RISKSA Magazine October 2012 by COSA Media

THE VOICE OF THE INDUSTRY

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reinsuring the risk society

CORPORATE CYBERCRIME

REPUTATION IS EVERYTHING

RETIREMENT REFORM

contents october 2012

THE VOICE OF THE INDUSTRY

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features

Aftershock: reinsuring the risk society

Keep on truckin’

regulars

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MEDICAL

Rise to the occasion

F&i

Fraud facts

life

reinsuringerm the risk society

The CPA’s impact on the automotive industry

Retirement reform: confronting costs

better business

101

Enabling the disabled

lifestyle

147

Corporate cyber crime – lawlessness gone digital

AIG rising

102

Reputation is everything

126

Let the good times roll: planning the perfect year-end function

148

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

from the editor Dear reader, The devil is in the reinsurance detail. It is not always the immediate weather-related event that impacts reinsurers hardest during natural disasters. Last year, floods in the Far East wreaked havoc in people’s lives. Homes and infrastructure were destroyed on an unprecedented scale. But it was only much later that the full cost of the loss of production of high-tech components – memory chips and graphics cards for example – became fully apparent. Sadly loss of production output is far more likely to be insured by manufacturers than a worker’s village. The cost in human tragedy in the village is incalculable, but the cost to global tech players, dependent on their Just In Time (JIT) manufacturing processes, is indeed calculable, and those clever actuarial scientists have their hands full ensuring that correct premiums are billed. A mistake here could have a big impact on the industry all round the world, right down to the premium your client is billed for his car. Today is a good day here at the COSA offices. In a few hours (I keep checking my watch), Mike and I are going to fire up Mad Max and take her for a run through to Worcester where our favourite Land Rover mechanic has his shop, the first run she’s had since our return from Africa. We’re taking our INVESTSA team down to the farm next weekend for our 2012 bosberaad and we thought the old girl deserves an oil change and a wash … and perhaps just a little more. Why all this TLC? Could it be that there is life after Africa for the old girl? The rumblings and secret meetings being held in the COSA offices over weekends and late at night certainly mean there’s something afoot. What could it all possibly mean? By the time this issue hits your desks, our completely rebuilt www.risksa.com site will be launched and, as always, we’re keen to hear your feedback. Mail me on editor@comms.co.za. Enjoy the read.

Andy Andy Mark Publisher

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reinsuring the risk society We live in the risk society. Ulrich Beck, professor at the London School of Economics, coined the term in his book by the same name. “In the risk society the unknown and unintended consequences come to be a dominant force in history and society,” writes Beck. Hanna Barry

he unpredictable nature of risk in today’s world was highlighted by the Thai floods in 2011. “Exposures were significantly underestimated, especially with regard to the extent of global connections across supply chains. Arising from a largely ignored catastrophe exposure, the magnitude of the loss came as a surprise to most,” says Iain Macindoe, CEO of Willis Re, South Africa. According to Swiss Re, flooding in Thailand resulted in the highest insured losses ever for a single flood event, at $12 billion. “Reinsurers, as a result, are seeking greater transparency and control, particularly over contingent business interruption exposures, and are placing greater emphasis on all other areas of unmodeled risk,” continues Macindoe.

“This is leading to tighter sub-limits for natural catastrophe and reduced event limits on proportional treaties. The overall loss from the Thai floods is still developing and may take a number of years until final numbers are determined, but the technical and psychological impact of this loss on the global insurance industry will far outweigh the ultimate financial loss for years to come.” At the same time, Macindoe says that this catastrophe undermined the basic concept of geographic diversification in writing natural catastrophe perils.

Confronting a new world In an increasingly interconnected world,

natural catastrophes defy the localised nature of their immediate experience and become truly global hazards. In the case of the Thai floods, Thailand’s industrial all-risk insurance premiums, which covered most of the losses, were only $370 million in 2011, resulting in a loss ratio of more than 3 000 per cent, say Swiss Re. “The losses were not only telling in their overall scale, but also because of the significant impact of supply chain and business interruption claims coming from other countries, notably Japan,” says Achim Bauer, UK insurance consulting strategy leader at PricewaterhouseCoopers (PwC). “Having already transferred a considerable amount of manufacturing to 

transfer flows may not even find their way into traditional reinsurance hubs, reinsurers will need to establish greater presence in these regions. But they will need the right talent and technology to manage the riskiness of these markets. “As the supply and production chains of global companies become more geographically scattered and inventories of key components become smaller, the potential for business interruption losses is escalating. There is therefore a danger in over-reliance on single risk models that may fail to take full account of the indirect and knock-on exposures this creates,” notes Bauer. As a considerable amount of the world’s production capacity shifts to emerging market economies, it will be important to identify new risk growth and bring modelling up to speed. “This includes Africa, where available risk data and analysis may be even more limited than the previous wave of frontier markets, such as Thailand and Indonesia.”

"In some bays, the wave reached a height of up to 40 metres. Entire towns, roads and railway lines were washed away; hundreds of thousands of houses were destroyed and some 16 000 people killed."

Thailand, Japanese corporations increased this still further in the aftermath of the 2011 earthquake.” According to Munich Re, the most destructive loss event of 2011 was the earthquake of 11 March in Tohoku, Japan. A seaquake with a magnitude of 9.0 occurred 130 kilometres east of the port of Sendai and 370 kilometres north of Tokyo. It was the strongest quake ever recorded in Japan. Thanks to strict building codes, the damage from the tremors was relatively moderate. However, the quake triggered a tsunami that devastated the northeast coast of the main island, Honshu. In some bays, the wave reached a height of up to 40 metres. Entire towns, roads and railway lines were washed away; hundreds of thousands of houses were destroyed and some 16 000 people killed. Notably, the tsunami led to severe damage at several blocks of the Fukushima 1 nuclear power plant. Even without considering the consequences of the nuclear accident, the economic losses caused by the quake and the tsunami came to $210 billion, the costliest natural catastrophe of all time. It cost Munich Re £1.5 billion net before tax and the share of insured losses may amount to as much as $40 billion.

Rapid developments in the global risk landscape and the challenges this creates show no signs of slowing. In its recently published, Confronting new market realities, PwC examines the challenges that reinsurers face in keeping underwriting up to speed with the new risk and economic landscape. Reinsurers are facing a rethink about how and where they compete as mature markets slow and the search for fresh sources of value takes them into unfamiliar and potentially riskier markets. “With limited growth in demand for reinsurance in Europe and the US, the rapidly expanding markets of South America, Asia, Africa and the Middle East (SAAAME) offer greater potential for expansion,” says Bauer. But as many reinsurers are following this path, the most attractive SAAAME markets are already overcrowded and fiercely competitive. Changes in patterns of trade and risk in SAAME markets may also be exposing reinsurers to unforeseen losses. For instance, unprecedented growth in production and demand is leading to rising SAAAME liability values and the increasing interconnectivity and interdependence of the SAAAME markets. “Trade within SAAAME is growing much faster than the flows between developed-to-developed and developed-to-emerging markets,” continues Bauer. Since the associated risk

As much as emerging markets present exciting opportunity for reinsurers, in order to capitalise on these, skill is needed to understand and manage more complex and unfamiliar risks. “Risk analytics are already a key differentiator, allowing reinsurers to gain a better understanding of their risks, price more keenly and move in to capitalise on opportunities that competitors may miss or be reluctant to pursue,” observes Bauer. A good example of this is vehicle telematics, which has proved a valuable tool for insurance companies to incentivise better driver behaviour, reducing the cost of claims. While reinsurers tend to cover less frequent and higher value exposures, and therefore look at risk through a different lens from insurers, Bauer believes that they too will be looking to harness the latest developments in technology and ‘big data’ analysis to fine tune their underwriting, reduce losses and enhance returns. “This includes the development of real-time monitoring, new pricing and modelling platforms and automated capture of key risk metrics. They will also be looking to improve efficiency through greater automation in underwriting, quotation, submission and administration,” remarks Bauer. Automated underwriting of routine risks will give underwriters more time to analyse complex, unfamiliar risks and develop solutions for clients. “This includes getting on top of the risks in growth markets where existing data analysis may be limited. Working closely with brokers and modelling teams, smart reinsurers can offer clients a better understanding of how to manage the political, environmental, supply chain interdependency and other risks as they enter new markets and shift production to different parts of the world.” 

What is big data? Big data essentially refers to the unprecedented breadth and depth of data that is available in the world today. According to IBM, 90 per cent of the data in the world today has been created in the last two years alone. “This data comes from everywhere: sensors used to gather climate information; posts to social media sites; digital pictures and videos; purchase transaction records; and cellphone GPS signals, to name a few. This data is big data,” says IBM, describing data as spanning four dimensions: volume, velocity, variety and veracity. VOLUME refers to the ever-growing data of all types that enterprises are inundated with. These endless terabytes of information provide endless opportunities. Twelve terabytes of Tweets created each day can be turned into improved product sentiment analysis. VELOCITY highlights that big data must be used timeously as it streams into an enterprise in order to maximise its value. Five million daily trade events can be scrutinised to identify potential fraud. VARIETY indicates that big data is any type of data, from text to audio, video, log files and more. By analysing different types of data together, new insights are found. Hundreds of live video feeds from surveillance cameras in stores could help target points of interest for customers. VERACITY is vital. As the variety and number of data sources grow, establishing trust in big data is a huge challenge. Information is less likely to lead to decisive action unless it is trusted. Is big data producing big returns? was published in June 2012 by business technology and managed services provider, Avanade. It contains the results of a global survey of 569 C-level executives, business unit leaders and IT decision-makers in 18 countries, to quantify executive attitudes and adoption trends surrounding big data. The report notes, “As big data reaches a tipping point in availability and gains a top spot on the corporate agenda, it is clearly helping companies realise new business value. But big data itself is not a solution. Even with the value it creates, the rise of big data reveals shortcomings in technology, technique and talent to manage it. As executives see more potential value in big data, they understandably report more work to be done.” While big data can hold tremendous value for companies, this rises and falls on how it is managed.

The local landscape

With insured losses in excess of $110 billion and economic losses estimated at $370 billion, a sequence of devastating earthquakes and a large number of weather-related catastrophes made 2011 the costliest year ever in terms of natural catastrophe losses. espite limited exposure to natural catastrophes, local catastrophe programmes experienced significant rate increases. So far, 2012 has not experienced losses anywhere near this magnitude. But whether or not there will be another increase for the January 2013 renewals is highly dependent on the catastrophe experience for the remainder of the year.

Rates “From a South African perspective, the only reinsurance premium hikes in 2012 were catastrophe-treaty related, following a very poor global catastrophe year in 2011. From what I can see, there has already been a relaxing of these premium increases as we move into the latter part of 2012,” says Terry Ray, CEO

of SCOR Africa Limited. “On the larger South African catastrophe programmes placed, there has been an appreciable increase in the cost of capacity emanating from foreign reinsurance markets,” adds Macindoe. “The pricing on the balance of CAT programmes is increasing on a risk-adjusted basis. Single risk excess of loss pricing is moving up based on risk-adjusted pricing and loss experience, while commissions on proportional treaties remain as expiring or are moving downwards, dependent on result.” According to group managing director of Hannover Re Africa, Achim Klennert, South African CAT rates are among the lowest in the world because we have not had significant CAT experiences in the past few decades. “In terms of the return periods of CAT events, this should actually not play a role in the pricing, as we do assume exposure in the 100-year 

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NOT IF, BUT HOW

to the corresponding periods over the last two years. “Of concern is the number of fire losses, the cause of which is electrical in nature,” he notes. “Insurers should pay particular attention to electrical installations when surveying risks to ensure that these comply with the required standards. In addition, surveyors should have a clear understanding of the insured’s mitigation and business continuity plans to recover from an insured event, which information should be carefully considered when underwriting large and complex risks.” Despite the introduction of the Consumer Protection Act, Chiwota says that the reinsurer has not yet seen the full impact that is envisaged on liability claims. “On the surety bond side, we have noted a slight increase in claims resulting from insolvencies, which is reflective of the competitive environment prevailing in the construction industry and the resulting pressure on cash flows of contractors,” he adds. and longer return periods. However, the markets tend to work differently.” Hannover Re’s biggest exposures are the typical CAT exposures carried by South Africa. “Earthquakes in Gauteng and the Western Cape, floods in KwaZulu-Natal and hail in Gauteng are our largest catastrophe exposures and that is not likely to change,” notes Klennert. “Pricing is still relatively driven by territorial experience and, in the context of South Africa, we continue to enjoy a reasonably competitive reinsurance landscape when compared to other major territories around the world,” says Macindoe. Paul Griessel, executive head of SA treaty at Aon Benfield, thinks that rate increases are not necessarily a trend going forward; however, one major catastrophe loss affecting the major international reinsurers between now and year-end could lead to further rate increases. Barring a catastrophe of huge magnitude, Griessel reckons that 2013

renewals will be flat to between three and five per cent increases, dependent on individual portfolios.

Claims On the claims front, managing director of Africa Re, Daryl De Vos, says that the growth in attritional losses, particularly in the property portfolio, is of particular concern. “When you look at the current pricing of the underlying business, you get the feeling that it is not sufficiently priced for a large loss,” he explains. “Motor losses remain a problem. Again, I think this has to do more with intense competition and therefore inadequate pricing, as opposed to an increase in incidents.” Boniface Chiwota, executive manager of underwriting management at Munich Re of Africa, says that there has been a notable increase, both in the number and quantam, of fire-related property claims, compared

Also noting a marked increase in the small-tomedium property commercial market losses, Ray says that this trend is accompanied by fierce competition in the commercial property and engineering spaces, driving original rates lower. “If left unchecked, loss ratios will continue to deteriorate,” he warns. “We write a fairly substantial corporate property reinsurance book, coupled with a sizeable property catastrophe portfolio. This is our current strategy and we do not foresee any major changes to this strategy over the next 12 months.” Reinsurers generally set their catastrophe limits based on an earthquake scenario, but the risk models that measure potential impacts of such a catastrophe will never be entirely accurate. While South Africa’s catastrophe rates reflect the subdued nature of claims activity in this market, Ray notes that they reflect the extent of competition and the lack of an adequate CAT modelling tool for this market, too. 

In the game of the unknown, a combination of science and guesswork is a reality for reinsurers and insurers alike. For example, before the flooding in Mpumalanga at the beginning of the year, South Africa had not experienced extremely severe floods since 1987. There were no flood models available at this time. “Since 2007, technology has advanced and building codes have changed, so that what was a major loss in 1987 may not have the same impact today, or alternatively, due to increased urbanisation and infrastructure development, a similar loss could have a more severe impact. History can provide an indication, but not an accurate prediction, of what the potential damage will be,” remarks Griessel.

Market outlook Despite last year’s catastrophe burden, the international reinsurance markets are in a very healthy state, says Klennert. “The total market capitalisation of the reinsurance sector is at a record level. Risk management in the sector has dramatically improved over the last years and therefore the sector is in a position to meet the growing demands of most of the economies worldwide,” he explains. Additional solutions, such as capital market solutions, are required in a few peak catastrophe

regions only. In the local market, the exit of reinsurance players has enabled new capacity to enter. But Klennert is confident that the established and stable local market players can accommodate most of the local reinsurance needs. However, De Vos is concerned with the level of competition in the market. “The pricing of business is of particular concern. It is at uneconomical levels and not sustainable going forward,” he notes. “As an industry, we currently have challenges with attritional losses and if we were to have a catastrophe it could be devastating to the market in general and the reinsurers in particular.” Griessel believes that reinsurance rate increases have not been passed on by insurers to consumers. Due to the fierce competition in the marketplace, this means that companies have to absorb the costs of these rate increases internally, which is not sustainable in the long term, especially if there are further reinsurance cost increases in December. “These have to be passed on to consumers eventually,” he says. But according to Tjaart Esterhuyse, managing director of RGA Reinsurance Company of South Africa, a hotly contested reinsurance market in South Africa means that insurers benefit from competitive reinsurance rates and support.

“This is certainly aiding insurers, themselves battling to increase sales and gain market share. In such insurance and reinsurance markets it is those that offer new ideas and innovation that will prevail,” he adds. In this vein, RGA has broadened its research and development capability, with a focus on innovation. However, Esterhuyse says that insurers and reinsurers need to balance the drive for new ideas and features against sound risk management. “Scanning the international insurance landscape may be helpful in determining the likely effect of such new features. While it may be the case that no single market is the same, lessons can and must be learnt from what has happened in the past in other markets.” It is clear from the disasters of the past few years that while other markets may be geographically distant, they are up close and personal when it comes to the global impact of the risks that they face. In the course of the exponentially growing productive forces in the modernisation process, hazards and potential threats have been unleashed to an extent previously unknown, writes Beck. These, he says, are destructive forces before which the human imagination stands in awe.

Understanding. Solutions. Service. Claims. Integrity. Easy words to say, demanding ideals to live by. While other reinsurance brokers may perform well on one measure or another, Willis Re is committed to delivering the whole package, with the expertise, scale, technology and passion that consistently defines our service experience.

To find out how we can offer you an extra depth of service combined with extra flexibility, simply contact us: Willis Re (Pty) Limited Hyde Gate, Hyde Park Lane, Cnr Jan Smuts & William Nicol, Hyde Park, 2196 Tel: +27 (11) 341 9600 Fax: +27 (11) 341 9694 www.willisre.com

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Keep on truckinâ&#x20AC;&#x2122;

From soft market conditions to unroadworthy fleets and fatigued drivers, the HCV insurance sector faces serious challenges. We take a look at some of these and find out what role brokers can play to mitigate risks for their clients.

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With all manner of unforeseen incidents possible, securing sufficient event liability cover is crucial. Proper risk management and compliance with the relevant legislation is vital, too.

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Medical aid fraud is costing the industry billions of Rand annually. We take a look at some of the cold, hard facts and what medical schemes are doing to combat this scourge.

Keep on truckinâ&#x20AC;&#x2122; Nick Krige

The heavy commercial vehicle (HCV) insurance industry is highly competitive; soft market conditions, fleets that are not roadworthy and fatigued drivers are just some of the issues that those in the HCV business face. RISKSA takes a look at how brokers should be advising their clients operating in this space.

Unique risks HCV insurance presents challenges to fleet owners, vehicle drivers, other road users and underwriters on a daily basis, according to Chris Smit at CBC Fleet insurance solutions. “The fleet owners must manage their business with a hands-on approach, day to day and ensure the smooth operation of the fleet. Truck drivers are faced with bad road conditions, fatigue, hijackers and in some instances death. Other road users are exposed to horror accidents waiting to happen and avoiding them is part of their day-to-day travel. Underwriters must determine the risk and how to minimise the cost per incident,” says Smit. There is as much competition among insurance

companies operating in the HCV space as there are businesses running fleets of vehicles. This fierce rivalry among insurers has led to a soft market where premiums are reducing as companies try to retain or win more business. “There are about 28 underwriters and insurers in the heavy commercial vehicle market and all are competing for the same business. This has a ripple effect and rates are being compromised to secure new business,” explains Smit. Claims costs are increasing in the HCV space, which is always a problem for insurers especially in a soft market. There are a few reasons behind why claims costs are on the rise; among those is the poor road quality on some of the routes that trucks have to take. 

“More and more, brokers need to have specialised knowledge and greater focus from both a technical and legal perspective to assist the clients in understanding the overall risk exposure of their businesses ...”

There is not much a broker can do about poor road quality, but finding a more effective route is one solution to the problem. Cost-cutting measures that HCV fleets employ in order to remain financially competitive with their rivals are a major problem for insurers and can lead to the condition of vehicles on the road not being up to standard and drivers not being adequately trained or overused, which leads to fatigue. Brokers need to make sure that their clients understand that many cost-cutting measures, such as allowing the condition of vehicles to deteriorate, could possibly lead to a claim being denied. If a truck is not roadworthy, it is breaking the law, and if anything happens to it, the insurer may be reluctant to pay a claim. Ultimately, if a claim is declined, the client is likely to blame their broker, which will put that business relationship at risk. With that in mind, it is important that brokers work with their clients to ensure that any cost-cutting procedures are not jeopardising their cover, and that they continue to operate within their policy to avoid disaster. Brokers should try to avoid relying on only

one underwriter, according to Ian Younger, director of Etana Trucking. “Policy terms, conditions, excesses and cover vary and the broker should ensure that their clients receive the best cover available in the market to cover their specific needs,” Younger says. With all of these challenges being faced daily by the HCV insurance industry and other road users, clients obviously need more than just an insurance solution, which is where risk management comes in.

Risk management techniques The insurance environment is becoming increasingly professional and regulated and, while this is a good thing for the legitimacy of the entire industry, it means that clients will expect their insurance advisers to have the knowledge and expertise to be able to advise them on risk management and solutions. “More and more, brokers need to have specialised knowledge and greater focus from both a technical and legal perspective to assist the clients in understanding the overall risk exposure of their businesses,” says Russell Fivaz, business development manager of Insurance Underwriting Managers.

It is imperative that every fleet owner has an effective risk management solution in place to actively monitor his fleet. These systems can include anything from telematics devices that monitor a vehicle’s performance on the road, to systems that monitor the entire vehicle and include readings for tyre pressure and vehicle health. “Camera systems are becoming very popular and have a significant effect on the driver’s behaviour and driving style. We have experienced vast improvements in the number of incidents taking place where camera systems are introduced. In some instances fleets have shown a 100 per cent improvement,” says Smit. In addition to fleet management systems and cameras to monitor driver behaviour, intermediaries should advise their clients to consider implementing driver training programmes to ensure they do not become complacent, as well as in-depth driver medicals, secondary tracking devices and performance-based incentives to drivers. Etana Trucking has an extensive criteria checklist that the company believes clients should go through with each one of their drivers. “It’s a fact that drivers’ licences can be bought. Transport operators must check that the

person hired can actually drive the vehicle for which they hold a licence. A major asset is in their hands and several checks are vital,” says Younger.

Driver checklist: • Can they drive? Employers must take the time to have the driver expertly assessed by an experienced fleet manager or an external independent body prior to employment. • Training: Send your drivers on an advanced driver training course. • Ongoing assessment: Assess drivers regularly, at least annually because people change; examples are eyesight, drinking habits and physical issues. • History: Always check the driver’s work and personal history through previous employers before you appoint them. • Documents: Obtain a copy of all the driver’s documents and keep these on file. • Criminal record: Check for a criminal record before employing. • Syndicate plants: Transporters are employing foreign drivers and it is almost impossible to verify the drivers’ licences, previous employment details or criminal record. Syndicates often plant drivers into organisations in order to hijack the load and the vehicle. HSBU Otta Advert.ai

2012/08/31

• Driver care and loyalty: Ensure that your drivers are fit, healthy, well fed and well hydrated. They must be rewarded and motivated. They are an asset to your company so treat them as such. Keep them loyal. • Health check: Appoint a company doctor to examine your drivers before and after you employ them. Often the doctor’s certificate provided by the employee is not worth the paper it is written on. • Pushing beyond limits: Do not push drivers to achieve unreasonable targets in order to achieve quotas if you are being paid per tonnage hauled. • Frequent stops: Ensure that drivers make frequent stops on long journeys. • Alcohol/drugs: Ensure that your drivers do not drink alcohol or take drugs; explain the consequences of doing so. A high percentage of drivers killed in road accidents have blood-alcohol levels that are over the limit. • Do not overload: Exceeding the capacity of the vehicle will cause it to deteriorate more quickly. Overloaded trucks also have a severely detrimental effect on the national road network. • Systems: Have adequate fleet management and anti-hijack systems on all vehicles. • Watch: Monitor your fleet 24/7 via a fleet

management system. • Action: Make sure that the data gleaned from the fleet management system is monitored and that any infringements are acted upon. Speeding, route deviation, over revving, harsh braking are just some of the examples that need to be addressed by management. In addition to these actions that need to be employed by individual companies, Etana Trucking also believes there are steps that need to be taken at a national level to reduce the risks to HCV fleets. “On our roads: speed kills. Heavy duty vehicle maximum speed should be reduced to 80 km/h,” believes Younger.

The broker’s role Sometimes it might seem enough to offer a client the insurance cover and leave a meeting knowing you have supplied the best possible insurance cover for that business. However, the broker’s role is about so much more than that. To ensure that their clients receive the best service and the greatest chance of being paid out for a claim, intermediaries need to explain the importance of things like risk management and not allowing vehicles to become unsafe. At the end of the day it is more lucrative for 

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everybody involved if incidents and claims are kept to a minimum; even for a fleet with ample insurance cover, an inactive truck equals profit lost. “They need to explain why the vehicles must be in a roadworthy condition at all times: not only will this ensure that the load arrives at the customer safe and sound, but it will also ensure that the insurer cannot repudiate the claim due to the vehicle not being roadworthy; such as no brakes, bald tyres, light issues and more,” says Younger. The broker should be fully aware of the individual needs of each transporter on their books and have strong knowledge of the insurance products available so they can provide their clients with the best possible advice. “Intermediaries should have a close relationship with their clients as well as an understanding of the client’s business. The intermediary must be aware of the impact of a client’s vehicle being disabled by an insured event and how it will impact on the client’s business. It is important that when a vehicle can be repaired, that the work is done by a productspecific repairer that will minimise the down time and present the client with a vehicle in the same or better condition prior to the loss. The most critical factor is that the intermediary must have a passion for transport and its challenges,” says Smit. A few of the things intermediaries need to be aware of are the areas in which their clients operate transport services and the hours of operation; the number of kilometres each vehicle travels per month; on what basis drivers are employed; the commodities being transported; and the infrastructure, policies and procedures the company has in place, according to Fivaz.

"Intermediaries should have a close relationship with their clients as well as an understanding of the client’s business."

Brokers should make sure that their clients are familiar with what actions need to be taken in the unfortunate case of an incident. “A claims procedure document must be sent to all clients to have on hand. We recommend that this claims document also be easily available on the broker’s website. Brokers must be able to explain to the client what documents are required from each driver when employed, especially with foreign drivers. Their drivers must at all times comply with the South African Road Traffic Act. The required documents may vary from country to country in the case of foreign drivers. There is usually an additional excess levied by insurers should the driver be from a foreign territory,” adds Younger. In the event of a claim, intermediaries need to remain actively involved in the claims process. “In order to minimise the disruption to the client’s business, the broker must assist in setting up processes for liaising with the insurer during recovery, accident reconstruction and clean-up, the timeous reporting of claims, the submission of supporting documents and the

provision of information or documentation during the claims process,” says Fivaz.

Crossing the border Clients should be informed that carrying loads across an international border may incur additional costs. However, this is not always the case. “A transporter that is carrying loads across the borders may incur additional premium and an additional excess but this depends what the vehicle is carrying and into which territory the client is travelling,” explains Younger. There are many risk factors when crossing the border out of South Africa. “When vehicles travel across borders there are many challenges and logistics, such as long waiting periods at border posts, thefts of tyres and rims when waiting at border post, corrupt officials and poor road infrastructure in some African countries. These are just a few issues, but the list can go on and on,” warns Smit. It is important to understand how much influence a chosen insurer has outside of the boundaries of South Africa, especially if a client frequently has vehicles crossing borders. “HCV underwriters and insurers have less control over accidents occurring outside the borders of South Africa. Excessive costs normally incur (such as towing and storage), and we have

to rely on second-hand information from the broker. Most of the vehicles are towed back to South Africa, which makes it difficult for the loss adjuster to establish what damages are accident related, and what damages are regarded as old damage,” says Peter O’Dwyer, managing director of Omnicover Transport and Transit Acceptances (OTTA). As with insurance companies, not all telematics devices are as effective once a truck leaves South Africa’s borders, but there are still things companies can look out for to mitigate risk. “Ensure that drivers use only truck stops that are permanently protected by armed security guards. Drivers should never pick up hitchhikers as this is one of the easiest ways to get hijacked. They should

travel in convoy as often as possible and use armed escorts when transporting high-value goods. Drivers need to be aware of their surroundings at all times and should they feel threatened, they must stop at the nearest police station,” advises Younger. Fleet managers should be aware of third-party insurance purchased at a border post, as it is often very difficult to make a claim against them. “These insurance slips are in some instances inferior and it is difficult to lodge a claim against them. A good alternative is to purchase the third party liability cover in the RSA and have peace of mind when entering a neighbouring country. The premiums for fleets that travel cross border are somewhat affected,” says Smit. 

Negative effects of cost cutting As a competitive industry, companies operating in the heavy commercial vehicle space are always looking for ways to reduce cost and increase profits. While this can be a great way to improve a business’s efficiency, it is imperative that any measures taken to reduce cost do not put any of the vehicles, drivers or other road users at risk. “Cost-cutting methods such as delaying scheduled vehicle maintenance services or vital repairs often end up in catastrophe. The transporter has been asked to deliver a load urgently and is aware that the vehicle is not 100 per cent roadworthy and the service will be done after just one more load. Brakes fail and the truck ploughs through traffic causing significant damage and loss of life – all because of ‘just one more load’,” cautions Younger. If a vehicle is involved in an accident and it is discovered that it was not roadworthy when it departed, it will be virtually impossible for that company to make a successful insurance claim. “We must not lose sight of the fact that the law of the land overrides any law of contract; therefore, a client’s vehicle or fleet of vehicles should be roadworthy at all times. Plus, any transport-type policy stipulates clearly in the terms of the roadworthiness condition (listed in

terms of the specific conditions section) that the vehicle must be roadworthy at all times. Failure to comply will result in the underwriter/insurer rejecting the claim,” explains O’Dwyer. “Cost-cutting measures of this nature result in increased claims frequencies, larger losses for insurers and increased premiums for the client. No-one wins in this situation. The insurer experiences a reduction in underwriting profits and the client experiences a negative effect on their claims ratios and reduced cash flow in their business as a result of excesses charged and increased premiums,” says Fivaz.

Driver fatigue “Fatigue is the main culprit for major losses and deaths where trucks are involved,” according to Smit. Brokers have to encourage their clients to monitor driver behaviour and incentives for accident-free kilometres over total distance travelled. “Some drivers spend in excess of 15 hours behind the wheel daily and get to sleep and rest only during loading or unloading of the vehicle,” explains Younger, “Sufficient rest is key. Incentivise drivers for loads arriving safely as opposed to loads arriving quickly.” It is one thing to have rules and regulations with regard to driver behaviour, but they need to be properly monitored and enforced for them to have any real effect. “This has been an historical problem (especially with small

to medium businesses) in the transport industry, especially if the driver chases overtime and bonuses. This can also be a result of a lack of risk management from the owner’s side,” says O’Dwyer. Completely eliminating the risks caused by driver fatigue will be difficult according to Smit, “Legislation is clear on the number of hours a driver can drive a vehicle but there is no way to put it into practice and to enforce it. The only way that driver fatigue can be eliminated is to prohibit any truck to travel between 22h00 and 04h00. This will force truck drivers to rest and continue their journey fresh. Nevertheless, requirements from suppliers to have cargo delivered at destinations by a certain time make the grounding of vehicles virtually impossible.” This makes it even more important for brokers to advise their clients about the dangers of allowing their drivers to overwork themselves. It is vital that intermediaries advise clients of the value of effective risk management. Short-term gains do not equal long-term solutions. Often a bit of extra money spent, such as on a good telematics system or incentivising drivers to deliver goods safely rather than quickly, can result in a more effective and successful business.

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Profile Michael Salant (GM)

Heavy Commercial Vehicles Underwriting Managers (Pty) Ltd (HCV)

ou bring a wealth of experience to your position. Can you share a few pearls of business wisdom that you’ve picked up along the way?

I certainly do not assume to be wise but share the following observations: • A direct correlation between experience and time spent in the industry should not be inferred, as some of us are more active and receptive to the accumulation of knowledge and skills than others. • Ours is an industry that operates through relationships. Nurture these with sincerity and purpose, but don’t pursue or retain these at the expense of your personal values and those of your company. Integrity is at all times sacrosanct and no opportunity justifies a compromise of this virtue. • In times of dispute, memories, even among the closest, fade. Document the terms of all relevant communications to the extent that they may have to stand up to the scrutiny of our courts. • Whenever you can, present to economic decision makers. But never neglect forging relationships with their PAs. They are the gateway to appointments and a very useful source of internal information. Heavy commercial insurance in Africa is not for sissies and HCV has built an enviable reputation in this arena. What are some of the challenges you’ve had to face up front in your new role? Anyone who is part of it will tell you that the transport industry is highly competitive. Consequently, many fleet/truck owners see short-term operational saving as critical to their survival. Irresponsible business behaviour involving inappropriate financial prioritisation ensues and costs on maintenance may be compromised. Effective risk management is often neglected and operations run under considerable stress. The results are that nonroadworthy vehicles drive daily on our roads with fatigued drivers battling to meet absurd targets. This is a dangerous concoction with often disastrous results.

RISKSA caught up with Michael Salant, general manager of HCV Underwriting Managers, who told us about some of the major risks facing this sector and shared his advice with brokers.

Economic hardships are exacerbated by brokers who shop for the cheapest insurance quotes without adequately covering the needs of their clients. Inappropriate insurance products are then sold. This approach does not provide satisfactory solutions to clients, who may only discover their folly on the occurrence of uninsurable losses. In summary, a major challenge facing us is to gain buy-in from brokers. To best serve the interests of clients we need to encourage prudent risk management and provide solutions that meet needs, as opposed to commoditising insurance product purchase.

“Earn the respect as a trusted adviser and demonstrate value through your considered and competent input.”

You are on record as being pro trucker. Do truckers in South Africa have a raw deal when it comes to working conditions? HCV remains committed to the trucker. We acknowledge and support the essential role they play in our economy. Many fleet owners consistently prove to be responsible and ethical employers. They recognise the key function of their truckers and reward them appropriately through fair employment practices. However, our industry experience demonstrates that many truckers are abused by their employers who react as such due to financial pressures. This manifests through unrealistic

High-tech innovations, especially vehicle telematics, are providing insurance solutions unheard of even a few years ago. What is HCV’s take on telematics?

and the benefits of a commercial telematics programme for carriers are being realised at different levels. Fleet owners and underwriters can use driving information never available before, including distance travelled; average trip speed and where speed limits are exceeded; estimated percentage of time travelled; and dangerous braking. However, these are merely tools. If the data collected is effectively used to control deviant driver behaviour, then the application is of tremendous value. It is when the fleet owner follows the protocol without such commitment that we are sceptical. Attitude manages risk.

Telematic devices are tools that provide tremendous risk management opportunities

Do you have a message for our RISKSA broker readers?

work hours and the poor conditions of the trucks they drive. Certain incidents have highlighted that the drivers’ lives – and naturally the lives of other road users – are often compromised. Many of these vehicles should simply not be on the road. The drivers are aware of the dangers but are often silent merely to sustain their livelihood. This situation is indeed concerning.

A broker who believes his primary role is to procure the cheapest quotes for his clients, sets the benchmark of his own assessment. The loyalty of the association is thus largely dependent on the price of the premiums. However, a key criterion to develop and sustain a successful business is determined by the manner in which you align your objectives to the interests of your clients. Firstly you should seek to understand the business drivers of your clients. Once these have been clarified, the broker will be best positioned to optimally protect the clients’ livelihoods. Earn the respect as a trusted adviser and demonstrate value through your considered and competent input. The success of your delivery will positively impact on the success of your client’s business.

Investment

art

needs specialist insurance Andre Krause, national manager: distribution, Glacier by Sanlam

rt as investment is becoming more mainstream and along with this, the need to protect the investment is ever more pressing. While many artworks carry sentimental value and may be irreplaceable, clients still need monetary compensation in the event of theft, loss or damage. According to Stefan Hundt, head of Sanlam Private Investments’ Art Advisory Service, “There is little doubt that art has become a seriously investible commodity that should enjoy the same consideration as any other investmentgrade asset class. In a recent Financial Mail article, art was identified alongside prime property as a relative safe haven for international money.” In light of this, clients need specialist advice when it comes to their art collections, as a general householder’s policy may not offer the best solution. Five years ago, a client inherited an Irma Stern painting, which at the time was insured under a household contents policy for a value of R875 000. Five years later, the painting was worth R22 million and we advised the client to transfer the insurance to a specialist art insurer. The rate given to the client was as competitive as on the household cover; however, the cover

provided is now on an agreed valuation basis. The agreed value policy has no average clause, meaning that in the event of a partial loss, for example, a chip on the frame, the insurance company will replace or repair the painting, regardless.

“There is little doubt that art has become a seriously investible commodity.” If the painting is damaged or happens to fall, the client will get paid out R22 million. However, if the client wishes to keep the painting due to sentimental reasons, they will be paid out the difference between the initial and current values. If the client has conventional cover for fire and theft, this may be extended to include all risks cover but this is generally a more costly way of obtaining full cover. An important clause in the policy is the Pair and Sets clause. This recognises instances where two paintings are sold as a pair. If one is damaged, the client will be paid out for the damaged

painting and offered the option of keeping the second painting. They may also elect to hand over the second painting and receive a full pay-out for both. Another example is that of a client who hires out period clothing for film shoots. The client has a collection of in excess of 4 000 items of clothing, which essentially have no resale value. However, by going the specialist insurance route (once again with an art insurer), the clothing is insured on the basis of an agreed replacement value. If any of the items are damaged, the payout will be according to the agreed value. Under a normal policy, these items would generally be insured at cost price. Art insurance is a specialised and necessary form of insurance. Clients considering taking out art insurance should always get a professional valuation upfront, as it becomes more difficult to prove a valuation at claims stage. It’s important to note that there are no certified valuers for artworks in South Africa which means that when appointing someone to value the artwork, clients and their intermediaries should always check the credentials beforehand. They can also request their art insurer to provide a list of recommended valuers.

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Call for aviation industry

to be more risk conscious General aviation is an industry associated with significant risks and, over recent months, has reflected a spike in fatalities in South Africa. This has highlighted the importance of risk management and general aviation insurance for aircraft owners and operators.

n the past two months alone, over eight fatalities have been recorded, with the majority resulting from human error,” says James Godden, aviation insurance expert and head of Santam Aviation. This finding follows on from the disastrous record of fatalities reported in 2008, where 224 incidents were acknowledged by the end of the year which is the highest reported to date in South Africa. With general aviation forming part of a niche industry, the country does carry a substantial light aircraft population. General aviation insurance currently represents less than half a billion Rand of the entire insurance industry. South Africa’s largest short-term insurer Santam accounts for 15 per cent of this market share through Santam Aviation and has subsequently increased this with the recent acquisition of Regent Aviation’s books to around 25 per cent.

According to the International Council of Aircraft Owner and Pilot Associations (IAOPA), general aviation includes all civil aviation operations other than scheduled air services and non-scheduled air transport operations for remuneration or hire. In terms of risk management within general aviation, a concerning factor is the quality of training obtained by pilots flying aircraft. “Pilots applying for sports (ultra light aircraft) licences are generally subjected to less training hours in order to qualify and this results in many inexperienced and under qualified-pilots taking to the sky,” says Godden. Research performed by the South African Civil Aviation Authority (SACAA) revealed that during 2006-2010, 65 per cent of accidents occurred in private operations with poor airmanship and technique topping the list of causes.

The additional risk of more non-commercial aviation activity is also a concern expressed by the industry. This led to the launch of a national safety initiative by pilots and their organisations called the Fly Safe Campaign. Robin Spencer Carr, a well-known aviation personality comments, “Regulation alone will not bring down the rate of aviation accidents, more innovative ways to change existing aviation culture and personal attitudes towards voluntary compliance must be developed soon.” Initiatives such as graphic advertisements with strong messages encouraging pilots to be more risk conscious are some of the practical proposals that are supported by Santam Aviation. As calls for more stringent regulations against aviation transgressors have been put forward, Godden adds that continuous retraining of these transgressors could mitigate risk caused by human error.

Insurance fraud

in the short-term industry Short-term insurance is a form of risk management primarily used to hedge against the risk of an uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.

n the event of a claimable loss, clients must understand that the duty of the insurance company is to put the client back into the same position that they were in prior to the loss or incident. Clients sometimes tend to make an error in judgment and submit a claim for items that they never owned and, in some cases, for items that they wish they had. In doing so, clients inflate their claims with their insurance companies. At Momentum Short-term Insurance (STI), we have found that with our unique individual underwriting model and our robust claims validation process, cases of fraud have been steadily declining over the past few years. An example of an inflated claim is where a client is a victim of a burglary at his home. At validation stage, it is established that the client claimed for a 54 inch HD Plasma television when the television that was stolen was a 74 centimetre television. Some clients may have the misconception that they are entitled to claim for an item of their choice since they have been paying a premium to the insurance company on a monthly basis. Financial advisers can play an important role in assisting clients in understanding they are paying a premium based on the description of the item noted on their schedule and the risk profile associated to the item, and if they should claim for anything else, the claim will

prejudice the insurance company and this will be seen as insurance fraud. Inflation of claims, which insurers term as insurance fraud, is a serious offence. If a client is found guilty of insurance fraud through the validation process, their insurance policy will be cancelled and the chances of them ever getting short-term cover in the future are very slim. In terms of legal processes, the affected insurance company is also entitled to institute a claim against the client in order to reclaim whatever was paid. Some important points that your clients should remember in order to avoid insurance fraud are as follows: •

lways provide the insurance company A with true and complete information about the incident claimed for as well as items being claimed for.

•

I f for some reason there was a legitimate error at claims stage about the description of the item, the client should call the insurance company and rectify this error as soon as possible.

•

lients should try and keep a record C of all the purchases that are made on items that they buy and intend to

insure. If these documents and receipts are presented at claims stage, the validation process becomes faster and more efficient. There have been recent reports of identity theft where criminals and syndicates are getting their hands on clients’ confidential information and calling insurance companies to buy insurance with the sole purpose of defrauding the insurance company. Clients should take extra care in securing their confidential information to avoid such incidents. Fraud in the industry is a scourge that needs to be rooted out. It is for this reason that Momentum STI utilises its unique individual underwriting model with a detailed range of questions, combined with advanced management information systems and proper claims validation. We owe it to our clients and intermediaries to identify and settle valid claims quickly, accurately and correctly. For more information on Momentum Short-term Insurance, please contact your specialist marketing adviser or our call centre on 0860 006 784.

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short-term insurance

Average condition

A PARADOX Nick Beyers, executive director, Renasa Insurance Company Limited uch has been written over the years about the condition of average and its implications in the event that clients are underinsured at the time of a loss.

The application of average is the method used by insurers to obviate the effects of under-insurance. It makes an insured a co-insurer when under-insurance exists, the insurers paying only that proportion of the loss that the sum insured bears to the value of the property at the time of the loss. I am sure that many of you have either read articles about, or indeed have been involved in, the application of average on a claim. When this happens, emotions run high, particularly when insurers unilaterally decide what the replacement costs will be, and the client realises that he will not be indemnified to the full extent of his claim. In many cases where this happens, a client is lost. The funny thing about South African consumers is that many of them donâ&#x20AC;&#x2122;t even complain, they just move. Of course, there are those who advocate that the average condition should be removed. But what would be the effect of such a move? I am sure that there are many answers to my questions, but two immediately spring to mind. The first is the concept that an insurance pool pays the losses of the few from the contributions of the many. This, in turn, depends on two important factors, namely: that appropriate rates are charged, and that these rates are

applied to the full values at risk. This ensures a proper contribution to the fund by all concerned. Surely, as a general principle of insurance, this still prevails. The second is that in my view, where underinsurance exists, insurers are penalised for an adequate premium is not paid. If, as a result, rates are increased, policyholders in general are prejudiced because one person has not made his proper contribution to the fund. Of course, there will be those who will argue that these issues can and should be dealt with by increasing rates. Whether or not this would be the correct approach to the problem, frankly, I am not convinced. Examples of potential solutions may include first loss policies or a client wishing to specify the items that he would like to cover. Neither of these options would solve our dilemma. Apart from the risk of antiselection against the insurance company,

there would be a real danger that the first loss amount is not sufficient to cover the loss. Specifying items may not solve the problem either if the insured suffers a loss or damage for items that are not included on the schedule. This article refers to the paradox caused by the average condition. Insurers do not like to apply average as it does little for our reputations as an industry, and on the other hand clients feel cheated by its application. But, until we find something more equitable, the importation of the average condition is the only fair method we have. It is my belief that deliberate under-insurance is unfair. Average, by making the insured a co-insurer, rectifies this.

Brokers concerned about client retention B

rokers are less confident in the second quarter about retaining existing clients and attracting new clients over the next 12 months.

The latest CIB Broker Confidence Index (BCI), which is based on responses from 362 shortterm insurance brokers, including corporate, bank and independent brokers, reveals that 75 per cent of brokers believe they will retain their existing clients, down three percentage points from the first quarter. Confidence in attaining new clients over the next 12 months fell seven percentage points to 65 per cent from the previous quarter. Lisa Teixeira, COO at CIB, says the results reflect the fact that brokers are growing increasingly concerned about the impact of the economy on their business. “The South African economy has shown to be weakening this year, with employment falling short of expectations. Brokers are clearly concerned that this combination may lead consumers to reduce or cancel their cover,” says Teixeira. Confidence regarding an improvement in business conditions for the local insurance industry fell two percentage points to 61 per cent in the second quarter. Reflecting concerns over the fate of the South African consumer, 62 per cent of brokers believe that the bulk of their

business will come from individuals over the next 12 months, down from 67.6 per cent in the first quarter of the year. Instead, brokers expect more business from SMMEs, at 26.8 per cent, up from 19.8 per cent previously.

brokers writing more business from SMMEs in the months to come,” she concludes.

Of the biggest challenges facing their business over the next 12 months, complying with legislation remains the biggest concern at 39.5 per cent. However, this is down nearly eight percentage points from the previous quarter. “This could be attributed to an acceptance of regulation and the fact that quite a few of the brokers have now written and passed their relative RE exams,” comments Teixeira. Concern about the impact of direct insurers on the short-term insurance industry is rising steadily, from 19.1 per cent in the first quarter to 23.8 per cent in the second quarter. When looking at year-on-year figures, this is as compared to 17 per cent and 18 per cent during quarter one and quarter two of 2011, respectively. Teixeira says these concerns are in line with increasing activity from direct insurers, with more players almost daily. “However, there is now a trend among direct insurers to include the life side of insurance and even some who are eyeing out the broker channel as an alternate distribution model. We expect to see

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Debating the benefits of

credit

shortfall

Christelle Fourie Managing director of MUA Insurance Acceptances

Why this optional extra is a must when buying vehicles on credit

redit shortfall, also known as topup insurance or gap insurance, is an optional extension that an insured can add to their motor insurance policy once they have purchased a motor vehicle. This insurance covers the difference between what the vehicle is insured for and what the insured owes the bank in the event of it being written off or stolen soon after being purchased.

Pair this with the fact that most insurance companies will subtract the excess that the insured still has to pay to the insurance provider before they pay the balance to the bank that financed the car, and most consumers will find themselves in the position of not only having no car, but also owing the bank a significant amount of money. This means they do not have money for a deposit or a vehicle to trade in.

It is important to remind your clients at this point to make sure that the car is still insured for the correct value. Even if the policy states the vehicle is insured for R150 000, in reality the motor vehicle is probably worth closer to R100 000 a few years down the line.

Whenever a car is purchased on credit, the bank requires the buyer to take out a comprehensive motor insurance policy in order to grant the loan. If the new motor vehicle is bought for R200 000, the insurance company insures the car for R200 000. However, a standard motor insurance policy does not cover the additional finance charges incurred, which actually results in the total figure owed to the bank being closer to R240 000.

This is where credit shortfall comes in; it pays out the difference between the insurance payout and the outstanding loan on the car. However, it is important that your clients understand that they will still owe the excess payment to the insurer.

Inform clients that credit shortfall cover will pay out only a percentage of the motor vehicleâ&#x20AC;&#x2122;s value, which in some cases may not be sufficient to settle the outstanding balance owed to the finance house. In addition, credit shortfall cover will pay out only if the total loss of the vehicle was a valid claim under the policy and no arrear instalments or interest will be covered.

If the vehicle is stolen or written off a few months later, the motor vehicle has already depreciated by at least 15 per cent resulting in the insurance company paying out either the retail or market value of the car and not the original sale price.

It must be noted that credit shortfall is no longer necessary a year or two after purchasing the vehicle. On an annual basis, the insured should check the exact amount still owed to the finance house in order to compare it to the amount for which the vehicle is insured. When the client reaches the point where they owe the bank less than or the same amount as the insured value, they no longer need credit shortfall cover.

As a result, the insurance policy will pay out only what the vehicle is worth and not what it is insured for.

Obviously if your client purchases a car for cash, credit shortfall is not necessary. However, for the majority of people who do use finance to purchase a vehicle, it is always a good idea to take precautionary measures and take out credit shortfall to avoid possible significant financial strain.

Rise occasion to the

Tragic incidents like Englandâ&#x20AC;&#x2122;s Hillsborough stampede in 1989 and the Ellis Park soccer stadium disaster in 2001, where several lives were lost, linger in the minds of sports enthusiasts across the world. Every major event comes with its own set of risks. Astute safety measures and liability cover are vital to avoid such catastrophes. Anton Pretorius and Hanna Barry

An expectation of safety Sponsoring one of South Africa’s biggest cycling events, the 94.7 Cycle Challenge, Momentum says that to pull off a safe and successful event of this size can be a logistical nightmare if the proper precautions are not implemented. Regarded as the second-largest cycling event in the world, this year’s 94.7 Cycle Challenge will see 38 000 people take to their bicycles, with more than 3 500 staff members deployed and thousands of spectators from across the country turning up to support the event. A company that prides itself on safe and sound investments cannot afford to damage its reputation with any risky slip-ups, not even when sponsoring an event outside its sphere. “Any threat to a flawlessly successful event erodes all efforts and investment, so making sure that every year, everyone enjoys a professionally organised event is very important to us,” says Momentum. When Momentum was approached for sponsorship, one of the clinchers was the race’s association with professional event organisers Harford Sports Promotions (HSP), who have been organising the race for the past 16 years. With over 25 years of experience organising mass participation events, risk mitigation and management falls squarely into the lap of Tanya Harford and her team at HSP. “Entrants have an expectation of safety and precautions are implemented by practicing rigorous adherence to the legislative requirements of the public liability of every service provider connected to the event,” says Harford. In effect, this represents multiple layers of risk management. After applying their own assessment, the race organiser stipulates that each individual supplier applies their level of risk management, relating to their field of expertise. This includes the suppliers of scaffolding, music systems, entertainers, caterers, refreshment vendors, toilets and security. To protect the organisers, all cyclists are required to sign an indemnity clause acknowledging the risks and hazards that exist within an event of this nature. The indemnity specifies that the organisers and affiliates accept no responsibility or liability against any loss, damage, injury, disability, death, expense or cost of liability suffered by the rider. However, the indemnity does state that a full refund of the entry fee will be given to riders who are unable to participate in the Cycle Tour due to death. As an added precautionary measure, Momentum organises a medical evaluation centre at the Cycle Challenge expo and encourages entrants to have a quick checkup. Blood pressure, heart rate and cholesterol readings give an insight into potential health risks. Even with painstaking precautionary

measures in place, it’s impossible to prevent all accidents, especially with a gruelling event like the 94.7 Cycle Challenge. In 2009, cyclist Richard Sydney Stevens (55) from Alberton collapsed at the finish line, and was declared dead at the hospital. In the same race, a second cyclist in his 50s was operated on for head injuries after falling from his bike; while another 12 cyclists were admitted to hospital for treatment. HSP does everything in its power to make sure event organisers are not held liable for any incidents. At the event, a hospital is set up at the finish line; an emergency helicopter is constantly on standby and a fleet of Netcare 911 ambulances are on the route. An entrant who needs to be medically airlifted can be taken to any hospital in the greater Johannesburg and Pretoria areas, as they are all on standby. Route integrity remains a priority, as taking over the city’s roads is a drawcard for entrants and a significant contributor to safety. Without the full support of the City of Johannesburg, closing the roads would not be possible. Over 4 000 highly visible straw bales, more than nine kilometres of fencing and active policing and traffic control is used to make sure that motorists don’t break through the cordons. “I am cognisant of the responsibility of risk management of the Cycle Challenge and it is an emotional weight that sits on my shoulders. Risk assessment is part of our disaster planning. We set our protocols based on international best practices in safety, but with years of experience we are able to take an holistic view of anticipating any eventuality on the day,” says Harford.

Assume nothing, check everything Tiaan Erasmus, manager of general liability within Etana Specialist Risks, believes that brokers need to understand and communicate to their clients that special event insurance is complex and requires expertise. Etana provided a comprehensive risk management and insurance programme for the 2011 Top Gear Festival held at the Kyalami Race Track in Johannesburg. Etana surveyors did a comprehensive survey of the premises, checking the structural integrity of the temporary spectator stands and ensuring they carried the weight of the optimum number of visitors. A collapse would have been catastrophic, both with regard to potential loss of life, as well as the damage to the reputation of the event planner and the Top Gear brand. Tight and proactive planning was necessary for paramedics, fire stations and emergency services, which all had to be on standby. Emergency exits needed to be investigated, too. “We had to make sure that the emergency exits could cope with large crowds, should the need arise to evacuate quickly and safely,” says Erasmus. “No matter how sophisticated the venue may appear to be, never assume anything,” he adds. “While you can plan for any emergency imaginable, there’s always the chance that something unforeseen can go wrong. This is where a good public liability insurance policy is as much a part of risk management as ensuring first aid treatment.” Etana provided the event organisers with a public liability capacity of up to R100 million. But this does not only

apply to event organisers. Brokers should advise their clients to ensure that all their subcontractors have adequate and valid liability insurance in place. Erasmus believes that common sense is another great risk management tool. “Always do a walk-through survey. Different venues pose unique risks. Stadiums, hotels, convention centres, road races, race tracks and beaches each present their own set of risks. For example, when it comes to balconies, overconsumption of alcohol needs to be factored into the risk management policy. The training of personnel with regard to selling alcohol and evacuation is also required.”

Holding everyone accountable With the implementation of the Safety at Sports and Recreational Events Act 2 of 2010, event planners, conference organisers and business owners face a tough regulatory environment. And with greater uncertainty and personal risk in virtually all dimensions of their business, it emphasises the importance of expert risk management and specialist underwriting. Denise Hattingh, owner and key individual at KEU Underwriting Managers, says one of the biggest changes in the life of an event organiser was the implementation of the act. “The act not only protects participants, spectators and their belongings, but also ensures that the planning, management and enforcement of safety is handled by competent people. More importantly, it keeps role players accountable,” she says. The most significant implication of the act is 

11 years of rousing performance

This is KEU’s 11th year of stellar performance in delivering tailor-made insurance solutions to the film, television, events and entertainment industries. Since the opening act, KEU has struck the right balance between good partners, a solid track record and the flexibility needed in the entertainment industry. We’d like to thank our entire team – the star performers at the frontline, the technical team behind the scenes and of course, our partners – for helping us to tell a new story in insurance solutions for the entertainment industry. Here’s to the next exciting episode in KEU’s story!

Film Producers’ Indemnity

Prize Indemnity

Event Liability

Event Cancellation

Equipment All Risk

Contact Denise Hattingh 0861 00 0090 email: denise@keu.co.za www.keu.co.za

KEU Underwriting Managers CC underwritten by Centriq Insurance Company (RF) Ltd, will partner only with registered short-term brokers to ensure your risk is covered. KEU is a member of SAUMA. Authorised FSP: KEU 5076 Authorised FSP: CENTRIQ 3417 1449 Q | Keu Advert_Landscape_175x85.indd 1

2012/09/14 10:09 AM

that the event organiser, the sponsor and the venue owners are all deemed responsible for an event. Hattingh adds that it makes the sponsor of the event liable for damages, even if they are not the organiser. “Liability and cancellation cover are the most important covers to have. Massive cost implications result from a cancelled event and this obviously applies to liability, too,” she says. The act refers to all events in a venue which can host a minimum of 2 000 people, seating or standing. “Even if you are planning an event for 300 people and the venue has a capacity of 2 000 people, the act will still be applicable,” notes Hattingh. The act stipulates that an event organiser must, at least six months before the start of an event, submit an annual schedule of events to the National Commissioner. This allows the Commissioner to categorise the safety and security risk associated with each event. The particulars that must be contained in the schedule include the popularity or reputation of any team participating in the event; the expected attendance and historic record of attendance; location; suitability of a stadium, venue or route; spectator facility; level of physical and human resources; safety infrastructure; and any information regarding the consumption and selling of alcohol.

Prevention is better than cure

management systems in place,” says Frank Brooks, Old Mutual’s sponsorship manager.

Sponsoring the annual Two Oceans Marathon and Kirstenbosch Summer Sunset Concert Series, Old Mutual considers public liability cover as the most important aspect when sponsoring such big events. Leading up to these events, the public liability policy allows the insurer to engage with health and safety officials from the local council, informing them of all activation plans. These plans are signed off by officials ahead of the event. At the event itself, there is a special operations room equipped to deal with any emergency that may arise. With an air-tight public liability policy, Old Mutual has not received any claims of late, but some strange claims have surfaced while dealing with events of this magnitude. The most unusual claim was that of a runner for a broken tooth, which he maintains was caused by one of the posters along the route. The claim was processed and settled under the event’s public liability policy.

Securing peace of mind

A more serious and unfortunate incident experienced by Old Mutual during the 12 years of the Two Oceans Marathon was the death of a runner due to a heart attack. “We continue to upgrade our medical facilities and increase the number of emergency points along the route to ensure that we have adequate disaster

Hattingh has seen some peculiar claims in her time at KEU. “At one mountain-biking event, a participant was injured who, as a result of the injury, could not participate in an international cycling event for which they had been preparing. A claim for mental anguish was submitted as the cyclist stated that this was caused after viewing the event on television, without being able to attend in person.” In a separate claim, a tent was blown over by a strong wind and injured some of the spectators. One of these was a child who suffered an asthma attack caused by stress and anxiety after witnessing spectators being injured. In another case, two children were injured at a surfing competition. “While they were watching from the stands, the wind blew an advertising banner over and injured them,” says Hattingh.

While liability cover could not have saved lives during the Hillsborough and Ellis Park stampedes, adequate risk management and insurance can avoid the inclusion of the event organisers on the list of casualties.

“Any matters reported to the FIA watchdog will be immediately investigated.”

Vehicle Tracking

More than just vehicle

tracking...

New FIA initiative to

AT&T

combat fraud

Smart Phone Tracking

he Financial Intermediaries Association of Southern Africa (FIA) has launched an initiative to combat fraudulent activities by enabling any member of the public to report issues in relation to financial services or products.

Roadside Assistance

Km/h

Tax Logbook

because... M1851FEATURES/HP

The FIA will then publish the outcome on its website which will serve as an information centre to FIA members who may encounter similar or related matters. “Any matters reported to the FIA watchdog will be immediately investigated, following which either a solution will be proposed or the matter will be referred to the appropriate FIA executive committee, regulatory body or industry association for further investigation and action,” says Van Pletzen.

FIA members are encouraged to refer any matters to the FIA directly for action instead of approaching the Financial Services Board (FSB) or industry bodies individually, notes Van Pletzen. Complaint forms are available on the FIA website under the ‘Watchdog’ tab.

Crash Alert

AT&T

According to Justus van Pletzen, CEO of the FIA, the new watchdog facility aims to further enhance the current efforts of the FIA in assisting the regulators and the wider industry in vesting an ever-growing culture of professionalism in the financial services industry. “The establishment of the FIA watchdog facility serves as confirmation that the FIA and its members are eager to enforce and ensure compliant rendering of financial advice and intermediary services to consumers.”

He says the FIA will take all necessary and appropriate action on any industry-related irregularity and non-compliant activity of any provider, product or services supplier or intermediary. “The facility is therefore not aimed at resolving issues of a personal nature. The test for a complaint will be whether, in an objective light, the industry at large or clients may be prejudiced by the actions or failure to act, of individuals or institutions.”

0800 33 99 88 www.matrix.co.za

*MX3 Service Offerings

Western Cape Provincial Road

Traffic Bill

proposed to reduce accidents

he Western Cape is proposing a set of stringent traffic regulations in the Western Cape Provincial Road Traffic Bill, in a bid to reduce the number of fatalities on the road, with even harsher penalties for those who do not obey the rules while transporting children.

Profiling driver behaviour to mitigate your risk. Tracker is leading the way in driver behaviour, accident management services and predictive modelling of accidents including accident damage. By helping reduce the costs of insurance claims, which is just one of the ways we demonstrate our commitment to our insurance partners.

Helen Szemerei, CEO at IntegriSure, welcomes the tougher measures proposed in the bill. “Speeding is often associated with alcohol but most commonly is seen in younger male drivers, hence the higher number of road fatalities in this bracket. Younger drivers often believe they are immune to the dangers on the roads. From a logical perspective, a reduction in the speed limit should see a decrease in serious fatalities given that drivers are travelling at a slower speed and thus are more in control of the vehicle,” explains Szemerei. Minister Robin Carlisle says the provincial government is considering the reduction of all speed limits throughout the province by 10 km/h. In addition, it is also looking into mandatory 40 km/h and 30 km/h zones for shops, schools and areas of high pedestrian concentration. Szemerei conceded that without effective enforcement, any new regulations will not have much effect. “Firstly, we need to ensure that we are equipped with the appropriate resources to introduce such legislation and, secondly, that we have the ability to enforce it should it come into place. Enforcement or lack thereof is one of the biggest contributing factors as to whether new legislation will be successful. Should the legislation come into place but not be effectively enforced, the lowering of the speed limit would have little impact whatsoever,” says Szemerei.

“It is critical that motorists not only stop speeding, but also refrain from driving drunk and using a cellphone while driving.” Other measures being proposed include introducing an additional offence for reckless behaviour with children in the vehicle, such as speeding, drunk driving or cellphone use, with the penalties increasing exponentially should the child not be correctly restrained. “We particularly welcome any proposals that put the safety of children first. It is critical that motorists not only stop speeding, but also refrain from driving drunk and using a cellphone while driving. However, when a child is involved, there is absolutely no excuse for such behaviour and the toughest punitive measures should be enforced,” she says. Szemerei says the rest of South Africa should take note of these developments, as any success in reducing accidents in the Western Cape could see the same being rolled out to other provinces. “The Western Cape has proven very progressive in terms of implementing such initiatives. In July, a new bylaw was passed enabling traffic police to confiscate cellphones being used by motorists without a hands-free kit, as well as a fine of up to R500 for the first offence and up to R2 000 for subsequent offences. “If such proposed regulations are promulgated and result in fewer claims being paid due to a decrease in the number of accidents, this should ultimately have a positive impact on motorists’ insurance premiums. A reduction in road traffic accidents will mean fewer claims, enabling insurance premiums to stabilise or perhaps even decrease in the future,” concludes Szemerei.

DON’T PLAY Russian roulette

What can go wrong?

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.

A windscreen that is of poor quality or incorrectly installed can have the following consequences: 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.

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

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.

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.

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

Rust on body Omitting the use of primers on the aperture of the vehicle will 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. 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.

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.

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.

These will compromise the bonding strength of the fitted windscreen. Don’t play Russian roulette with lives. Expect the best from PG Glass.

Figure 3: Excessive rust due to primers not being used.

For more information, please contact Bernice Bailey on bbailey@pg.co.za

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3 03

On Call

24/7

24hrs a day 7 days a week SERVICE

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Medical schemes IN GOOD SHAPE, CMS annual report

The Council for Medical Schemes (CMS) annual report, released early last month, shows a drop in the number of medical schemes but an increase in beneficiaries and healthcare expenditure. Broker payment increased by five per cent and the council continued the fight in favour of demarcation. 54

he council’s report contains an overview of the operations of medical schemes in their 2011 financial year.

Less schemes, more members From 144 medical schemes registered in South Africa in 2000, the number dropped to 97 in 2011, compared to 100 schemes at the end of 2010. According to the report, the trend is likely to continue, but the industry is far from being an oligopoly. “Consolidation is the result of amalgamations and liquidations (voluntary and involuntary) due to the prevailing economic circumstances in the medical schemes industry; it is not driven by council,” the report says. While the number of schemes has decreased, the number of principal members increased by 3.3 per cent to 3 730 565, while dependants increased by two per cent. This resulted in the total number of beneficiaries increasing by 2.5 per cent to 8 526 409. The average age of beneficiaries in open schemes increased from 31.5 years in 2006 to 33.3 years in 2011. In restricted schemes, the average age of beneficiaries dropped to 31.1 years in 2011, from 32.1 years in 2006. The report indicates that the average pensioner ratio of medical schemes for 2011 was 6.6 per cent, a slight increase from 6.5 per cent in 2010.

More benefits paid out Contributions and benefits paid out increased in 2011. Medical schemes received 11.3 per cent more in contributions compared to the previous financial year, or a total of R107.4 billion. Medical schemes’ average annual contributions increased consistently, outstripping consumer price inflation at five per cent. Of the total benefits paid to healthcare providers, medical schemes spent R34.1 billion or 36.6 per cent on hospital services. Public hospitals were paid R304.1 million in the 2011 financial year, while expenditure on private

hospitals accounted for R33.8 billion, an increase of 9.7 per cent from 2010. Payments to medical specialists accounted for R21.3 billion or 22.8 per cent of benefits paid in 2011, a year-on-year increase of 13.5 per cent. Doctors and general practitioners received R6.8 billion of benefits paid in 2011, or 7.3 per cent, which is an increase of 9.7 per cent on 2010. Benefits paid to dentists tallied R2.6 billion in 2011, an increase of 1.7 per cent, while supplementary and allied health professionals received R7.3 billion. Expenditure on medicines dispensed by pharmacists increased by 8.6 per cent to R15.2 billion, amounting to 16.3 per cent of scheme benefits paid in 2011.

Non-health expenditure up Administration expenditure of all medical schemes rose by 4.7 per cent from R7.8 billion in 2010 to R8.2 billion at the end of 2011. Expenditure on managing benefits (managed healthcare management fees) grew by 8.3 per cent to R2.4 billion. Brokers received an additional five per cent, or R1.4 billion, in 2011. Impaired losses on receivables or bad debts decreased by 37.8 per cent to R104.7 million, compared to the R168.2 million recorded at the end of 2010. Total non-health expenditure, including administration fees, fees paid for managed care, broker fees, impairments and reinsurance, rose by 4.8 per cent to R12.1 billion in 2011. For the past seven years, the CMS, in conjunction with the Department of Health, has been applying pressure on medical schemes to reduce their non-health expenditure. This came after accusations were made of private hospitals overcharging patients. With the government determined to introduce price regulation for the private sector, there has been a gradual decline in non-health expenditure in real terms.

Net results and solvency The net healthcare result of all medical schemes changed from a deficit of R459.6 million

observed in 2010 to a surplus of R1 billion in 2011. According to the report, this improvement can be largely attributed to the fact that medical schemes had a lower claims ratio in 2011 at 86.5 per cent, compared with 87.3 per cent in 2010.

Reserves and investment show growth Investment and other income amounted to R3.4 billion and resulted in medical schemes making a final surplus of R4.3 billion in 2011. Net assets or members’ funds, defined as total assets less total liabilities, rose by 13 per cent to R36.8 billion in 2011. Reserves grew by 13.9 per cent to R35 billion from the R30.7 billion recorded in 2010. This translated into an industry average solvency ratio of 32.6 per cent at the end of 2011, compared with 31.8 per cent in 2010.

speak freely on matters affecting medical schemes and beneficiaries. “Council serves and protects the public and welcomes the Supreme Court’s recognition that it must be allowed to discharge its mandate without fear, favour or interference,” the report notes. The auditor general provided the CMS with its 12th unqualified audit report in a row for the manner in which it managed its financial affairs and complied with the requirements of the Public Finance Management Act 1 of 1999 and other applicable legislation.

This is higher than the prescribed solvency level of 25 per cent and the report says this is largely explained by the continued growth in the membership of the Government Employees Medical Schemes (GEMS). The solvency ratio for open schemes increased from 3.6 per cent to 28.6 per cent, while that of restricted schemes decreased from 38.6 per cent to 38.3 per cent in 2011.

Full steam ahead with demarcation According to the report, the delineation between the regulatory span of control of the CMS and the Financial Services Board (FSB) remained an important area of focus in the financial year under review. The council will continue to demarcate medical schemes from health insurance products, which it says threaten to undermine the social solidarity principles of the Medical Schemes Act and offer inadequate benefits. “Health insurance products, such as gap and top-up cover, discriminate against the most vulnerable groups in society, which is why council continued to promote the protection of provisions aimed at protecting both the sick and the elderly,” the report says. The council adds that one such provision is that on prescribed minimum benefits (PMB). The report celebrates the council’s victory against the Board of Healthcare Funders of Southern Africa (BHF), when the High Court confirmed the need for PMBs to exist. Medical schemes in contravention of the requirements on the PMB provisions face the risk of being deregistered. The report highlighted the Supreme Court of Appeal reaffirming the CMS’s right to

Bianca Wright

Medical scheme members may be griping about the rising cost of healthcare, but medical schemes themselves have much to complain about as fraud in the industry continues to drain valuable cash and resources and places additional burden on the sector.

ccording to Esther van de Merwe, head of fraud risk management, governance and compliance at Metropolitan Health, healthcare fraud is the intentional deception or misinterpretation of healthcare transactions (claims) for the purpose of financial gain or the use of unauthorised benefits. It may be committed by healthcare providers, members, third parties or an employee of the administrator, or a combination of all mentioned parties (collusion). She lists some examples of fraud committed by healthcare service providers as misrepresentation of services, procedures or medicines supplied; the diagnosis and/or the costs involved; rolling claims over into a new benefit year; or deliberately claiming for tariff codes that are incorrect and unjustified.

The KPMG survey found that while member fraud had decreased, service provider fraud is increasing with code manipulation being the most common type investigated, followed by services not rendered. According to Graham Anderson, principal officer at Profmed, the majority of fraud in the sector is committed by service providers within the industry. “While no exact figures exist as to the true extent of fraud within the healthcare industry, estimates suggest that hundreds of millions of Rand a year are being wasted, negatively impacting the bottom line of schemes and resulting in higher premiums for members.” Estimates by law firm Eversheds in July suggested it could be as high as R15 billion. 

“ Just over 92 per cent of member fraud cases involved non-disclosure of prior ailments.”

The number of fraud cases in the medical aid industry is decreasing, as well as their average monetary value, according to KPMG’s Medical Schemes’ Anti-Fraud Survey released in January this year. The survey, which covers the three years from 2007 to 2009, is the third to be conducted by the professional services firm.

Changing figures Camilla Singh, national forensic director in charge of healthcare at KPMG, explains, “We now have results for the last nine years, and we can clearly see the ratio of investigated fraud to claims is dropping. This is an achievement for South Africa’s medical aid administrators.” The fraud-to-claims ratio has fallen from 0.70 per cent (2001 to 2003), to 0.26 per cent (2004 to 2006) to 0.15 per cent for the survey period ending in 2009. Despite this, fraud is still costing the industry millions. The study found that the number of fraudulent claims by members amounted to R67.3 million out of a claim value of R145 billion over the three-year period. While this was a lower amount than that seen during the previous survey period, it still represents a significant sum. Just over 92 per cent of member fraud cases involved non-disclosure of prior ailments.

"According to industry market research, up to 15 per cent of all medical aid claims are fraudulent."

Easy target Anderson says it is often easiest for those working within the industry to commit such crimes as they have access to all of the relevant information and understand the systems better. “Accounts charged to medical schemes on the members’ behalf can easily be inflated without the member’s knowledge to include procedures that weren’t carried out, a higher price charged for equipment or medication that was used, or even charging for items that were not used.” “Very often, members don’t check the accounts charged to their medical scheme, firstly as it appears too complex to decipher and, secondly, the payment is being settled by the scheme itself. However, the fact is that if a provider is fraudulently overcharging, this can have a severe impact on the level of benefits that a member has available for the rest of the year, potentially depleting their benefits far sooner than would otherwise occur.” Anderson adds that while medical costs and the terminology used may seem complex, “it is actually no different from checking the statement at a garage after a car has been taken in for a service to ensure that what you are being charged for has actually taken place.”

Paying the price Stressing Liberty Medical Schemes’ zerotolerance approach to fraud and abuse from all quarters, LMS executive principal officer,

Andrew Edwards, says the sad truth is that fraud and abuse of the system can and does occur just as regularly in the healthcare system and medical scheme industry as in any other environment. “Moreover, as many South Africans find it increasingly difficult to make ends meet, instances of fraud and abuse on all sides of the spectrum – from members, healthcare providers and employees, to intermediaries, administrators and trustees – unfortunately appear to be on the increase. It is therefore paramount that we vigilantly monitor any suspicious conduct and claim, and act speedily and decisively to prevent the unnecessary loss of funds.” Resolution Health Medical Scheme (RHMS) agrees that medical aid members are bearing the brunt of healthcare fraud. While various players in the legislative and public arenas hold extended debates with regard to the source of cost escalations in the medical aid industry, medical aids and their administrators continue to fight the battle to deal with a minority of unscrupulous members and service providers whose fraudulent activities are costing the industry between R4 billion and R13 billion every year. According to industry market research, up to 15 per cent of all medical aid claims are fraudulent. “This trend is reinforced by an environment conducive to fraud with traditionally little visible policing, a weak legal system and relatively ineffective industry governing bodies. The

extraordinary impact of fraud on members’ contributions has led to many medical schemes abandoning attempts to deal with fraud on a piece-meal basis and has led to the establishment of specialised forensic departments,” says Mark Arnold, principal officer of Resolution Health Medical Scheme (Resolution Health).

Zero tolerance Medical scheme administrators’ response to medical fraud reflects a crackdown on fraud in this industry over the last decade. In the first KPMG survey (covering 2001 to 2003), only 49 per cent of medical aid administrators responded that they never keep quiet about fraud cases. By 2009, every administrator that responded to the survey indicated that fraud is now reported. This zero-tolerance approach is due to the efforts of dedicated forensic investigative units maintained by most medical schemes. The respondents have ranked their forensic units as a crucial fraud risk management tool, on equal footing with hotlines for whistle-blowers. Internal controls include maintaining a fraud policy and a code of conduct, both of which have been consistently rated over the last three surveys as the best ways of tackling fraud, with the use of detection software also ranking highly. “Experience gained over the years shows that five per cent of suspects (members

Metropolitan’s fraud risk management department forms part of the governance and compliance department and covers all aspects of fraud prevention, detection and resolution for Metropolitan Health and Metropolitan Health risk management. The fraud risk management department is based in Cape Town and consists of the head of department, three managers, four senior forensic specialists (team leaders) and 21 forensics specialists. The team is responsible for all investigations across the regions namely Cape Town, Pretoria, Braamfontein, Durban and various regional offices across the country. Metropolitan Health’s business-driven fraud risk management approach has three objectives: prevent, detect and resolve.

Prevent, detect and resolve Similarly at Liberty, a dedicated team of forensic specialists monitor, detect and investigate any instances of fraud or abuse and the team is strengthened by other clinical specialists in

the business. “As a result, the team benefits from interaction and collaboration with these specialist areas within the business to enhance the fraud risk management activities,” Edwards adds. From a forensics perspective the focus is strongly on both prevention and detection. Through a dedicated KPMG ethics hotline, as well as e-mail and fax facilities, members and consumers are encouraged to report instances of suspected fraud and dishonest actions. In addition, all claims data are stored in a fraud data warehouse, while suspicious trends among both members and providers are closely scrutinised. The investigative process relating to incidences where LMS is potentially exposed to fraud constitutes focus on loss mitigation, the identification of perpetrators, disciplinary action, civil and criminal proceedings and process improvement. In instances where actions boil down to downright fraud, criminal charges may be laid at the SAPD. Van de Merwe says that effective fraud risk management is a process that requires a formalised framework within which to operate effectively. “Once this has been established, good risk management requires smart analysis and effective controls; they cannot exist without each other.”

FEDH/2450/4/RSA The Cheese Has Moved

and providers) are responsible for 95 per cent of sustained fraud in this industry,” says Van de Merwe. An holistic process, followed by experienced investigators using tested infrastructure is therefore required. “We have gained the experience and developed systems and processes to perform investigations of this magnitude,” she says.

If we gave your staff a gym membership, they’d probably only go twice.

What we’d rather give them is real medical aid with real benefits – like paying more of their bills from their risk cover, rather than from their savings. So if you want to pay for their downtime, give them a day off. If you want them to enjoy first rate medical cover that will protect them when they need it, choose Fedhealth as your company’s medical scheme. Because nothing replaces real.

Ask your broker about Fedhealth today, or call 0860 002 153

www.fedhealth.co.za

finance& insurance S A LES | TRENDS | NEWS | i n f o

The CPAâ&#x20AC;&#x2122;s impact on the automotive industry

Going social

Toyota South Africa has embraced social media, but the same cannot be said for all motor manufacturers and dealerships. We examine the pros and cons of going social.

The CPA contains serious implications for car dealerships, from pricing to sales and dealership conduct. Barloworld Automotive and Reeds Motor Group tell of how the act has impacted their businesses.

THE CPA’S IMPACT ON THE

AUTOMOTIVE INDUSTRY Grant Cyster

et’s begin this examination with what I believe to be a safe assumption: there are honest car dealers out there, used car dealers in particular. Not everyone in this line of business is intent on exploiting and deceiving the vulnerable buyer. However, there are clearly those who are intent on doing just that. In pre-CPA days, unscrupulous car dealerships had a proverbial field day when it came to scamming unsuspecting consumers. With the Act now written into law, implications abound for crooked and honest car dealerships alike.

No free lunch for consumers It’s important to clarify something as it relates to the CPA and the automotive industry. Since the introduction of the Act, the South African media has played a significant role in leaving consumers with the impression that they are able to return a purchased vehicle within six months for practically any reason under the sun. In reality, this is not the case. Precious little has been clarified regarding the circumstances under which returns are possible and what the potential consequences are in these situations. The following are some of the things that buyers need to be aware of, as provided by autoadvice.co.za: Wear and tear – The buyer will be required to sign that he accepts that he is buying a used vehicle and that it has a level of wear and tear, and that it is not expected to perform like a new vehicle, i.e. the buyer will not be able to return the vehicle based on wear and tear complaints. Safe use of the product – The client will now be required to sign a declaration whereby he accepts responsibility that a motor vehicle is a dangerous item and he will not be allowed to claim against the seller if he injures himself in using the vehicle after signing such a declaration. Right to return the vehicle – Uninformed buyers who may be scheming to purchase a car from a dealer only to hand it back within six months, repeating the process from free vehicle to free vehicle, had better think again. In reality, the return process proves to be more rigorous than many buyers anticipate. Subject to compliance with Section 56 (2) of the Act, the buyer has the right to return the vehicle to the dealer inside a six-month period only under certain conditions. It should be noted that wear and tear is excluded. Also important to note is that the National Credit Act has to fit into the CPA, meaning that if the purchased vehicle is under a finance agreement, the situation becomes more complex.

“The National Credit Act has to fit into the CPA, meaning that if the purchased vehicle is under a finance agreement, the situation becomes more complex.” There has to be a proven defect in the car or the buyer must prove that the vehicle, which was sold to him, was not fit for the purpose for which he bought it. The onus will be on the buyer to provide evidence of such defect. The buyer has the option to request a repair, replacement or refund. The reasons for such an action have to be legitimate, reasonable and provable. Since vehicles are goods that devalue with use, the purchaser will be liable for the usage of the vehicle, plus any damages inflicted on it, plus the costs to roadworthy the vehicle and getting it back into the dealer’s stock.

Important points on pricing From the point of view of the car dealer, the CPA provides guidelines related to fair and appropriate pricing practices, and these

hold true for motor vehicle sales in South Africa. According to the Act, a price must be expressed in South African currency, it must be annexed or affixed or otherwise applied to the vehicle, or represented in such a way that it may reasonably be inferred that the price represented is in fact the price applicable to the vehicle being considered for purchase. As it relates to vehicles that are published in a catalogue or brochure, a time must be clarified after which the vehicle will no longer be available at the price indicated. The only circumstances in which the abovementioned pricing guidelines do not apply is if the vehicle is being displayed solely for marketing purposes or alternatively, if the goods are in an area that is normally beyond the access of the public. For instance, a dealership’s parts division is not required to price goods that are in the stock room. If goods are displayed for sale in areas where they are available to the buyers, then these must be priced.

Thoughts related to dealership conduct Given the various stipulations of the CPA, car dealerships and staff can easily find themselves in hot water when failing to exercise due diligence in complying with the Act. The dealer and staff need to pay close attention to their words and conduct when

marketing their vehicles. This is necessary to make sure that they don’t directly or indirectly articulate or imply an incorrect, misleading or dishonest representation concerning a material fact about the vehicle to a customer. The kinds of misrepresentation referred to here include: 1. That the vehicle has certain performance characteristics, features, uses, advantages, qualities, that it does not in fact have; or 2. That the vehicle meets a particular standard, quality, grade, style or model; or 3. That the history of the vehicle, in terms of its length of use and distance driven, has not been truthfully or accurately communicated. Also forbidden is the use of exaggeration, innuendo or ambiguity as pertaining to a tangible fact, or the failure to disclose a tangible fact if doing so is tantamount to deception. If it is evident for any reason that the buyer does not properly understand the history, characteristics or quality of the vehicle in question, the dealer is obligated to correct the situation.

Barloworld comment on the CPA In Auto Annual, a source for data on the South African automotive industry, Martin Laubscher,

CEO of Barloworld Automotive, says, “The introduction of the CPA has raised the level for everyone in the industry. However, since we have always maintained a high standard, the legislation has had no negative impact on our business, except that it has added some costs because we have had to change systems to remain compliant with the law. We have implemented a number of steps, including a gap analysis to understand shortcomings in our internal processes in relation to CPA requirements. We have also identified training aspects that need to be undertaken in particular areas. To support the training, we have rolled out a comprehensive e-learning programme for all our staff members that focuses on the CPA. Lastly, we have appointed a dedicated person who is responsible for dealing with matters that may go to the consumer affairs tribunal.”

Reeds Motor Group’s view of the Act Craig Mylne is the financial director of Reeds Motor Group. Commenting on the impact of the CPA on the South African vehicle sales industry, Mylne says, “There should be very little impact on the industry if dealerships were putting the customers’ interests first before the implementation of the CPA. Reeds has had to redo the terms and conditions and all legal contracts that deal with customers to ensure that they are written in simple English. We have also appointed an internal auditor to ensure that all the provisions of the Act are adhered to.”

When asked about the insurance implications of the Act for Reeds Motor Group, Mylne adds, “We did have to amend our insurance cover to ensure that we cover incidents we could be liable for, where previously we were able to avoid liability by way of disclaimers.”

“Uninformed buyers who may be scheming to purchase a car from a dealer only to hand it back within six months, repeating the process from free vehicle to free vehicle, had better think again.” The arrival of the CPA on South Africa’s automotive industry landscape needs to be met with reason and responsibility from buyers and dealers. Although the Act represents no gravy train for the opportunistic buyer, it does champion the rights of the consumer. For car dealerships that have every intention of conducting business on a foundation of integrity and professionalism, the CPA should cause no headache at all.

social GOING

Social media has emerged as an excellent way for companies to engage with their audience and expand their profile, but is the South African motor industry making full use of this powerful marketing tool? Nick Krige

hese days, car buyers are doing more research before going out and spending hundreds of thousands of Rands on new and used cars. Very few people walk into a car dealer showroom without having already searched the Internet for the best deal or the most convenient location. Without a social media presence you have already lost half the battle before it has even begun.

The benefits of social media Auto manufacturers have a distinct built-in incentive to use social media: people love talking about their cars. A quick search of the Internet for just about any motor brand will reveal a number of websites and forums dedicated solely to talking about their passion for driving. Interacting with people on social media allows companies to build individual, personal and lasting connections with their customers. It is not likely to increase sales instantly, but engaging with clients and interested parties adds value to the business and enhances the long-term value of existing customers. Social media is a relatively cheap and easy way of increasing the online exposure of a business. Every ‘like’ on Facebook and ‘retweet’ on Twitter reinforces the company’s name out there. It is another platform to expose the business’s brand, find potential new customers and enhance interaction with existing clients. These days the vast majority of research about products and services is done online, and an increasing percentage of people are using social media for that purpose. If a business has no social media presence, it is effectively invisible to potential clients who search for information on social networks. Lack of sales numbers, especially in the short term, should not discourage motor manufacturers and car dealerships from engaging with social media. It is word-of-mouth marketing for the 21st century.

Social media in action Toyota South Africa has embraced social media and has a presence on Facebook, Twitter, LinkedIn and even a blog. Its Facebook page has more than 22 000 fans, which means every time Toyota posts a special offer or engages with its audience, thousands of eyes are seeing it. On top of that, those people have all chosen to follow that page, so they are more likely to be interested in those deals. In addition to offering a platform to advertise,

Toyota’s Facebook page gives the company direct access to those who are interested in Toyotas. Any query, complaint or compliment can be seen instantly and dealt with publicly. Other features on Toyota’s Facebook page include a racing game called ‘Toyota 86 Playground’. Users can drive a Toyota 86 round the streets of a city, choose its colour and create custom race tracks through the city, and the game can be saved and sent to friends so they can try and beat the fastest time. It is an incredibly fun and novel way of promoting the Toyota 86 and the brand as a whole. There is also access to pictures and videos of the latest cars and a facility to book a test drive or service for your car. Just about everything a Toyotadriving customer could want or need.

Lack of involvement from dealers At dealer level, there seems to be far less enthusiasm for social media. Facebook is littered with dealer pages that have three fans and have offered absolutely nothing by way of interaction. Most of the pages do not even have a cover picture, let alone special offers or a test-drive booking facility.

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The only thing more dangerous than not having an online social media presence is to have an apathetic presence. Nothing screams lazy and uninterested louder than an unmaintained Facebook page. If a business does not have the finance or expertise to effectively maintain a social media presence, rather remove the page than allow it to become an advert for the company’s apathy. One reason for the lack of enthusiasm from dealers on social media might be because the manufacturers themselves have such effective strategies that indirectly promote the dealers through functionality like being able to book test drives. But dealers should see this as an added bonus to their social media presence, not the be-all and end-all of their involvement. An active Facebook page may not result in an instance jump in car sales, but it offers a platform for existing customers to engage with the company, forming a solid and lasting relationship. If consumers gain a good impression of your company they will recommend it to their acquaintances and word-of-mouth advertising remains one of the most effective means of promotion.

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The Internet is increasingly becoming the primary medium for information about products and services, meaning those who do not embrace social media are destined to be left behind.

SA motor industry

continues steady growth The South African motor industry has defied many economic challenges by continuing its steady growth through the second quarter of 2012.

New vehicle sales Aggregate industry new car sales recorded an improvement of 13 662 units (15.8 per cent) to 100 256 units compared to the corresponding quarter last year. Commercial vehicle sales experienced similar year-on-year growth during the second quarter of 2012, with an increase of 6 115 units (15.9 per cent). All sectors registered strong gains during the second quarter of 2012 compared to the corresponding quarter in 2011.

ongoing focus on global cost competitiveness, general cost reduction targets and electricity price increases above inflation continue to impact local suppliers’ competitiveness. Additionally, upward movement in prices occurred as a result of the Rand weakening against the Euro and the Japanese Yen as well as material price increases.

Investment in the industry Manufacturers gearing up for the impending Automotive Production and Development Programme (APDP) are the main reason behind the increased capital expenditure so far in 2012. The Automotive Investment Scheme, which forms part of the APDP, has resulted in planned investments of R12 billion by automotive assemblers and component supplier companies.

The outlook for the balance of 2012 and beyond The outlook for the future remains positive as the performance of the South African automotive sector continues to surprise on the upside with domestic new vehicle sales, vehicle exports and industry production poised to reflect further growth over the balance of 2012 and into 2013, despite considerable socio, political and economic challenges confronting the economy and an uncertain global economic environment.

Employment levels The number of persons employed by the South African new vehicle manufacturing industry – comprising the major new vehicle manufacturers and specialist commercial vehicle and bus manufacturers – remained virtually unchanged from the 28 656 position at the end of the first quarter. Employment levels expected to see an increase over the rest of the year as various manufacturers ramp up production.

Raw materials and components Imported raw materials remained at satisfactory levels of availability. Increases in the price of steel and natural rubber were reported as pricing trends remain a function of the exchange rate. Local material prices were also impacted by commodity price movements. The supply of imported original equipment components, during the second quarter of 2012, improved and overall was satisfactory. Prices of imported components in foreign currency remained stable, but landed costs of components continue to be affected by exchange rate movements. The availability of locally produced components was reported as generally satisfactory, but the

A number of factors give rise to optimism that domestic and export markets will continue to expand, such as: • Ongoing improvement in vehicle affordability, in real terms, with average new vehicle price increases remaining well below inflation. • An intensely competitive trading environment currently offering consumers a wide choice of products supported by attractive purchasing incentives. • Improvement in the financial position of consumers and a significant reduction in debt servicing costs related to new vehicle financing. Moreover, the further reduction in interest rates of 0.5 per cent in July 2012 will lend additional support and momentum to demand for and sales of new motor vehicles. • The introduction of high technology, highly fuel efficient new models will also underpin demand. • The lower interest rate environment and the substantial ramp up in public sector infrastructure spending, as well as continued dependence on road transportation of goods and materials should support the commercial vehicle segments.

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The SA new vehicle manufacturing industry and the automotive sector as a whole remain well positioned to make a positive contribution to manufacturing output and higher economic growth through 2013.

Motor industry

future looks bright The South African motor industry has faced numerous challenges in recent times, thanks mostly to the volatile global economic climate, but has managed to post consistent growth over the last two years and the industry remains optimistic.

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As a result, fiscal policy and proposed plans by government are set to boost the sector in the coming years, with many seeing the industry as a key for job creation while boosting GDP. The South African Government views the industry as an important growth area, with the industry aiming to double current production volumes by 2020, according to Saijil Singh, lead analyst, Coface South Africa. Many automotive manufacturers have picked South Africa as their preferred choice for manufacturing plants over other countries, despite the country having very strict labour laws that make plant set-up a challenge, as the pros outweigh the cons. The motor manufacturers’ increased confidence in South Africa and the desire to increase investment in their operations, contributes to the local industry’s optimistic future. In addition, export and local demand, coupled with interest rates being at an all-time low, further adds to the optimism. With government’s plan to increase production and many manufacturers increasing their operations in the country, the sector is set to perform well in the coming years. However, the constant rise in fuel prices means consumers may look at other more affordable modes of transport such as public transport. One of the main initiatives of the Automotive Production and Development Programme

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(APDP) is to increase the total number of vehicles produced in South Africa each year to 1.2 million units by 2020. It also plans to decrease the duties payable on the vehicles transported to consumers abroad and to create more jobs to secure the long-term sustainability of the industry. From 2011 to 2012, prices of cars increased by an average of 4.3 per cent. South Africa accounts for about 0.7 per cent of the total new vehicles purchased worldwide in 2011 with the global amount of new vehicles at 78 million units. The average loan portion on new vehicles in South Africa is 92 per cent, indicating an average deposit of only eight per cent. the average contract term is 58 months, with people selling their vehicles after 3.5 years.

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Statistics received from Wesbank, the largest vehicle financing company in South Africa controlling approximately 42 per cent of the market, indicate that approximately 60 per cent of the vehicles on South African roads are uninsured, even though this is a prerequisite for financing. The car rental market accounts for about 13 per cent of the total number of new vehicles purchased in South Africa.

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he growth indicators for the motor industry are very positive, with vehicle sales increasing 15 per cent year on year in 2011 and similar numbers are expected for this year. It is obvious that South African consumers are taking advantage of interest rates being the lowest in recorded history, but this situation could change at any time.

“The motor manufacturers’ increased confidence in South Africa and the desire to increase investment in their operations, contributes to the local industry’s optimistic future.”

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New anti-crime technology compulsory for new vehicles I

n an effort to combat criminal activities of organised syndicates and restrict the illegal sale of stolen and hijacked motor vehicles and parts, as of September, the use of microdot technology has become compulsory for all new motor vehicles and motor vehicles requiring police clearance. Microdotting comprises the spraying of over 10 000 tiny dots, with a unique identification number, in at least 88 different positions on a vehicle. This leaves a lasting imprint on the original identity of the motor vehicle and its associated parts. The dots can be detected with an ultraviolet light and magnifier. The technology has the potential to reduce criminal activity in the motor industry according to Business Against Crime South Africa (BACSA) spokesperson, Fouché Burgers. Burgers adds that the Transport Department and the South African Police Service (SAPS) would enforce the requirements through the National Traffic Information System (eNaTiS). The registration of a motor vehicle introduced onto the eNaTiS by the manufacturer, importer or builder would be allowed only if the microdot information was loaded onto the system. Microdot suppliers, contracted by the relevant manufacturer, importer or builder, would be responsible for the loading of the information onto eNaTiS. Only once this information is loaded would the motor vehicle be regarded as being microdotted. Should a police clearance be required, the local registering authority would issue the request for police clearance form (RPC), which would contain an indicator to verify if the vehicle had been microdotted. In the event that the vehicle has not been microdotted, the owner of the vehicle would be required to first do so at an approved supplier before the vehicle is presented to the SAPS for clearance.

BACSA says the SAPS would not clear the motor vehicle without the appropriate microdotting being implemented. The microdot supplier would load the microdot information onto eNaTiS after the microdotting process. “BACSA and the SAPS regard this intervention by the minister as one of the most positive recent steps in the fight against motor vehicle crime,” BACSA adds. Between 80 000 and 90 000 vehicles are stolen each year in South Africa. Some of these vehicles are stripped for parts or resold on the local market to innocent buyers. Further, more than 12 000 recovered vehicles were destroyed by the law enforcement agencies as they could not be identified. This technology will assist in the prevention of cloning of vehicles.

“Microdot suppliers, contracted by the relevant manufacturer, importer or builder, would be responsible for the loading of the information onto eNaTiS. Only once this information is loaded would the motor vehicle be regarded as being microdotted.”

life insight | life | investment | retirement

Retirement reform: confronting costs

National Treasuryâ&#x20AC;&#x2122;s paper, â&#x20AC;&#x2DC;Strengthening retirement savingsâ&#x20AC;&#x2122; criticises high costs in the retirement fund sector, proposing standardised products and passive investment management as a means of addressing this. But the industry is not convinced about the benefits of such options.

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Retirement

reform CONFRONTING COSTS Hanna Barry

The phrase ‘retirement reform’ has been the cause of much discussion and speculation on various public platforms over the past few months. National Treasury’s paper, ‘Strengthening retirement savings’ provides an overview of the government’s proposals to promote retirement savings and tweak the retirement fund sector.

owards this end, government has adopted a two-tiered approach. A mandatory statutory fund that provides pension, life insurance and disability benefits will compel individuals to contribute 10 per cent of their annual income, up to a cap of R150 000 per annum. In conjunction with the formation of this social security system, “government will encourage additional savings in approved retirement funds for those earning above a specified threshold,” the paper says. While the broader social security reform process is under way, National Treasury is working hard to reform the current retirement fund sector. Four principal concerns with retirement and other investment products are identified in the paper. These include inadequate lifetime savings; low levels of preservation and portability; high fees and charges; and low levels of annuitisation. This article tackles the criticism around high costs and government’s proposals to reduce them.

The cost conundrum Despite being a successful system in other ways, Treasury has earmarked high costs in South Africa’s retirement industry, relative to international benchmarks, as a concern. “It is not true that the industry in aggregate has high costs,” says Peter Dempsey, deputy CEO of the Association for Savings and Investment South Africa (ASISA). “Costs vary based on the size and structure of funds. The challenge is to identify what the cost drivers are and,

where plausible, how to reduce them. It would be ideal to have no costs in any funds, but the reality is that all of these funds have compliance, governance and investment costs.” Rosemary Lightbody, senior policy adviser at ASISA, says that Treasury needs to be careful when benchmarking South Africa against international retirement fund systems. “Some of the cost comparisons are with countries that have compulsory retirement savings systems. Such systems will naturally have lower costs because there is no expenditure on marketing and consumer education. Treasury should be careful to make appropriate and realistic comparisons,” she explains. Jean Lombard, head of business integration and research at Glacier by Sanlam, acknowledges that high costs are always a concern. “Retail asset management fees and especially performance fees are very high in our industry. We consider proper advice to be a critical component of retirement savings and therefore financial intermediaries need to be remunerated appropriately for their time, effort, and increasingly, the risk they run in providing advice to clients,” he explains. “To take an individual who was given appropriate advice, was placed in the appropriate fund and saved for the appropriate period, and then say if it weren’t for the associated costs they would have earned 40 per cent more on their investment is not a correct analysis,” continues Lightbody. “To get that person into the right fund and to stay invested for the duration requires advice, management and administration. Anything of value is going to cost money.” 

Head of umbrella fund solutions at Liberty Corporate, Willem Loots, says that the cost of retirement provision in South Africa is slightly more expensive than the rest of the world, but this must be weighed up against the features of our system. “On a relative basis we lack the same economies of scale, but we are very well regulated for a purely voluntary system. Our investment markets are well-developed and our retirement funds well governed. In this sense, we stack up favourably with other developed nations that appear to have cheaper systems at face value.”

“Retirement solutions are typically sold and not bought. As an industry, we should not underestimate the impact of, and the need for, advice from a qualified financial intermediary.”

“The cost of administration is marginal at this point and adviser fees are generally not exorbitant,” adds Brian Spanier-Marson, director at Mr Retirement, an online retirement planning tool. “Some of the asset management fees may be too high, but on the whole, fund management, including consultation and administration fees, is not extremely profitable. However, asset management has a very healthy margin.” Nevertheless, Treasury has proposed a raft of measures to reduce costs. Among touted suggestions are standardised products and passive investment management.

Spanier-Marson believes that a no-advice model is conceivable. Using insurancecompany calculators, Mr Retirement allows users to calculate replacement ratios and plan towards investment targets and retirement dates. “While this doesn’t take the place of planning, it gives individuals useful information about where they will stand in retirement,” he notes. Most commentators agree that standardised products are not necessarily negative, but are careful to add that there must be options available for those who want more choice and are willing to pay for it. “We think that standardised products should be able to sit alongside existing products, which may need tweaking here and there,” says Lightbody. “We would be concerned if Treasury chose to wipe all existing products, systems and processes off the table. We do not want a situation where people exit the market and invest their money elsewhere.” This happened in Germany in the 1990s. The investing public was not happy with the standardised products on offer and so invested their money outside of Germany. “While Germany is now unwinding the regulation around this, it has lost out on 20 years of product innovation,” adds Dempsey. “We don’t believe that regulating products is an effective way to [control costs],” says Lombard. However, he acknowledges the lack of consistency among providers in measuring costs. “Some providers use Reduction in Yield (RIY), while others use Total Expense Ratio (TER). In some cases, products are sold by focusing only on one component of the fees.” This obviously makes it difficult to conduct cost comparisons and Lombard thinks that a universal measure, which is properly disclosed to clients, can help to show where the costs are excessive. “Clients should be aware of the fees throughout the entire value chain, to enable them to make an informed decision,” he adds. Michelle du Toit, head of Old Mutual Actuaries and Consultants (OMAC), says that high costs are especially prevalent on the retail side where the primary element driving costs is advice. “Standardised products that are easy to understand will naturally be cheaper because they require less advice. But these cannot be the only option and if advice is eliminated, it is vital that communication around products is clear and simple,” she adds. Dempsey says that this raises questions around the role and responsibility of trustees, who will need to ensure that members understand their choice of investment. “Trustees may be held accountable

In any event, the challenge to convince people to buy retirement products, whether simple or complex, remains. For this reason, Lombard says that it is difficult to predict what the take up of Treasury's intended standardised products will be. “Retirement solutions are typically sold and not bought. As an industry, we should not underestimate the impact of, and the need for, advice from a qualified financial intermediary,” he adds. This comment is connected to one made by Almo Lubowski, certified financial planner and head of technical and advocacy services at the Financial Planning Institute, who draws a distinction between product advice and financial planning. “While the simpler the product, the less of a need there is for product explanation, financial planning is separate from product advice and everybody needs it,” he explains. “It could be as simple as helping clients budget and understand their financial situation. Our challenge is how to deliver this in a cost-effective manner.” While the FPI plans to sponsor consumer initiatives in this regard, he believes that government can play a role, too. “Treasury could spend money using an existing force of certified financial planners to make advice more easily accessible. People with financial planners definitely save and preserve more.” In addition to standardised products requiring no advice, passive investment management has been proposed by Treasury as a further measure to reduce costs.

Passive investment management In its paper, Treasury notes that, “Passive investment management, which is significantly cheaper and not demonstrably inferior to active management over the long term, is underutilised in South Africa.” Du Toit agrees that it could be used more. “The difference in return from passive versus active funds doesn’t always justify the difference in fees. There is a huge place for passive investment management in the retail environment. In occupational funds, it can form part of the investment strategy but I don’t think it can be a stand-alone strategy.” “Ultimately the question is whether an actively managed strategy can justify the additional cost,” says Loots. “It could, but not all investment managers are equally successful in doing this over time.” He adds that it is important that retirement funds stick to a single investment strategy and don’t second guess their fund managers, which results in sub-optimal returns in the long run. 

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It is envisioned that simpler products would not only promote competition on the basis of price rather than product design, but that they would also require little to no advice, therefore eliminating adviser fees.

for forcing members into certain standardised products and will need comfort that they are not going to be taken to task by the pension funds adjudicator,” adds Lightbody. “In today’s legislative environment, they won’t take that risk.”

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Lombard thinks that passive investing can be a viable option for investors. But on a retail basis, he notes that it is still expensive when compared to global standards and that more can be done to reduce active management fees in the retail market, by re-examining performance fees, for example. “In some cases, retail and institutional fees for funds with similar mandates can differ by up to 60 basis points, which does seem excessive,” he adds. However, Spanier-Marson is not convinced that passive investment management should be utilised locally. While it has been successful overseas, South Africa has a far more limited

there is no doubt that these changes are going to happen,” she observed. “These reforms are not unrealistic and make sense. Industry and government are on the same page in terms of promoting retirement savings among South Africans. As long as there is widespread consultation, as Treasury has promised, I think that the results will be positive and most stakeholders will get onboard.” She says that Treasury has made it very clear that they will not take away any vested rights that have been put in place to date, or money that has been accumulated. “Proposals are designed to protect vested rights so that current pensioners and those due to retire soon will not be affected by the transition,” she explains. Lubowski adds that as long as Treasury takes comment and suggestions from the industry seriously, the reform process is no cause for alarm or panic. Dempsey explains that Treasury’s proposals are part of a global drive to encourage saving so that citizens do not become a burden on the state. Figures around South Africa’s savings rate

investment universe than the US or European markets. “Our stock exchange is a lot smaller than overseas markets and active management has been demonstrated to be more lucrative in South Africa and worth paying the fees for. Although the fees may be lower, the returns on passively managed funds may not be substantive.” He adds that sometimes, even on passively managed funds, the portfolios used to approximate indexes and indices charge a fair amount relative to international index funds. “We don’t have a problem with passive investment management, as long as it is not the only option. As an investor, I would not want to be told that a passive investment fund is my only option,” adds Dempsey. “This again raises questions of trustees’ responsibilities to members. Trustees will have to ensure that members understand their choice of investment and do not lay blame on their trustee board if their colleague gets a better return from an actively managed fund.”

Optimistic outlook Despite some concerns over implementation, the industry is generally positive about these reforms. This was also the case for delegates at the Institute of Retirement Funds (IRF) 2012 annual conference, which took place in Cape Town in September, according to Du Toit. “There is a lot more excitement and engagement around the process because

underline the need for such reforms. Quoting International Monetary Fund (IMF) statistics, the South African Savings Institute reveals that South Africa’s savings rate sits at just 16.5 per cent of GDP. This is significantly lower than its BRICS counterparts, with Brazil at over 18 per cent; Russia at 30 per cent; India at 34 per cent and China at 53 per cent. Spanier-Marson thinks that ultimately the proposed reforms will help demystify the retirement fund system and encourage savings. “Currently, the system is characterised by a host of complexities that are not all there for good reason, such as the differences in tax provisions for pension and provident funds. This makes people wary of engaging with and contributing to the system because they don’t really understand it. The simpler the system, the more people are able to understand and embrace the underlying positive fundamentals. This is especially true during a time in which people are financially pressed and need a compelling reason to sacrifice current consumption for future consumption."

"The simpler the system, the more people are able to understand and embrace the underlying positive fundamentals."

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So we’ve engineered a solution that takes the hassle of managing employee benefit structures away. Our offering can be tailored to suit individual needs. If you’re ready to engage with the most flexible umbrella fund solution in the country, let’s talk, business to business. For more information contact your broker consultant. Alternatively call us on 011 408 2999. Email lc.communications@liberty.co.za or visit www.libertycorporate.co.za

Enabling the Bianca Wright

disabled

It’s a statistic no-one wants to mention, yet it seems to be on the rise. Disability claims in South Africa appear to have increased over the past number of years. Could the struggling economy be to blame? Some industry insiders think so.

yan Switala, head of risk product development at Liberty, says that looking at Liberty’s yearly claims statistics, the amount of claims paid for lump sum disability and income disability benefits has certainly increased over the last few years. Switala adds that it is difficult to determine a direct correlation between the economy and the increase in disability claims, but points to industry data that may indicate a link. “It could be that changes in the frequency of disability claims and changes in the economy could have occurred purely by chance. The reverse is also possible, other factors might ‘mask’ a true relationship which exists between the frequency of disability claims and the state of the economy.” Similar increases in disability claims have been seen in countries such as the US and the UK, both of which have been feeling the pinch of recession. An article from Reuters in May this year indicated that the number of US disability grant applicants soared to a record high of 2.94 million in 2010, and has held above 18 per 1 000 workers in the past three years, a far higher rate than in previous recessions.

History repeating itself Brad Toerien, CEO of FMI, says that historically, both in SA and abroad, there

has been a link between the economy and disability income claims. “In the current slowdown, the effect was largely felt by FMI in 2011 not in terms of the number of claims, which remained unchanged, but in the average length of claim, which increased by 20 per cent, and in a spike in claims connected to psychological issues like stress and depression,” he says. Claims in this area accounted for around 20 per cent of FMI claims in 2011 compared to an average previously of around five per cent. “At this point, it appears that this has been a spike rather than a long-term trend but we are cautious as the economic cycle has not yet turned. If it continues, there may be upward pressure on premium prices,” Toerien says. “On the plus side, FMI’s lapse experience has actually improved as the importance of this type of protection has been reinforced.” Momentum’s group insurance and FundsAtWork umbrella fund data reveals a direct correlation between South Africa’s economic health and disability claims. The common underlying causes are associated with stress, burnout and psychosomatic conditions. While more research is needed to understand the relationship between macroeconomic prospects and health, anecdotal evidence clearly shows a spike in disability claims during times of uncertainty. This could be

attributed to stress-related conditions as a result of financial problems, employees’ inability to keep up with increased work demands and sales targets, and their concerns about job security. Employees in industries with aggressive performance targets like the financial sector, the manufacturing sector and call centres appear to be most prone. And the problem is getting worse, according to Momentum’s data. Alarmingly, the average age of people becoming disabled is steadily declining.

Some but not all Not all insurers are seeing an increase in disability claims this time around, though. According to Old Mutual, in tough economic times, people tend to look at ways in which to cut costs. Similarly, employers may look at cutting staff numbers to reduce their bottom line. Some of the vehicles used are early retirement packages, or medically boarding staff in poor health. “During tough economic times in the 90s and early 2000s, we saw an increase in the number of disability claims made by retail customers and employer schemes,” says Ferdi Booysen, risk product manager at Old Mutual. “Our claim statistics showed an increase in psychiatric, musculo-skeletal and back problem claims. Customers would then survive on their disability income benefits until the business environment improved. 

However, this time round the same trends did not emerge in our claims experience. We did not see an increase in psychiatric and back claims.” In fact, with the recent recession, Old Mutual saw a dip in the number of disability claims. “Our theory is that people are not resigning from their jobs, citing disability as the reason, as they’re worried that they won’t find a replacement job once they’ve recovered. So they’re hanging on to their jobs during this tough time, rather than submitting a claim and going off work,” he says.

Changing cover In a climate in which the need for such cover seems to be growing, insurers have started to diversify their products to meet client needs. One of the biggest trends in disability products is in the level of comprehensiveness of the benefits, Switala says. A few years ago, a standard disability product would cover only the insured person against not being able to work due to an accident, injury or illness. Newer generation disability benefits offer more security to customers by providing alternative claim definitions under which claims can be submitted. For example, specific permanent impairments such as deafness or paralysis might be covered irrespective of whether such an impairment would leave the person occupationally disabled. Switala believes that Liberty is setting trends in the disability market. Examples of this innovation include the introduction of benefits which allow customers to extend income protection beyond their retirement. “The reality is that permanent impairments in retirement can lead to unforeseen expenses such as a caregiver and that these expenses will erode an individual’s retirement savings. Customers need protection against this risk,” he says. Liberty has broadened its income protection to allow cover against a wide range of risks which can threaten someone’s ability to earn an income rather than the traditional benefits which protect the individual only against occupational disability. “A good example of this is that customers can now also protect their income against retrenchment,” adds Switala. So while soaring disability claims may be cause for some concern, it may also mean increased opportunities for insurers nimble enough to address client needs through diversification of disability products.

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

love travelling, but I find that the enjoyment is frequently dependent on my willingness to engage with those through whose countries, cities and villages I am passing. By far my most memorable moments in Switzerland, for example, were in the surf shop, yes in Switzerland, where I found some clothes when my bag was sent through to my next destination in error. Recent travels through five European countries, for work and on holiday, have given pause for thought.

being able to turn his contract work into a permanent position and lives in his caravan, setting out to work every morning.

First, we must be very careful not to generalise. Global news services cannot present details; only information, trends and statistics.

Of course, much credit must go also to the advisers who have taken their customers through these ideas and the customers themselves for being prepared to embrace this innovation. And we must make every effort to make sure that novel concepts are turned to the benefit of these customers. Nevertheless, as one of the more stable and more advanced developing countries and as part of a thriving financial services industry, we have a great deal of respect and we stimulate significant interest.

Spain may indeed be in great financial difficulty, affecting a very large number of workers, particularly the youth. Life is going on, however, for many people pretty much as usual. La Vuelta, the annual cycling race, received all of its usual attention, the country celebrated its Olympic successes with enthusiasm, a tremendous road-building project continues apace outside of Barcelona, and the proprietor of a seaside shop told us – “curioso”, she said – that business this summer has been better than ever. Britain is regarded, with good reason, as one of the wealthiest countries in the world. The southeast of England is the most well-off and Oxfordshire no slouch when it comes to generating GDP. But in a caravan park just outside Oxford I met a young man, a fine citizen and well-spoken, who had been living in his caravan for four years and working in the area. His skills are needed – he hand-paints the new Ghost at the nearby Rolls-Royce factory – but he waited for three-and-a-half years before

Second, the outside world is interested in our country. This was evident in my discussions and in the newspapers. South Africa presents interesting investment opportunities, particularly in insurance. Our industry has an excellent reputation for innovation and we continue to benefit from the 20 or 30 years of great ideas that our forebears have turned into reality.

We are in the news as well. The tragedy on the platinum mines midway through August was covered in both the British and Spanish press, in news and editorials, and even in a Spanish regional newspaper. Do not underestimate the interest that our country generates outside of our borders. Third, people everywhere have saving and protection needs. We in the long- and short-term insurance markets exist to satisfy the requirements of our customers. Across countries, languages and income groups, everybody has aspirations and savings goes a long way to meeting these goals. And just about everybody needs some form of protection

against events like death, disability and illness. Only insurers are able to meet these needs, taking on risks that individuals and their families cannot manage and, in return for a known financial contribution, converting these risks into known outcomes. Everywhere I went were people whose lives would be materially improved by accepting this exchange. As I turn for home, thinking about these things, I recognise what a privilege it is to be part of the process of meeting these needs. Achieving this is not easy. The financial risks to the insurer are significant and the corresponding obligation on insurers to ensure that they are at all times able to meet their financial responsibilities correspondingly onerous. We must treat our customers fairly because these products are complex and last for long periods. It is not going to be straightforward for insurers to demonstrate their commitment to this fairness and to ensure that their customers have confidence in this commitment. FAIS places significant demands on financial advisers to provide advice and recommend products with the utmost integrity and with due regard for the needs to their customers. This is good and right but onerous nevertheless. Above all, we must recognise that each customer is unique. Just as the personal characteristics of any Spaniard, Frenchman or Swiss exceed any national generalisations in importance, for them and for their families, each of our customers has a set of needs that is theirs alone. And just as it is our interactions with people that make our travel experiences memorable, it is our ability to meet these unique needs that truly gives us satisfaction in the work that we do.

The

trusted choice for retirement Tiny Carroll CFP® Fiduciary specialist at Glacier by Sanlam

Five good reasons to use a trust for retirement planning

Protection on divorce or insolvency

hile longer life expectancies and increased longevity may be good news, additional provision is essential for those who wish to enjoy financial security well into their retirement. We look at five reasons for considering a trust, which uses an endowment policy as its main investment, as part of a retirement planning strategy.

Up until retirement from a retirement fund, a member’s benefit may, in terms of the Divorce Act, be regarded as assets subject to division on divorce. Trust assets will not be part of either party’s estate in the event of divorce, provided that the trust functions effectively, and that the ownership of trust assets vests in the trustees for the benefit of the estate and beneficiaries.

Annual donations tax concession

Tax-free donations of up to R100 000 each to any person, including a trust, are allowed per annum. For married couples, this could mean R200 000 a year. Donations to the trust can be used by the trustees to fund premiums on an endowment policy owned by the trust. While the tax concession is lost if not used in a particular year, the benefit is that the premium and the growth on the premium are removed from the planner’s personal estate.

“Up until retirement from a retirement fund, a member’s benefit may, in terms of the Divorce Act, be regarded as assets subject to division on divorce.”

The endowment advantage

Using an endowment as a savings vehicle has several tax and administrative benefits, including: • Income and capital gains are taxed within the endowment at the insurer’s effective tax rate of 30 per cent, which is lower than the 40 per cent flat rate applicable to trusts. • Gains in an endowment will be taxed at an effective rate of 10 per cent, as opposed to the Capital Gains Tax (CGT) rate for trusts, which is 26.6 per cent. • Because income arises in the endowment instead of the trust, the complex income-tax deeming provisions are not triggered, which eases the tax administration burden associated with trust income and capital gains. • After maturity, partial withdrawals from the endowment will not be taxable for the trust or its beneficiaries. • These tax-free withdrawals, which are distributed to the beneficiary or utilised by the trustees for the beneficiary’s benefit, will not push up marginal tax rates applicable to traditional annuity income. This enhances the return on other forms of taxable income.

Tax-free lump sums at retirement

Retirement fund lump sum benefits in excess of R315 000 will be taxed in accordance with the published scales. Lump sums withdrawn from the endowment and awarded to a beneficiary will not be taxable.

Mind over matter

It is a common misconception that the holder of the power of attorney will be able to transact on behalf of the aged relative. But the power of attorney will lapse when the giver of the power is no longer mentally competent. Their financial welfare and care will depend on the costly and lengthy process of appointing a curator. Instead, the trustees of a trust, which has been specifically established to take care of aged beneficiaries, are able to utilise funds for the care and wellbeing of the beneficiary. Building a safeguarded source of capital for financial peace of mind after retirement is but one of a trust’s many uses. However, the decision to use a trust and the application of the endowment must be taken only after proper consultation with a qualified financial adviser.

enterprise

risk

management strategic planning | global trends | info

Corporate cyber crime

Corporate cyber crime is taking the world by storm, making secure IT systems a must for companies. Prudent recruitment is just one of the steps that corporates should take to guard against security breaches.

The top 10 cyber crimes of the last decade

As hackers wreak havoc on digital platforms, we look at a chronological list of the most significant cyber crimes of the last decade.

Corporate

cyber crime Grant Cyster

lawlessness gone digital For almost as long as people have walked the Earth, crime has existed. With the rise of the digital age, a new terrain has become available upon which cyber outlaws ply their trade. While the theft of hard cash has always been an attractive prospect for many cyber villains, corporate secrets are now also increasingly at risk. Local corporations are not exempt from this threat. We examine corporate cyber crime in the South African context and the factors that make businesses either vulnerable or impenetrable. Chinks in IT security armour Mark Eardley has presented at the 2012 IT-Web Security Summit and the IT-Web Governance, Risk and Compliance Conference, and he is a regular contributor on IT-security issues for various technology publications.

control has created an environment where the criminal exploitation of CPPs lies at the very heart of the vast majority of corporate cyber crimes. It may be an inconvenient truth, but conventional IT credentials are a fundamental flaw at the core of IT security.”

According to Eardley, “Above all else, inadequate access controls create the greatest risks. Any IT system that relies on cards, PINs or passwords (CPP) to control IT access and activity is fully exposed to cyber crime because of the risks created by these credentials as anyone can use your card, your PIN or your password; and you can use theirs.

Catherine Berry is the senior underwriter at Camargue. Berry says, “Hackers are continuously finding new methods of exploiting software, which results in vendors frequently releasing patches. It is therefore vital that the IT departments of companies and /or contracted IT service providers act diligently when it comes to monitoring these releases, as well as implementing adequate security solutions.

A password, PIN or card is either accepted or rejected based on its validity, not on the identity of its user. It can never verify the identity of its user. Since their use cannot be restricted to a specific person, conventional cards, PINs and passwords are vulnerable to abuse simply through being shared. This failure of identity

Of paramount importance is the education of a company’s workforce. Businesses can have the best firewalls and security measures in place, yet all it takes is for one staff member to click on a link or open an e-mail that contains a virus and the entire company could be put at risk. Viruses essentially open the door for

hackers. Just one clever hacker or virus can invade a network which could lead to a data breach with massive consequences and ensuing financial implications.” Craig Olivier, solutions architect at Genasys Technologies, says, “Many organisations are against the approach to outsource network and hardware infrastructure and rather manage this internally. There are positives and negatives to this approach which often falls back on a cost benefit analysis together with the comfort of having full control of their infrastructure and hardware. The big problem with this is that often junior IT technicians are responsible for online security, and prevention against cyber-attacks is not emphasised enough and given the required priority. Strict change control needs to be in place to ensure any associated risks are properly evaluated prior to making changes. 

“Of paramount importance is the education of a company’s workforce. Businesses can have the best firewalls and security measures in place, yet all it takes is for one staff member to click on a link or open an e-mail that contains a virus and the entire company could be put at risk.”

A proactive approach is imperative to continuously interrogate security to ensure potential vulnerabilities are blocked at all times. This needs to include regular updates to firewall devices, windows updates, software updates and then regular external checks to ensure the network is safe at all times. Small things like wireless routers often ship with no standard security in place. This allows external users access to your internal network if not locked down.”

Necessary company protocols and safeguards “Authenticate, authorise, audit,” says Eardley. “These functions should form the basis of IT governance policies that control who can do what within corporate systems. “We must first be able to authenticate IT users to verify their identity with as much certainty as possible. Fingerprint biometrics can do this with far greater accuracy than any form of CPPs and the technology is already being used to do just that within the physical access control

systems at thousands of organisations across SA. The world of physical security realised long ago that CPPs are a woefully inadequate barrier to unauthorised access and activity and have therefore replaced them with fingerprintbased identification within their workforce management systems. “The second step in securing corporate IT systems”, says Eardley, “is to authorise identified users; to provide them with the authority to access systems and operate within them. And there are already several well-established and widely used platforms that can manage this function, ranging from Microsoft’s Active Directory through to dedicated identity management or IdM solutions from the world’s largest software vendors.” Eardley adds that the third function is to audit the activities of authenticated and authorised personnel to record who did what by linking identity with activity. “Once again, a reliance on CPPs completely undermines the integrity of the audit function as they can only link actions to a card, PIN or password. They can’t link activity to people.”

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According to Berry, “Ideally, all companies should have an external or third party IT service provider that is able to conduct security audits and penetration testing, in order to test the efficacy of a security system, while exposing any inherent potential weaknesses. Unfortunately, companies are often reluctant to incur the additional expenditure of such audits, especially when they already employ or contract IT specialists.” Although such projects may be met with resistance by the current IT service provider or staff, as they may view it as something of a witch hunt, this exercise should be viewed in a positive manner. The additional benefit of utilising pen-testing professionals is that they could also offer training to existing staff, in order to raise awareness around their electronic usage and conduct. Olivier shares the observation that a network security strategy needs to be put in place and adhered to at all times. Update processes are

“Strict control needs to be in place when opening up any services to external networks and strict controls instituted when opening up such services.”

to be put in place and evaluated regularly to ensure any new vulnerabilities are locked down as they are identified. Strict control needs to be in place when opening up any services to external networks and strict controls instituted when opening up such services. Under no circumstances must networks or servers be opened up entirely, but if

absolutely required, the minimum publications can be opened, keeping all other entry points locked down.

The importance of prudent recruitment Olivier says that a large percentage of cyber attacks are performed internally with IT administrators having ‘God’ status on the networks. “I believe that strict controls need to be in place to authorise any changes internally to prevent gaps in the security strategy. IT managers need to be carefully selected to ensure their understanding. The risks are too great if this type of due diligence is not performed. You could relate the responsibility of your IT manager on a par with your financial manager. The power of their role is extremely important and the companies exposure based on their action can be catastrophic in both scenarios,” says Olivier. Speaking about the need to properly prioritise an organisation’s IT strategy, Berry says, “In

a technologically dependent environment, the network is the heartbeat of the organisation. Yet, IT is seldom given due consideration when annual budgets are prepared; additionally there are very few entities that have a nominated chief information officer. The same goes for IT service providers. Selecting the most inexpensive provider will prove to be shortsighted. A service provider should understand a company’s IT demands and be involved with the development of a strategy around how those demands will change in the future, to ensure that the IT infrastructure and systems cope with the changes and deliver what is required. It’s also vital for companies to ensure that adequate budgets are available for the necessary expansions. Furthermore, good service providers will offer invaluable assistance in developing IT disaster recovery plans, while also putting in place a sufficient data back-up and storage process. Issues such as SLAs and remote support should also be taken into consideration.”

Significant South African cyber threats “EFT fraud certainly represents a wellpublicised form of local cyber crime. And

as with other forms of cyber crime, it is routinely based on the exploitation of CPPs,” says Eardley. In January of this year, for example, hackers stole R42 million from Postbank, using cracked employee pins and passwords. Berry says, “There are many local versions of worldwide phishing scams in South Africa. A popular one involves receiving a letter from SARS requesting bank account details for a refund. Sometimes, you haven’t yet completed your tax return.

“In a technologically dependent environment, the network is the heartbeat of the organisation."

What should be highlighted is the fact that there isn’t much awareness around cyber risks in the country. The promulgation of PoPI (Protection of Personal Information Bill), which is expected in the next few months, may go a long way towards raising awareness of the importance of data security.” Any organisation has a choice concerning the level of diligence it exercises with regard to its IT security strategy. However, for the organisation which seeks to maximise its chances of operating securely, there really is no choice at all. Simply stated, every possible precaution must be taken.

THE TOP ten

CYBER CRIMES

OF THE LAST DECADE Grant Cyster

The existence of those intent on living outside of the rule of law is nothing new. The dawning of the digital and computer age simply ushered in a new breed of outlaw. With keyboards as their weapons and the Internet as their terrain, cyber bandits have been wreaking havoc on digital systems. We look at a chronological list of the most significant cyber crimes of the last decade. e-mail, MyDoom slowed worldwide Internet access by 10 per cent and restricted access to some websites by 50 per cent. Losses suffered in terms of productivity and Internet sales are unparalleled.

Foonet (2004)

California payroll database hack (2002)

Although it is a few months outside the 10year period, this case is worthy of mention. On 5 April 2002, an anonymous hacker compromised a California server that stored the state government’s payroll database, gaining access to the names, social security and salary data of 265 000 state workers, including the governor. Even though the breach was relatively small-fry, it led to the passing of the United States’s first breach disclosure law, SB1386, requiring hacked organisations to swiftly notify potential victims of identity theft.

Slammer (2003)

In 2003, the 376 byte rapid-fire Slammer worm targeted a weakness in Microsoft’s SQL server, and even though it struck six months after a fix was made available, the malware cracked an approximate 75 000 servers in a matter of hours. Bank of America and Washington Mutual ATM networks were completely non-functional, and Seattle’s emergency 911 network became useless.

MyDoom’s mass infection (2004)

Now here is a digital crime that caused damage to the tune of $38 billion. According to McAfee, it tops the list with respect to financial damage. Engineered to infect computers and send spam

A relatively inconsequential ISP hosted in a basement in the state of Ohio earned the dubious honour of being the first hosting company for cyber villains. It served as a haven for hackers and packet monkeys to wreak havoc on a vulnerable Internet. Following two FBI raids in 2004, Foonet’s originator and a few staff members were indicted for serving as distributed denial-of-service (DDoS) mercenaries who launched attacks on the Department of Homeland Security and Amazon.com, among others. Foonet owner, Saad Echouafni, fled the US and remains at large today.

The LA traffic signal attack (2006)

Los Angeles’s city traffic was brought to its knees by computer hackers during a memorable period in August 2006. While LA traffic engineers were on strike, two disgruntled staff members hacked into the unguarded network and focused an attack on strategic areas of the city’s traffic. It was days before the identities of the cyber gremlins were determined, who were sentenced to probation in December 2009.

Max ‘Iceman’ Vision (2006)

A former computer security researcher surveyed the digital black market and spotted a gap. Max Vision (aka Iceman) placed in the crosshairs online carder forums where hackers and crooks trade in stolen data, fake IDs and specialised black market services. Among Max’s list of achievements is the theft of two million credit cards totaling $86 million in fraudulent transactions.

Albert Gonzalez (2005–2008)

Twenty-eight-year-old Albert ‘Segvec’ Gonzalez and his accomplices pulled off the biggest data

heists in history, swiping (excuse the pun) credit and debit card magstripe data for sale on the black market. Gonzalez called it Operation Get Rich or Die Tryin’. Making use of Wi-Fi hacking and SQL injection, the crew launched offensives against companies like 7-Eleven and Office Max, along with the credit card processor Heartland Payment Systems. He may have buried over $1 million in his parents’ backyard, but Gonzalez and his crew are now facing between 17–30 years in prison.

RBS Worldpay Heist (2008)

RBS Worldpay made it known in December 2008 that 100 of its payroll and gift card accounts were compromised in the breach. Hackers succeeded in raising the withdrawal limits on 44 of those cards to as much as half a million Dollars. In excess of 130 ATMs in almost 50 cities from Moscow to Atlanta were targeted, leading to a one-day cash haul of $9.5 million. Four of the masterminds have yet to face justice in the United States.

Conficker (2009)

While it didn’t crash the Internet as some claimed it would, Conficker proved to be a cyber threat to be reckoned with. The software boasted state-of-the-art encryption, and an advanced peer-to-peer update feature. At the height of its impact, it inhabited around 15 million unpatched Windows boxes, sending spam and serving victims with a fake anti-virus product. Experts propose that an organised team of coders is responsible.

Money mules (2009)

Stemming from the former Soviet Union in 2009, were the ‘money mule’ scams. Using specialised Trojan horses like Zeus and URLZone, the perpetrators target small businesses which utilise online banking, stealing the victim’s identity and setting up money transfers from their accounts, typically in the region of tens or even hundreds of thousands of Dollars. The spoils go to mules who have been hired through fake work-at-home offers, and whose role it is to withdraw the cash and send the bulk of it to the scammers via Moneygram. Just over $100 million has already been stolen via this scam.

Corporate ID theft is a real threat

details were obtained by the fraudster in the first place,” says Lorenzi.

“Businesses of all sizes and in all locations can be exploited and must therefore employ effective document destruction practices.”

usinesses that fail to implement effective document destruction practices face a significant risk of falling victim to corporate identity theft scams and could be placing the organisation and its clients at risk of legal, financial and reputational repercussions.

The recent fake letter and e-mail scam that contained logos of the Financial Intelligence Centre (FIC) that has already duped 419 South Africans, highlights the dangers that corporate identity theft can present to any organisation. Gianmarco Lorenzi, managing director of Cleardata, a Metrofile group company, says that according to the latest Southern African Fraud Prevention Services (SAFPS) Chairman’s Report, the number of fraud fillings received by SAFPS increased by 27 per cent in 2011,

with 14 320 new incidents being reported in that year alone. “These statistics highlight the fact that identity theft is on the rise in South Africa and criminals are increasingly targeting businesses as they have realised that it is more lucrative and easier than exploiting individuals.” The latest trends in corporate identity theft involve consumers receiving letters with official company letterheads stating that the account details for their monthly instalments have changed and the consumer must make payments to new account details. “The consumer, thinking this is an authentic business letter, then makes payments into the fraudulent account. The scam comes to light when the business contacts the customer to establish why payments are not being made, instigating reputational, legal or financial damage for the business as the customer wonders how their

Business records of any kind should never be put into a general waste or recycling bin, where it may be accessed by criminals intent on identity theft; instead, all business records that are no longer needed should be shredded. “Businesses need to realise that one of the easiest ways for criminals to conduct corporate identity theft is by going through the company’s rubbish. Most computers also have desktop publishing technology, which has made it far easier for fraudsters to scan and duplicate a variety of corporate documents – such as purchase orders, invoices, bank statements, cash and credit card receipts or even stock certificates – containing company logos,” Lorenzi adds. He says small businesses, especially those located in rural areas, may be at more risk, as they are often under the misconception that only larger organisations situated in urban areas are targets for corporate identity theft. “This is actually not the case. Businesses of all sizes and in all locations can be exploited and must therefore employ effective document destruction practices.” “Those businesses not practising sound document destruction are simply placing the organisation, including employees and clients, under unnecessary risk of identity theft and should seek the advice of a reputable document shredding company that has been certified by the National Association for Information Destruction to mitigate the potential threat to their business and reputation,” concludes Lorenzi.

C y ber crime

At a

Rohan Isaacs, director at Norton Rose SA

he worst viruses are estimated to have caused losses of billions of Dollars worldwide. There has not been a serious virus attack in the past few years but this is probably more luck than superior anti-virus technology. No cyber security vendors seriously suggest that the war against viruses has been won. It is most likely only a matter of time before the next big one.

South Africa is a major victim of cyber crime assault. Phishing attacks are on the increase. South Africa is reportedly among the highest targeted countries in the world for phishing attacks. Although astonishing to some, 419 scams remain lucrative for online fraudsters. People are duped daily into believing that they have won lotteries they did not enter; that they have inherited millions from relatives overseas they have never heard of; or that complete strangers are prepared to share a pot of gold with them for no apparent reason. The law has struggled to control the scourge. The Electronic Communications and Transactions Act outlaws all of these activities but detection is almost unheard of and prosecutions are rare. In February, the government announced that cabinet had approved a cyber security policy framework for South Africa, originally upon request by government for public comment. The introductory note to the request stated that current law and legal structures are inadequate to deal with the increasing threat of online criminal threat.

tipping point

The Sony PlayStation network hack attack of 2011 may be the most document incident of this nature but it is hardly an isolated case. The disheartening reality is that unlawful online activity is flourishing, whether it involves distributing viruses, hacking systems or stealing money. The aims of the resulting policy are laudable. These include the development of indigenous cyber security technologies, interaction with international Internet crime-fighting organisations, a safe and secure cyberspace, public awareness and the promotion of a culture of cyber security. The amendment of existing laws to promote and enforce these objectives is envisaged. As would be expected from a policy document, the framework lacks detail on firm steps to be taken to achieve these objectives and, since February, little progress appears to have been made. This is unsurprising because the task is stupendous. New, tougher laws by themselves will not enhance safety in the Internet environment any more than they would in the physical world. Significant investments will be needed in a number of different areas ranging from criminal detection and pursuit agencies to prosecutors and public education. With so many urgent demands on the public purse, it is questionable

whether the will exists to prioritise cyber security over human rights needs such as health, education and housing. A short-sighted approach now will result in damage to our society in the long term that affects our ability to address these basic human rights. Phishing and scam onslaughts continue unabated. The Information Security Group of Africa estimated in 2011 that the countryâ&#x20AC;&#x2122;s loss to cyber crime over the previous three years was R1 billion. Cyber crime is insidious. Its effects are less dramatic than the violent crime that has such a hold over the popular consciousness but they are no less serious. The trajectory of a society enveloped by crime is downward. The security policy framework is a recognition that we are at a decision point. But it will take more than consultants and policy makers to achieve the difference needed. If we do not take action now to overwhelm cyber crime, we risk being overwhelmed by it in the future.

Glo bal solu tion s

Cus tom ized . We understand that no two multinational businesses are alike. every organisation has its own foreign risk exposures and risk tolerance. At Chartis, we’ll work with you to help create a program tailored to your specific needs, virtually anywhere in the world you do business — whether that means local policies in some or all of the countries you have exposure or a single global policy. to learn more, 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

Beaded craftwork South Africa – Where Chartis insurers have done business since 1962

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.

better business trends | tools | technology

102 AIG Rising

After the highly publicised bailout of AIG, Peter Hancock joined the company and went on to become CEO of its property-casualty businesses, Chartis. RISKSA caught up with him on his recent visit to South Africa.

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Microinsurance measured: Part 2

As part of a series of articles on microinsurance, we caught up with Mandla Shezi, head of Hollard Alternative Distribution. He believes that in order to be successful in this space, insurers need to make microinsurance a central focus of their operations.

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Reputation is everything

Online reputation management is big business, and for good reason. One nasty comment on a website can ruin a companyâ&#x20AC;&#x2122;s image and no insurance cover is available to guard against loss of reputation. Those businesses that can manage and monitor their online presence effectively will reap the rewards.

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Peter Hancock, CEO of Chartis

AIG

Rising 102

Hanna Barry

On his recent visit to South Africa, RISKSA had the opportunity of interviewing Peter Hancock, CEO of Chartis, American International Group's (AIG) property-casualty business. He told us about his decision to join AIG after the 2008 bailout, how the company has been successfully rebuilt and plans to rebrand Chartis under the AIG name.

t would be an understatement to say that AIG's need for a $182 billion bailout from the 2008 financial crisis made headlines. Media reports have described it as “arguably the most shocking event during the financial crisis” and “the most loathed of the rescues”. Joining AIG in early 2010 to oversee finance, risk and investments, including the insurer’s money-losing credit-default-swap unit, Peter Hancock arrived with 20 years of experience at JP Morgan under his belt, where he served as the firm’s chief financial officer and chief risk officer. “It was a unique opportunity. A company that is a leader in its industry, with enormous breadth and scope of operations, that needed to be refocused,” was Hancock’s cool reply to an incredulous: what were you thinking? “I hit it off with the CEO, Robert Benmosche, whom I’d not met before.” Benmosche wanted to turn the company around. The initial strategy had been to dismantle AIG under the prior CEO, Ed Liddy, but when Benmosche took over in the summer of 2009 he came on the condition that the company was not to be dismantled, but rebuilt. “The premise under which I joined was that this was a going concern; that the company was worth a lot more together than broken into pieces,” continues Hancock. Much of his first year at AIG was spent recapitalising the company in a way that was sustainable. Some two years on, and the US Government, including the Federal Reserve Bank and the Treasury, has fully recovered its $182 billion commitment to AIG, plus a profit. Grateful to US taxpayers for their assistance, Hancock feels that AIG has fulfilled its promise, not only to repay the assistance, but to rebuild the company in a way that is valued by the marketplace. He says that from a market practice point of view, AIG is proud of the way it treats its customers, but welcomes regulators who can validate this. “We welcome greater oversight and the transparency and rigour it brings to our operating processes. The events of 2008 are a good reminder that there needs to be a commitment to a real openness about enterprise risk. All companies of any scale and complexity need to demonstrate to all stakeholders, policyholders, investors and customers that they can deliver on their long-term promises.” 

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Hancock was appointed CEO of Chartis in March 2011. With operations in 90 countries, Chartis was fairly fragmented at the time and his strategy has been to unify the company culture around common themes; most notably, focusing on value over volume. “This centres on understanding our customers and what they value most about what we do for them. We are not trying to do everything for everybody, but rather focusing on those lines of business where we feel that the scale of our operations brings something significant.” A broad geographic network means that Chartis can bring particular value to clients who are looking to operate globally. It plans to target areas in which its customers have growing needs, for example, emerging economies and specialist lines of business.

Technology, data and the chief science officer In an increasingly uncertain world, Hancock believes that the insurance industry needs to be agile and flexible, using technology to minimise fixed costs and focus on meeting clients’ needs. Technology, along with the best talent and analytical tools, are the keys to success. “In a low-interest-rate environment, the industry can no longer rely on its investments and will have to make money through excellence in underwriting. This involves underwriting discipline, but also means investing in technology to understand the risks you are taking,” he explains. In this regard, the important role that data plays cannot be overstated. “At the end of the day, insurance is all about understanding what the data can tell you about risk and the relative riskiness of different insureds. If we are trying to grow value as opposed to volume of business, then this ability to use new technology and new

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sources of data provides room for plenty of adaptation and optimism. The availability of data today was unimaginable five or 10 years ago.” Hancock believes that traditional actuarial techniques have their limitation because they tend to just extrapolate the past. In fact, so passionate is he about the opportunities around understanding, analysing and integrating data into business practices, that he created the position of chief science officer at Chartis. Appointed in January this year, Murli Buluswar reports directly to Hancock and has recruited a sizeable team in the short time he has been in this role. Hailing from a range of scientific backgrounds, including medicine, statistics, psychology and seismology, their work feeds into product design and underwriting. It also extends to understanding certain structural drivers of loss. For example, working with scientists from the John Hopkins School of Public Health to analyse over 10 million claims records, Chartis has understood some of the underlying drivers of the long-term medical costs of returning injured workers to work. As patterns emerge, claims can be more efficiently processed, reserves more prudently set and underwriting improved. “We have one of the largest workers’ compensation insurance businesses in the US and over $20 billion in reserves set aside for future claims,” says Hancock. “We have tried to recruit individuals in the science office who have excellent listening skills and not quantitative skills only, so that they are able to work together with skilled underwriters. This produces the best outcomes, which is a blend of art and science,” he adds, quoting Mark Twain’s famous line: “History doesn’t repeat itself, but it does rhyme.”

Rebranding the local operation Successfully rebuilt, last month The Wall Street Journal ran a story titled, ‘AIG’s recordbreaking stock sale’. Having sold $38.2 billion of stock, US taxpayers have received a $15 billion positive return to date from the AIG bailout, which is being described as a success. In this light, Chartis will be rebranded AIG in October. “The Chartis brand was successful in unifying different antipodes in the property and casualty business, but as we simplified the company we believe that AIG is the right brand to operate under going forward,” says Hancock. The decision was reached with feedback from customers, distribution partners and brokers, who jointly feel that it is the better recognised brand for Chartis’s products. Hancock is confident that the AIG brand is well-known in the South African market. “Those who are knowledgeable about insurance recognise our global standing and longstanding commitment to the local market. We have grown to meet the infrastructure needs of the country, expanding from a handful of lines 50 years ago to 40 different lines of business today.” Writing over R250 million in premiums last year, Chartis’s South African operation has been consistently profitable, offering a full spectrum of commercial lines cover, with a strong accident and health business. “We serve some of the largest and most demanding customers in the market and are able to deliver results. We have paid substantial claims on a timely basis and believe we have served the local market well,” Hancock continues. Having operated profitably in Kenya for 45 years and in Uganda for almost as long, Chartis

will continue looking at growth in the sub-Saharan region with some interest. It will be expanding its reinsurance business and exploring opportunities in the energy and construction sectors. Where appropriate local partners can be found, or where local regulations allow the company to operate as fully controlled, Chartis will consider launching further primary insurance operations on the continent.

The perfect fit. Looking for a system that suits your needs?

A custom built solution can be faster and more cost-effective than you ever thought possible. Mike Durek, MD of Chartis South Africa

At the helm of Chartis’s South African operation is Mike Durek, former CEO of ACE Insurance. “We have every hope that Mike is going to keep energising the team to grow and succeed in this market. He has already brought valuable insights as to how to better deliver the global scope and scale of AIG to best serve customers in South Africa,” notes Hancock. Durek’s focus is squarely set on delivering to customers. “We have created a perception in the market that AIG is a cyber-driven animal that doesn’t deliver customer-centric solutions. South Africa is a brokerdriven market and brokers want customer solutions, not product solutions,” he says. Durek feels strongly that Chartis’s ability to deliver holistic insurance solutions (trade credit insurance is the only cover it does not provide) is the company’s unique differentiator. “This has not been marketed effectively enough in the past. For example, we can provide cover to a customer who has two aircraft, warehouses, a marine cargo business, liabilities and a travel book,” he continues. Corporate growth will be broker driven and this is an area of focus for Chartis. “AIG should be a lot bigger than it is currently in the local market and we plan to target a profitable market share with business that is sustainable,” concludes Durek.

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

Innovative systems for innovative insurance ideas

Without doubt an insurance company to watch, it appears this is just the beginning of AIG rising.

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healthy prospect

KPMG insurance survey 2012

PMG’s annual insurance industry survey highlights that heavy-weight insurers continue to dominate the industry, while the regulatory environment is becoming increasingly onerous for smaller players.

regulation by local authorities has generally been very good, and there is no feeling of massive regulatory uncertainty. “The industry has been generally accepting and even supportive of the direction that legislation is taking,” he adds.

With direct marketing and short-term niche players capturing more than 10 per cent of the market, established insurance giants such as Mutual & Federal and Santam remain dominant. This is according to KPMG’s 2012 South African Insurance Industry Survey, which states that while new direct marketing and niche upstarts are making inroads in the life insurance industry, the question remains if giants like Old Mutual and Sanlam will relinquish market share in 10 years’ time.

However, Dixon says that regulation like SAM and Treating Customers Fairly might slow down the growing market share of the smaller players, and potentially make them more vulnerable to merger and acquisition activity. According to the survey, administrative costs are running well ahead of profitability growth and premium inflation.

The survey indicates that ongoing regulatory change facing both the short-term and life insurance industries would suggest that smaller players might struggle to keep pace with the significant adjustments to the playing field. Partner and national head of insurance at KPMG, Gerdus Dixon, says that while the implementation of Solvency Assessment and Management (SAM) is already fuelling speculation of merger and acquisition activity, communication and implementation of

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This is partially the result of regulatory changes and the survey suggests that consolidation in an effort to achieve scale might be an industry response. The likely result is an insurance industry still dominated by very large players but with an extended product offering, flexibility and direct and alternative distribution channels typically associated with smaller, newer entrants to the market.

Claims management KPMG’s review praised the industry’s sophistication in managing its claims process. This includes settling legitimate claims quickly

and efficiently; reducing leakage or overpaying for claims; stamping out fraudulent claims; preventing duplication of effort by centralising data; providing flexibility within the claims team to manage fluctuations in the number of and type of claims; working within a compliance-aware environment; the ability to transfer knowledge; and excellence in people management.

Shared services and outsourcing The survey predicts that outsourcing and shared services are likely to be features of the insurance industry in the near future. This is in part driven by the global shareholders embedded within South African insurance companies, as well as the significant African expansion plans necessitating standardisation and consolidation of functions across broad geographies. The state of the South African insurance industry is healthy, the survey concluded. Locally the industry is mature, but well established and sustainable. Margins are under pressure, but opportunity exists to build a more sustainable and stronger business, capable of managing ongoing regulatory change. Great opportunities exist to expand into fast developing African countries.

Expect the

unexpected

new addition to KPMG’s South African Insurance Industry Survey 2012 is a sustainability article. It covers the 10 sustainability megaforces that will impact the insurance industry going forward. These deepening social, economic and environmental challenges can be a grim prospect for the industry over the next 20 years. However, proper strategy can help curb the negative impact of these megaforces.

The 10 sustainability megaforces paint a picture of resource constraints, increasing regulation and shifting competitive landscapes and consumer preferences. Assessing and acting on sustainability risks and opportunities is fast becoming a strategic imperative for all companies, and a crucial factor in driving long-term business value. While the severity of natural disasters has increased dramatically, the ability to match isolated events to global trends and reflect these in annual premium adjustments is a far more challenging prospect. Sustainability megaforces hold several implications for the insurance industry. Factors affecting the profitability of the insurance industry include the difference between predicted and actual claims and losses; revenue generated from policy plans determined by policy uptake, lapses and surrenders; and investment income. The increased severity of natural disasters has escalated from 50 to 400 a year from 1960 to 2000. If not properly accounted for, claims will exceed the levels predicted by actuarial models and premiums will not be set correctly. On a positive note, sustainability trends relating to demographic changes, such as population increases, urbanisation and a growing middle class, provide a key opportunity to increase revenue, as they may lead to increased demand for insurance policies. However, increasing pressure on public infrastructure and service delivery in cities could create additional risk for insurers as claims related to failing infrastructure may increase. Innovative ways of insuring the previously uninsurable will need to be developed and sustainability factors taken into account in investments, too. With far-reaching impacts, sustainability trends provide greater risk and new opportunities to drive business value for the insurance industry. Companies need to understand how these risks impact policyholders, their risk profiles and their needs, in order to design the correct strategic response.

The 10 sustainability megaforces Material resource scarcity

83 bn

tons of metals and biomass that’ll be extracted from the earth by 2030 – 55 per cent higher than in 2010.

Water scarcity

40%

Population growth

8.4 bn

Wealth

172%

of global freshwater demand predicted to exceed supply by 2030. This is according to the 2030 Water Resources Group.

global population set to increase to this figure by 2030 – 20 per cent higher than in 2011.

the amount that the global middle class is expected to grow by, by 2030.

Urbanisation

Food security

Ecosystem decline

Majority

70-90%

Scarcer

of citizens in developing regions expected to live in urban areas by 2030. Population growth is expected to occur mostly in cities.

rise in estimated global food prices by 2030, exacerbated by effects of climate change.

expensive and less diverse. This is the future of our natural resources due to the decline in biodiversity and ecosystems.

Energy and fuel

Climate change

Deforestation

One-third the increase in prime

3.5°C

energy demand by 2035, according to the International Energy Agency. Fossil fuels will become more volatile due to demand, supply, production uncertainties and increased regulation.

the rise in global temperature as predicted by the International Energy Agency, leading to extreme weather and rising sea levels.

13%

decline in global forest areas by 2030, according to the Organisation for Economic Cooperation and Development (OECD).

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Genasys infused with Pictivate - coming soon... When thereâ&#x20AC;&#x2122;s more than meets the eye. Visit your app store and get pictivate free.

Works with iOS devices and Android powered devices. Blackberry not supported

Genasys Technologies 15th Birthday How did this happen? How did a crazy idea become reality and grow into a thriving company employing over 55 people and providing the administration platform that drives over R4.5 billion premiums annually in South Africa, Mozambique and the UK with over 2000 concurrent users of SKi? The easy answer is that we got lucky and were in the right place at the right time. Certainly luck plays a role in every venture, but more accurately, it is driven by passionate and talented people who sacrifice and risk everything in order to make it happen.

Let me elaborate... Through the merger of Royal Insurance and SunAlliance Insurance in 1996 to form Royal and SunAlliance (R&SA) worldwide, an opportunity arose to bid for a contract to build a Hospital Cash insurance management system for R&SA Singapore branch. In order to bid, I had to resign from my job, travel to the UK and present a case to one of the world’s largest Insurers as to why they should entrust their Singapore subsidiary to a sole developer in Cape Town, South Africa. A long shot, but with the backing of my wife, Leoni, I did exactly that. After a week in the UK and numerous meetings in London and Horsham, I returned to Cape Town jobless, but satisfied that I had given it a shot. A few weeks after I returned to Cape Town, R&SA made contact and it was decided that I should gather together a team of developers in Cape Town to build a comprehensive insurance administration platform for their Italian subsidiary, Lloyd Italico. This was the start of Genasys, 1 September 1997, in the converted garage of my home. It was a wonderful experience which produced the first iteration of the product – then called ‘Customer of One’. In 2001, Lloyd Italico was sold and Genasys acquired the rights to the software. My sole contact in the South African insurance industry at the time was Craig Shorter, who was instrumental in introducing me to players in the industry in general and specifically to Mitch Marescia & Henri Mittermayer. They respectively headed up Camargue Underwriting Managers and Hollard Mozambique and became Genasys’ first two clients. I am proud to say that they are both still clients. Several people have played a big role in building Genasys. From an internal staff position, Ben, Ronald and Craig have been instrumental in the development of both the product and the client base. Several other people, such as Henry Dednam and Joel Rothman have made a significant contribution and have subsequently moved on to other challenges. I would like to thank them for their contribution to Genasys’ success. Andrew Stekhoven from ESCROW Europe, Johan Erbe and Gavin Routledge have served as advisors on the board and given significant insights into building the business. Leoni has jumped in as necessary to fulfil so many roles including web developer, Project Manager, HR manager, MD and more recently, heading up the Cape Town office and development team, while still managing to ensure all 3 our boys made it through Matric and beyond. Managing the change from a start-up with 5 employees to a company with over 50 employees requires a different approach to management and processes, but I would like to think that the ‘can do’ essence of Genasys has not changed. Recently we built the products, converted over 350 000 policies and claims and collected debit orders within 10 days in response to an emergency with a client. We are proud to have Brokers, Administrators, UMAs and Insurers as clients which include recognised brands such as PSG Insure, Aon, Camargue, Hollard Mozambique and Clarendon Transport Underwriters. Genasys has been instrumental in some initiatives within the industry, being the first Fusion implementation partner of Santam, the first to go live with the M&F Green Box and Commercial products. We are currently busy with new initiatives in mobile computing, SAM compliancy and claims integration. We have built a solid reputation within the major Insurers and this has led to the creation of a cloud based service, SkiHost, headed up by Jorg Schwarze, which provides a new channel of opportunity for Insurers to present their products, while providing world class systems for their broker partners. I would like to thank our talented, dedicated and loyal staff as well as all of our clients and industry partners for their support over the years. We continue to strive for greater partnership, ever improving service and being leaders in the software industry.

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www.genasys.co.za

the Insurance Institute of Gauteng

Connecting today, inspiring tomorrow he Insurance Institute of Gauteng (IIG) was established to serve the interests of the insurance community in the region, and has been going strong for many years. RISKSA found out what the institute has been up to in 2012 and caught up with president, Kim Gallus, and deputy president, Michael Dash.

This has been another busy year for the IIG. What have been some of the institute’s highlights? Raising R501 000 for our three charities, as well as seeing new faces and young members attending our functions, supporting our 2012 theme of, ‘Connecting today, Inspiring tomorrow’. We set out to continue being the flagship networking platform for the insurance industry in Gauteng and, with events that continue to be oversubscribed, I believe this has been achieved. What new developments have taken root this year? The involvement with Insurance Bootcamp, as well as increased media interest and coverage.

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The IIG supports various initiatives and charities. Tell us about these. The IIG financially supports 10 CIDA students and, since its launch in 2005, has raised more than R2.2 million for charity. We support three charities, with which we have long-standing relationships. They cover children (Just One Child); the elderly (Frederic Place); and animals (Wet Nose Animal Rescue). How does the IIG contribute to building industry skills? This year we hosted five full-day lectures for members, focusing specifically on the Regulatory Exams. The lectures were wellattended and we want to support our members on this front. What would you say to those individuals in the insurance industry in Gauteng who are not members of the IIG? Why should they join? If you’re new to the industry, it is a great way to get connected and have a sense of belonging. Members can build relationships with like-

minded professionals in the industry and have personal access to people at all levels within the industry. A quarterly news magazine, The Informer, keeps members abreast of relevant issues impacting the industry. Educational seminars, business breakfasts and lectures are a valuable source of skills training. We are also able to offer guidance on appropriate educational service providers, endorsed by the Insurance Institute of South Africa. On the social side, we have golf days and a birding weekend. Our year kicks off with the inaugural dinner which is followed by a mid-winter bash and finally our annual dinner, attended by 1 500 people. In a competitive and rapidly changing environment, membership of the IIG offers camaraderie with thousands of people who share the same interests and will support your growth in the industry. Individual membership is R75 a year and we offer corporate membership too. Full details can be found at www.iig.co.za, or call Marguerite on 011 888 5255.

Kim Gallus, president, Insurance Institute of Gauteng

Kim, how would you describe your year as president of the IIG? Fantastic; what an experience and privilege to give back to an awesome industry that has served me and my family well. What have been some of the most memorable and most challenging experiences? I will never forget going up on stage to the song Dancing Queen, to be inaugurated as president on 1 March in front of our members, colleagues, my wonderful husband Manfred and our two beautiful children Ryan and Kayla. It took 100 years for the president to ask permission from the council to have family present to witness the inauguration. I hope it is the start of a long tradition. Other memorable experiences include working with a supportive council and with Marguerite [the IIG secretary], who taught me so much and delivered beyond expectation. The most challenging decision was to accept the chain of office barely six months after being diagnosed with a brain tumour and having it

Michael Dash, deputy president, Insurance Institute of Gauteng

Michael, as deputy president of the IIG, you must know the ropes fairly well. What do you expect will be the most challenging and exciting aspect of 2013?

removed on 12 August 2011. This health scare has been life changing and definitely made me reconsider my role in the institute. Looking back now, I don’t regret the choices I made. In your term as president, of what accomplishment of the institute are you most proud? Raising the profile of the IIG through media partnership and the R501 000 raised for our three charities. What would you hope to see the IIG achieve in 2013 and beyond? To get with the times and embrace technology, as well as further collaboration with the IISA and other local institutes throughout South Africa. What advice would you give to deputy president, Michael Dash? You are exactly where you are meant to be, so own it. Always remember that the IIG exists to serve its members and that sometimes you have got to walk through the noise to hear the music.

Achieving networking objectives while providing members with opportunities to fulfil Continuous Professional Development requirements, as stipulated by the Financial Services Board, is going to be challenging and exciting.

Kim is going to be a hard act to follow. However, as with her predecessors, she is handing over an institute that is financially sound and has a growing membership base. In connection with the IISA and Inseta, I intend to see the IIG rekindle the drive for a professional qualification as a fun exercise, where networking allows individuals to learn from their peers in the market, while obtaining a qualification.

What are some of the goals that you have set for the IIG under your leadership?

Can members expect new developments and initiatives in 2013?

• To keep the momentum going that has been created over the years and make the IIG more relevant in facilitating education for its members. • To investigate closer ties with the other insurance institutes to ensure that we are all striving to achieve a common goal. • To facilitate interaction with similar professional bodies in the insurance industry. • To identify and acknowledge those students who have achieved their qualifications at local institute level.

The facilitation of CPD points is paramount for all members who have written their representative and key individual exams. This will certainly be a driver for the IIG next year and into the future.

How do you plan to achieve these, building on what Kim has done?

Do you have a word for members? We work in an industry that is primarily responsible for keeping the cogs of commerce turning. For far too long we have kept quiet about what contributions we make to the economy. Let’s shout it out loud and have fun in the process. Insurance is not just a job, it is a professional career.

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ff the back of the recent Programme in Microinsurance Business Strategies for African markets, hosted in Cape Town in July, we are running a series of articles on microinsurance. After a visit to Khayelitsha, which involved engaging with retailers where microinsurance is sold, delegates attending the programme (including insurers and regulators from across Africa) used the PACE (Product Access Cost Experience) client value tool to assess various microinsurance products. Last month we assessed the Sanlam icover Funeral Starter Pack. This month, we caught up with Mandla Shezi, head of Hollard Alternative Distribution. Before deciding to enter the microinsurance space, Hollard realised that there was a large underserviced segment of the South African population that required different products and servicing arrangements from traditional insurance. “It was a gap in the market,” explains Shezi. “Hollard Alternative Distribution reflects the understanding that we need to do things differently in this market segment, by innovating, simplifying and offering affordable and accessible products.” Hollard Alternative Distribution has arrangements with Pep and Jet Stores to sell insurance products. An account-based programme, Jet Financial Services customers have a credit relationship with Jet and pay premiums through their store accounts. Pep, on the other hand, is a cash-based programme. Although customers are given a debit-order option, the vast majority of people choose to pay in cash. Reminders to pay premiums and payment confirmation are sent to customers via SMS on a monthly basis. The grace period for outstanding premiums is slightly longer than the industry norm, and premiums can be paid up to six months in advance. If customers have been policyholders for a long period of time, they may receive more favourable treatment. “We assess the situation of each customer on a case-by-case basis,” notes Shezi.

The importance of clarity Delegates attending the programme agreed that the flyer in Pep was effective in communicating the most important product information to the customer. In contrast, they felt that the terms and conditions in the Jet Club flyer were printed too small and were longer than customers would care to read carefully. While the insurance covers available through Jet Financial Services extend beyond funeral cover, requiring more in-depth explanation, delegates recommended highlighting the most important information in order to aid customer understanding. It is interesting to note that in the Jet store that was visited on the programme, the saleswoman was FAIS-compliant. Her designated role is to sign people up for the Jet Club and sell insurance. She has sold policies to 91 per cent of those customers who

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Microinsurance measured Part 2:

Hollard Alternative Distribution Hanna Barry

have joined the Jet Club and receives R50 commission for every individual she signs up. It could thus be argued that there is a FAISaccredited agent giving advice, but this is not the case in all Jet stores.

This blurs the line somewhat between providing information and advice and it will be interesting to see how the Financial Services Board monitors this when microinsurance regulation is adopted.

Shezi notes that in-store marketing has an educational element too and Hollard runs national workshops that are well-attended. Consumer education and understanding is particularly important where no advice is available. “Ours is a non-advice model and the Pep and Jet store staff members are trained on a regular basis around this model. While there is a risk that they may give customers advice, we have compliance checks in place to guard against this. Most recently, we have piloted a process whereby clients sign a declaration form that they have not been given advice,” says Shezi. This is especially important in light of the fact that the manager of the Pep store visited told us that if a customer asks him which cover option is best, he recommends a specific one.

Policies, premiums and claims In contrast to Sanlam’s icover model, where a starter pack is purchased before a policy can be activated and the first premium paid, Pep policies are activated at the point-of-sale. After a policy has been activated, Hollard calls the client to confirm policy details and does the client take-on. When it comes to claiming, a claims form and relevant documentation needs to be faxed to Hollard. This process has undergone development. “We received feedback from our client surveys that the documentation was too extensive. Clients would battle to access forms and sometimes pages would be missing from the

documentation they faxed through. In response to this, we simplified the claim form and it is now only two pages,” explains Shezi. Feedback from clients is gleaned from focus groups; chatting to customers in-store; undertaking client surveys; and calling recent claimants. The insurer is in the process of moving to paperless claims. The claims ratio is managed very tightly, so although there is some level of anti-selection, this is controlled by a careful risk function. “Our processes are evaluated on a quarterly basis and the validation process at point-of-sale assists in combating antiselection,” says Shezi. Policy activation requires the ID documents of the policyholder and beneficiaries, as well as a telephone number.

Adding value Targeting the mass market with an LSM of three to eight, Shezi says that retention remains a challenge, but this is true for insurers generally, regardless of the market in which they operate.

“We are continuously working on improving retention and finding new ways to communicate and interact with our clients, improving the client experience,” he notes. There are overlaps in the customer segment of the Pep and Jet stores and household incomes range from R1 500 to R20 000. While the right products and skills are needed to be successful in this space, Shezi believes it is equally important that insurers make it a central focus of their operations. “Microinsurance is a core business of Hollard Alternative Distribution, whereas for a lot of insurers this is not the case. This is vital for companies wanting to break into this space; it cannot be viewed as simply another short-term growth opportunity. The investment required is not small and companies won’t succeed unless they have an intimate understanding of customer needs, behaviours and habits.” Hollard hopes to expand its microinsurance footprint in other African countries. New

products are in the pipeline too. “Risk-only products are difficult to develop in this space, so we are looking at jointly offering risk protection and some form of equity. In addition, we are developing ways to ensure that clients always get something out of the product, even in the case of death not occurring. The latest developments are a lowcost agency force and partnering for product distribution with funeral homes.” Shezi believes that most insurers are unable to tailor products and programmes to suit this particular client base. “Microinsurance requires significant investment upfront and a long-term view, which can be a challenge if an insurer is not assured of volume. Many insurers don’t understand how we have succeeded, but we remain sustainable and are very excited about this space. It’s a dynamic and fast-growing market. Our share has grown through a very difficult economic time and we are pleased with our investment.”

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Valuing aUMA or small brokerage

There comes a time in the life of every underwriting management agency (UMA) or small brokerage when the option of selling the business may be considered. When this situation arises, one of the biggest challenges is valuing the company and agreeing on a selling price with an interested party.

ccording to Douglas Haig, corporate finance consultant at Lireas, the key is to realise that the value of any business is what someone else is willing to pay for it. Negotiation is therefore the only way to bridge the gap between the buyer’s valuation and the seller’s price. “Negotiations should always be conducted openly and honestly. Although the seller is entitled, indeed expected, to put his best foot forward, all significant issues should be disclosed upfront. Nothing sours deal

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negotiations faster than undisclosed issues making a late appearance,” says Haig. Haig lists the following as common mistakes owners make when valuing their UMA or brokerage. 1. Believing that there is a magical formula that determines the value of a business. Every business deal is unique and therefore the valuation should take account of buyers, sellers and the purpose of the deal. 2. Only looking at past performance and ignoring the company’s current structure

and future prospects. 3. A pplying a hockey-stick sales growth forecast approach. This often occurs when a constant premium growth rate of say 15 per cent per annum is forecast, which then in effect compounds the Rand growth annually. Forecast growth should always be linked to the actual activities that will drive the growth; for example new products, price increases or marketing campaigns. 4. Not testing the valuation assumptions rigorously enough. Often owners can get so engrossed in the detailed calculations that they forget to assess the reasonableness of

from the seller’s perspective in a positive way. “Although business decisions need to be made rationally, the blood, sweat and tears required to make any small business successful means that this element can never be fully eliminated. Passion is a key part of any successful business and this passion needs to flow through to the deal. A buyer will be more inclined to pay a higher price if he experiences the passion in the business first hand. “That said, an independent professional valuation is the best way to get a realistic view of what your business is worth. This will not eliminate the emotion in a deal, but it does give a solid platform from which to negotiate.” He adds that when using the services of a professional valuator, be sure to use someone who understands the industry and has experience in valuing similar businesses. “Remember that the price must still be agreed between the parties involved. A professional valuation will act only as a guide.” Another key consideration is to decide on which valuation method to use. “There are a number of methods used in practice, each with its benefits and drawbacks. At Lireas we believe a good approach is to apply at least two valuation methods and see how far apart the resultant values are. This is a good way to check a valuation,” adds Haig.

Price-earnings multiple The most commonly used method of checking a valuation is the price-earnings multiple, where an industry-related multiple is applied to the previous year’s profit after tax. Although this is a very simple method, it is backwardlooking and does not place any emphasis on a business’s future cash flow prospects, which, in essence, is what is being sold.

the outputs. A good way of stress testing the assumptions is to put yourself in the other party’s shoes: would you pay that much if you were buying a similar business? 5. Falling for an unrealistically high initial valuation. This technique is usually employed by aggressive buyers to entice unwitting sellers. However, once the deal negotiations get underway, the buyer uses any number of reasons to whittle down the value. Haig says a major challenge for owners is using the emotion that can come through

A sensible enhancement of this methodology is to use the weighted average profit after tax over the previous three to four years and next year’s budget. This ensures that one-off items such as profit commissions and cyclical fluctuations are smoothed out, and allows the current YTD performance and budget to be considered. Each period is given a different weight according to its significance (most recent years would normally carry highest weightings). Lireas has concluded many deals over a number of years and PE multiples of 3.5 – 6 appear to be the market norm in this sector.

Discounted cash flow method Conceptually, the discounted cash flow method (DCF) is the most correct method and will usually always be included in a professional valuation. The overriding principle is very simple: the value of the business is the present value of the future cash flows it will generate.

The DCF is dependent on the following key inputs: • A forecast of future cash flows. This is generally a five-year forecast, which represents the future performance of the business given its current structure, expense ratio and future prospects, including any synergies arising out of the deal. The forecast is done on a cash basis, therefore not influenced by accounting adjustments such as depreciation or deferred income. • A discount rate to determine the present value of future cash flows. This is essentially the rate of return that the buyer requires on the investment, and takes account of the risk that the forecast cash flows will not be achieved (15 to 30 per cent is currently the norm). The benefit of using a DCF valuation is that it demonstrates very clearly to the buyer the return on investment that can be expected given a specific price.

Book of business method This is a very common method used when valuing brokerages. It is similar in concept to the price earnings method, except that it is the gross annual premium that is applied to an industry-related multiple rather than the net profit. In this way, the book of business or customer base of the business is valued. This method is useful when the seller’s business structure and cost base will be dissolved and absorbed into the buyer’s operations. Haig says owners should be aware of the main factors that can increase or decrease the perceived value of a small business. “Factors that generally increase value include a sound succession plan, a competitive edge or unique sales proposition that will drive future growth and synergies that can be achieved. The concept that 1 + 1 = 3 is always a key driver of mergers and acquisitions and therefore identifying potential synergies makes the deal even more attractive. Factors such as a new distribution network, achieving critical mass, or just administrative cost savings all have a value that can be used to increase price.” Factors that generally decrease value include a lack of resources in the company or limited prospects, poor accounting records, outstanding tax, legal or employment issues and poor historical performance. Due to the current market conditions in the insurance industry, Lireas believes that merger and acquisition activity will increase significantly in the short term. Business owners would do well to bear some of these principles in mind when embarking on the journey of buying or selling.

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Insurers focus on

Rhys Collins, Head of African operations at SSP

investment in technology

usiness growth and regulation have been the key drivers of technology investment programmes for insurers as a cautious sense of optimism has returned to the industry, according to a report released by Celent.

Despite experiencing a period of financial crises and economic upheaval, a renewed focus on growth has helped the insurance industry look towards the future with more optimism. “While the report focuses on what IT initiatives general insurers in the UK are investing in, a number of similarities exist between these findings and the trends and challenges currently facing local insurers,” says Rhys Collins, head of African operations at SSP. Collins says that business growth and regulation are the primary business themes currently driving key technology investment programmes. “Almost two-thirds of the survey respondents are investing in e-trading or system replacement programmes, while one-third are developing self-service capabilities,” he says. “Thirty per cent of those interviewed indicate that improving IT as a capability is a priority on their agenda.”

To support this growth, Collins says that insurers are spending considerable resources in e-commerce activities. These include new full-cycle e-trading platforms, increased automation, new products for specific channels and increased third party data integration. “The need for increased automation has promoted further integration with broker management systems such as pointing a broker management system at the insurer’s pricing engine to remove the need for CD and other more cumbersome update methods,” says Collins. “New products include the likes of scaled-down motor products that perform well on aggregator sites, the web or specific variations for affinity partnerships, while increased data integration is enhancing the sales process through improving technical pricing and fraud detection capabilities.” Two-thirds of the respondents indicated that they are busy replacing core systems, and over one-third indicating that efforts are in place to improve IT as a service capability. “Insurers have increased their investment in projects to replace older policy administration systems with new solutions, either as a complete system replacement project or by adopting a phased approach to modernisation such as SSP’s

Enhance and Evolve. From an infrastructure perspective, improving IT as a service capability involves consolidating data centres and removing duplication in infrastructure such as exchange servers, centralising services and platform virtualisation,” Collins explains. Other areas for investment include development programmes on existing systems and collaboration tools, while security and fraud remain areas that continue to attract investment. “Development programmes targeted at exploiting investments in recently implemented solutions are focusing on areas such as adding new products, changing pricing and responding to new affinity partnership deals. Other key areas where insurers are planning to make improvements include customer experience, channel integration and product flexibility,” says Collins. “All in all, 2012 has been a year of growth in the insurance industry and with general insurers in the UK currently spending around 3.3 per cent of premiums on IT investment, this is a good benchmark for local insurance companies looking to drive future growth,” he concludes.

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Protecting consumers is driving force behind legislation A

lthough the Consumer Protection Act and several other legislative changes in the South African insurance industry have made great strides in protecting the consumer, there is still much further to go. This is according to Arnold van der Linde, executive chairman at IntegriSure and vicepresident of the Financial Intermediaries Association of Southern Africa (FIA), who says that South Africa is still in the first phase of professionalising the financial services industry. “This is long overdue. From now on, financial advisers will have to be qualified and adhere to every piece of legislation, such as Treating Customers Fairly, the Consumer Protection Act and the FAIS Act.” He says these developments are crucial in the current competitive environment, where opportunistic product offerings lure consumers in with a cheaper premium, but offer less. “It is important for consumers to remember when shopping around for insurance cover that the cheaper the insurance, the cheaper the cover is likely to be.” Van der Linde says it is possible to obtain better rates for your clients while maintaining comprehensive cover, by using an insurance company that rewards responsible lifestyles through better premiums. “Some insurance companies focus on grouping their responsible risk profile groups together and offering them a lower premium, rather than using the funds of innocent policyholders to subsidise the careless behaviour of others.” “Consumers sometimes fall for all kinds of risk solutions and promises of more for less. This is to be expected as they are inundated with advertisements and the choices are vast. Attempting to navigate through all of these promises in a complicated environment like financial services without professional advice is a gamble and consumers are beginning to realise that. Good professional advice will in the future be a sought-after and scarce commodity.”

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There are continued efforts within the insurance industry, and from regulators and industry bodies, to ensure that proper care and advice is provided to consumers. “Talk of a super regulator is heard every day. Our regulator has built up a shopping list from all over the world and a lot of work has to be done to ensure that we still have a free enterprise system as a strong foundation for the continued evolvement of financial services in South Africa.” Van der Linde adds that consumer protection is the driving force behind all of this

legislation, which is something the entire industry should strive for. “One of the biggest challenges in the future will be to ensure that the new legislation is adhered to, while being able to attract new talent to the industry in order to deliver the product.” However, while new insurance legislation is better protecting consumers, it is important that they are aware of their rights by engaging with a trustworthy financial adviser. “Hearing the bad news once you need to submit a claim is often too late.”

Balanced scorecard Karen Miller Executive: underwriting at Mutual & Federal

n the introductory article we mentioned that utilising a balancedscorecard (Kaplan and Norton, Harvard Business School Press, Boston Massachusetts, 1996) approach to establish and monitor key metrics in a short-term insurance company facilitates the balance between medium to long-term strategic goals and provides lead and lag indicators of the organisational performance. The balanced scorecard defines four key areas of measurement as: financial, customer, internal (process) and growth/learning. This article is concerned with operational and process (internal) aspects of the balanced scorecard. We have already covered financial and customer categories in previous articles. Delivering operational efficiency cost-effectively is imperative for most businesses and is a necessary for sustainable success in short-term insurance.

for a short-term insurance company ultimately benefits clients and channel partners. Businesses should allocate costs appropriately across operating models and product sets. They should also understand their service drivers and levels of efficiency. By focusing

Typically in short-term insurance companies, we measure the following in the process category of the balanced scorecard: Efficiency and cost effectiveness

Measuring service efficacy as well as the cost of service ensures that a business provides appropriate service, while ensuring that costs are minimised to support competitive premiums, which

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Service delivery

Metrics

• Transactional metrics: volumes processed, outstanding, time elapsed, backlogs, defects, fixes for underwriting, claims, administration and sales • Cost to serve ratios • IT costs per channel/product/ platform • Capacity usage/availability • Volume throughput • IT availability • Claims procurement costs • Claims recovery ratios • Claims fraud ratios • Average cost of claim

• Growth • Retention/attrition rates • Channel loyalty • Complaints • Compliments • Ombud queries

Dependent on

• Business operating model • Decentralisation/centralisation • Off-platform/on-platform • Distribution model • IT systems and development • Methodology

• Processes • Systems • Structure • Geographic footprint • Claims service model • Underwritng service model • Sales model

In the process category, we wish to measure across underwriting, claims and administration functions. We are interested in measuring operational efficiency (including IT-enabled efficiencies), cost of service and effectiveness of the business operating model. There are service and cost implications for alternative business operating models. On-platform and off-platform business, intermediated and direct business, centralised and decentralised models, process and structures all affect efficiency, service levels and costs of providing service and administration. Often strategic business enablement decisions involve IT prioritisation or direction, with significant cost implications. We also need to measure the cost of regulatory compliance, the effect of compliance on the business processes and service provision.

on drivers as well as outcomes in the process category, we seek to understand the revenue, profit margin and service levels generated by different product, channel and service models, and thereby inform sustainable strategic decision-making.

Changes to accounting rules

will have major impact on insurance industry T

he proposed changes to profit recognition regulations in the insurance industry will have significant implications on the timing of reported earnings in the short term. This will ultimately help insurance companies report on a more transparent, investor-friendly basis and potentially lead to lower financing costs in the long run, according to Peter Tripe, director for actuarial and insurance solutions at professional services firm Deloitte.

which executives in the survey estimated would reach £10 – 25 million.”

Talking on the release of a new global survey of 200 senior insurance executives’ views on the changes to the existing International Financial Reporting Standard on insurance contracts (IFRS 4), Tripe says consistency in reporting was identified as a key benefit of the proposed new standard. “This is especially important when investors compare insurance companies in different countries in order to make an investment decision.

A central feature of the proposed changes is that insurers will no longer be allowed to recognise profit from policies at the inception of the contract. The revised standard requires companies to use their best estimate of cash flows on insurance contracts, with an allowance for risk and then apply a residual margin to prevent profit arising at inception of a policy.

If insurance firms can standardise the way they measure and disclose their liabilities, it can give them access to a wider pool of investors and lower their costs in capital-raising exercises,” he says. “This would be the primary justification for the cost of implementing the new standard

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The survey, conducted on behalf of Deloitte by the Economist Intelligence Unit, found that overwhelmingly, insurance companies want one set of global accounting standards. Most respondents (including a large proportion of those based in the United States) wanted the US to abandon its national accounting standards in favour of IFRS.

As companies adjust to the new standard in South Africa, it will mean the recognition of income will have to be deferred, but the ultimate impact will depend on the transition arrangements from the current standard, which are still to be determined. The number one concern raised by executives in the survey was the lack of clarity on the new accounting

standard, the timing of its introduction and its potential interaction with the new regulatory framework. Over half the respondents (52 per cent) of respondents identified this uncertainty as their primary concern, ahead even of worries about the cost of implementing the new standard. Respondents felt that confusion over the transition will put off investors, potentially defeating the primary objective of having a transparent, investor-friendly basis for insurance accounting. Companies seem to feel that engaging investors too early about the changes might confuse them, with only 11 per cent of Western European companies and two per cent of US companies having begun investor engagement. “The survey also indicates that many companies are stuck in a wait-and-see mode, with half the companies not having undertaken a business impact assessment, while 24 per cent of the largest insurers have not allocated budgets for the transition,” says Tripe. More worrying, however, is the lack of awareness of the impending changes at board level, with two-fifths of executives in the survey saying their board has no awareness of these accounting changes.

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What your client needs to know Part VI

Charmaine Koch

n reviewing the FAIS Ombud cases and even sifting through those which relate only to short-term insurance, there are some common trends. The most common is the lack of records for brokers or representatives to be able to give evidence of their actions and advice given to clients.

It is noted that at the time of writing, there are disputes questioning the FAIS Ombud processes, especially as it would appear that the FAIS Ombud is prioritising the burden of documented evidence over the legal principle of causation in terms of what actually caused the dispute. However, this is a catch-22 situation when the only method of proving your actions is by documentary evidence. When we compare the professional requirements of other professions such as doctors and lawyers, they keep files with records regarding their discussions, diagnosis and prescriptions on a client file. When an investigation happens, they go back to the records to substantiate what did or did not happen. In the same way, we need to be keeping similar records. In a previous article we noted the importance of recording all conversations and providing confirmation to clients; however, some other tips have been noted in the FAIS Ombud reviews. Beside the practice of keeping a Record of Advice or Broker’s Note, the following documentation is often requested as evidence in FAIS Ombud cases: • In the event of a renewal or replacement: • a copy of the quote showing the differences in premium; • a record of discussion of any changes in terms and conditions or confirmation that the terms and conditions have not changed; • a copy of the client’s acceptance of the changes.

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Following up on record keeping It has been highlighted in these cases that it is a representative’s responsibility to check and verify whether any terms and conditions have been amended or changed in the policy wording and to bring these to the client’s attention.

“When we compare the professional requirements of other professions such as doctors and lawyers, they keep files with records regarding their discussions, diagnosis and prescriptions on a client file.” There have been a number of cases where product suppliers provide evidence that the broker or representative was notified of changes to policy wording or conditions, yet the client is not aware of such changes and under a different impression. Please ensure that you follow up with your renewal or notices or communication to clients regarding such changes, and keep a record of the dates these are sent. In some cases, the broker tried to blame the changed situation on the product supplier. This was all in vain as the product supplier gave evidence of the notice of changes to the broker, after which the FAIS Ombud would excuse the product supplier from the complaint and would turn their focus on the broker. While we believe that some of the current legal debates will amend some of the ombud practises, we would still urge brokers and representatives to keep detailed records to avoid such situations.

It was also reported at the FSB’s FAIS Conference that a number of enforcement actions had been taken in the past 18 months. From November 2010 to June 2012, the FAIS Enforcement Department of the FSB: • Reviewed 263 matters; • Settled 38 matters by way of written settlement; and • One matter is being opposed and has been referred to the Enforcement Committee. The other 182 matters were either closed due to lack of jurisdiction or referred to appropriate departments, other regulators or SAPS. It is important to note that in the matters settled, none of the FSP’s licences were withdrawn or suspended, showing that this is a first measure of enforcement by the FSB. Out of the 38 matters settled: • Twelve were for FSP’s dealing with unauthorised persons; • Ten were for marketing of unauthorised foreign entities; • Seven were for unregistered business; • Seven were for matters relating to the Code of Conduct; and • Two were for representatives not being duly appointed. Matters relating to the Code of Conduct were for: • Selling blank forms; • Operating outside of mandates; • Advertising; and • Conflict of interest We trust that these articles have been providing our readers with useful information and assisting them in considering some useful tips on how to ensure best business practice.

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is everything Nick Krige

Loss of reputation is one aspect against which no insurance cover can be bought, and the business of online reputation management is becoming a highly competitive one. RISKSA takes a look at the effect the Internet can have on business and some of the tools that can be used to manage online reputation. 126

What is reputation management? Reputation management is the practice of monitoring what is being said about an individual, company or brand. It involves addressing issues that may be damaging, and engaging with customers to gain insight or pick up early warning signs that could lead to reputation problems. Reputation management is effectively about bridging the gap between how a company wants to be viewed and how potential customers actually perceive it. Online reputation management is about monitoring the reputation of a person, brand or business on the Internet. The age of online communication has been great for businesses who have traditionally struggled to interact with

their customers or promote their brand, but it has also meant that complaints and campaigns against certain companies or individuals have reached the masses just as easily. The goal is to emphasise positive coverage over negative feedback and address concerns as quickly and publicly as possible. Online reputation management is an extremely labour-intensive process that requires a very specific skill set, which is why many companies outsource the responsibility. It is a very difficult idea to sell to decision-makers because the return on investment (ROI) is not easy to quantify in financial terms. Often, especially if they are subtle, online reputation management strategies can take months before they show any progress at all. A typical online reputation management

strategy will involve interacting with an audience through various platforms, such as blogs, social media and responding to disgruntled customers on complaint platforms like Hellopeter (www.hellopeter. com). There is no one-size-fits-all solution and every strategy needs to be tailored for each company based on their audience and what they are trying to achieve. These days if people become interested in a product or service, one of the first things they do is search for it online. so making positive reviews and feedback, or at the very least response to negative feedback, as visible as possible, is becoming one of the best ways to promote your business. With this in mind optimising your website for search engines (SEO) becomes a vital part of reputation management as well. ď&#x192;

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Today, tomorrow, goodbye Ethical dilemmas There are a few ethical concerns with some online reputation management practices. Strategies involving hiring people to write positive blogs or reviews about products and services are not uncommon, but are frowned upon. Astroturfing is another strategy that is considered as less than ethical and involves a small number of people attempting to make it seem as if their opinion is shared by a majority, thus eliciting more support. An early example of this was when cigarette companies allegedly set up dummy institutions to publish false information about smoking supported by information from an independent research institution. There is nothing legally wrong with unethical reputation management, but it is likely that it will actually have a negative effect on a companyâ&#x20AC;&#x2122;s reputation if its customers feel they have acted unethically. Google has also stated that it will take action against companies that use spam or manipulative techniques to affect search results. Negative reputation management tactics might be something a company will need to worry about, even if they are not using them to affect their own reputation. Competitors could hire what are known as corporate trolls to post negative comments and opinion about their opposition online. This can be handled by an effective reputation management team, especially if the accusations are false. The things to look out for are sudden, unprovoked negative comments on social media pages or blogs. Answering negative comments is preferable to moderating them, because if the complaint is genuine it will not look good to the online community if it is just removed without being addressed.

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The need for an effective reputation management strategy is never more evident than when something goes wrong. There have been a few high profile cases in South Africa recently such as the #StopAbsa campaign. Earlier this year Absa was supposedly instructed by Barclays to cut personnel costs by 10 per cent, which led to Absa retrenching staff. This enraged the outspoken trade union Solidarity, which embarked on an online crusade to stop Absa from sacking its staff. Solidarity sought to drum up support for the campaign through social media using the hashtag #StopABSA, which began trending on Twitter. Trending means the term was being used so often that it had become a trend on the social network. This was followed by a video on Facebook featuring employees at Absa being forced to pack their things and escorted out of the building. Absaâ&#x20AC;&#x2122;s only response through all of this was to continually deny that mass retrenchments were taking place. Regardless of which side of the story was actually true, it became clear very quickly which had the most support. The bankâ&#x20AC;&#x2122;s refusal to acknowledge, let alone respond to, the online campaign just made them look both heartless and guilty.

2361 SSP RiskSA1.pdf

2012/07/11

Profitable growth exists

Websites dedicated to customer service can be very damaging for companies that are not aware of them. In South Africa, the biggest of this kind of website is hellopeter.com. It is a forum for users to post comments about their experiences with companies, both good and bad. Obviously most of the posts are negative, as people are far less likely to take time out of their day to write about something they are satisfied with. For example, if a client is struggling to get a claim paid out, they are likely to go to a website such as Hellopeter to vent their frustrations. Even well-run companies are likely to drop the ball at some stage, or a client could become frustrated purely out of confusion and complain on the site even if the company hasn’t actually done anything wrong. Companies that actively engage with this kind of website can do wonders for their reputations, even if the majority of additional feedback is negative. It shows users that you care about your customers’ concerns, acknowledge the mistake and are taking steps to rectify the situation.

The benefit of reputation management When a successful reputation management strategy comes to fruition, it will have a marked effect on a company’s image. There is no company in the world, no matter how good or bad their reputation is that would not benefit from an effective reputation management strategy.

One of the best recent examples of this was C McDonald’s Canada. It is safe to say that the fast-food franchise has a less than stellar M reputation, especially when it comes to the topic Y of health. There are numerous rumours and CM urban legends flying around about its products, MY such as what goes into its burgers and why they do not seem to rot. CY CMY Instead of hiding from these issues, McDonald’s Canada tackled them head on and started K a website called ‘Our food, your questions’ (http://yourquestions.mcdonalds.ca/), where it encourages people to ask whatever they want about its products and an answer is supplied. The questions range from “Is your beef actually 100 per cent pure beef, or is that just the name of the company that supplies it?” to “What goes into chicken McNuggets?”

Along with this website McDonald’s has uploaded videos to YouTube, detailing things like what goes into Big Mac sauce and behindthe-scenes of a McDonald’s photo shoot to explain why the burger in the picture looks better than the burger in the box, which has gained them millions of views. It is difficult to get that kind of exposure from a paid-for advertising campaign. The answers are frank, honest and not always flattering about the company. But what it has done is allow the public to engage with the burger supplier and has made it seem like McDonald’s has nothing to hide. Even when the company admits something seemingly negative, like dressing up burgers for photo shoots, it will elicit a positive response from the public for its forthrightness. That is the value of effective online reputation management.

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2361 TheCheeseHasMoved

Customer service

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10:15 AM

Whatâ&#x20AC;&#x2122;s in a

name? Online reputation management

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Cheridan Inglis is managing partner at touch, a digital relationship agency

uite amazing that you receive a better and faster response if you post a question or complaint online on a social media network (like Twitter, Facebook, YouTube, Google+ or even on a general website or blog), than you would if you e-mailed the company directly. I have tested this a few times, and I am still waiting on a bank, a retail chain and a specific government department to get back to me via e-mail, but they responded very quickly to my online post. Well not the government department; I was very disappointed with that actually, as they seemed to be quite on the ball in the Mother City. So why is that? Well, certain companies and their digital agencies are monitoring their online reputation and client relationships 24/7/365, using skilled professionals and highly developed online reputation management (ORM) systems. They have identified that from a service point of view alone, this is one of the most important touch points with their customers and how this is handled is a key moment of truth. These proactive companies are facing the rain and turning around complaints rather than ignoring them and having the problem spiral out of control. To explain ORM; it is the monitoring, addressing or mitigating of mentions in

online media and web content. It involves tracking what is written about a company, brand, client or person on the Internet; then utilising sophisticated online and sometimes offline techniques in promoting positive and neutral content and, of course, customer service.

The next step would be setting up the account and profile with the relevant settings to keep track of relevant mentions. These include sentiment subjects, influencer EQ, keywords, corporate names, competitors, campaigns, promotions, sentiment subjects, projects and source filters to provide accurate information.

The systems used to monitor these mentions and comments, such as Meltwater Group, Radian6 and BrandsEye, can offer the following:

The ongoing management of the system is then required and it is very important to have an experienced team of staff who should be able to:

• Real-time, live monitoring of more than 250 million global online public sites and sources • Separate news clipping services • Extensive reporting • Proactive engagement on social media sites from within the system itself • Database building and management • Continuous addition of functionality • Measurement of metrics that matter in context, as well as in relation to your competitors • View of coverage and mentions by vote count, comment count, unique comments and sentiment • Investigation of influencer data – in aggregate or by media type – to understand who has got clout in your industry, what they are saying, and where you can find them across the web to determine and monitor online reach.

1. Manage the dashboard Monitor news, conversation clouds, topic analyses, topic trends and influencers to accurately filter positive, negative and neutral mentions. 2. Configure alerts Manage e-mail or IM alerts for new activity and to notify the relevant parties of specific mentions as and when they happen. 3. Increase accuracy Remove noise to improve relevance of results and to enable better content planning. 4. Improve workflow Add notes and tags for context and internal communication, flag priority, categorise and classify posts for improved efficiency. 5. Engage with influencers Identify engagement opportunities with key influencers and react appropriately and as agreed in the communication protocol.

Complaining online is easy and if the complaint or query is not managed appropriately, it can spread like wildfire. So once you have an ORM tool, how should you manage this and what should you or your digital marketing agency be performing on your behalf? The first step is to discuss and agree on a communication and accelerator protocol when proactively engaging and reactively responding to comments.

While some South African companies are taking the storm head on, many are still under the impression that the ostrich approach to ignoring online customer complaints will push the lightning away, but the thunder always rumbles on. www.touchdigital.co.za • @CheridanInglis

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ENHANCE YOUR CHANCE FOR

interviews “Success is a state of mind. If you want success, start thinking of yourself as a success.” – Joyce Brothers, American psychologist

he professional who creates good rapport and manages one-onone meetings well, is more likely to create potential for the future. Good interview techniques are not only needed by prospective employees. The word ‘career’ is also a verb, one which means “to move uncontrollably”. It is often what a person may do in an interview when not sufficiently prepared. The challenge in an interview for a prospective job is to convince your future employer of your potential, not only to outline your experience, but to communicate your particular role, responsibility and contribution during your work experiences. It is imperative that you learn how to transfer these skills to their place of work. The password to a good interview is authentic self-representation. Should you be applying for a job, you may well have to endure an interview with the recruitment company before getting to your potential (future, we hope) employer. The principles of this article may be of value to those seeking to secure new clients. Just replace the word portfolio with proposal if you need to. Here are some tips that may make you feel more confident about your brand: • Package yourself (dress for the part) and

your personal portfolio or curriculum vitae. A professionally bound document is always going to create a good impression. Personalise your portfolio if you are going to leave a copy with the prospective employer. • Know where you are going and who you will be meeting. So as much background searching as possible. Google, ask, look and listen. • Communicate your brand with positive body language. Sit upright yet look relaxed. Gently fold your legs and leave your arms on the chair or in your lap. Take a deep breath before you go into the room. Allow the impression of confidence to pervade the room, even if your knees are knocking. Do not appear arrogant at all. • Know that you will have to field difficult questions. Prepare for all eventualities. Never bluff your way through an interview; be open and honest. It should be appreciated. Smile, be friendly and ask appropriate, yet probing questions if you feel you need to know more about the company. Try not to answer a question with a yes or no. Elaborate. • Brace yourself for the common challenging questions: how do you cope under pressure; where to in five years’ time; why did you leave your last job; and how do you cope with disappointment? • The interviewer will talk about money. You may well be asked what you want to earn so plan for this question. Get your head around the fact that you need to communicate your

value to the company; what is it you could do for them to elevate their brand, not just find a fit for yours. • Common ground, or a familiarity, does allow you to start on a positive, comfortable footing. Find out what makes your interviewer tick. Talk about that subject for just a short while. Do not dominate the conversation. • More people are employed for attitude than aptitude. Allow yours to shine. • Remember that there is nothing better than a good night’s sleep, a decent meal, relaxation and some deep breathing to prepare you for facing what feels like the firing squad. What about the role of the interviewer? It is your job to put the interviewee at ease. It is your responsibility to ‘run’ the interview and guide the conversation. A good guide would be to allow 15 minutes of a one-hour meeting to set the tone, develop connection and then to start the business ball rolling. Always allow five to 10 minutes for winddown and closure. This should be managed by whoever is doing the interviewing. Ask leading questions that will extract the attitude of the candidate. The success of the interview actually lies in your hands.

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

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Staff investment and retention Nico Ras, business development manager at Celestis oogle the phrase, ‘What makes a business successful?’ and you will get about 94 million results. But dig deeper and you will discover that people feature prominently in the answers. Investing in the growth and development of staff members is a no-brainer. It contributes to their success and that of the business. Demonstrate that you are supportive of them and employees are likely to reciprocate positively.

We all know that investing in staff results in enhanced morale, productivity and efficiency. What’s more, trained and qualified staff members are easier to retain if you’ve contributed in some way to their achievements. However, investing in staff is more than simply opening your cheque book. It also requires that you undertake the following: • Train: You cannot expect people to do something properly if they don’t know where to begin. Make sure that everyone on your team is equipped to handle what you expect of them. • Develop: Encourage personal development

by creating a supportive environment. Establish an environment within your business that recognises and rewards growth and development. • Involve: Make sure that your staff understands what the business is all about and where it’s headed. They must know what is expected of them and they require regular feedback. • Recognise: Give credit where due and encourage input and participation. Acknowledge exceptional performance and do so publicly. Give people responsibilities and show that you have confidence in their ability to perform their roles. • Reward: Say thank you in different ways. An afternoon off, a long weekend or a little bit extra to spend make all the difference in life. • Engage: Discuss ideas and opinions – theirs. People are motivated by being part of the business and you will be surprised at the positive input they will make. • Support: Be there when a staff member is in trouble. Empathy and sympathy are always welcome even if you cannot solve the problem.

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

Kirsten Halcrow Managing director: EMPS (PTY) LTD

rganisations will succeed in stamping out this scourge only if they are willing to adopt an over-arching risk-based approach, underpinned by an ethical foundation. This culture needs to be driven from the top; leaders must actively support their organisation’s enterprise risk management strategy.

Preventing employee

From the research conducted, it was concluded that the prevention process can be divided into two main processes, namely the recruitment phase and the internal processes.

The recruitment phase • The best place to start when trying to prevent fraudsters from infiltrating a company is at the recruitment stage. If a company can stop potential fraudsters from getting into their company in the first place, then the battle is already half won. • Application for employment – Hinds (2007:23) advises that applicants must submit both an application form and their CV; this is so that the details on the two forms can be compared with each other. • Supporting documents – It is absolutely vital that any documents submitted with the application should be validated/verified (Fraud Manager’s, 2005:306). • References – Verifying references can too easily be overlooked or not given enough weight, when in fact, this is a very crucial check. • Psychometric tests – Because psychometric tests are both reliable and valid, they can be of great use in identifying potential personality traits that might place some individuals at a higher risk of committing fraud.

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Internal processes

fraud

Putting measures in place to try and prevent potential fraudsters from entering the workforce is only the first step. Fraud prevention needs to be inculcated into the organisation’s culture, systems and processes in order to mitigate dishonest and criminal acts being carried out by employees. The following steps should be taken to create this type of culture: • Leading by example – Employees will tend to look at those in senior positions for guidance as to what is permissible and what is not. • Fraud policy with clear rules and regulations – In order to embed the appropriate risk management culture in an environment, there should be no uncertainties among employees regarding their company’s rules and regulations. • Continuous awareness training – New fraud prevention methods and strategies are continuously being developed. It is therefore necessary to have all employees go through at least an annual refresher course where new fraud trends are discussed. • Whistle-blowing can be of tremendous value in the fight against employee fraud. • Governance and ethics – The basic purpose of governance is to put in place specific regulations (or guidelines) that will assist a company in bringing about activities that will promote good corporate behaviour. • Internal checks and audits – According to Fraud Manager’s, (2005:313), it is important that responsibilities in a company should

be shared; responsibilities should have clear boundaries and should be divided up among staff. • Monitor employee behaviour – Awareness of employee behavioural or lifestyle patterns, coupled with effective mechanisms to investigate any change that may indicate a significant improvement or deterioration in financial wellbeing. • Screen existing employees – This step should be carried out when employees are reassigned to another area of operation within the organisation, to ensure that where appropriate, their personal risk profiles are relevant to the new job. Source: South African Fraud Prevention Service www.safps.org.za

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news The dawning of Horizon Underwriting Managers News from the South African insurance industry is the recent merging of First Marine Acceptance (FMA) and Helm Underwriting Management Services (UMS) to form a new company called Horizon Underwriting Managers (Pty) Ltd. According to the company, “There will be no change in their relationship with you as an intermediary, and all existing arrangements will remain as they currently exist.”

Bill Moyes

As of 1 September, all policies and debits have been processed under the name of Horizon Underwriting Managers (Pty) Ltd and all business will continue to be underwritten via the Lombard Insurance Company licence.

Cartrack announces R150 000 warranty for unrecovered vehicles Stolen vehicle recovery, fleet management and telematics specialist Cartrack has launched a first in South Africa with a R150 000 warranty offer for clients who have a Cartrack stolen vehicle recovery system (SVR) installed in their vehicle. With an audited recovery rate of 95 per cent, Cartrack is the only vehicle tracking company in South Africa’s history to offer clients a payment of up to R150 000 in the unlikely event that they are unable to recover a client’s stolen or hijacked vehicle.

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Rhino poaching gets insurance support With 265 rhinos already poached this year alone, insurance brokerage Aon South Africa and financial services provider ONE have thrown their weight behind the Rhino Rescue Project in a bid to halt the unabated killing of one of Africa’s most endangered animal species. “Without concerted, high level and even radical intervention, South Africa’s estimated 18 000 white rhino and 2 500 black rhino will be extinct in a few short years, only to be seen in museums and books,” says Bill Moyes of Aon South Africa’s commercial unit. The Rhino Rescue project was conceptualised and launched by conservationist Lorinda Hern of the Rhino and Lion Nature Reserve and veterinary specialist Dr Charles van Niekerk. The project promotes the treatment of the rhino horn while the animal is under sedation, infusing it with an indelible dye that contaminates the horn. The dye is toxic to humans but safe for animals and protects rhinos from ticks and other parasites.

Aon and ONE have stepped on-board to provide insurance cover to rhino owners, covering all risk of mortality for the animal during the treatment process, as well as providing cover for poaching once the treatment has been completed and the DNA registered on the database at Onderstepoort. Peter Darroll, marketing manager at ONE, says, “To date, we are providing the only available insurance cover currently available for rhino owners against poaching without additional monthly premium, on condition that the animal undergoes a rhino horn treatment process offered by the Rhino Rescue Project (RRP), which is offered at a one-off cost. “We realise that this is just one of a number of temporary solutions towards coming to an holistic, long-term plan, but in the interim, our rhinos and Big Five heritage simply do not have the benefit of time,” concludes Hern.

“The same level of growth is expected to take place in Africa over the next 50 years.”

Back row, from left: Kavith Harrilall, business editor, The Witness; Melanie Veness, CEO, Pietermaritzburg Chamber of Business; Andre Pottas, Deloitte’s infrastructure advisory and debt advisory leader for sub-Saharan Africa. Front row, from left: Kritz Coetzee, manager: business development, Glacier by Sanlam; Alec Hogg, CEO, Moneyweb; Anthony Thunstrom, chief operating officer of KPMG Global Africa Practice.

Time to shine for Africa Forecasts from the International Monetary Fund show that seven of the world’s 10 fastest-growing economies in the next decade will be from Africa. This was according to Alec Hogg, founder and CEO of Moneyweb, at an event hosted by The Witness and Glacier by Sanlam. “In the previous decade, six out of the 10 fastestgrowing economies were from Africa. In fact, Africa has outperformed Asia in eight out of the last 10 years. The real risk lies possibly in not investing in the continent.” Hogg adds that Africa is where China was in 1980. “The same level of growth is expected to take place in Africa over the next 50 years,” Hogg says.

Alec Hogg during the panel discussion

China’s natural share of world GDP is roughly 25 per cent compared with Africa’s 13 per cent. These figures illustrate the potential growth expected to take place on our continent. According to the head of the Chinese Central Bank, the way to wealth is through infrastructure. SA’s last Budget Speech and State of the Nation address both focused on the importance of infrastructure. For Africa to flourish, it needs sufficient ports, airports and rail-links.

Alec Hogg addresses the crowd

The panel discussion: Andre Pottas, Anthony Thunstrom and Alec Hogg.

New AIM product to cover temporary incapacity A short-term insurance product that provides employee income insurance for a temporary 12-month incapacity period was launched by Advanced Incapacity Management (AIM) Solutions, reported BizCommunity. The product, underwritten by Lion of Africa Insurance, is designed to manage claims rather than increase premiums. Johnny Johnson, CEO of AIM Solutions explains, “The new product is designed to limit claims as well as attempt to return existing claimants back to the workplace.” The product covers up to 75 per cent of the employee’s monthly income for a period not exceeding 12 months. It includes the appointment of a specialist incapacity manager who counsels affected employees, trains managers to work with incapacitated employees, identifies curable diseases that will help the employee get back to work, and aids in the application of permanent disability insurance. “The disability industry is small, but this gap may close over time, given the higher growth seen in the disability insurance market. If insurers wish to maintain a profitable disability insurance business, they will need to make necessary changes in their risk management model in order to remain competitive,” Johnson adds.

Compass receives A+ rating from GCR Africa’s leading market rating agency Global Credit Ratings (GCR) reaffirmed Compass Insurance Company Limited’s claims-paying ability with an A+ rating and a stable outlook. According to Compass Insurance managing director, Paul Carragher, the rating is critical to the company. “We are very pleased that our claims-paying ability has been reaffirmed at such high level, as the ability to pay out is the core business proposal to our insurance business and we’re proud that GCR has recognised this,” Carragher says.

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“Affected persons are urged not to delay their preparation for the regulatory examinations, as this will result in candidates being placed under unnecessary time pressures.”

Entrance examination for fiduciary practitioners

Deadline for regulatory exams extended Last month, the Financial Services Board (FSB) decided to extend the deadline for writing the first level Regulatory Examinations from 30 September 2012 to 31 March 2013. “As a responsible regulator, the FSB is of the view that the extension of the deadline is appropriate after having considered all the facts,” it said in a statement. This deadline extension applies only to those people who have written the examinations at least once before 30 June 2012. “Despite the above concession, affected persons are urged not to delay their preparation for the regulatory examinations, as this will result in candidates being placed under unnecessary time pressures,” the statement continues. “The FSB further encourages employers to support and motivate their staff in their preparation for the examinations.”

According to the statement, research conducted by the FSB indicates that one of the reasons why candidates remain unsuccessful, despite several attempts, might be due to the application of incorrect examination techniques. In order to further assist these candidates, the FSB, in conjunction with other stakeholders, will conduct workshops. The board will communicate details of these shortly. However, Brian Lazar, company partner at Personal Portfolio Managers, says that the exam papers are poorly constructed, with several ambiguous questions. He has had difficulty passing the Key Individual exam, despite having never failed other exams before, and has had similar feedback from others who have failed this exam. “They really need to re-examine a simpler way to word the papers in order to eliminate all ambiguity from the questions,” he says.

Fiduciary Institute of South Africa (FISA) is again offering the entrance examination which will allow fiduciary practitioners to use the designation FPSA (Fiduciary Practitioner of SA). Twenty FPSA designations were awarded to members earlier this year. The four-hour examination is facilitated by the Centre for Financial Planning Law (CFPL) at the University of the Free State. FISA’s Louis van Vuren, who leads the initiative, said that the designation will ultimately carry the equivalent weight as the CFP designation for financial planners. “The exam will be written in November this year. The FPSA designation signals to the public that they are dealing with a practitioner who meets the highest possible standards in the profession,” says Van Vuren.

Lockton appoints SATIB Insurance Brokers as Southern Africa partner Lockton Global has announced the appointment of SATIB Insurance Brokers as its partner brokers across Southern Africa. Lockton Global clients interested in doing business in Southern Africa will be entrusted to SATIB for their insurance and risk-related requirements. Lockton serves more than 15 000 clients worldwide with an impressive 95 per cent client retention. It is the largest independently owned broker in the world with $16+ billion in premium being placed and $915 million in revenues. “We are very proud to be chosen and trusted by such an esteemed organisation such as Lockton Global,” says Gavin Courtenay, managing director of SATIB Insurance Brokers. Gavin Courtenay

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THE VOICE OF THE INDUSTRY

new

appointments

ACE Harry Pretorius has been appointed legal and compliance manager at ACE South Africa. Pretorius is an admitted attorney and notary public of the High Court of South Africa. He is a certified compliance professional registered with the Financial Services Board and a certified ethics officer with more than 13 years’ experience in the financial services sector as legal adviser, compliance officer, ethics officer, management consultant and money laundering control officer.

and has played an integral role in steering the scheme on its current growth track. He is a member of the Fedhealth remuneration and nomination committee and the managed healthcare committee. Prior to his appointment as chairman, he was chairman of the investment committee.

Fedhealth Phil Hemus has been appointed as the new chairman of Fedhealth. Hemus succeeds Johann van Vuuren who recently completed his term as chairman. With more than 25 years’ financial experience, Hemus was elected a trustee of Fedhealth in 1999

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International Marine Contractors Association

FPI

Chris Charman has replaced Hugh Williams as the chief executive of the International Marine Contractors Association (IMCA), effective 3 December 2012. The IMCA chief executive leads the company’s secretariat and is responsible for delivering the association’s global work programme. Chris Charman is a fellow of the Institute of Risk Management (currently he is the IRM’s deputy chairman and incumbent chairman), and an associate member of both the Chartered Institute of Insurers and Chartered Institute of Arbitrators.

The Financial Planning Institute of Southern Africa (FPI) has announced the appointment of Prem Govender as its new chairperson. Govender succeeds Solly Keetse, who served in that capacity for a year. Govender assumes this position for the second time, having served a two-year term in 2007, before resigning to serve on the Financial Planning Standards Board (FPSB). She has served as regional committee chairperson of the FPI KwaZulu-Natal regional

Chris Charman

Phil Hemus

Harry Pretorius

committee, FPI audit committee and recently completed her threeyear term serving on the FPSB.

Infiniti Insurance Limited Infiniti has appointed Darron West as the new chairman of the board. The appointment follows the retirement of Clive Hirschsohn, who chaired the board since 2006. West has been part of the board at Infiniti Insurance since 2007 and is a senior lecturer in the finance and tax department at the University of Cape Town. He has previous experience at Cadiz Asset Management, where he managed structured investment portfolios, and at the HBD investment group. West serves as the independent non-executive chairman of Foord Compass Limited. He completed his accounting traineeship at Ernst and Young.

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events IICOGH Music Quiz

The IICOGH Music Quiz took place at the German Club in Cape Town on 13 September and was hosted by Mark Grainger and MC Alistair Harrison. The fun-filled evening was interspersed with impromptu karaoke performances from those in attendance. The quiz tested the music trivia of participants, while they enjoyed dinner and drinks, and were entertained by a unique performance by drag queen, Vida Fantabisha. The winning team on the night was an Etana Insurance table, followed closely by MUA and Marsh Stellenbosch.

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the only thing measured on the score cards is fun.

The Chartis team at the IICOGH music quiz, from left to right: Kgopolo Riba, Shazley Taylor, Candice Davids, Cerisse Goliath, Lindsay Evard, Rekha Anandchund and Stewart Anson.

The event was held at the Creek Club mashie course in Roosevelt Park and was a day of fun and relaxation where golf etiquette was definitely not par for the course. Some of the ladies even brought hockey sticks and cricket bats as their weapon of choice to tackle the nine-hole course.

Glasfit Ladies’ Golf Day A golf day with a difference, the Glasfit Ladies’ Golf Day caters specifically for non-golfers and

Typical golf etiquette was definitely not par for the course at the Glasfit Ladies’ Golf Day.

Storms River Traverse The participants of this year’s Glacier by Sanlam Storms River Traverse enjoyed perfect weather conditions while they took part in the three-day stage race. The event, which took place from 10 to 12 August in the Tsitsikamma area, is one of the highlights of the mountainbiking calendar for the riders and their families. The annual race starts and finishes at the quaint Tsitsikamma Village Inn and there were plenty of activities to keep the participants’ families busy while they were riding.

Insurance Zone fundraiser for CANSA

The participants of the Storms River Traverse battled an interesting course in the Tsitsikamma area.

New National 2012 Golf Day The New National Golf Day this year boasted its largest ever field with 144 players. After the usual mix of fantastic drives and the occasional errant shot, Neville Stohmenger of Alexander Forbes Insurance Consulting and Josh Chellin of Star Shipping emerged as the winners. The golf was followed by a gala dinner that featured a successful auction and raffle with all proceeds raised going to the Aryan Benevolent Home Foundation, which cares for and serves vulnerable communities in KwaZuluNatal and Gauteng.

Granville la Vita, Jessica Gouden and Rudi de Klerk get ready to head out to the course at the New National Golf Day

Insurance Zone hosted an elegant Vegas Nightsthemed fundraiser at the Birchwood Hotel in Boksburg on 12 September on behalf of CANSA to raise money for a third Hyundai i10. The keys of the first two cars, purchased with the proceeds of previous successful fundraising efforts, were handed over to CANSA CEO Dr Sue Janse van Rensburg at the gala event.

Director of Insurance Zone Alan Johnston hands the keys to a brand new Hyundai i10 to Dr Sue Janse van Rensburg.

Sasria bidS farewell to Cyril Sasria bid a passionate farewell to previous chairperson Cyril Ramaphosa and celebrated its successful partnership with the South African Actuarial Development Programme (SAADP) in style at Montecasino on 13 September. To date, the partnership between Sasria and the SAADP has produced 91

graduates, eight of whom have qualified as actuaries and are all employed in the financial sector.

Exiting chairperson of the board of directors Cyril Ramaphosa receives an honorary award from one of this year’s SAADP graduates.

IISA Insurance Forum Breakfast The IISA hosted a breakfast forum at the Hilton Hotel in Sandton to unpack a PricewaterhouseCoopers survey, ‘Maximising value from today’s opportunities – Strategic and Emerging Issues in South African Insurance 2012’. Caroline da Silva, executive of market development at Mutual & Federal, discussed the top motor spends impacting the industry; and Errol Braithwaite, technical executive at the Bombela Concession Company, provided a perspective on the Gautrain project.

Caroline da Silva of Mutual and Federal addresses the attendees of the IISA insurance forum.

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news international

Africa

rates to 2015, these nations, governments, businesses, households and people have and will continue to seek insurance solutions to complement their lifestyles. These are markets that Chartis will target with sustainable insurance solutions,” adds Hancock.

of partnering with life insurance companies to find new ways to help grow their businesses,” says Pauline Blight-Johnson, managing director, RGA Australia.

Chartis celebrates 50th anniversary with ambition

Global commercial and consumer insurer Chartis is celebrating its 50th year of being in business in South Africa by declaring its ambitions to expand into the rest of the African continent. From its base in South Africa, led by MD Mike Durek, the company is actively targeting the provision of insurance in emerging growth economies that define the subSaharan region. He notes that GDP growth for the domestic market is forecast at 2.7 per cent and South Africa is the world’s 25th largest insurance market. “These facts in isolation amply demonstrate the opportunity in the domestic market, which Chartis intends to take advantage of,” says Durek. The global chief executive officer, Peter Hancock, says, “South Africa represents an ideal market for further investment and development by Chartis, particularly given our focus on data and analytics that we can leverage locally, our in-country talent base and domestic growth projections.” Many companies are turning their attention to Africa as the continent represents extraordinary growth prospects, even while the global economy struggles. “With seven sub-Saharan countries in the global top 10 for projected annual GDP growth

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Europe Australia

Lloyd’s to sell £2 billion of loans

RGA Australia retains Reinsurance Company of the Year award

Lloyd’s of London Banking Group will sell about £2 billion (R21 billion) of mostly Irish real-estate loans in its latest bid to remove itself from the property crash in Western Europe, according to a report on Bloomberg.

For the third year in a row, RGA Reinsurance Company of Australia Limited (RGA Australia) has been awarded the Reinsurance Company of the Year at the Australia Insurance Industry Awards in recognition of its commitment to helping the life insurance industry in Australia innovate and grow. The awards, hosted by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and Asia Insurance Review magazine, recognise outstanding achievement in the Australian insurance industry. The judges were impressed by RGA Australia’s market knowledge and thought leadership, demonstrated through initiatives that benefited the industry. RGA initiatives included a significant underwriting benchmarking survey, road shows, forums, a unique TeleXpress telephone underwriting service, and a marketleading underwriting manual. “This is the premier insurance award in the Australian and New Zealand industry. We are honoured by this recognition, and proud of our track record

This follows an agreement in which KennedyWilson Holdings and Deutsche Bank AG acquired £360 million (R3.8 billion) of nonperforming commercial property loans from Lloyd’s at an average 83 per cent discount to par value in June, according to the commercial real estate information company CoStar. Lloyd’s announced in July that it had sold R4 billion of gross Irish wholesale assets during the first six months of 2012 without giving further details. Irish commercial real estate prices have plunged by two-thirds from its 2007 peak, according to Investment Property Databank Ltd, while residential property has halved in value, the Central Statistics Office says. Generali to offload US reinsurance unit

Citigroup has been commissioned by Assicurazioni Generali, one of Italy’s

“Wind damage has been less extensively reported, but the storm’s slow speed would intensify wind damage.”

biggest insurers, to look into selling the group’s American life reinsurance business, according to a report by Reuters. Reports in the media suggest the assets could be worth close to $1 billion (R8.3 billion), but an unnamed analyst believes that figure to be vastly inflated. “The US life reinsurance unit’s book value is $346 million,” he says. Under new chief executive Mario Greco, who was appointed in August, Generali is looking to secure capital to fund the possible acquisition of a 49 per cent stake in east European joint venture PPF, which could cost in the region of $3 billion (R25 billion). In addition, the continuing sovereign debt crisis in the Eurozone has meant that investors have been favouring financial groups that are strengthening their balance sheets. “The sale of US reinsurance assets comes as no surprise since it has been flagged to the market for months,” a London-based analyst says. Greco, previously at Swiss insurer Zurich, replaced Giovanni Perissinotto who was ousted by Mediobanca and other key shareholders for disappointing results, says he will present the results of a strategic review of the business when Generali reports its third-quarter results in November, but declined to comment on the potential sale of the groups US assets.

further develop its global presence, I’m excited about the challenge of driving forward the international agenda,” says Vandendael. Lloyd’s CEO Dr Richard Ward believes that Vandendael will play a key role in the future of the company, “The continued development of Lloyd’s global reach is a key part of our Vision 2025. As we look to cement our position as the global centre for specialist insurance and reinsurance, the international insurance experience that Vincent brings, in particular from the fast-growing Asia-Pacific economies, will be invaluable to us.”

Lloyd’s appoints director of international markets

Vincent Vandendael has joined Lloyd’s of London as the new international markets director from Swiss insurer Zurich, where he was the chief executive officer of the global corporate unit in Asia. According to the official press release, Vandendael will take up his position by the end of the year and will be responsible for the development and management of all Lloyd’s global operations outside North America, seeking out opportunities to promote and further strengthen the market around the world. “I’m thrilled to be joining at such an exciting time in Lloyd’s history. As the market looks to

USA Hurricane Isaac insured losses could reach $2 billion

Insured losses to onshore properties in the US caused by Hurricane Isaac will be between $700 million and $2 billion, according to catastrophe modelling firm AIR Worldwide. The estimates include wind and storm surge damage to onshore residential, commercial and industrial properties and their contents. Damage reports have mostly been focused on

the flooding caused by Isaac’s precipitation shield and slow movement. Nearly 20 centimetres of rain was reported at the New Orleans International Airport. Wind damage has been less extensively reported, but the storm’s slow speed would intensify wind damage, AIR notes.

“AIR does not expect significant physical damage to offshore oil rigs and gas platforms either from wind or waves.” Downed power lines, trees and other infrastructure are being reported over much of southern Louisiana and Mississippi. There is some structural damage in New Orleans and the surrounding area, mostly limited to roof damage and to non-structural elements such as awnings, signage and trailers. AIR does not expect significant physical damage to offshore oil rigs and gas platforms either from wind or waves. Furthermore, as a result of the hurricanes of 2005 (Katrina, Rita and Wilma), Hurricane Gustav in 2008, and the Deepwater Horizon disaster of 2010, business interruption is a much rarer coverage than in years past. Therefore, AIR does not expect significant insured losses to offshore assets in the Gulf of Mexico as a result of Isaac.

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lifestyle b ala n c e

ad v e n t u r e

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Let the good times roll From Build-A-Bear workshops for corporates to Survivor and Amazing Race activities for smaller companies, here are some ideas to help you plan the perfect year-end function for your staff.

events

news

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@Lunch with Denleigh Wilensky The recent winner of an FIA Award, RISKSA had lunch with the executive director of HIC, Denleigh Wilensky.

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Let the

good times roll Bianca Wright

Planning the perfect year-end function As the countdown towards the end of 2012 draws nearer, conversations automatically drift to the highlight of the business year, the end-of-year function. The question is: how do you ensure that your end-of-year party is more glam than drab? We asked some of the leading event organisers for their tips to creating the ultimate corporate finale for your employees. 148

Standing out from the crowd is vital in an increasingly blasé world where everything has been done before. Andrew Binning, chief executive officer of Inkanyezi Events in Port Elizabeth, says that the more creative you can be with your year-end event the better. From the décor to the venue to the food, different is the key word.

Different strokes Think outside of the box and you’re likely to find a winner. Build-A-Bear Workshop (http://www.buildabear.co.za/page. asp?p=60) offers corporate event options with customisable bears that can wear logo-branded clothing. A more adventurous option might be a combination yearend function and team-building. Companies like Active Escapes (http://www.active-escapes.co.za/special_interest/ corporate/teambuild.html) offer a variety of adventures to suit every taste. “Take the office on an overnight canoe trail to become more closely knit, have a ball flying through the tree tops on a canopy tour and let your staff members experience a corporate adventure they will never forget,” the website says. SA Teambuilding (http://www.sateambuilding.co.za/awe.html) even offers corporate elephant safaris. If traditional is more your style but you are still looking for something a bit different, Binning suggests that companies look at recently opened venues that suit the needs of the company. Storm van Niekerk, groups, conference and events co-ordinator at Hilton, Cape Town City Centre, advises that when choosing your venue, ensure that it is suited to the event, comfortable for your guests and can accommodate all your needs and expectations.

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Have your cake and eat it Food remains one of the most important aspects of a staff function. “Some get creative and have cooking classes as part of the function,” he says. Spit braais and braais remain popular. Themed parties, interactive entertainment and an impressive venue choice are exciting ways to make a year-end event memorable. “It is advisable to schedule a meeting with an events co-ordinator to run through ideas of successful

themed events and find entertainment that would be great fun, like magicians or stand-up comedians who will interact with your guests,” Van Niekerk says. Binning even suggests pretend gambling – run professionally – as a form of entertainment and, he adds, people love photographs, so companies are hiring photographers to take pictures. African Drumbeat (www.africandrumbeat. co.za/) offers interactive drumming sessions to corporates and individuals.

A family affair “More and more companies are including spouses and families in year-end functions,” says Binning. He suggests including children’s activities such as jumping castles, clowns, activities, slippery slides and party packs to make the event special for all involved. A team-building year-end function is also an option as it serves two functions. “Smaller companies offer activities such as Survivor, the Amazing Race or a photo chase,” says Binning. These types of activities add a unique twist to the traditional black-tie event. SA Teambuilding offers these types of experiences. For a more female-friendly possibility, you could opt for Perfume Power workshops (http://www. perfumepower.co.za/workshops). Attendees learn about the exciting world of fragrances and have the opportunity to try out different scents.

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For me? Gifts for the guests add an additional element of excitement. One option is to create personalised magazines through companies such as Customised Magazine (http://customisedmagazines.co.za/). The professional photographers will take photos of every guest at your event using high quality studio lighting. Using their mobile print studio they produce a magazine for each of the guests and a few hours later provide you with the magazines. Planning is core to successful eventing. Mohammed Hamza, general manager at Hilton Durban, says that for a successful and memorable year-end function, it is important

to plan the event well in advance to ensure you get the best available rates and the ideal venue with the least amount of hassle. “As food is one of the most important elements to any event, always consider your audience when choosing food and beverage options, making provisions for special requests,” he says. to ensure there are no loose ends or miscommunication on your exact requirements, he advises that you have one point of contact at your company and the venue for your event. Let the good times roll and treat your employees to a ‘thank you’ they will never forget with some lateral thinking and plenty of attention to detail.

ADVERTORIAL

Book your year-end corporate function at

The Table Bay Hotel

Challenge. The Table Bay Hotel offers a wonderful culinary team-building event, perfect for celebrating company achievements, entertaining clients, rewarding employees, or just letting off some steam.

an you believe it? There’s only two months to go until that little old man in the red suit makes an appearance. And, soon you will be looking for the perfect place to celebrate your company’s year-end party. The Table Bay Hotel on the V&A Waterfront is the place to celebrate.

The group starts the challenge with a wine tasting that will get them in the mood for an evening of food and fun. Guests then slip on chef hats and aprons and are divided into teams that work together to create their culinary masterpieces.

Executive chef, Dallas Orr, has put together three set menus priced between R200 and R350 a person and three buffet menus priced between R250 and R425 a person. The buffets are pure tradition and include Thanksgiving turkey, Beef Wellington, walnut bread sauce, eggnog bread and butter pudding and chocolate yule log. The set menus have been specially designed to tantalise taste buds from the starter through to the dessert. With a twist on turkey classics, a few old favourites and some delicious surprises, your guests will love it. The house-cured salmon gravadlax on saffron potato, apple and celery salad starter is an original and will definitely create some interest, while the bourbon and maple glazed salmon with warm saffron potato salad and sautéed shaved carrot, courgette and fennel is one of Orr’s signature dishes. And for a totally different year-end function, why not participate in a Gourmet Cooking

For more information or to make a booking, contact Ilse on +27 (0)21-406-5988 or e-mail ilse.barnard@za.suninternational.com.

There is an arsenal of kitchen appliances at your disposal and you’ll be provided with the best ingredients this side of the Atlantic. Each team (maximum 30) will be given a basket filled with the same mystery ingredients. The objective is to create unique dishes without relying on recipes. Emphasis is placed on creativity and visual presentation. But don’t worry, the Table Bay chefs are there to guide you. This is an opportunity for even novice cooks to learn new skills and techniques. Of course, once the cooking is finished everyone is invited to sit down, relax and enjoy their culinary creations. The Gourmet Cooking Challenge lasts for about two-and-a-half hours and the cost is R995 a person.

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CORPORATE FUNCTIONS

Choosing the right

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Grant Cyster

The concept of a master of ceremonies or an MC has been around since the 15th century. The term has its origin in the Catholic Church, referring to an official of the papal court called upon to ensure the streamlined and proper progression of elegant and intricate rituals involving the Pope and the liturgy. In today’s corporate context, the MC can play a significant role in making or breaking your special event. We take a look at how to go about recruiting the best MC for your end-of-year corporate function.

Important things to consider Stuart Lee is the founder of Famous Faces Management, a premier celebrity agency in South Africa which deals with MCs, speakers and entertainment. Lee says, “Before choosing an MC or programme director for your next function, you need to ascertain what they will be required to do. Will they be working from a prepared script or ad-libbing? If it’s a script, you will usually get your best delivery from a professional actor. If it’s ad-libbing, then a ‘live’ broadcaster is probably best as they are used to improvising as they go along and keeping things fresh and entertaining.” If an organisation is looking for more than just a link person – someone who can really bring entertainment to the occasion – you will need to look at MCs with other skills such as comedians or cabaret performers. If the MC will be required to make individuals in a diverse gathering all feel included, consider someone who can speak multiple languages.

Siki Mgabadeli, corporate MC, radio and TV anchor, columnist and Sanlam Financial Journalist of the Year, addresses the issue from the point of view of the professional MC. “It is important for the client to provide the MC with relevant information and the running order as soon as possible. I like to obtain the relevant speaker biographies, so that I can introduce them properly and contextualise their participation in the event.” Mgabadeli adds that another key issue is that of a single point of contact representing the hosting organisation. If and when changes occur or problems arise, it assists in effective communication. “Above all,” says David O’Sullivan, 702’s award-winning afternoon drive host, MC and SABC TV sports anchor, “the MC needs to know the tone of the event to set the appropriate atmosphere.” Background information about the organisation enables the MC to make remarks that enhance the company’s brand and operations. 

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Understanding the intended tone of the event “Each MC has a specific personality, which may not be suitable for certain events. It is not appropriate, for example, to have a person associated with current affairs MCing a beauty pageant. The audience can sense when someone is uncomfortable. An MC’s experience is vital when they need to speak off the cuff and they can only do that if they are knowledgeable about the company, the event or the theme of the event,” says Mgabadeli. “Comedians make for great MCs,” says O’Sullivan, “but they’re hardly the right people to MC an evening which demands a certain gravitas. Jokes are only appropriate at a function where people are ready to party. The MC needs to be a good fit for the event.”

Final considerations The suitability of the MC to a corporate event must be determined by their profile and their fit with the organisation’s key objectives. According to Mgabadeli, “If you are in finance, go for an MC who knows the difference between GDP and GAP. Think carefully about who is suitable for your employees, who would resonate with them and who can add value.” O’Sullivan recommends booking an MC based on experience, or someone who the organisation has previously observed in action. “Book an MC whose personality suits the nature of the event; because they come with a good reputation as an MC; and because they can add value to your event. I would suggest the client obtains guidance from a recognised booking agency,” says O’Sullivan.

The most popular corporate MCs When asked about the top corporate MCs in the country, Lee says, “I can tell you who our most in-demand MCs are, and who gets the most call-backs for repeat work.” The following is Stuart Lee’s Top-10 based on the criteria he mentioned:

1 2 3 4 5 6 7 8 9 10

SAfm and Summit TV’s Siki Mgabadeli http://ow.ly/d8RoL Etv’s Sindy Mabe http://ow.ly/d8RuB Defending the Caveman’s star and comedian, Alan Com mittee http://ow.ly/d8ScF Carte Blanche’s Bongani Bingwa http://ow.ly/d8S6p Hello Doctor’s Michael Mol http://ow.ly/d8S0I Nimrod Nkosi http://ow.ly/d8SrZ Metro FM’s John Perlman http://ow.ly/d8So4 David O’Sullivan http://ow.ly/d8SL4

SABC TV’s Peter Ndoro http://ow.ly/d8SFG Top Billing’s Jeannie D http://ow.ly/d8TaXv

“If an organisation is looking for more than just a link person – someone who can really bring entertainment to the occasion – you will need to look at MCs with other skills such as comedians or cabaret performers.” 154

How to survive

industry Georgina Hatch New You Image Consulting

parties

e’ve all heard the urban legends that surround those end-of-year functions. There’s the one about the respectable accountant who made a drunken pass at the boss’s wife; or the woman who fell out of her dress while dancing on the table.

If you want to become a legend in your company for all the wrong reasons, then all you have to do is misbehave at any of the year-end industry events that you attend. Research shows that 65 per cent of companies who have hosted office parties believe that inappropriate behaviour at the event has impacted on certain individuals’ career growth in the company. Regrettably, once the booze starts to flow, some people forget they are still at a work function and that office etiquette continues to apply. Here are some tips on how to have a good time without embarrassing yourself or damaging your career: • Don’t arrive too late or leave too early. Attendance at the annual company events is practically mandatory and these indiscretions don’t go unnoticed. • Always introduce yourself to your host. This is the way to have your presence noted and approved. • Don’t suck up. Just say hello, how nice it is to be there and thank the host for inviting you. Anything else will be considered over-the-top. • Don’t drink too much. There may be a free bar but that doesn’t mean you have to overindulge. Limit alcoholic drinks to a maximum of two and avoid mixing drinks. Offering to be a designated driver should help keep you out of mischief. • Don’t eat too much. If the boss wants to

chat, you don’t want to be caught mumbling through a mouth full of canapés. • Don’t talk too much. Make an effort to have a brief, informal chat with as many people as possible and avoid serious, in-depth discussions about business. Whatever you do, don’t indulge in the temptation to complain about the company or air old grievances. And don’t monopolise the boss. • Don’t wear the wrong outfit. Pay attention to the dress code mentioned on the invitation and, if in doubt, consult with colleagues. Don’t use the occasion to show off your new, low-cut dress or shiniest suit. Refer to dress code guide. • Don’t get any ideas about office romance. A friendly peck on the cheek under the mistletoe is acceptable but anything else is not. If you’ve always had your eye on the person in your neighbouring department, wait until a more appropriate time to make your move. Remember that sexual harassment is still an offence, office party or not. A business-related party is all about having fun, within limits. Don’t see it as an opportunity to whinge, complain, gossip, drink too much or

flirt. Leave your worries behind you, drink in moderation, enjoy the company and have a good time.

Dress code rules Casual: It still pays to be smart. Consider the event. At work functions, it’s inadvisable for women to show too much skin or for men to wear sloppy attire like flip-flops. Smart casual: The dressed up version of the casual look. Smart separates usually do the trick for both genders. Cocktail dress: Suits for men and knee-length dresses or skirts for women. Alternatively women may wear evening trousers with a smart top. Formal: Dark suits with tie or bow tie for men; ‘dressy’ dresses for women. Black tie: Black dress suit or tuxedo, white shirt and black bow tie for men; glamorous gowns for women. White tie: Black tailcoat teamed with matching trousers, white shirt, white waistcoat and white bowtie for men. Women should opt for floorlength dresses, accessorising with jewellery and a formal hair-do. www.newimageconsulting.co.za

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

155

buy

or to

that is the question

Bianca Wright

As the social engagements start to pile up for the end of the year, thoughts of what to wear fill the minds of corporate executives everywhere. 156

Rent-a-look The rental option used to be primarily reserved for weddings, but as executives have slowly begun to realise that rental equates to diversity of options at reasonable prices, more clothing rental options have sprung up. Renting a suit or dress can make sense if you rarely attend formal functions or if you need to ensure a different look for each function you attend. Gentlemen must remember that the suit itself is not the only component required. You will need to rent or purchase shoes, a shirt, socks and a belt to match your rental suit if you do not have suitable ones in your closet. Cuff links and a tie clip may also be necessary, depending on the type of event. One option is to rent the suit but buy a variety of accessories to complement it. Having a range of ties in different colours and styles can change the look of any suit and allow you to tailor your appearance to your own taste. Evening wear for ladies should be accessorised by a sophisticated hand bag, jacket or wrap, shoes and jewellery. Internationally, rental of couture and designer gowns for functions has taken off as a way for women to experience the glamour of the runway without the need to mortgage the house. Renting can also allow you to explore different types of dress without having to invest in them. For example, Eastern Wear for Hire (http://www.easternwearforhire. co.za/) offers a range of saris, ghaharas and Indian wear, while there are other sites that offer traditional African wear. For ladies, rentals from stores that offer oneof-a-kind gowns prevents the dreaded “she’s wearing my dress” experience prevalent when you opt for off-the-rack options. If you do decide to rent, make sure that you understand exactly what is included in the rental as well as the rental period; most rental places hire outfits out for up to a week. Also ask about the deposit and under what circumstances the deposit will be retained. Be sure to check the condition of the rental item(s) at the time you receive them; note any damage and report any to the facility before accepting the rental so that you are not left out of pocket after the event. Of course, renting means ensuring that you are extra careful with the clothing, as damage to a garment can end up costing more than buying one of your own.

Be mine forever On the other hand, finding a rental gown or suit that is truly you can be difficult, especially as many hire stores have limited sizing. In addition, investing in formalwear can make sense if you know that you regularly attend upmarket events. With the right options in your

wardrobe, you can change looks with ease and not break the bank. To work out if it does make sense to buy, divide the number of occasions you think you will need to attend over a two-year period into the cost of the item. This will give you a per use value for the dress or suit and help you see if buying is preferable to renting. Include the cost of buying or renting the needed accessories to get a global view of the real cost. Mixing and matching bought items can provide dozens of fresh looks with relatively little outlay. The trick is finding those mix and match items.

coloured options are also available. For the dark suit, a range of ties in different colours to match the dresses of your dates will offer a change in look for different occasions. Formal black evening shoes are essential and should be comfortable and not too tight. Weighing up the pros and cons of renting versus buying is about looking at your own needs and habits and finding a solution that works for you. This will make you look and feel your best as you celebrate the end of another successful year.

Tailors can provide the perfect fit for men or women, though they are usually more costly. That being said, a tailored item is an investment and should be seen as such. After all, an off-the-rack item quite often is the right size overall but fits poorly in crucial areas such as arm length or collar size. It can be worthwhile if you will be using the item more than five times and if looking good is important in your position.

It’s a man’s world Men seem to have a less complicated range of options, accessorized with ties and some appropriate men’s jewellery such as cuff links or tie pins. If you intend to invest in attire for evening functions you should have at least two formal suits, one a smart dark suit and the other a full tuxedo. However, a tuxedo is a sensible investment only if you attend black tie functions regularly. The main styles are single or double-breasted. Try on both options to see which suits you best. A bow tie in classic black is the best choice for a tuxedo, although

Beyond the little black dress Conventional wisdom advises that every woman should have at least one smart black dress for special occasions. With a wide variety of styles, cuts and fabrics to choose from, the basic black dress is a fit for any wardrobe and savvy shoppers can find bargains that look like they come from designers stores. That being said, mixing things up with some colour options should be an option. A formal black skirt matched with a brighter formal shirt or blouse can add a different dimension to formal wear. Footwear is equally important. It is vital to have three or four pairs of evening shoes in a variety of colours and styles on hand to complement your outfit. If you have opted for colourful blouses or dresses, ensure that you have shoes that blend with the outfit. As every woman knows, most evening dresses are far from suitable for a chilly winter’s

evening. Although most formal functions take place at year-end in November or December when the weather is warmer, a jacket is a must since venues are often kept cool with air-conditioning. The jacket should fit properly and offer an elegant detail that turns it from corporate wear to evening wear. A wrap is another option, though they rarely offer the same type of warmth. Jewellery can provide a touch of elegance and sophistication. Be careful not to overaccessorise, though. If you choose to wear striking diamond earrings, rather go for a simple evening watch. A classy necklace with a beautiful pendant needs little accentuation apart from your ring. Evening bags come in all shapes and sizes, from the staple black clutch to more elaborate and ornate sparkly versions. You should have at least one evening bag of your own. If you want to mix it up occasionally, consider swapping with or borrowing from good friends to broaden your options.

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Brought to you by

@lunch with...

Denleigh Wilensky Executive director, Hospitality, Industrial and Commercial Underwriting Managers

This month, RISKSA and Global Choices had lunch with Denleigh Wilensky, executive director of HIC, at Mythos in Bedfordview. Over traditional Greek cuisine, Denleigh told us about their FIA Award win and how she manages to balance a busy life. Denleigh, what was it like having HIC win an FIA Award for the first time this year? How do you think HIC achieved this? It was such an amazing feeling having set a goal and then achieving it. Last year we embarked on an internal strategy to win the FIA Awards and our staff went the extra mile for our brokers. It was so rewarding to have won this very prestigious title. We all believe in top-class service and strive for it every day. Being an executive director of a successful UMA while raising two children canâ&#x20AC;&#x2122;t be easy. How do you balance work and family life? I have an amazing husband who supports me and helps with everything. He is pretty handy when it comes to preparing a good meal in the kitchen, too. You have completed the Comrades Marathon five times. While juggling these roles, when do you find time to train? I really enjoy running and train at 05h00 in the morning when the family is still asleep.

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“Most of the fashion houses are based in Cape Town and I did not want to relocate, as my family are all in Johannesburg. After the first interview I went to at Mutual & Federal, I decided to venture into the insurance world.” From left: Ronald Gall, Global Choices; Denleigh Wilensky; and Blake Dyason, RISKSA.

What is next on the horizon? The Iron Man perhaps? It is on my bucket list, but maybe when my children are older. Having studied to be a fashion buyer, how did you end up in insurance? Most of the fashion houses are based in Cape Town and I did not want to relocate, as my family are all in Johannesburg. After the first interview I went to at Mutual & Federal, I decided to venture into the insurance world.

I went to run the London Marathon, then hired a car and toured Scotland (which is one of my favourite places in the world). How about the strangest experience you had on your travels? My first overseas experience was in Israel on a kibbutz. I thought I would be picking fruit in the sunshine but ended up in a factory making steel drums.

No, I am very happy in the insurance industry.

How did your husband, who was your boyfriend at the time, take to being left behind while you went travelling? The story obviously ends well… He supported me and decided I was worth the wait.

You have travelled extensively. Tell us about one of your most memorable experiences.

If you weren’t working in insurance, what could you see yourself doing?

The best experience was when my husband and

Something to do with sport.

Do you still have a desire to enter the fashion world?

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Broker’s Wife Held up For those of you whom don’t yet know, one of the Global Choices team members has earned the rather unfortunate name of The Terrorist, compliments of the RISKSA sales boys. It is amusing though, not least because she is gorgeous and barely reaches the five foot mark. The terrorist has, on more than one occasion, while travelling with the RISKSA team been held up, usually by airport authorities or officials sceptical of her credentials. This time round, however, the holding up was done by an elevator in the Sandton Convention Centre. Stuck for close to 30 minutes, The Terrorist happily continued running the show (as she tends to do with RISKSA’s Riccardo, Blake and Michael) from her smartphone.

The proposal(s) At a recent Sasria event at Montecasino, one of my favourite spots in Johannesburg,

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a member of the Sasria team took it upon himself to ask for the hand in marriage of, not one, but several waitresses. While he had a grand old time suiting the lovely ladies, I’m not sure that they were equally as impressed by his antics. I think it may have something to do with his choice of gift. Darling, next time you propose, avoid using the flower arrangements on the tables to win the lasses’ hearts.

A date with Dr Evil Some people just can’t help mixing business with pleasure. Although not a particular fan of Austin Powers, Camargue’s Mitch Marescia is certainly a fan of mountain biking. So much so that he decided to extend a ‘business’ trip to the Lireas Conference by a whole week in order to take part in The Dr Evil Classic 3-Day Stage Race. Is it just me, or is cycling tremendously popular among those in the insurance industry? Heaven forbid that it should usurp this

prized position from golf. I mean, what would insurance companies do without golf days?

Bodyguard anyone? Interviewing the who’s who of the insurance industry comes with its fair share of quirks. After a recent interview with a high-profile CEO, one of the RISKSA team came out into the parking lot only to be greeted by three white Range Rovers and six bodyguards. Of course, she didn’t mind the hunks at all, but did tell me that they certainly weren’t impressed when she asked them for a lift home in one of their sexy Rovers. Shame, I imagine climbing into her Toyota Tazz parked next to this entourage was a bit of an anticlimax.

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