take out the different types of insurance they need within the same house or is it better to approach a specialist when it comes to directors’ and officers’ liability cover? JD: It is always better to buy specialised products from a specialist rather than a generalist mainly because of the exposure that the specialist will have had across many industries and even countries or legal jurisdictions where they have dealt with similar issues and have an understanding of how to deal with them. Having said that, in many instances, specialist skills resources reside within the larger brokers due to the economies of scale, their ability to carry higher costs to attract those skills and to provide an environment for research and development. Most of the big brokers have a well-developed infrastructure, which is geared towards client confidentiality, so it is possible to deal with such a matter without risk of compromise within one organisation.

in the september 11 2001 air disaster of new york city, which tops the list of worst airline crashes

RISKSA: How important is full disclosure when large companies take out insurance? JD: Disclosure is of paramount importance, particularly in specialised areas such as directors’ and officers’ (D&O), commercial crime and the like, where the proposal put forward by the client forms an integral part of the contract of insurance and will certainly be relied upon if the information is found lacking or false.

2 907 fatalities

Q&A with Jan Drahota (JD), executive leader of specialist areas risk services for Alexander Forbes.

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he implementation of the Consumer Protection Act (CPA) has pressurised suppliers anew to ensure that goods meet quality standards. Recent instances of sellers issuing a recall of products have highlighted the importance of preparing for this risk. Elvorne Palmer finds out how companies can ensure they are covered against the risk of product retractions.

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Reports that Woolworths had issued a recall of two multiplugs in October was confirmed when the South African retail giant posted a notice on its website. The notice gives details (batch codes and barcodes) and invites consumers who have bought any of these products to return it for a full refund. It urges consumers not to use the multi-plug, as the supplier has notified Woolworths that improper use of the product could lead to injury. About two months ago (Saturday, 3 September), food processing conglomerate Kraft Foods published a notice in several local weekend newspapers. It had recalled batches of its Flake chocolate infected with the bacteria salmonella. At roughly the same time, Woolworths was said to have also recalled a product. While Kraft Foods refused to comment, the Woolworths (the retail division of Woolworths Holdings Limited) press office responded to RISKSA via e-mail (asking that the comment be attributed only to Woolworths). “Yes. Woolworths has recently issued a recall of water bottles. It was a nationwide recall,” the e-mail said. While ensuring the consumer’s safety by taking unsafe goods off the market bodes well for the South African shopper, product recalls can be devastating for retailers, their distributors and manufacturers. The risks inherent to making products available to the buying market are extensive. The slightest defect that poses a threat to the safety of the consumer normally results in not only huge direct financial losses, but possibly additional costs for rectifying the situation. Suppliers are now directly liable for any injury or loss a consumer suffers as a result of goods bought. In its e-mail, Woolworths continued by stressing the importance of suppliers having adequate insurance that accounts for the known risks in retail. “It is important to consider the types of products that one offers and the known risks associated with the products. One must also take into account what existing insurance can cover,” Woolworths stated. Review the risks Shirley Hirst, managing director of Network Liability Underwriting Managers, a UMA specialising (among others) in product recall insurance, said that the CPA has made it necessary for suppliers to review their exposure to the risk of a product recall. Hirst said that all role-players throughout the supply chain need to consider this review as part of their business’s risk management assessment, as the CPA does not distinguish between retailers, distributors and manufacturers – they are all liable. “This entails relooking all contracts within the supply chain, to ensure that they clearly stipulate that all suppliers accept their liability for any defective products. A retailer will want to be able to claim against their suppliers for any legal action arising out of such defective products,” Hirst said. “Retailers importing directly from overseas markets will especially want to make sure that the supplier or manufacturer

will be around in the event of the retailer trying to recover costs, whether the retailer carries products insurance or not,” she added. Product recall insurance Product recall cover indemnifies a business for some of the expenses that might be incurred when a product needs to be withdrawn because it is likely to cause – or have already caused – injury or damage to consumers. The recall can be initiated by the insured or a third party that uses the insured’s product as a component incorporated into other products for sale. “For example, if the insured supplies suspension springs to a vehicle manufacturer, the motor manufacturer will likely initiate the recall of vehicles. Even if the suspension springs are the suspected culprits. The motor manufacturer would then expect to recover the recall costs from the component manufacturer,” Hirst said. As with any insurance, some exclusions and provisions apply. In the case of product recall insurance, it’s important that the client notes that before the recall can be initiated, the insurer must approve all the recall costs. Without the insurance company’s consent, the insurer usually has the right to refuse payment. Equally important, Hirst warned that insurance companies typically do not insure a forced recall that is ordered by any government or other regulatory body. What costs are covered? “The costs covered typically include advertising the recall in the media (radio, TV, print, Internet, etc.), the transportation costs to retrieve the goods and the cost of destroying the products. Often with perishable products, the destruction costs are preferable to retrieving the goods and then destroying it, especially if the goods were exported overseas,” she added. The costs of rectifying or replacing defective products are not covered by the recall indemnity though. Hirst suggested that businesses looking for this kind of coverage consider purchasing products guarantee cover. Additionally, the recall cover does not include the seller’s responsibility for injury caused by the withdrawn product either. “Products recall cover is rarely offered on its own. Products liability insurance is usually required to be effected as well.” Products recall cover is not cheap either. According to Hirst, any supplier will have to weigh up the cost of premiums with the cost of a recall as part of their risk assessment. “Insurers will require a detailed assessment and recall plan as part of the original submission for the quote. But then again, a detailed risk management assessment is vital for every aspect of any business – not just from an insurance point of view,” Hirst said. “The CPA is just the latest legislation to highlight the need for all business owners to review their business processes and procedures,” she concluded.

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Deloitte: executives ill-informed on SAM by Angelique Ruzicka

Companies need to make significant steps in their progress when it comes to their preparedness for Solvency Assessment and Management (SAM), according to Deloitte. Deloitte has warned that executives need to brush up on their knowledge of Solvency Assessment and Management (SAM) to be prepared for its implementation in 2014. Commenting on the findings of Deloitte’s SAM 2010 Benchmarking Survey, Andy Rayner, actuarial and insurance solutions director at Deloitte, said: “In terms of awareness, we found that the actuaries are very aware of what they need to do. Some of the risk professionals are aware but less so. The key finding was that 89 per cent on the level of awareness at board level was either average or poor. The education programme, training and awareness certainly have not penetrated significantly and the boards don’t know what it means for them or their companies. It’s not a huge surprise but confirms that there is still a lot of awareness training still to do.” Show me the money There are more alarming statics, too. Thirty-three per cent of respondents had not yet set their SAM budget, while just 22 per cent of respondents have had their budgets approved. Very few companies have taken the time to think about where and how they want to spend money allocated to SAM. In the UK, however, a fair amount of work had been done in this area.

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The highest percentage of budgets is allocated to 2011 and 2012 (both 28 per cent). This compares less favourably to how things were conducted in the UK when it came to Solvency II budgeting. In the UK, budget allocation for the corresponding years were 34 per cent and 37 per cent respectively. In the UK, the highest level of spend was allocated to technology (with an average of 48 per cent). Programme management was given 17 per cent of budgets, while organisation and change was allocated four per cent; strategy was given two per cent – the lowest share. Deloitte warned that low strategy and organisation and change spend could mean that opportunities may be missed. Deloitte found that most respondents are still in the business case and design phases in their preparedness for SAM, while only some are advancing with the build and implementation activities. Scarce resources Even though there is awareness of the fact that resources will be scarce, very few companies have determined their specific resource requirements over the next three years. Forty-four per cent indicated that actuarial resources are expected to be in short supply. Deloitte warned that the lack of expertise is only going to get worse because UK

that significant work is needed in this area, especially as SAM programmesaremove thebusiness design stage Most respondents still into in the case and design phases, although some are advancing with build and implementation activit 80% and European companies are luring experts to their hemisphere to help out on Solvency II, Target 70% state which is what SAM is based on.

Poor

Level of60% ambition

Average

Despite the UK being ahead in some regard Only 33% of respondents indicated at least a ‘Compliance Plus’ target state, compared to 100% in the UK. 12.5% 50% in its preparation for Solvency II compared44% indicated a ‘Compliance’ target and only 23% ‘Market Leading’. to Good 40% how South African companies are preparing 12.5%vs standard formula for SAM, Rick Lester, partner at Deloitte, Internal model 30% pointed out there are some similarities • 44% of respondents are expecting to base their regulatory capital on the Standard Formula 20% between the two: “We have fully undertaken annual surveys and there is a direct correlation • 44% are expecting to implement either a partial or full internal model 10% 25% of what we found going back over our early 0% survey based on the UK and what we found• in The remainder are undecided Board Executive Management Actuarial Risk, Finance and IT South Africa. There are common attributes to board awareness and challenges at stake. Awareness SAM vision awareness levels (%) 89% of respondents indicated that SAM awareness at Board level was average or poor.

Five areas of concern for SAM implementation: Through adopting a business capability led implementation approach Deloitte has seen how SAM is transformed from compliance 1. A lack of resources in the risk, actuarial initiative into an initiative that supports value creation in business. Similarly this type of approach integrate governance requirements leads to greater Board and senior management involvement in the initiative. and finance areas. 2. The cost of compliance. 3. Deciding whether to use an internal model or the standard formula and the approval process. 4. Clarification around the final methodology underlying SAM. 5. Lack of key skills within the FSB with which to engage.

33%

45% Solvency Assessment and Management (SAM) December 2010 Benchmarking Survey All a 10-50

11%

150-250

11%

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Source: Deloitte, September 2011

SAM overall budget in Rm

Key design decisions - Emerging themes Budget • 33% of respondents have not yet set their SAM budget • Only 22% of respondents have had their budgets approved • Close to 60% of spend is expected to occur in 2011 and 2012 Resourcing • Very few companies have determined their specific resource requirements over the next three years • 44% indicated that actuarial resources are expected to be in short supply. This is likely to be compounded by the huge demand for actuaries for Solvency II projects in the UK and Europe.

Our people deliver.

At RGA, we foster a culture in which bright, talented people Internal model approval thrive. We draw on the experience, determination and insight of • Companies consider the Use Test and the our associates around the world to create reinsurance and risk documentation requirement as the most challenging

Reporting close requirements From the respondents: • 11% were planning on monthly hard close • 45% indicated a preferences for quarterly • 33% were planning on semi-annual hard close

• 11% indicated a preference for annual hard clo Areas of concern • A lack of resources in the risk, actuarial and finance areas • The cost of compliance

• Deciding whether to use an internal model or th standard formula and the approval process • Clarification around the final methodology underlying SAM • Lack of key skills within the FSB with which to engage

aspect of internal model approval management solutions that improve our clients’ performance, and • Validation is felt to be the least concerning surpass previous standards of success.

Finish first with RGA.

Solvency Assessment and Management (SAM) December 2010 Benchmarking Survey All angles covered

www.rgare.com

VIS LEA Io DS N Yo whe

re y o

We’ll help make it possible. No matter where opportunity takes you, Chartis will be at your side, with cutting-edge insurance solutions. Last year alone, our carriers launched innovations ranging from new coverages for the changing healthcare industry to robust executive liability products and online risk management tools. This year we’ll continue to innovate, to help keep you moving forward. Learn more at www.chartisinsurance.com • T: +27 11 551 8000/1 Chartis South Africa Limited is a Licensed Financial Services Provider FSP No. 15805 Reg. No. 1962/003192/06

All products are written by insurance company subsidiaries or affiliates of Chartis Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language. For additional information, please visit our website at www.chartisinsurance.com.

s and g h aying n i ng e pl n h cha an vice, t everde ance g e r b o nsur e s y C a i n ne mo rn for ize va m the n L e u t o h r e d f r w n s m, ees in cka a igure i f talis y api mplo ue Ruz e key c f e o m q i t l d o en rs an Ange ed s adv e sk . the mploy level and a e c Sin een e t been rends t. t n o w bet has n salary mme o d c l e t r e a fi ei stig r th inve stry fo u ind l ther ncia at o in fina s h w er ut er l, b nag ce are ucia ce a c rce ma suran r c is an esou s in hiring adv r xam riou ry e tically uman at va r when el. o t ula rama sks h ment ok fo ve lev reg i e a d the s can lmer anag they lo execut g a t in tion m P s d a r s Pa lifica vorne senio es wh ent an l g qua ices? E uals in okera agem n r v d b i r v ma d se indi dle s an and panie l, mid e com try lev n e t a

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Passing the buck Since the advent of capitalism, when money began changing hands between employers and employees in return for a service, the playing field has not been level. Angelique Ruzicka and Lize van Coeverden investigate salary trends and asked some key figures from the insurance industry for their comment.

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The world is going through a recession and times are tough. Millions of people around the globe are losing their jobs and forced to cut back on spending. Some of those who are still lucky enough to have a job are grateful to be employed. Unfortunately, a few companies are all too happy to take advantage of the tough economic conditions and are paying their staff pittance and refusing to give them raises. Some bosses know full well that employers canâ&#x20AC;&#x2122;t threaten to leave, even if they are unhappy, because jobs these days are hard to come by.

“We have to ask whether there aren’t better ways to spend revenue than exorbitant pay packages for the people who run South Africa’s business, industry and government.”

In South Africa, and elsewhere, focus is turning sharply onto how much the people at the top are getting paid. There was a massive outcry in the United Kingdom when it was found that bankers and other bigwigs in the financial services industry were getting bonuses despite their poor performances. This, despite the fact that people are losing their homes, jobs and security. Back home, the contentious issue of executive pay has been raised by Business Unity SA (BUSA) deputy CE Raymond Parsons, who said that the issue will be part of the pending debate on the government’s New Growth Path, which was launched in 2010. The

announcement of the investigation comes after a growing outcry over the size of pay increases in bonuses of top executives, while jobs are being shed. Unemployment has always been a challenge for South Africa. Every year, thousands of new matriculants and graduates enter the labour market, and every year, fewer of them are able to secure jobs. During his address of the 16th Economic Development and Labour Council (NEDLAC) annual summit, deputy president Kgalema Motlanthe said: “We have close to 2.8 million young people between ages of 18 to 24 who are unemployed and not in any institution of learning.

Unskilled and caught up in depressed social conditions, this important social segment needs to be pulled back into economic productivity as soon as possible. Indeed the above statistics represents the ticking time-bomb that threatens to inflame pent-up emotions within the youth if not urgently addressed.” While millions seek out a living below subsistence level, we see politicians and company executives pulling in millions every year. It is no wonder then that executive salaries are such a hotly debated topic. We have to ask whether there aren’t better ways to spend revenue than exorbitant pay packages for the people who run South Africa’s business, industry and government.

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158 the Paragraph of the King III report states, yearly bonuses should clearly relate to performance against yearly objectives consistent with long-term value for shareholders.

The cats that got the cream The debate has intensified since the release of a report on practices and trends in executive directors’ remuneration by advisory firm PricewaterhouseCoopers (PwC), which looked at some key figures and assessed the different approaches of JSE listed companies’ remuneration strategies. PwC pointed out that while much focus has been placed in recent years on companies developing remuneration strategies that are performance based, the reality today still shows only shortterm goals being implemented rather than holistic long-term performance in the interest of the companies as a whole and their shareholders. Companies are quick to publish their financial results but when it comes to disclosing their executive remuneration figures and policies, we have to rely (at least for now) on reports such as that produced by PwC. The report noted that this status quo is expected to change by April 2012 as

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all companies should be applying the principles of King III, or disclose and explain their reasons for non-compliance. Incentives in the form of shares rather than large cash incentives linked to short-term goals are encouraged. Paragraph 158 of the King III report states, “yearly bonuses should clearly relate to performance against yearly objectives consistent with long-term value for shareholders. Individual and corporate performance targets, both financial and sustainability related, should be tailored to the needs of the business”. We suspect that if salaries were currently truly performance based, many executives would be making their homes on the curb. The mice While the debate rages and executives’ multi-million Rand salaries are coming under scrutiny, further staggering statistics have just been released by Statistics South Africa. The Quarterly Employment Statistics report for June 2011 revealed the following figures relevant to the insurance industry:

1. The financial intermediation, insurance, real estate and business services industry reported an annual increase of 51 000 employees (growth of 2.9 per cent) in June 2011 compared to June 2010. There was a quarterly increase of 22 000 employees (an increase of 1.2 per cent) in June 2011 compared to March 2011. 2. Gross earnings paid to employees in the financial intermediation, insurance, real estate and business services industry reflected an annual increase of R5 694 million (an increase of 7.8 per cent) for the quarter ended June 2011 compared to the quarter ended June 2010. There was a quarterly decrease of R1 751 million (a decrease of 2.2 per cent) for the quarter ended June 2011 compared to the quarter ended March 2011. The estimated average salary for employees in the financial intermediation,

“When pressed on whether their salary compensated for the amount of stress they were under, the majority of respondents, 72.3 per cent, said no.” 000 or less. Only 6.5 per cent of those who took part earned over R1 million a year. A total of 247 people working in the financial services industry have taken part in our survey at the time of going to print. Of those who took part, 36.6 per cent work for an insurance company, while 64.3 per cent worked for a brokerage. The rest work in other fields within the financial services industry. We will keep updating that figure on our website, www. risksa.com, as we collate more results. Other positive news included the fact that 77.5 per cent of participants were actually satisfied working in the field they were in. Only 23 per cent said they were unhappy in their jobs. However, when respondents were asked if they felt that executives in the industry were being paid too much, the majority 64.6 per cent said they were. Only 35.4 per cent felt they were being paid a fair amount. Even though the majority of respondents were pleased to be working for their current employer there were quite a few (40.3 per cent) who admitted they were thinking about leaving their job for a better salary. But the majority, 59.7 per cent, said they would remain where they are currently working. Burn out warning

insurance, real estate and business services industry is a mere R13 418 a month (including bonuses and overtime payments). The industry was outperformed, as far as average salaries were concerned, by three others: electricity, gas and water supply; transport, storage and communication; and community, social and personal services. Levelling the playing field

Worryingly, many respondents admitted to suffering from job-related stress; 48 per cent said they were periodically stressed, while 38.3 per cent said they were very stressed. Only seven per cent said their job was not very stressful, while 8.2 per cent said their working conditions were mildly stressful. When pressed on whether their salary compensated for the amount of stress they were under, the majority of respondents, 72.8 per cent, said no. Only 27.2 per cent of participants thought that their salary compensated for the amount of pressure they were under.

RISKSA’s own salary survey for 2011 has shown that only 38 per cent of people working in the insurance industry are satisfied with their salary. A whopping 62.8 per cent were not content. That said the overwhelming unemployment rates create a disease in those employed.

Overall, the survey made for some very interesting reading. We found that 64 per cent of participants were female, while the rest were male – perhaps the ladies are keener on doing surveys than the men, but we stand to be corrected.

The majority of the participants of the RISKSA survey (40 per cent) are earning above the minimum wage, between R100 000 and R300 000 per annum. This was followed by 22 per cent earning between R300 000 and R500 000; 16.3 per cent earning between R500 000 and R1 million and 15.5 per cent earning R100

There were some surprises in the data. One CEO admitted to being unhappy with what they were being paid even though they were getting between R500 000 and R1 million. Of course, when asked, they did not provide a response to the question of whether executives were getting paid too much. Another

CEO said they were happy with what they were being paid but then said they didn’t think executives were paid enough. We’ve decided to put these interesting responses and more up on our website www.risksa.com. Again, names and companies have been withheld as promised. Beware the brain drain The RISKSA 2011 salary survey revealed that people working in the financial services industry are suffering from too much stress. While some have said that they are currently happy working where they are, it could only be matter of time before it gets too much. While employers are now at an advantage with jobs hard to come by and confidence at a low, there could be a danger of people looking further afield for employment, particularly in other countries that are crying out for experts in insurance. It’s clear that for now, employees will suffer poor working conditions and insufficient remuneration to avoid becoming an unemployment statistic. Certainly this imbalance needs to be combatted from both sides. Fair remuneration for executives and sustainable job creation will equal the playing field. In his address to NEDLAC, deputy president Motlanthe, also said: “I believe that working together as partners we can do more to answer some of these challenges through incrementally building a pool of skills, know-how and knowledge base needed by the South African economy. We will look to you to work together with government to answer the difficult question about how to achieve an increase in the participation rate and how to better utilise and empower our labour. As we develop this work, we are certain that all stakeholders will be prepared to rise above partial interests and will place constructive and shared solutions that are in the public interest on the table.” We certainly hope that this is not just more empty words and powerful people passing the proverbial buck. Instilling a culture of a willingness to work can only be the product of fairness across the board. Hopefully, the financial services industry will not wait for government to force it to comply. Reading RISKSA statistics alone should be enough to make the industry take action.

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How to excel at the workplace P

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assing the regulatory exam is crucial, but what other qualifications can dramatically advance a career in financial services? Elvorne Palmer asks human resource managers and individuals in senior management at various insurance companies and brokerages what they look for when hiring at entry-level, middle management and executive level.

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â&#x20AC;&#x153;At times, the pressure can be on right from the start. The new employee is allowed six years to complete their qualification, but we definitely want to see them get their level one completed within the first two to three years.â&#x20AC;?

BB graduate, internship and learnership programmes. The minimum requirement needed to join M&F is matric. “Even individuals in back office support need to have matriculated,” Smith said. “Criteria for graduates and interns might be somewhat different, but particularly through our learnership programmes we employ new representatives that show promise – even if they have only a senior certificate. We have our own in-house training academy (the M&F Insurance Academy), accredited by Insurance Sector Education and Training Authority (INSETA), that runs training and skills programmes to ensure that new employees get the qualification they need to comply with the FAIS Act.” New representatives appointed post-2010 need to have at least one years experience and pass both the regulatory exams – over and above obtaining a full qualification in order to be compliant. At the M&F Insurance Academy the qualification is offered as an extensive eight-week course, while the required experience is gained while working under the supervision of M&F. “This forms part of our Earn as you Learn campaign,” said Smith. A generic business qualification and some experience is what the Garrun Group Insurance Brokers look for, according to director Cliff Garrun. “When we look at potential representatives, having a commerce degree (BCom) would be impressive because I believe that academic qualification trains the mind. But there’s often no replacement for experience. Our ideal candidate will have experience and a qualification – even if they are still working toward completing it.” Darelle Smit, owner-operator of Zilwer-Sure Brokers agrees that a national senior certificate is essential for entering the industry as a broker. “We will employ an individual with matric to work under supervision and then support them in attaining their qualification.”

Lana Mizen, executive director of BnB Sure, a UMA which specialises in covering bed and breakfasts and guesthouses, said that she expects any person who applies for a job with them to have obtained their national senior certificate (matric). “We will take on new employees at entry-level if they have matric because the Financial Services Board (FSB) allows them to work under supervision while studying toward an insurance qualification. We will usually focus on evaluating the individual and select those who show potential. We want to employ people who can work accurately and show enthusiasm for the industry, who aren’t just plodding along every day.” Once the ideal candidate has been selected, they can start working (under supervision) to gradually gain the experience that will count towards their level one regulatory examination. Mizen said that they will then continually measure the new person’s work performance and assist them in getting the necessary qualifications. Support will also be given through the various stages of their development through the ranks and their drive into areas of expertise. At times, the pressure can be on right from the start. “The new employee is allowed six years to complete their qualification, but we definitely want to see them get their level one completed within the first two to three years,” Mizen added. For Athol Fairley, owner and operator of Infinity Insurance Brokers in Roodepoort, experience in dealing with clients is vital when considering a new employee. “I look for someone with at least two to three years’ experience in the insurance industry,” he said. “I am not as impressed by qualifications – except those required by the Financial Advisory and Intermediary Services (FAIS) Act – as I am with how a broker deals with people. How he or she interacts with the client is of utmost importance.” Hannes Smith, group manager of human capital development at Mutual and Federal (M&F), said that it identifies and recruits new candidates mainly through

Fast track your career What can new employees do to ensure progress in their career? “We take in new candidates and train them inhouse,” Hannes Smith said, “but remember that they have to work under supervision until they have completed the full qualification and the regulatory exams. This impacts on productivity, because the employee’s work needs to be supervised.” In Smith’s opinion, it’s vital that the new representative becomes competent and qualified to work without supervision as soon as possible. “If a representative needs one year’s experience to qualify, it would be ideal if the employee can also complete the skills and academic (exam) section in that first year. That is the kind of turnaround time that will make an employee an asset to our company.”

In the middle Smit feels that smaller brokerages have a unique need. Having a supervisor with key individual (KI) qualification is imperative. However, it is dangerous to have only one person qualified as a KI. “Having more than one key individual in a brokerage is very important to ensure contingency. That is why one of my staff has also written

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the KI examination. Where the brokerage has only one KI and the KI becomes incapable to perform their duties in terms of the FAIS Act a new KI will have to be appointed and authorised by the FSB. The brokerage is not allowed to perform any regulated function until the new KI is approved.” While companies with numerous employees will most likely have several individuals – often at senior level – with the KI qualification among their staff, smaller companies don’t have that luxury. Often the owner manages the business and supervises staff, meaning the lines between middle and senior management are a bit blurred. “It’s advisable that the owner or operator has a KI qualification, and then employ a KI in middle management,” added Smit. “When employing individuals into middle management, brokers will likely prefer persons who have already completed at least the first level regulatory examination for KIs. This is because management experience is a prerequisite to meet the competence requirements for a KI.” Smith said that M&F requires middle- to senior level management to have either a solid background in financial services or extensive insurance experience depending on the nature of their role. “We place more emphasis on insurance qualifications at National Qualifications Framework (NQF) level five, six or seven for our core insurance positions, while an appropriate line of business qualification (HR, IT, finance) will be more appropriate for such positions in support functions,” he said.

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“We want to employ people who can work accurately and show enthusiasm for the industry, who aren’t just plodding along every day.” According to the INSETA website, NQF level five qualifications currently registered with the South African Qualifications Authority are national diplomas or certificates in long-term risk assessment, short-term insurance and wealth management. They are obtainable from any number of INSETAaccredited learning provider institutions. One way of getting into middle management is to wait it out, get as much experience and hope that someone notices talent and dedication. M&F said it promotes internally. “We will often identify candidates inside the company for middle to senior management. In such cases we would have them participate in applied academic training programmes at the University of Stellenbosch Business School,” Smith said. Getting to the top Garrun highlighted the potential need for brokers to start employing compliance officers. This could present candidates wanting to secure a position in management a unique opportunity. “Compliant with the Consumer Protection Act (CPA) is going to become more important in the future. You

2170 SSP RiskSA1.pdf

could hire someone at mid-level and train them, but nowadays it’s advisable to have a compliance officer at executive level as well. This means that there should be plenty of great prospects in the future for candidates with a BCom and a bachelor of law (LLB) or any other recognised legal qualification,” he said.

ex perience in dealing with clients is vital for some when considering a new employee.

2011/10/11

Bright ideas mean growth at every level of your business

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“We operate in a very niche market so BnB Sure will almost always look to promote people to top management internally. Our company deals in insurance, but we are also very passionate about the hospitality industry – our cover and products are driven by the needs of bed and breakfasts and guesthouses. This unique company culture means we will seldom look to employ from outside the company,” said Mizen. Employing highly qualified individuals with experience in running a company is common practice among insurance companies but, for BnB Sure, it’s not that crucial. Smith said that it’s traditionally individuals with between 10 and 15 years of experience in senior management roles within the financial services sector who don the robes of executive management at M&F. “I’d suggest to anyone wanting to become an executive officer at our company to complete their masters level qualification and gain some experience in running a company in the finance sector. They wouldn’t necessarily need experience in running an insurance company, but at least some experience in top-level management of a reputable company in the financial industry.”

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2170 TheCheeseHasMoved

“In a corporate environment, companies will likely look at hiring a CA for the finance department and an actuary to run the department that manages the company’s risk or even reinsurance,” Garrun added.

4:14 PM

he introduction of the micro-insurance regulatory framework heralds the start of an exciting period in the South African insurance industry. An entire sector of society which has, to date, been largely excluded by prohibitively high premiums will soon have access to insurance products to suit their pocket. Prospective micro-insurers should do their homework now to make sure theyâ&#x20AC;&#x2122;re ahead of the competition.

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A key obstacle which has been identified is the difficulty in gaining a community’s trust in the value of a micro-insurance product in comparison to micro-loans. While a micro-loan provides an instant cash benefit, micro-insurance promises a benefit (which may be in cash or in kind) on the happening of an insured event, which may never happen.

Although prospective micro-insurers have time on their side (the proposed regulatory regime is not expected to become law before 2013), plans to pierce this untapped market should be laid well in advance.

uth

The crucial question, of course, is how these ideals are going to be achieved. Lessons can be learned from other developing nations in Asia and areas of Africa where micro-insurance products are breaking their own ground.

Micro-insurers should ensure there are sufficient measures in place to assess and pay out valid claims within a short period. This will be especially important in the short term, when insurers face the tough task of providing value for the micro-insured’s money.

The framework aims to extend formal insurance products to lowincome homes, to promote small business and their development by establishing a formal structure (currently micro-insurance providers are informal and unregulated), strengthening consumer protection by educating consumers, supervising the implementation of the legislation and enforcing the various penalties.

The real test will come when micro-insurers are called on to cover any eventuating insured loss, particularly if this loss impacts on the larger community. A burnt pot that ignites may cause damage to one suburban kitchen or home enjoying traditional cover, but in the micro-insurance context it could destroy an entire informal settlement.

1. Risk only. The current proposal is that only risk benefits with no surrender value will be considered as micro-insurance. 2. Policy benefits to be defined on a first loss or sum assured basis (first loss insurance providing defined benefits at determinable times) rather than indemnity insurance which provides benefits according to the value of actual loss. 3. Current proposals for defined benefit caps are that life and in-life products (such as a disability or retrenchment policy) be capped at R50 000 each and asset products be capped at R100 000. 4. Maximum contract periods of 12 months, automatically renewable, are suggested. 5. Selective non-renewal of group policies will be prohibited. If insurers don’t accept the level of risk, they must refuse renewal of the entire group or increase the entire group’s premiums, on three months’ notice. 6. An actuarial technician must sign off on initial pricing and subsequent changes, based on verifiable risk considerations. 7. A discretionary basis for underwriting will allow insurers to underwrite policies as they deem appropriate, which will most likely be on a group basis. The provisions relating to binder agreements under existing insurance legislation will also apply to micro-insurers. 8. The option to claim monetary benefits when a benefit is offered in-kind must be clearly disclosed at policy inception, although the choice between monetary and in-kind benefits may be made at claims stage.

Rather than listing specific product types which qualify as microinsurance, a features-based approach has been adopted. The following features and standards have been identified:

“The crucial question, of course, is how these ideals are going to be achieved. Lessons can be learned from other developing nations in Asia and areas of Africa where micro-insurance products are breaking their own ground.”

(as

The framework document proposes a micro-insurance licence which is to be widely available to public and private companies, and to co-operatives.

Insurers looking to tap into this market should focus their product offerings on risks which have a greater likelihood of materialising and which are tailored to a specific community. A global insurer offering micro-insurance to farm workers and villagers in rural communities along the Indian coast sells policies covering the risk of accident, death and fire (fairly standard insurance cover), and goes further to include an education allowance, funeral expenses in the event of a fatal accident and hospital cash.

Lau re n Ken t

In July 2011, the government published the South African MicroInsurance Regulatory Framework. The proposed framework targets lower income South Africans and their ability to access insurance and consumer protection. The features of the micro-insurance market that are highlighted as requiring urgent attention include strengthening consumer protection and providing better access for low-income consumers to affordable, simplified and easyto-understand insurance products that meet their risk needs. Insurance products are to be simplified and designed in a way which supports improved understanding by consumers of the insurance market and their products.

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TCF – the way forward

reating Customers Fairly (TCF) is outcomes-based, as opposed to rules-based. Six outcomes have been formulated that enable firms, and the regulator, to know that customers are being treated fairly. This type of regulation requires companies to be able to demonstrate their commitment to broad principles over and above compliance with any applicable detailed rules. As such, logic says it should require less, not more supervision, but the reverse is true, said Leanne Jackson, head of Treating Customers Fairly at the FSB. “An important lesson learned from implementing TCF in the UK is that, sadly, in some cases visible enforcement was the only thing that really ensured that delivery of the outcomes was taken seriously.” Jackson addressed delegates at the recent 12th Annual Conference of the Compliance Institute of South Africa and said that TCF would require the regulator to be more proactive in identifying emerging conduct risks, both in terms of industry-wide issues and issues at individual companies that could lead to market conduct concerns. This means a more pre-emptive, intensive and intrusive supervisory framework is in store if the Treating Customers Fairly programme is to be successful. The regulator will also have to ensure that staff members are sufficiently skilled to grasp TCF issues in all sectors of the industry. The same applies to compliance professionals, who will need to know the businesses they support well enough to grasp the conduct risks they face and contribute meaningfully to embedding a TCF culture, Jackson said. The programme requires companies to treat customers fairly throughout the product life cycle, from product design and promotion, through advice and servicing, to complaints and claims handling. As such, service providers should prepare

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themselves for what lies in store. “We are developing new reporting requirements as well as new approaches to on-site and off-site supervision to enable us to monitor TCF and identify emerging conduct risks,” Jackson said. The good news is that a pilot project is underway to improve selfassessment tools for firms to gauge their success in achieving the TCF outcomes. “We will also find appropriate TCF measures that can be put out by the regulator in the public domain. This will be done with great care so that firms are treated fairly while, at the same time, ensuring that consumers are given a correct assessment. We wouldn’t want to give customers either a false sense of security or unwarranted poor perceptions about customer treatment in a given organisation.” Naming and shaming will therefore be one of the less palatable mechanisms used to enforce TCF. “We believe that a public pressure mechanism will help with implementation and act as both an incentive and a deterrent.” She said that the FSB would also look at new forms of off-site supervision such as mystery shopping, scrutinising issues raised in the media more carefully, and finding better ways to evaluate the information coming from industry ombudsmen. “We’ll be looking at broader sources of information to gain more direct insight,” Jackson said. TCF is a Financial Services Board (FSB) initiative to improve the levels of fairness in the conduct of financial services businesses. Similar to a programme which was implemented in the United Kingdom, the FSB’s Treating Customers Fairly initiative

forms part of its mandate from the National Treasury to enhance market conduct. The FSB has committed itself to find ways to intervene pre-emptively if it detects unfair customer treatment in an organisation. It will also ensure that firms are able to identify risks that are occurring so they can take action proactively and engage the regulator, if appropriate, as South Africa enters this new era in financial services service delivery.

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Intermediaries

s there a future for short-term insurance intermediaries? To put it into perspective, you can equate this to asking if taxis will be replaced by the Gautrain If you have ever had the spine-chilling pleasure of commuting on Rissik Street at 07h30 in the morning, then you will know the answer to this question. The direct solution will never completely replace the smaller indirect methods. In the beginning of short-term insurance in South Africa, almost anyone with some capital and the minimum credits could become a broker. For our veteran brokers, who believe in the methodology and understand the products, the relationship with their customers became the cornerstone of their businesses. They became the custodians of policyholdersâ&#x20AC;&#x2122; interests, always looking out for them and striving to provide them with the best service. There is an undeniable value in knowing that your risks are in the hands

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can never be replaced

of a professional who understands all the aspects when underwriting a risk. There will always be loyal clients who have had a relationship with their broker since the date they received their first paycheck. Then there were the cowboys; those brokers who took what they could without considering the full impact of their conduct. Such individuals often had very few credits and did not fully understand the responsibility that they carried to provide the client with the best cover at the best premium at the best (and worst) of times. Unfortunately, the misbehaviour of such brokers damaged the good brokerâ&#x20AC;&#x2122;s reputation with the public and the ombudsman. This has changed over the years through legislation and the requirements of regulatory examinations to ensure the policyholder is protected against unethical conduct. The industry has evolved to ensure the sustainability of the smaller

intermediaries, not to limit them or try and put them out of business. If conduct is not handled in an ethical manner, there will be no integrity left in the market and soon, this will result in direct insurers dominating the market simply because intermediaries are not qualified enough to work with the public. Although there was some initial resistance to the recent implementation of the regulatory examinations, we believe that in time, brokers will prosper and benefit from their expanded knowledge base and understanding of the Insurance Act. Policyholders crave individual attention and are willing to put their trust in the hands of a broker who knows what they are doing and fully understands the Insurance Act if applied correctly. The knowledge attained from these examinations will ensure that the smaller short-term insurance intermediary will remain an irreplaceable link within the larger cycle of insurance.

Manage your risk and avoid a crisis by I a n M i d d l e to n, m a n ag i n g d i r e c to r o f M a s t h e a d

ears of unrestrained spending, cheap lending and failure to implement financial reforms left Greece badly exposed in the global economic downturn. The lesson independent financial advisers can learn from this is to identify the risks in your business now and take the appropriate measures to ensure your practice is robust enough to survive and thrive in tough times. Risk management focuses on recognising what could go wrong, evaluating which risks to manage, and implementing strategies to deal with those risks. Businesses which have undergone this process are better prepared and have a more cost-effective way of dealing with risks. To identify risks, you’ll need to look at the key areas of your business and finances. Typical risks may include compliance, employee, operational, economic, strategic and financial risk, the latter being associated with your business’

financial structure, systems and types of income. Determining the extent of your financial risk involves analysing your daily financial operations. Regularly compare your actual figures with your forecasts and budget and watch for any warning signs or changes in market conditions that may require further monitoring. Figures that drastically differ from your forecasts may indicate an increase in risk due to greater competitor activity, new entrants in the market, industry or legislative changes that are influencing the demand for your products or services or the start of a new trend. If your actual figures vary significantly, and you’ve ruled out that it’s not due to a onceoff or seasonal anomaly, it’s vital to respond quickly and revise your business plans if necessary. You can also determine the extent of your financial risk by analysing your cash flow. For instance, your cash flow figures will indicate if your business is too dependent on a single client, the loss of whom would considerably impact your business’ viability. Or they may reflect a heavy reliance on commission. The sooner you identify a potential problem, the more time you have to implement a solution. Once you have identified all your risks, you can evaluate them to determine the significance of each and how to deal with them. To do this, rate the consequence and probability of each risk as high, medium or low. By comparing these results with your business plan, you can determine which risks may affect

your objectives. You can then direct your efforts, time and money to manage the most important risks. To manage a risk, you can accept it, transfer it, reduce it or eliminate it. Where the cost of mitigating a potential risk is extremely high, doing nothing about it sometimes makes more business sense. Alternatively, you could transfer the risk, which is typically done through insurance such as professional indemnity cover. Or you could reduce a risk or eliminate it completely, for instance, by revising your processes. Risk management is not a once-off application. Ongoing monitoring and reviewing are essential for your risk management approach to succeed. Checking ensures that risks have been correctly identified and assessed and relevant controls are in place. It is also a valuable way to learn from experience and constantly improve your risk management approach. Masthead assists advisers to manage their risks in several ways. As the adviser’s adviser, we offer the support and services to identify, evaluate and help our members to manage their risks. We also offer advisers the opportunity to operate under a master licence, where Masthead Financial Planning assumes the key individual responsibilities. To find out more about how good risk management can improve the quality and returns of your business, please contact your nearest Masthead regional consultant or visit www.masthead.co.za.

Fool-proofed with Insurance Bootcamp’s crime and accident seminar

n the current socio-economic climate all types of commercial and corporate entities face greater risk. This is supported by the industry’s own statistics and highlighted by the daily media reports regarding the escalation of crime and violence.

In an environment where criminals are becoming more innovative, a great deal of care is exercised by insurers in the selection of risks and the application of underwriting principles. The management of risk has placed a far greater responsibility on the insured in relation to an insurer’s requirements. Consequently, the insured is obliged to do much more to minimise risks and develop a better appreciation and understanding of safety and security within the workplace. Insurance Bootcamp brings you a seminar examining some of

the common trends and mistakes that lead to increased risk, various types of commercial fraud, preventative methods and the frequency of specific claims, to name a few. The seminar will also feature a brief discussion on the need for personal accident insurance as a result of changes to the Road Accident Fund (RAF) and particularly how to cover shortfalls due to such changes in legislation. Panel The panel will be comprised of two directors from the Proloss Group, one of the largest locally-owned loss adjusting companies in South Africa, Grant Cooper and Paul North. Manager of Delphisure Insurance Brokers, Ralph Clapham, and Jorrie Jordaan, manager of Mutual & Federal’s Specialist Investigation Unit for the Western and Eastern Cape, will also be sharing insights into this topic.

Insurance Bootcamp: Crime and accident Date and time: Thursday, 17 November 2011 from 09h00 to 12h00 (refreshments will be served prior to the seminar) Cost: R200 for FIA/IICOGH members and R750 for non-members Venue: Manhattan Conferencing and Suites, Manhattan Towers, Esplanade Road, Century City, Cape Town It is imperative to book well in advance as space is limited and these seminars are very well attended. Contact Linda Gouverneur on linda@fia.org.za or call the FIA office on (012) 685 0297 for more information.

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PICK A TEAM TO BUILD YOUR BRAND “You don’t build it for yourself. You know what people want and you build it for them.” - Walt Disney

package – their personal growth needs to be part of your offering.

iring people to work with or for you is a process that should be considered as one of the most vital in brand-building. It is essential that you employ the best people and treat them with respect. Every individual in an organisation, if they can see their purpose and realise personal development, they will be productive in the process of building a good company brand. Every individual in your organisation is a marketing mouthpiece for your brand so ensure that each and every person conveys the same, positive message.

The working landscape has changed so drastically and often the more established leaders (older) find it difficult to harness the energies of a younger work force. I have found it vital to employ bright, young minds in my business to keep me on my toes and abreast of current developments and trends, and I have enjoyed the opportunity of being able to mentor them in the workplace, to share experience and to encourage them on their career paths. You have to remember that in getting people to work with and for you, you need to create synergistic relationships. Know that the youth like instant gratification, speed, ease of engagement, they want to build their self-esteem and are socially conscious. You will need to provide challenges, stimulation, flexibility and responsibility. Appropriate rewards such as recognition, adequate remuneration and significance are part of the mix. You are always employing a

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You will need to: • Give feedback and affirmation by telling them how you regard their work. An informal chat may suffice, or a regular weekly, monthly or quarterly evaluation. A pat on the back is often more effective than a slap half a metre lower. • Allow them to have a work/life balance – know that you employ a whole package and that their stresses and strains will impact on their work. Try to allow your team to have time to exercise and keep healthy. The workplace which encourages healthy lifestyles sees the benefits in productivity and reduced absenteeism. • Provide a platform for building their skills and their brand. • Let them become ‘intrapreneurs’, give them adequate responsibility so that they develop a sense of ownership. • Allow them to express their opinions and, if necessary, guide them in an appropriate manner to do so. • Provide a fun, creative environment. • Earn their respect, do not demand it. This is done by always managing your own brand with the highest level of commitment and excellence. Lead by example. Give of yourself, your time and expertise. • Empower new recruits with adequate challenge and responsibility. Reward it when well done. • Ensure that there is a cultural fit – good synergy between the individual and your brand. Allow the right people onto the bus and get the wrong people off at the next stop. You cannot carry unnecessary passengers who do not buy into your brand. • Hire and harness for will, not skill.

Know what you are looking for when you are growing your team. A secure leader is secure enough to appoint to their weakness; in fact it is a good opportunity to identify your blind spots and fill them. Ultimately that will assist you in presenting a good, solid working brand to the world. Most importantly, treat staff, customers and suppliers with equal courtesy and respect.

Jenny Handley is a brand specialist and owner of a brand and performance management company. She owned a successful PR company for 17 years, and worked on a variety of diverse brands from high quality products to high profile people. 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 and leaders and entrepreneurs, based on her book Raise your Profile. Jenny facilitates brand and performance management, leadership development and communication workshops. She has her own weekly column in the Cape Times. Visit www.jennyhandley.co.za for details.

OVER 10 PER CENT OF J O B AP P LI C A N T S N O W HAVE C RI MI NAL REC ORD Managing Director: EMPS (PTY) LTD | (011) 678-0807 kirstenh@emps.co.za | Visit www.emps.co.za

s South Africaâ&#x20AC;&#x2122;s oldest screening and vetting company, EMPS can certainly be trusted when it says that 2011 saw the biggest transition the South African pre-employment screening industry has seen since the 80s. On 30 June 2011, criminal checking as most human resource professionals and recruiters know it, was officially switched-off. The wellknown criminal name/ID check was discontinued, making fingerprint checking (via AFIS or paper-based), the only legal means of checking job applicants criminal records. The industry as a whole has known about this looming change since 2007, the actual time that it would happen was the unknown. Having studied the statistics and compared the different checks over the past three years, EMPS anticipated a dramatic increase in the number of criminal records picked up in the screening process once this change took place. We know that the well-known name/ID check was getting less and less reliable over the past three years. 2010 saw an all-time low of four per cent of job applicants with criminal records, using name/ID checks. According to EMPS statistics, the first two months, July and August 2011, of official fingerprint checking picked up over 10 per cent of job applicants with criminal records, across a broad spectrum of industries. The security industry showed a trend of closer to 13 per cent and both retail industry and merchandising staff around nine per cent. It goes without saying that the new criminal checking process is more costly, itâ&#x20AC;&#x2122;s an operational challenge for companies who have a large national base, and generally it has made screening much more difficult for many companies. But, when it comes to risk and proper due diligence when employing, the statistics speak for themselves, with one in 10 job applicants having some kind of criminal conviction, can anyone afford not to do it?

In tough tImes,focus on value Esmé Davies | Head of Celestis Practice Management

hen times are tough, the leaders turn out to be those who focus on value. I recently read an article on selling ‘value’ by Richard Ruff and Janet Spirer while visiting one of my favourite on-line sources, The CEO Refresher. Like them, I believe that the concept of value may have gotten lost amongst all the sales hype of modern marketing. In their article, they discuss three critical points on value and I would like to do the same. Given the difference in the markets we’re addressing, however, my critical points differ from theirs. Nonetheless, for many of us, developing a value proposition requires a change to our normal way of thinking. These, then, are my key points for sound value propositions: Products and services do not provide value This is most probably the point that is misunderstood by most. Products and services offer features and benefits. However, value is not determined by a list of benefits but by the extent to which the offer meets my expectations. Offer me what I want and I will consider your proposition valuable. Exceed my expectations and I’m likely to be delighted with your proposal. The lesson: no

matter how many benefits your product or service has to offer, unless they correspond to my needs, I’m unlikely to rate them as valuable.

“OFFER ME WHAT I WANT ANd I WILL CONSIdER yOuR PROPOSITION vALuAbLE. ExCEEd My ExPECTATIONS ANd I’M LIkELy TO bE dELIGHTEd WITH yOuR PROPOSAL.” Value is person-specific In a way this heading is a bit of a misnomer because it suggests that everyone requires a tailored value proposition. Not quite true, but the important thing is that a single value proposition will not apply to everyone. For example, what are the financial requirements of a 55-year-old male who is contemplating early retirement? Now consider a 30-something single mother of two whose children are about to enter senior high school and university. (Okay, so I may have been a little generous with the lady’s age.)

Quite clearly these two prospective clients have very different requirements and will be attracted by different value propositions. The lesson: to develop appealing value propositions, understand the needs of your potential clients and develop separate proposals for the different segments of your market. Value is not constant Change is a natural phenomenon and affects us all. At 20 my biggest concern was the location of the Friday night party, but 10 years later I was more worried about whether a particular movie would be available at the video store. From an outgoing, care-free youngster to a stay-at-home, considerate parent in 10 years – a radical change in lifestyles and an equally sweeping change in financial requirements. The lesson: people’s lifestyles change as they age and with these transformations come new priorities and different requirements. Consequently, evolving value propositions will be required. In these times, a little reinvention goes a long way. Take that personally and look at how you can change yourself or how you do business. Choose your favourite client and imagine what you would say to him/her for the first time – but knowing what you do about that person. From that, build a value proposition and then take a look at who you can try it out on.

news Mutual & Federal supports NERPO

“We are proud to be associated with NERPO and the re-emergence of tribal farming communities who have shown great resilience during a history of marginalisation,” Peter Todd, managing director of Mutual & Federal (M&F) told National Emergent Red Meat Producers’ Organisation’s (NERPO) members at its 14th Annual General Meeting. He added that M&F has supported NERPO initiatives in the past, and would continue to do so. M&F also believes in the spirit of the Financial Sector Charter (FSC) and that it can make a difference in an environment that is underinsured and has high unemployment levels. “This begins with educating communities on financial and insurance matters, something we are pursuing in association with the South African Insurance Association (SAIA),” Todd said. The M&F new markets team develops black brokers with knowledge of the black market to enable communities to access financial and insurance services. The objective is to develop aspiring sales people into fully fledged and accredited insurance intermediaries for the industry. Once developed, these aspirant brokers return to their communities and sell insurance products in relevant languages. Referring to the insurer’s commitment to improving the lives of emerging farmers, Todd told NERPO members of a number of recent projects. “In conjunction with the Department of Agriculture in the Eastern Cape, Mbhashe area, M&F renovated dilapidated dipping tanks and built new ones. We also donated generators to extract used and dirty water, and trained dipping tanks’ foremen on the importance of risk management and continuously dipping livestock to prevent animal sicknesses.” The insurer also helped farmers with the tagging and branding of livestock for ease of identification and livestock management, with group companies Old Mutual and Nedbank, setting up ‘green shops’ in areas where access to financial services and products was a problem. “We developed a livestock product to insure livestock for aspirant farmers at an affordable rate,” said Todd. “This is a market first in South Africa.”

AON SA to sell stake to black investors

Risk management and insurance broking firm, Aon South Africa, which bought Glenrand MIB last year, has recently indicated that it would sell a 25.1 per cent stake to the Vurhonga Consortium in a black economic-empowerment transaction. Vurhonga Consortium comprises the Tamela Consortium and Precious Prospects, a women’s group. Aon South Africa chairperson and CEO, Anton Roux, said the deal was a positive move towards broad-based empowerment, particularly with the strong female ownership within the consortium. Roux said transformation would continue to play an important part of the company’s growth strategy in South Africa. He said the company would continue to target strong growth in the public and corporate sectors. Vurhonga Consortium chairperson, Vusi Mahlangu, was pleased to pursue new growth areas after a period of acquisitive growth in the country. At time of going to print it was expected that the transaction would be concluded by the end of October. Aon South Africa has engaged in a strong growth strategy in recent years, in which it has acquired QED Actuaries and Consultants, Shield Financial Services, Heritage Insurance Brokers, Pennant and Pinion Insurance Brokers and more recently, Glenrand MIB. During 2012, a portion of the shareholding that Vurhonga Consortium will hold, representing three per cent of the common equity in Aon, is to be allocated to an employee share ownership scheme including historically disadvantaged Aon employees, further enhancing the far-reaching effects of the transaction. Aon South Africa currently employs more than 1 500 people in its 17 offices in South Africa, and over 2 000 people in Africa. Precious Prospects’ chairperson, Dr Namane Magau, will resign from her position on the Santam board before joining the board of Aon South Africa; Vurhonga Consortium’s Makole Maponya and Mahlangu will serve as its representatives on the board of Aon South Africa.

Above: Peter Todd and Aggrey Mahanjana, chairman of NERPO.

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Fourth consecutive award for Old Mutual Old Mutual has been voted the best customer service organisation in the long-term insurance sector in South Africa for the fourth consecutive year, as announced at the 2011 Ask Afrika Orange Index Awards conference in October. The Ask Afrika Orange Index has developed into a respected, independent measurement that has set the benchmark for South Africa’s service companies for a number of years. “Winning this prestigious award for the fourth time in a row is a fantastic vote of confidence from our customers,” said Rose Keanly, managing director of Old Mutual service, technology and administration. “It’s a strong indicator that customers are appreciating our strengthened customer focus and culture.” Customer feedback directly influences and shapes the design of services and products at Old Mutual. New products that were created in response to market demand include iWyze short-term insurance, the Easy Benefit Plan (an umbrella fund) and My Money Plan (which consolidates debt). “It is a privilege for us to salute Old Mutual on its commitment to service excellence and the solid contribution it is making to our country by being one of our recognised service champions, making South Africa a service destination,” said Sarina de Beer, Ask Afrika Orange Index managing director. Apart from being voted best in the long-term insurance sector, Old Mutual also moved up from 35th to 11th position across the 99 companies in all service industries in the survey. The next best long-term insurer came 45th.

Heloise van der Mescht (right) accepting the Ask Afrika Orange Index® award in Johannesburg on 4 October 2011 from Andrea Rademeyer of Ask Afrika (left).

SCOR retains title as best global reinsurer SCOR received three awards at the prestigious Global Awards 2011, run by Reactions magazine in New York. For the second year in a row, SCOR was elected Best Global Reinsurance Company by the global panel of insurance and reinsurance professionals who judge the Global Awards. SCOR was also elected Best Global Reinsurance Company for Life this year, and received a further award for the Best Capital Raising Initiative. These awards salute the group’s momentum and capacity for innovation, notably illustrated in life reinsurance by the acquisition of the mortality portfolio of Transamerica Re, and in the capital protection field by the implementation of the first contingent capital facility. These awards are the latest in a series of distinctions obtained by the group, which have recently included the title of Reinsurance Company CEO of the Year awarded to Denis Kessler in June 2011 at the Reactions London Market Awards, and that of Reinsurance CEO of the Year, awarded in September 2011 by Intelligent Insurer magazine. Denis Kessler, chairman and CEO of SCOR, commented: “SCOR is very happy to have received three Global Awards in 2011, including that of Best Global Reinsurance Company, which we have won for the second year running. These distinctions recognise the group’s capacity to follow its strategic orientations and to maintain its momentum, despite a particularly uncertain and difficult environment.”

Compass receives A+ rating Specialist insurer, Compass Insurance, has had its claims paying ability rating reaffirmed at A+ (single A plus) by rating agency Global Credit Ratings (GCR). According to Melanie Brown, managing director at GCR, the rating reflects the fact that Compass receives technical and reinsurance support from its parent company, Hannover Re. “Compass’ prudent investment strategy and sound liquidity metrics were also favourably viewed, as was the fact that solvency will be maintained at a level sufficient to meet domestic regulatory requirements and support its rating.” GCR plays a leading role in assessing the quality and credibility of financial service providers across Africa, and is critical to the company, said Paul Carragher, managing director of Compass Insurance. “We hold this rating in very high regard, as does the rest of the South African insurance industry, as it reflects our commitment to provide excellent security to our policyholders,” Carragher said.

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Hollard wins at World Finance Awards Hollard, one of South Africa’s largest privately owned insurance companies, has been awarded the 2011 World Finance Insurance Company of the Year Award for South Africa. The World Finance Awards are hosted by World Finance magazine, a financial publication based in London. “As a growing global insurer based in South Africa, we are honoured that Hollard has been recognised by World Finance magazine. The win demonstrates Hollard’s success in leading the South African market and creating a significant presence on the international stage”, said Hollard CEO, Nic Kohler. “Our goal is to become a leading global insurer that delivers first rate customer service and innovative insurance solutions. Receiving this kind of recognition is a credit to the great work of our many employees who deliver results that bring us a step closer to that goal every day.” The main criteria in determining the winner are innovation, originality and quality, as well as investment in market development and formation of customer relationships. Shortlisted companies are nominated by the magazine’s extensive readership through an online voting system. An independent panel of judges and analysts then carry out extensive research into the nominated entities before finally selecting the winners. “We already bring insurance solutions to millions of people and businesses around the world. This award gives us the confidence that we are on the right track to become a leading global insurance player,” said Kohler.

Compliance Institute launches compliance risk management plans The Compliance Institute of South Africa has launched a suite of compliance risk management plans (CRMP) to guide companies through important pieces of legislation affecting the way they do business. These CRMPs provide key risk considerations and minimum compliance standards, while focusing users on the concepts of various laws and providing simple, user-friendly action plans. CRMPs are currently available for the Consumer Protection Act (CPA), the Financial Intelligence Centre Act (FICA), the Financial Advisory and Intermediary Services Act (FAIS) and the Public Finance Management Act (for departments and another for national entities). Each CRMP considers all relevant sections, regulations and exemptions related to that law. In November 2011, it is expected that the Compliance Institute will release further CRMPs for the Companies Act (for private companies, public companies and State-owned companies respectively). CRMPs for the Municipal Financial Management Act (municipalities and municipal entities) are expected in February 2012 alongside at least another five relevant CRMPs which have been identified for release in 2012. Developed for the Institute by The Contemporary Gazette, the CRMPs represent the next steps in the Compliance Institute’s efforts to help companies better manage their compliance obligations. They build on the Generally Accepted Compliance Practice (GACP) framework, which, since its launch in 2009, has become the gold standard of best compliance practice. The CRMPs consider the relationship with all other relevant laws, and all references to definitions, related acts, sections, and regulations are hyperlinked to the appropriate text of the reference law to allow for source information and quality checking. “The purpose of the CRMPs is to guide users through a particular law with understandable actions for consideration that focus on the key concepts of that law,” said Julie Methven, CEO of the Compliance Institute. “Users then apply their own thinking, based on their specific sector and company circumstances, when responding to each risk rating, control and target dates applicable to each action item.” The plans are divided into only 10 questions per category to avoid information fatigue and ensure the user remains focused on the category at hand. Because they were created with simplicity in mind, the CRMPS can be used by anyone with general business experience. They can also be easily adapted to the needs of different sizes of companies with different approaches to compliance.

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BB SSP acquisition enhances its capabilities SSP, a global provider of insurance technology, has acquired part of its South African sales and implementation partner, Business Edge, with whom it has worked closely over a number of years.

Indwe streamlines administration Indwe Risk Services and SSP have announced that they have extended their partnership. SSP will assist short-term insurer Indwe with a comprehensive insurance policy administration solution to consolidate several disparate administration systems into one. As one of the leading national short-term insurance brokers for corporate, commercial and industrial and personal lines, Indwe Risk Services distributes a wide range of products and services from all of South Africa’s best known insurers and underwriters. The company currently has more than 30 offices across South Africa, as well as a national contact centre in Gauteng. Although Indwe has ambitious plans for growth, its reliance on a number of different legacy administration systems to run its key business processes was making it difficult for the company to develop and expand. By integrating SSP’s hosted managed service solution into its new services-oriented architecture (SOA), Indwe is taking a very innovative approach to its technology infrastructure. “Our objective has always been to empower knowledgeable employees with world-class infrastructure and solutions in order to exceed customer expectations and set industry benchmarks for performance and efficiency,” said Simon Hudson of Indwe Risk Services. “This solution from SSP is perfectly aligned with these objectives and we are confident that it will support our continued growth. At the same time, we expect to save a significant amount by consolidating several different systems into one by using SSP’s state-of-the-art insurance policy administration solution.”

Under the terms of the agreement, SSP will take over the personnel and resources of Business Edge that have been engaged over the past four years in the deployment of SSP’s componentbased solution, SSP Select Insurance (formerly Insure), into the African region. The acquisition will add a number of highly skilled and experienced insurance technology specialists to the SSP team. Business Edge, established in 1990, is a specialist supplier of business systems and services to the financial services industry in Africa. Its ability to deliver world-class, business-critical systems has yielded an impressive local and regional client base which includes Absa, American Express, Anglo Platinum, Anglo American, Discovery Life, Europ Assistance, Alexander Forbes, First National Bank, Hollard, Investec, Liberty Life, MIBFA, Mutual & Federal, Platinum Health, Tongaat Hulett, Mercantile Bank, RMB, Travelex, Namibia Bureau de Change, Rennies Foreign Exchange, Tower Foreign Exchange and Standard Bank. “The deal increases SSP’s capability, further enhancing our domain expertise and extending our knowledge base,” commented Rhys Collins, head of SSP’s African operations. “It also provides a simplified and more efficient engagement model going forward for our SSP Select Insurance prospects and customers in the African region.”

SSP will provide a number of key implementation services including SOA integration, data migration, project management and the development of web services, to integrate its solution into Indwe’s SOA framework. “We evaluated a number of different solutions, but SSP came out on top, and it will provide us with an agile platform that will give us an enormous amount of flexibility when it comes to developing new products and distributing them across a range of channels,” Hudson said. “We have a great relationship with SSP. It has an innovative culture very much like ours and as the last project completed for us was delivered on time and on budget, we felt very confident to work with SSP again.” “This agreement extends SSP’s relationship with Indwe by another five years, which means that our two companies will have the benefit of 16 years together as strategic partners,” said Rhys Collins, head of SSP’s African Operations. “As Indwe continues to grow, the combination of SSP’s comprehensive insurance policy administration solution and Indwe’s flexible SOA architecture will make it far easier, cheaper and quicker to get new business lines and business units operationalised in line with the company’s strategic goals.”

Above: Simon Hudson (left) and Rhys Collins (right).

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MUA partners with Brolink MUA Insurance Acceptances has launched its exclusive high net worth individual short-term insurance product range on the Brolink online system known as Websure, following a partnership between the two companies. According to Christelle Fourie, managing director of MUA Insurance Acceptances, the MUA range is the first product available on Websure that is specifically tailored for high net worth individuals. “Brolink has an exemplary record of providing great service to its brokers over the past 17 years. This is a mutually beneficial partnership for the two companies, enabling Brolink brokers to expand its client base.” Websure is an Internet-based, multi-quote insurance solution that uses browser-based technology. “The solution facilitates access via both the Internet and traditional digital data networks. It enables insurers, underwriting managers, intermediaries and captives to obtain insurance quotations, issue policies, track claims progress and view documentation online from major insurance providers,” said Clipstone Webber, managing director of Brolink.

“The Websure system is a one-stop shop for brokers and makes the process of obtaining the right documentation and authorisation much quicker,” said Fourie. “Brolink brokers have accessibility anywhere via the Internet. The information stored is comprehensive, inbound and outbound correspondence is stored, the storage of images is possible, there is total integration between all modules and it is easy to use.” Fourie further added that the record-keeping abilities of Websure are extensive and assist in meeting the requirements of the FAIS Act. “MUA is proud to have partnered with Brolink, enabling the MUA product range to become available to an even wider range of brokers. This is an exciting development for both parties and we look forward to building long-lasting relationships with these new partners,” Fourie said.

new appointments Altrisk appointment

HIC promotion

Ryno de Kock has been appointed head of distribution and sales at Altrisk. De Kock is a certified financial planner and has extensive experience in marketing insurance solutions to the broker community. Prior to his appointment at Altrisk, he was head of sales for Standard Bank Financial Consultancy.

Hospitality Industrial and Commercial Underwriting Managers (HIC) promoted Juanita van Zyl from the position of portfolio manager to branch manager of its Western Cape office, with effect from 1 October 2011. Van Zyl joined HIC in April 2009 following a threeyear period at Zurich as a commercial broker manager. She has been in the insurance industry since 1997, based in Cape Town.

Ryno de Kock

New regional manager at Renasa Neal Engelbrecht has been appointed regional manager for Renasa Insurance’s Western Cape branch.

Neal Engelbrecht

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Juanita van Zyl

New AWII committee After the AGM held on 13 September 2011, the Association of Women in Insurance (AWII) welcomed the following new committee members: Dot Pierce-Jones – Chairperson Odete Gorgulho – Vice-chair Lorna Rayment – Treasurer Michelle Schronen – Secretary Anita Botha Stephanie Vogler Sandra Snowball Shannon Carambassis Glynnis Clark-Miller Tracy Footman The AWII thanked both Helen Goldenbogen and Lisa Finegan, former chairperson and secretary respectively, for their dedication and service.

International News Round-up United Kingdom Driving up the cost Drivers have been subject to an average year-on-year increase of 12.3 per cent in the cost of comprehensive motor insurance cover. This equates to a £92 (R1 137) hike in just 12 months. Those living in the North of England were subject to the biggest premium increases. The top five UK areas with the highest annual premium rises year on year, based on the Confused.com/Towers Watson Car Insurance Price Index are: Oldham (27.9 per cent), Bradford (27.5 per cent), Liverpool (26.8 per cent), Manchester (26.6 per cent) and Ilford (23.7 per cent). Working too hard Aviva’s latest health in the Workplace Report shows that six in 10 employees regularly work beyond their contracted hours, putting in an average of 1.5 hours overtime a day. Nearly one in four employees (23 per cent) claims they work an extra two to three hours daily. But this overtime is taking its toll on workers’ health. About 27 per cent complain they feel tired all the time, 23 per cent say they feel really stressed, 15 per cent admit that their diet is suffering as they are forced to eat junk food and nine per cent need to smoke or drink to unwind afterwards.

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Times, reported that Allianz was furnishing a plan to turn the Eurozone’s €450 billion (R 4 875 billion) bailout fund into a large insurance backstop. The German insurance company thinks it’s a good idea to turn the European Financial Stability Facility (EFSF) into a bond insurance programme. According to Insurance Times, the bailout fund will be used to insure against losses from banks, insurers and sovereigns. Apparently this plan is gaining a lot of support too because investors are starting to see the appeal of buying bonds, safe in the knowledge that there is a guarantee that some of the losses could be absorbed by the EFSF.

Mexico Jova juggernauts its way through

United States Innovation Group scoops awards

Germany

The Innovation Group, a global provider of business process outsourcing (BPO) and software solutions to the insurance, fleet and automotive and property industries has been recognised with four Xcelent awards in Celent’s new reports. “Insurer Policy steps out of a crowded market in this report as a result of Innovation Group’s modernisation and innovation of the functionally rich software,” said Ben Moreland, senior analyst in Celent’s insurance practice and author of the report. “Insurer Policy is a very technology-driven and functionally robust system that has greatly benefited from Innovation’s architectural approach of the rule of one: one data model, one rules engine, and one workflow, one configuration/administration tool set; the new UI and enhanced business development administration (BDA) capabilities that further set it apart in flexibility.”

Allianz to the rescue

Insurer loses court case

At the time of going to press, London-based weekly insurance publication, Insurance

Motor Insurance, based in Southfield, Michigan, claimed that FBI agents were

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out on a joyride when they crashed and wrecked a $750 000 rare 1995 F50 Ferrari, reported Insurance Journal. The insurer tried unsuccessfully to sue the government but a judge would hear none of it. The car was stolen in Rosemont in 2003, recovered and kept by the FBI in Kentucky as part of an investigation. According to Insurance Journal, the driver, FBI agent Fred Kingston lost control of the sports car and collided into some bushes and a tree.

Hurricane Jova, a category three storm, caused mayhem and destruction in Mexico’s Pacific port last month. It caused havoc in popular beach resorts and killed at least four people. Thousands were evacuated in Mexico after mudslides and floods killed at least 18 more people. According to catastrophe modelling firm, AIR Worldwide, Jova is the ninth hurricane of the eastern Pacific season.

Exposure to the Eurozone crisis Clem Chambers | CEO | ADVFN

September began with the markets looking for stability, what they got was volatility. After heavy falls at the start of the month, the markets were saddled with few solutions to the Euro debt crisis, the US Federal Reserve announcing the underwhelming Operation Twist and the IMF declaring that the global economy was entering a dangerous place.

This led to a fall in equity trading volumes with players taking their money off the table and parking it. This draining of liquidity, in itself, is negative for stock markets. Negativity in the markets though can be further compounded by subsequent events. The failure of the US to roll out big guns to support its economy had dramatic effects worldwide. On the LSE, the FTSE100 dropped below 5 000 for the third time since the start of the sovereign debt crisis in 2008. At the centre of the Euro debt crisis, the Greek economy fell to 88 per cent below its pre-credit crunch high. To put this into perspective: a drop of the same magnitude would have left the FTSE100 below 1 000. When the markets slumped, the relative parity of the FTSE100, Life Insurance and Non-life Insurance indexes on the LSE ended. While the Life index fell below the FTSE, the Non-life index did not suffer the same impact and quickly grew. The FTSE’s drop below 5 000 was a significant psychological dent in the market’s confidence during what is a global, psychological financial crisis. During such times the markets look for security and investments in stable sectors. In this case the markets spoke, the non-life insurance companies looked more secure and stable. Global life insurer and FTSE100 company, Aviva, is potentially one of the UK companies most vulnerable to the problems in the Eurozone. After opening the month stronger than the Life Insurance Index, the subsequent Eurozone news and events saw Aviva’s share price dropping. Announcing its 2011 six-month results in August, the company posted a five per cent increase in profits with a 21 per cent increase in operating profits in Europe.

But with around 50 per cent of its profits generated in the Eurozone, the ongoing debt crisis highlighted its potential vulnerability. A perfectly good company can crash, not because of its business, but because of its correlation to another stock, membership of a currency group or market sector. Aviva finds itself in the position of being a strong company involved with a currency in trouble. Given that the markets had significant doubts about European political leaders’ ability to resolve the crisis, companies reliant on the Eurozone suffered due to a lack of confidence by investors. The fortunes of Aviva bear comparison to another FTSE100 insurance company, global non-life insurer RSA. When the FTSE100 started on its fall to less than 5 000, RSA’s price remained relatively stable. After initial falls, along with the rest of the market, RSA quickly stabilised while Aviva continued to fall.

A lot has been said about the Euro, the sovereign debt crises and the US double deficits; however, the three problems are rarely linked together as part of a single, big picture. They should be, as they are so intertwined. The underlying drivers of this big picture are the chronic trade imbalances between Europe, the US and the developing world. The problem that still remains though is that with no real near-term solution to the core problems of bloated governance and huge trade imbalances, volatility on a grand scale will continue. What’s more, it won’t take many miscalculations to send the market into a new, giant tailspin.

September ended with Europe’s political leaders focusing on resolving the Eurozone crisis. Accordingly, the fortunes of Aviva returned as October approached and had risen to the same level as RSA. While no deal had been reached, the psychological impact of leaders acting to avoid catastrophe in the Eurozone saw small recoveries in the FTSE and DAX.

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lunch with chief executive of Liberty Corporate

The Towers Restaurant The RISKSA and Global Choices team caught up with Seelan Gobalsamy, chief executive of Liberty Corporate at The Towers Restaurant at the African Pride Crystal Towers Hotel & Spa. Gobalsamy joined Liberty Corporate on 1 December 2010 from Old Mutual where he held the position of managing director for Old Mutual Corporate. We found Gobalsamy to be passionate about his work, particularly customer services and, above all, his family. His vices include his mother’s home cooking, fast cars and rollercoasters.

“I generally enjoy books about leadership, so I will probably recommend one along those lines.”

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LS “I push people very hard to achieve more. I also enjoy getting to the speed limit a little faster than most others.”

hat is your personal motto? Hard work always pays off. If you apply your mind to whatever you are doing and work hard you will do well. What is the best part of your day? The best part of the day is spending time with people. I just love spending time with the people in our business and our customers. I guess most of all if I can spend some time with my family either early in the morning or the late evening, this becomes the highlight. What is (generally) your first thought when you wake up? My first thoughts are about my family, to see how they are doing. Then it is to plan my day and be as efficient as possible with my time. What is (generally) your last thought before you go to sleep? Each day I think about whether I have made a difference and enhanced people’s lives. Lately I have been thinking more about whether or not I have lived life to its fullest. What is your favourite dish to eat and prepare? I enjoy eating my mother’s homecooked curries. Other than that, a really good homemade burger will do. Who do you think will win the Rugby World Cup? This one is simple – the Boks! What cheers you up? My family cheers me up the most, just engaging and spending time with my kids after a hard day’s work. I have a nine-year-old son, Joshua and five-yearold little princess, Amy. In the business world, I enjoy helping people achieve more than they have ever dreamed. It is very fulfilling to see

people develop and grow. What makes you feel powerful? When I see the positive impact we can have on the people of South Africa, helping and guiding them towards financial freedom. Also helping and guiding all the people in my business to achieve and develop to become winners. What book do you often recommend to people? I generally enjoy books about leadership, so I will probably recommend one along those lines. Of late, I have been recommending books about raising kids. What is your vice? I push people very hard to achieve more. I also enjoy getting to the speed limit a little faster than most others. Do you play a musical instrument? I enjoy listening to music; I played the keyboard when I was little. However, I really enjoy listening to my wife and kids play the piano. What important business lessons have you learnt? Change is the only constant in the business world. If we can help our business and people so that they’re always ready for change, we will succeed. What really makes you mad at the office and why? In big companies, I get very frustrated when we become so internally focused that we lose sight of the reason why the company exists, which is to cater to customers. Customers have to be at the centre of any business. If you weren’t doing what you are doing now, what career path would you have chosen? I really enjoy cars and wheels, so if I had a lot of spare time, I would

probably spend the time driving and experimenting with some fast cars. Can you summarise how you got to where you are today? I grew up in East London and completed a BCom at Rhodes University in Grahamstown. I then qualified as a chartered accountant and then completed a higher diploma in tax. After my articles, I joined insurance company, Prosperity Insurance. I spent nine years at Old Mutual, leaving there as the managing director of corporate business. I have now been with Liberty for nine months. Name five things that you believe would improve your industry. 1. Becoming more customer focused and putting customers at the centre of our business. 2. Providing professional, best advice that meets the needs of the customer. 3. If saving for retirement becomes mandatory, this will ensure sustainability of the economy if more people retire with sufficient savings. 4. Simplicity of products and offerings to ensure understanding and ease of choice for customers. 5. Education is very important. We need more of our people in South Africa to be educated. Describe yourself in a few words. I work and play hard, pushing most things to the extreme. What would people be surprised to learn about you? I enjoy rollercoasters! The faster the better.

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happy holidays H

oliday season is on the horizon and if you are unsure where to plan a getaway, Hanna Barry found a few of the most memorable holiday experiences some of your peers and colleagues have had. We hope this inspires you and gets you hankering after the holidays as much as we are.

Rugby fever At the end of 2006, my youngest brother was selected for the Springbok rugby team. He made his debut against Ireland at Landsdowne Road. This was one of the last games at the old Landsdowne Road stadium. What made it even more special was the fact that the Springbok team played the test wearing replica jerseys of the first Springbok team who toured the British Isles in 1906, captained by Paul Roos.

Brand Pretorius, chief executive officer, Momentum short-term Insurance â&#x20AC;&#x153;We decided to make a short holiday of it and toured through Ireland for a few days. It truly is a beautiful country, with very generous and hospitable people.â&#x20AC;?

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Our whole family was fortunate enough to attend the game, and although the Springboks lost that day, it was one of the most special days of our lives. We decided to make a short holiday of it and toured through Ireland for a few days. It truly is a beautiful country, with very generous and hospitable people. We also attended the test against England at Twickenham the following Saturday and were surprised by my best friend and his wife, who flew across from New York where they lived at the time, to join us for the occasion. Although my brother ended up not playing in that game, it was a great way to end a very memorable week.

My Spanish heart In July 2011, I spent a week in southern Spain in a resort overlooking a golf course on the Costas Mijas, halfway between Malaga and Marbella. To celebrate my sister’s 60th birthday, I did a timeshare swop for two apartments and was joined by my 87-year-old mother, my sister, her two daughters and son-in-law, and my daughter.

John Rollason, principal officer, TopMed “During the day we explored the inland terrain, taking a mountainous drive to Rondo, an old Roman town perched on a precipice with magnificent views of the local countryside.”

We flew on a plane jam-packed with holidaymakers from London Gatwick to Malaga, where we picked up two hire cars and drove to the resort. We enjoyed a wonderful week of beautiful, sunny days and most evenings we would have our final swim in the resort’s magnificent pool around 20h30, before following the Spanish tradition of a late supper – often eating only at 22h00. During the day we explored the inland terrain, taking a mountainous drive to Rondo, an old Roman town perched on a precipice with magnificent views of the local countryside, and bundu-bashing on an organised 4x4 tour through the Rio Grande River, seeing many beauty spots off the beaten track and sampling the local hostelries.

The morning after we returned to the UK, I awoke with a dull ache in my chest. After an ECG and various tests at Poole Hospital, the results were faxed to the neighbouring hospital in Bournemouth and I was transferred there in double-quick time. I was greeted by a nurse in the cardiac care unit telling me that she had received the blood test results from Poole, which proved conclusively that I had had a heart attack. She said that meant no flying for six weeks, which almost gave me another heart attack. The moral of the story is: don’t put all your faith in an ECG test, as it will not always reveal developing coronary artery disease. Having left South Africa to celebrate my sister’s 60th birthday, which we achieved in fine style, my holiday was also memorable for my stay in the Royal Bournemouth Hospital, the excellent treatment I received there via the UK’s National Health Service and the yellow card I was given regarding my coronary arteries.

Cruising the Mediterranean Earlier this year I bought a holiday for my girlfriend and gave her freedom to choose what to do. We took a cruise on a luxury liner around the Mediterranean in September, kicking off with four days in Rome and setting sail from a little port near Rome called Civitavecchia. We sailed for 12 days – eight days exploring various ports and four days on the ship. We typically got to a port at 07h00 in the morning and left at 19h00 in the evening, allowing us a whole day to go on tours and excursions. We did eight or so different places, including Rhodes, Athens in Greece, Ephesus and Istanbul in Turkey, Malta and Naples, Italy.

Neil Ashcroft, marketing director, Centriq Insurance “Taking a cruise gives you the best of both worlds as you have enough time to get a sense of a place and a culture, but you are travelling in 5-star luxury, in a floating city.”

The liner, of Royal Caribbean International, was a massive ship that took 3 500 guests, besides crew. It had about eight or nine restaurants, a movie theatre, a stage for live shows, an ice rink, pools and Jacuzzis, a big gym

and spa, climbing walls, a basketball court, running track and a small soccer field on deck. It also had a mall with about 10 or 11 shops and cafés, an ice-cream parlour, jazz bars and an old-fashioned American diner. Taking a cruise gives you the best of both worlds as you have enough time to get a sense of a place and a culture, but you are travelling in 5-star luxury, in a floating city. If you were in a hotel for 12 days you would be bored stiff. It was probably the most relaxing holiday I have ever been on, and you get to see enough of the places to know where you want to go back to. We would like to go back to Turkey, not Istanbul – it’s too noisy and smelly – but up the coast, and Malta.

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Island paradise It’s really hard to choose from so many memorable experiences over the years, whether it’s the dusty roads of Giyani or the bright lights of Manhattan. The island holidays of Madagascar, Mauritius and Zanzibar stand out, but Zanzibar deserves a special mention given it was my first.

“Our concerns were quickly forgotten the next morning when we woke up in a balmy island paradise – complete with turquoise ocean, white sandy beach and coconut palm trees.”

When my wife and I arrived in September 2002, we found the airport was still under construction and part of the roof was missing. While this provided a view of the starry night sky, we were a bit concerned about what the holiday would hold. Our concerns were quickly forgotten the next morning when we woke up in a balmy island paradise – complete with turquoise ocean, white sandy beach and coconut palm trees.

Morris Mthombeni, chief executive officer, Momentum Investments “There is a spirituality about Stone Town. Exploring its meandering streets transports you to a time of Arab traders.”

The 10-day holiday was spent lazing in a hammock, listening to the quiet lapping of the ocean, trying to ride (and falling off) a 50cc motorbike on the beach, attempting snorkelling for the first time, stepping on a sea urchin and playing tourist in Stone Town. There is a spirituality about Stone Town. Exploring its meandering streets transports you to a time of Arab traders and the monument to slavery next to the Anglican Cathedral is a stark reminder that it was not only spices that were traded off the east coast of Africa. I am sure the island has developed since our last visit almost 10 years ago, but the laid-back island vibe, friendly people and beautiful landscape makes it a destination we will return to soon.

Bonjour France! Ola Spain! I try to travel at least twice a year if my diary allows. My most memorable holiday was a trip to France and Spain with a group of friends about two years ago. What made this trip so amazing was that we opted for an off-the-beaten-track vacation as opposed to the usual tourist routes. I was fascinated to experience how different the cultures from neighbouring countries were, they seemed worlds apart.

Derick Ferreira, national marketing and strategy manager, Old Mutual “It is these kinds of moments that take your breath away, and I am pleased that I can create the memories of my dreams with my savings. I don’t believe in the ‘fly now pay later’ debt spiral and am grateful that my parents taught me the value of saving from a young age.”

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We started our trip out in Charroux, France, about 300 kilometres south of Paris, where we stayed in a chateau surrounded by picturesque vineyards and cobblestone roads. I was in awe of the beautifully adorned cathedrals and art galleries that hosted works by famous artists such as Rodin, Renoir and Monet. It was such a privilege to see these masterpieces first hand. Just behind the Sacré-Coeur Basilica in Paris, I was tempted to buy a souvenir of myself as a cartoon character. Talented artists draw portraits of passers-by or cut out their cartoon profiles within 15 minutes. I was

amazed at their exceptional talent and speed as they worked. But it was the quality food and wine that made this trip most memorable. We also took a road trip to Barcelona. Antoni Gaudi’s architecture has greatly influenced the face of Barcelona and is admired for its unique and distinctive style. What a privilege to admire Gaudi’s buildings clad in coloured tiles and arranged in mosaic patterns as I strolled through the city. Part of the experience was the cuisine and my favourite dish in Spain, on the Costa del Sol, was most certainly the grilled seafood served at the beachfront in Malaga. It is these kinds of moments that take your breath away, and I am pleased that I can create the memories of my dreams with my savings. I don’t believe in the fly now pay later debt spiral and am grateful that my parents taught me the value of saving from a young age. As a result, I’m in the habit of saving, which enables me to plan experiences of a lifetime, such as my trip to Europe.

A place of contrasts

Chris Grieve, head of market underwriting, Zurich Insurance “What struck us is how such an incredibly beautiful part of South Africa could be nurtured and developed by successful, competent people.”

We had been warned about the state of the roads in the Transkei but nothing quite prepares you for the reality. After getting a little lost (I am sure it must have been my wife’s fault) and getting my Land Rover stuck in the mud (no need to discuss this further), we hit the rural village roads straight after a thunderstorm, negotiating our way past endless livestock and loads of Friday night party-goers. Out of tiny rondavels appeared streams of impeccably groomed teenagers, so I had to stop each time a group passed by so as not to ruin their weekend outfits and great hairstyles. My wife, Jacqui, decided that the Transkei was just the kind of environment our laidback 17-year-old son (and his equally laidback friend) would enjoy: no pretension; relaxed accommodation and plenty of sea, sand and R&R with long walks on the beach. Our first hotel was past its prime but was perfectly respectable and still had little pockets of elegance. The golf course was particularly interesting – it consisted of endless mole hills and a large

herd of resident cows. Our next hotel was full of extraordinarily drunk fishermen on a team-building event; the rooms were rustic and the food very retro: think tinned vegetable soup followed by readymade crumbed chicken and frozen vegetables. The finale was tinned guavas topped with ideal milk and sliced marshmallows. My vegetarian wife’s face was a picture. The owner had recently inherited the hotel and celebrated this fact each day by having his first drink at about 08h00. It is quite unnerving to watch the bar open as you munch your way through your eggs on toast and a cup of coffee, but by lunchtime there was plenty to keep you amused.

mixed emotions. Our general impression was that the Eastern Cape local government is trying really hard: roads are being upgraded, clinics and schools are being built; but the prevailing atmosphere of the people in many of the towns and cities was one of apathy. What struck us is how such an incredibly beautiful part of South Africa could be nurtured and developed by successful, competent people. We had this overwhelming feeling that broken people ended up down there, without the strength to harness the natural assets of the Transkei. With lots of love and passion, this could become the next incredibly successful tourism hotspot of South Africa.

The beaches in this part of the world are absolutely spectacular if you can discount the pollution. We were entertained by a school of dolphins surfing the waves at Second Beach in Port St John’s, which is a really special place with a blow hole from which to watch the sea below. It was a holiday filled with

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events Marcus Garrun celebrates 70 years in style

Philip and Larry Marcus from the Marcus Garrun Group celebrated the company’s 70 year milestone by inviting Zurich SA CEO, Guy Munnoch, and former CEOs of SA Eagle Fred Haslett and Peter Martin to a sit down dinner in Cape Town’s Pepper Club. Guests from Zurich included Dennis Burton, head of broker relations and Chris Grieve executive head, sales and market underwriting. Founders of Garrun Group, Cliff Garrun and Sandie Guthrie also attended the event. Guests were wined and dined and memorabilia dating back to when Marcus Garrun Group first started were displayed on the table for guests to peruse. Speeches were made by Burton, Munnoch, Haslett, Larry and his brother Philip. Munnoch toasted the company’s success and presented the Marcus’ with a blue lion ornament embellished with Zurich’s ‘Z’ as a gift for reaching the 70-year mark. “It’s a real honour and privilege to be here tonight,” said Munnoch. “It’s a great milestone for the Marcus family. This was a business borne on the 21 September 1941, the day of a solar eclipse and it is said that people born during an eclipse tend to excel in life. It’s a business not a person, but time has proved that it has excelled.” Zurich also awarded the company a policy schedule certificate drawn up in 1941, which has the brothers’ father’s address on it and the value of the items on it. The lion has pride of place in Philip’s office, while the certificate resides in Larry’s office.

(From left to right) Chris Grieve, Tim Timmerman, Peter Martin, Guy Munnoch, Larry Marcus, Philip Marcus. Seated: Fred Haslett and Johann Priem (snr)

Music and merriment The Insurance Institute of the Cape of Good Hope (IICOGH) held a music quiz for its staff in September at Smugglers Restaurant, Ratanga Junction. The event included a three-course dinner and a night of fun and laughter, as attendees were quizzed on their musical knowledge. Some of those attending were bold enough to perform karaoke for the crowd, including the ladies from PG Glass.

Lireas L’ Oscars Execuline 4 Motor Insurance at Castrol Extreme Auto Show 2011 An event dedicated to motor enthusiasts was held at Zwartkops Raceway from 23 to 25 September. Execuline contributed to the energy and excitement of the show, sending a special thank you to its staff and Halfway Toyota/Automark Fourways.

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The Lireas L’ Oscar awards evening is a highlight of the annual Lireas Conference and this year proved no different. This prestigious prize giving recognises the outstanding performance of underwriting agencies in the Lireas Group. The awards are based on the well-known Oscar awards format with three companies nominated as finalists for each award. Valerie Hayter, managing director of Lireas, was delighted to hand out the awards in Cape Town in September. The winners of the four categories were: • Best return for a small or medium-sized company: Construction Guarantee

• Best return for a large company: Commercial and Industrial Acceptances • Most improved return: MUA Insurance Acceptances • Hannover Re best underwriting result: Clarendon Transport Underwriters

FIA George golf day The southern Cape branch of the Financial Intermediaries Association of Southern Africa (FIA) held its annual golf day on 7 October at the George Golf Club. The day saw 64 players take part, with 15 sponsors lending their support, including Etana, Auto & General, Ampath, Cadiz, National Auto Glass, Liberty, Sanlam, Momentum, Assupol, CIA, Dumont Kelders, HCV, Stanmar, Sanlam SPI, Sanlam SIM and Discovery. Prizes were sponsored by Cadiz, Investec, Marriott, Santam, National Auto Glass, Ampath, Stümke Makelaars, Masthead, Lion of Africa, Vodacom, Dumont Kelders, Mutual & Federal, Assupol and Liberty. The floating trophy for the best exhibit was awarded to National Auto Glass.

Speeding with RISKSA’s Support Star

Winner of RISKSA’s Support Star of the Year competition, Dimitra de Morais, was snatched from her Johannesburg office on 4 October by RISKSA key accounts manager, Blake Dyason and taken to the Kyalami Grand Prix Circuit. De Morais, personal assistant to Carel Nolte, head of people and brand at Etana Insurance, sped around the track in a Reynard single-seater race car. Racing legend Juan Pablo Montoya won the Barber Dodge race series in the USA in one of these cars before going on to dominate Formula One. Go Dimitra!

Gerrit Lambrechts, chair of the FIA (Southern Cape), presenting the floating trophy to the winner of the best sponsored hole, Netstar.

Swinging sisters Ladies were swinging clubs at the Annual Association of Women in Insurance (AWII) Ladies Fun Golf Day, held at the Mupine Golf Club in Pinelands, Cape Town on 12 October 2011. Thirty-six ladies took to the golf course in lovely weather conditions, with plenty of watering holes to keep them saturated. Gentlemen were welcomed as spectators and joined the players afterwards for a spit braai and the prize giving ceremony.

Winning four ball, team Glasfit, from left to right: Adele Brasler, Venessa van der Walt, Marie Winterbach, Lisa Finegan

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Tell us a little about Fantastic Racing – how did it all begin? Fantastic Racing was the brainchild of the main shareholder and passionate racing enthusiast, Doug MacDonald. He successfully sourced and imported this impressive fleet of 27 Reynard single seater cars from the United States. These ex-professional race series cars ran competitively in the Champ Car Series in the States.

Tripping the ride fantastic

Your team is starting to fade and it’s up to you to turn the lights back on. Before you open your little black book with the same old list of team building providers, take a look at an activity that will really blow their skirts up. Fantastic Racing offers corporates a serious look at South Africa’s favourite racing circuits … from the inside of a race car. This is no sanitised environment – Fantastic Racing offers the real deal in American Champ car series-based single seaters with slick tyres and V6 power. And if you thought this was just about the guys forget it – our support star of the year, Dimitra de Morais burned up Kyalami as part of her prize. We chat with Fantastic Racing’s MD, Julie Brown to find out more. 152

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Initially, Doug’s vision was to encourage international businesses to use this event platform as a marketing tool and simultaneously encourage investment in SA. Sadly, due to the global economic downturn, this proved to be a difficult objective and it was decided to market the business locally. The local market responded incredibly well and this allowed Fantastic Racing to grow from strength to strength. We have been operating since 2005.

Tell us a bit about your involvement. I have been involved from the day the cars landed in Cape Town and if I could sum it up into a few words; extremely hard work, challenging yet rewarding and I am thankful for the opportunity to work within such an exciting and rewarding environment. A Formula 1 experience in SA. The last Formula 1 was raced at Kyalami Race Circuit in 1975. Due to lack of suitable track facilities, SA has not yet been considered for another. Having said that, on the back of the success of the 2010 World Cup Soccer, there is currently a bid underway promoting Cape Town to host a GP by 2014. Fantastic Racing is affiliated, completely supports their efforts and is extremely impressed with their progress. Watch this space – it's looking very promising.

Which race cars do you run?

extremely safe shell.

Drivers enjoy the experience in a 3.5 litre V6 Reynard Dodge single seater race car – the closest you will get to a F1 experience at an affordable price.

Do you tailor make a corporate day? What would this typically include?

Is the experience authentic; are the motors not detuned to the point of no fun? We have successfully managed to find the balance between an exhilarating and safe experience. A detailed safety brief is provided beforehand outlining the rules of the day and introduction to single seater racing. On-track safety is managed by a team of professional marshalls positioned around the circuit who constantly monitor driving behaviour. A race instructor is on track at all times demonstrating the correct racing lines and speed management. Is it dangerous?

Isn’t it fabulously expensive to maintain and run the Jordan F1? Currently the F1 Jordan is used as a rolling chassis for promotional purposes only.

Rules and guidelines are clearly defined at the start of every event. Provided the driver obeys the rules and adheres to the guidelines; it’s a safe and wonderful experience.

Who is the Fantastic Racing team?

Has any would-be racer ever destroyed one of your race cars?

FR operates from two locations; –the Kyalami Circuit in Gauteng and the Killarney Circuit in Cape Town. Each location has its own event manager, head mechanic and pit crew. The non-event staff comprises Julie Brown (managing director) and John Gale (financial director). We are hoping to expand internationally.

I can happily say that no injuries have been incurred by any driver as yet. There has been the odd incident but no race cars have been written off either. The carbon fibre monocoque chassis that the driver sits in, meets with Fèdèration Internationale de l’Automobile standards and the driver is essentially enclosed in an

The Fantastic Racing event is a half-day experience and pricing directly relates to how long drivers spend on track. As a guideline, entry level packages start at R2 900 a person (excl VAT) and include race gear rental, hospitality and a photographer. For that option, drivers enjoy a session of approximately 30 minutes on the track. Packages escalate from there and top out at around R7 000 a person (excl VAT). You have a photograph of a GT40 and a Birken (I think) on your website; could clients race these? Fantastic Racing is an approved distributor for GT40s and Birkin, etc. However, our experiences are currently offered only in the Reynard single seater.

“I have been involved from the day the cars landed in Cape Town and if I could sum it up into a few words; extremely hard work, challenging yet rewarding and I am thankful for the opportunity to work within such an exciting and rewarding environment.”

How would RISKSA readers go about organising an event with you? Readers can simply e-mail julieb@fantasticracing.com with your event requirements and one of the team will respond right away. This is an experience your most jaded team member will remember for a long time. Drop Julie a line – it might be just the thing to get your team back on track.

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out endless summer I am thinking about summer and providing advice to de-clutter your home ahead of this magical season. But as I sit here, a steady downfall of rain streams down outside my window. How ironic.

Rose McClement | Interior Design Expert â&#x20AC;&#x201C; Design Monarchy rose.m@designmonarchy.co.za www.thedesigntabloid.com www.designmonarchy.co.za

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tdoor

During the cold winter months, we hibernate and adapt our homes for that process. Warm colours of amber, browns and reds dominate our abodes, with heaters and fires blazing. As the TV blares, we snuggle deeper into our warm throws and blankets.

“Summer has arrived and with it, warm, fresh air, sunny skies, beach days and outdoor entertaining. Bring it on!”

Time to change all of that. Summer has arrived and with it, warm, fresh air, sunny skies, beach days and outdoor entertaining. Bring it on! Tips for the interior shake-up 1. Start with cleaning the windows, the drawers and the cupboards. Remember the Feng Shui tip – de-clutter. It is such a liberating exercise to take stock and toss out the unwanted stuff that you hoard during winter. 2. Take a look at your home office or desk. What unsightly mail and unwanted papers have stacked? Tackle those – open the mail, sort the papers, label the files and store them away from your immediate workspace. 3. Time to change the winter wardrobe for that fresh summer wardrobe. This is not only a ‘girly’ thing – guys should do it as well. 4. Develop a ritual of changing the scatter cushion covers each season. For summer, go for covers that are light, floral or striped with soft tones. Or if plain, just embrace the soft, trendy colours. Watch the local décor magazines for the latest trends.

Rose McClement has worked in the interiors trade since 1980. She trained at one of Cape Town’s prestigious interior decoratwing outlets at the time, Milton’s Interiors. Here she learned to ply her trade in all facets of interior decorating, gaining extensive knowledge of textures and finishes and the essential keen eye for detail. In 1990, she began work in the retail sector, managing various décor outlets including her own. Rose was then commissioned for the interior design and decoration of a string of 5-star and boutique hotels in Ireland. Her portfolio includes upmarket residential developments, offices and retail outlets. Rose provides clients with a turnkey service to create perfect interiors, including design and decorating, procurement and installation.

Include into this ritual a change of curtains. I realise you are probably holding your breath at this moment, thinking that your budget cannot cope with this demand. Yet, stop and think about it. Do you have any long sarongs or flimsy fabric throws with floral patterns of sorts? If you do, those can be converted into a set of dummy curtains. Alternatively, all it takes is a trip to the budget shop or the market place. Here you could find long length fabric items that you can convert into window drapes. 5. Visit the hardware store to research summer paint colour trends. Select one wall to change into a feature wall – either in your lounge, dining room or bedroom. This colour can either be complementary or contrasting. But a fresh lick of paint can put a bounce in your step.

fresh 6. Wall tattoo/vinyl decal images are the perfect décor accessory to apply to a wall surface. Perfect in that it is easy to select (visit websites that sell the product locally), easy to apply, as well as cost effective. The added bonus is that you can take them down when you need to. 7. Dig out those vintage ornamental items and start a new display collection. This can include objects such as teapots, cups, plates, vases, tins or suitcases. To enhance your summer theme, paint old suitcases in a fresh trendy green or yellow. Alternatively rearrange the collections you already have and mix them up a bit, tastefully. Nostalgia or vintage is in vogue. 8. Rearrange your framed photo images, prints, mirrors and art pieces to form a new collection. A visit to the local vintage market should see you coming away with more memorabilia items to add into the mix. 9. Buy an old but good vintage table and give it a couple coats of yellow, green or pink paint. Doing something like this could make a big difference and be a fabulous furniture feature piece. Tips for the garden shake-up 1. Unpack your outdoor furniture and to give it a new lease on life; give it a wash, varnish or paint. Its time has come round again. 2. Buy bright floral or stripy seat cushions. 3. Paint your plant pots – white, green or yellow. Fill them with plenty of spring and summer plants that will ‘smile’ at you daily. 4. Simple old metal buckets can become a pot for the herbs. Give it a lick of paint if need be. 5. Invite the birds into your garden by buying a bird bath and bird feeder. These tips should keep you busy during those lazy summer days. Enjoy the process.

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chic

n close proximity to Florida Road, the business and recreational hub of Morningside, Durban, Hotel64 on Gordon enjoys the best of an intimate and quiet street with the convenience of easily accessible public amenities. Situated near shopping centres and speciality restaurants, staying at the hotel provides easy access to the Valley of a Thousand Hills, the Golden Mile, uShaka Marine World, harbour cruises and more. Hotel facilities: • Both non-smoking and smoking public areas • Secure parking and 24-hour security • Central courtyard • Room service • PL8 restaurant • Meeting rooms • Laundry service • Wi-Fi • Satellite television • Transport shuttles to and from the airport • Secretarial services

The hotel is unpretentious and unadorned, while not compromising comfort and experience. Its restaurant, PL8, is geared towards innovative, fresh and nutritious food, serving breakfast, lunch and supper. PL8 aims to create a fine dining experience with a South African flavour and is praised for providing wholesome food, presented and plated in a modern and chic manner. A purpose-built 40-seater conference room, with large windows and an abundance

of natural light (with a complete blackout facility), features a balcony perfect for tea breaks and welcome drinks. Friendly staff ensures a professionally co-ordinated event and a flexible menu offers an array of choices to suit your delegates’ needs. The conference room includes Internet access, a drop-down screen, data projector and plasma screen. A conference concierge service ensures all conference organisers and delegates receive personalised attention.

Room facilities include: • Tea- and coffee-making facilities • Extra-length king size beds • Intercoms • DSTV with 12 channels • LCD TV • Safety deposit boxes • Hair-dryers • Wake-up call facility • Air-conditioning • Wi-Fi • Universal plug points • Balconies on some rooms

To make a booking, call +27 (0)31 312 8907 or e-mail info@hotel64ongordon.co.za. For more information, go to www.hotel64ongordon.co.za.

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the broker’s wife k Anything for a quick buc wd with My second husband is very shre e very good his money and has made som some people investments. But it seems that money in these will go to any lengths to make 66-year-old for ght thou a hard times. So spare in the United Anthony McErlean from Kent a six-year jail Kingdom who has been awarded n pleaded rlea McE r sentence. This came afte and fraud, theft of rges cha ral seve to y guilt in a 2009 including faking his own death excess of R5 attempt to claim £520 000 (in nted an eye million) in life insurance. He inve saying that t men state a d witness and contrive e changing a he had been hit by a truck whil . His body was tyre in Honduras, South America the same truck by up supposedly then picked , where it was town rby nea a to ted spor and tran rance Fraud Insu the said so, cremated. Not erprints on fing n’s Bureau, who found McErlea police. He ted aler and e ficat certi th his own dea paid out. were ies mon no was arrested and

r’s life insurance Warner goes potty over acto r friend, veteran dea my ut abo ed cern con I was so the film studio that ring hea r afte actor Robert Hardy, last three Harry the of ts had written him out of the scrip e to insure. nsiv expe too is he ause bec Potter films dlesome minister of Hardy played the role of the med ge, in four of the films. magic, Cornelius Oswald Fud not want to pay the £1 did ner War that Hardy revealed insurance. Hardy, who life his million (R12.2 million) for e to insure, nevertheless nsiv expe too ome bec had at 85 l for his role as said that he still receives fan mai ly so. Cornelius Fudge, and deserved Down, but not out (yet) n getting a hammering Our poor COSA Lions have bee next group after the to oted prom lately. They were ue, but now that leag their in coming second last year finding it a bit tricky are they oted prom n bee they have going to press, they’ve to secure a win. At the time of season and last month this lost every touch rugby match ladies in it. Now, I two had that team a to they lost out y, but they sure rugb play t can’ am not saying that girls hearts when e som bruised some egos and crushed scored. I am and nces defe SA’s CO ugh they burst thro be they May . soon e gam their hoping the lads will up based in Cape are you If ort. supp e mor e som need h our boys play in front Town, why not come and watc nds. I am sure they’d grou of Century City’s clubhouse s! Lion Go ort. supp value your

A ghost in our midst mon. Police in Durban Close to home, scams are com ral parlour owners is fune two of st believe that the arre n on an insurance dow only the beginning of a clamp ved to be behind belie is duo The ons. milli scam worth unclaimed lving invo scam s a ghost insurance claim would take out insurance they that e alleg e Polic ies. bod tity documents policies using stolen or false iden finding a suitable re befo and make a few payments mortuaries to use ent ernm gov from y bod ied unidentif ld allegedly pay wou They rer. insu in claiming from the body, which was the claim an elderly person to go and was then used to This e. ficat certi th dea a in used to obta least this lot have at l, Wel ies. pan defraud insurance com more brains than McErlean… Hollard CEO wings it led crowds at the CEO of Hollard Nic Kohler dazz held at Sun City. He company’s annual staff event be able to make it in ldn’t wou he that pretended at first boarding a plane. But re a televised announcement befo d were wowed to crow ng -stro 000 1 moments later the to the party. I am them see the CEO paragliding to join really chuffed at am I so , ance entr big all for making a do for his next will he t this performance. I wonder wha high? too bar the d raise he’s big party – surely

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riskSA Magazine