RiskSA Magazine October 2014

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With our ever-expanding national footprint, Renasa is probably closer than you think. And we don’t fob you off on a call centre, or even expect you to queue at our door. Renasa still treats brokers like brokers with

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personal service around claims and the fastest turnaround on commercial underwriting decisions. Want to meet us in person? We’ll come to you.

Contact Renasa today on 0860-renasa or visit www.renasa.co.za 7

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Dearreader T

he end of the year is approaching at warp speed and we’re excited. We’re excited because our RISKSA Regatta is about to happen and who can forget the fun and adventure we all shared at the inaugural event last year? The regatta was never intended to be a cocktail cruise down to Clifton at sunset, but rather a fully-fledged yacht race between competitive teams battling for supremacy on the gorgeous Cape coast. The regatta takes place on the last weekend of this month at the prestigious Royal Cape Yacht Club – follow us on our social media if you are unable to be there.

I am also off to London in the next few days to share thoughts with publishers from around the world on how best to make sense of the fast changing environment in which we find ourselves. Apple’s new iWatch opens up stunning new possibilities to disseminate information in ways we don’t even fully understand yet. It is a balancing act, taking advantage of new tech as it happens.

If we are too far ahead of the wave we will leave our readers behind, too far behind and we may never catch up. Our job as content providers is to package

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brilliant journalism and deliver this to you affordably and effectively through whatever channel is most convenient to you.

We have another bumper issue of RISKSA for you this month. With Ebola impacting tourism numbers in South Africa (Africa is a country don’t-you-know) and building collapses here and in Nigeria top of the news at time of writing, we take a look at what this means to us here at the southern tip of the mother continent.

Soft reinsurance rates and increased competition are still taking a toll on the sector. We put reinsurance under the spotlight for you and check out the latest developments in vehicle telematics. Why don’t you make a cup of tea and settle down with your favourite read?

All the best,

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ultimately have negative impacts on overall risk management, and reinsurers and brokers should ensure that the client remains the focus, and the risk selection process is not watered down.

In the analysis of the market underwriting profits per decade, the Insurance Information Institute states that, “Not a single Underwriting Profit was recorded in the 25 years from 1979 through 2003.� It is also worth pointing out that the number of years with profits for each of the 2000s and 2010s are below the average of the previous century (the 2010s are not fully developed).

Underwriting profits were common before the 1980s (40 of the 60 years before 1980 had combined ratios below 100), but then they vanished. Not a single underwriting profit was recorded by listed companies in the 25 years from 1979 through 2003.

Insurance Information Institute.

Number of years with underwriting profits by decade, 1920s to 2010s 12 10 8 6 4 2 0

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TELEMATICS Anton Pretorius

Keeping trends

South Africa’s telematics market is still relatively small. But with technology evolving at spacerocket speed, more and more brokers are catching on to the trends of telematics – utilising it to make our roads safer and establishing better relations between the insured and the insurer.

In its annual crime statistics overview for 2013, the South African Police Service (SAPS) reported a 2.5 per cent decrease in vehicle theft. It also reported a one per cent decrease in vehicle theft and hijacking in Gauteng – South Africa’s hijacking and stolen vehicle hotspot. While this might not seem all that significant, many will argue that the decline can largely be attributed to telematics and vehicle tracking devices.

When tracking devices were first introduced to South Africa, it was an effective way to track a stolen vehicle, in the hopes that it will be recovered, and the culprits apprehended.

Fast forward to today, and telematics devices

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Brokers on the inside track

global telematics and technology. However, John Valentine, new business director at Real Telematics, says it isn’t all that bad.

have become smaller, faster, smarter and more efficient. These devices are not only utilised to help recover stolen vehicles, but also monitor driver behaviour and create personalised policy offerings to the insured.

General consensus within the insurance industry is that South Africa is ‘falling behind’ when it comes to keeping up with trends in

“We might be slow at catching on, but with the introduction of new telematics technology, like encouraging good driver behaviour by comparing it to other drivers and featuring built-in driver scoring and points/reward system applications, it has given South African insurers and providers a cutting edge when it comes to increasing the value propositions it offers clients,” says Valentine.

Brad Hogan, group CEO of Oakhurst Insurance, says there are players within the industry who have found themselves inadequately prepared for the change in dynamics that telematics are bringing to the

insurance market, and there are many who now have to “play catch-up,” he says.

He adds that there are two primary factors currently receiving ongoing focus in both local and international markets. ‘The first one is the utilisation of mobile devices for telematics functionality. This could facilitate great reduction in both the cost and convenience element,’ he says.

He explains, “Embedded devices are obviously more expensive to manufacture, install and service, and a well-organised logistical strategy is necessary to ensure expedient fitment. It’s not easy to host a timeous and smooth fitment process”.

Hogan says that the primary challenge is to

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Bringing telematics to the commercial world and delivering value way beyond pure insurance loss. It provides tools that can streamline the management of the whole lifecycle of business vehicles travelling our roads,” says Charl Swarts, head of commercial and personal insurance division, within Hollard Broker Brokers.

ensure that the mobile device being monitored is actually in the possession of the driver that the insurer ‘thinks’ is being monitored. “Another challenge is maintaining consistent and reliable data, and to ensure that the data from different types of devices and sources are measured on an even keel,” he comments.

While Valentine agrees that the South African telematics sector is still growing and is essentially different compared to what’s happening in the global market, he says there are still sectors within South Africa that telematics providers and insurers haven’t quite capitalised on, like fleet management solutions and the ‘yellow goods’ industry.

Fleet street Valentine is of the opinion that there isn’t enough of a driven focus on telematics in fleet management, especially in the plant hire and construction vehicle fleets. “Our company’s GPRS and GPS-based fleet management solutions allow the product to not only monitor the standard vehicle scenario, but industrial machinery (‘yellow goods’) too,” he says.

He adds that telematics offer good value for the industry. “Our forklift fleet management system provides a good return on investment and increases operating efficiency. With telematics, you can run a tighter ship.

By constantly monitoring the activity of your fleet, telematics offers fuel savings of up to 30 per cent by eliminating unnecessary trips. It also saves on maintenance costs, such as tyre and mechanical wear and tear,” he says.

It’s true that until now, telematics initiatives have focused on personal motor insurance with no mainstream telematics for the commercial market. But Hollard Insurance is set to change all that. With the launch of their first telematics product for the fleet market, clients can benefit from accurate pin-point location and movement, build incentive scores for drivers and detect the difference between a bumper bash and a major collision, so appropriate backup can be dispatched immediately and loads protected.

“This will provide fleet managers with tools to accurately and consistently manage and operate their significant vehicular assets.

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Steven Sutherland, sales director at MiX Telematics for South Africa and Africa, says that you get exactly what you pay for in the telematics industry. “This is why businesses need to partner with a fleet management provider that offers more than just the tracking of a vehicle’s positional information. A premium fleet management solution should monitor the performance of both the vehicle and the driver, and includes servicing and licencing scheduling.”

According to Sutherland, the industry is currently facing an increase in road traffic incidents, where high fatality and accident figures are placing a question mark against driver safety. “Advanced technology is needed in order to monitor and manage this reality better – especially within the fleet sector.

Technology should equip fleet operators with the necessary tools to manage their assets properly and should meet their immediate needs, as well as provide long-term benefits and recurring value,” he says.

Mercia Wallis, head of personal lines and motor at Zurich South Africa says it is clear that fleets perform much better in Europe once telematics is introduced. “The owners have clear sight of the manner in which employees drive, how often they stop and for how long – which negates accidents caused as a result of fatigue,” she says, adding that telematics can be used as an accident management tool.

Driver behaviour under the microscope With the increase in road traffic incidents and high fatality rates, some insurers are utilising telematics and predictive analytics to enhance decision-making and reduce premiums. The information is used to create value-added services while increasing pricing accuracy, reducing claims leakage, reducing loss costs and lowering expenses.

Altech Netstar’s telematics software platform called StarDrive (unique to South Africa), features a built-in driver scoring and points and reward system, with the focus on family safety. StarDrive also uses ‘gamification’ (the concept of applying game-design thinking to non-game applications to make them more engaging) to encourage good driver behaviour by comparing it with other drivers.

“Our goal is to provide the insurance industry with a product that is affordable, quick to install

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and one that will add value to both the insurer and the insured,“ says Altech Netstar’s general manager: consumer, Wynand Stoltz.

“The data collected typically includes frequency, time of travel, locations, distance, speed, harsh braking and acceleration, cornering, rapid lane change, accident detection and accident reconstruction,” Stoltz says.

Earlier this year, telematics specialists Tracker launched an iOS and Android-optimised driver behaviour application (app) for the local market. According to Tracker, this app transforms smartphones into mobile and costeffective telematics devices.

But an app that has taken off on a national scale is Discovery Insure’s smartphone app that scientifically measures and scores driving behaviour. Their Driving Challenge app utilises a smartphone’s accelerometer and GPS to provide a driver with detailed driving information, including harsh braking and cornering, distracted driving (it knows if you’re using your phone while driving), speeding and personalised driving tips.

RISKSA TV’s Christy van der Merwe spoke to Discovery Insure’s CEO, Anton Ossip, about how this kind of telematics can benefit clients and brokers alike. “We’re trying to create a nation of safe drivers. To improve people’s driving, we need to understand how accidents happen. This data helps us understand the

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client and provide a personalised offering,” Ossip says. After evaluating several members who actively took steps to improve their driving behaviour over five months, Discovery Insure found that speeding incidents decreased by 75 per cent and harsh acceleration incidents decreased by 63 per cent. “At least 70 per cent of our clients have improved their driving behaviour,” Ossip adds.

conversation brokers have with their clients. To some extent, brokers are currently competing on transactional ability, like how quickly and cheaply can they place insurance?

Through the app, the company also offers several life-saving features. “You could be lying on the side of the road and no one might know.

Our 24-hour emergency services will call the client if they detect a change in your driving and even dispatch an ambulance or emergency service. The data we collect could well be the difference between life and death.”

Stoltz says that Altech Netstar’s insurance partners have gained a wealth of experience since adopting telematics. “Understanding driver behaviour data has assisted them with underwriting, pricing and risk mitigation.

Telematics has also assisted them in attracting low-risk drivers, because of the insured client’s willingness to be monitored.”

Ossip said that the app offers ‘Driver DNA’ where the system detects your personal driving manner and characteristics and immediately picks up (and notifies) the system should someone else drive your vehicle.

Swart says telematics is a new business builder for brokers. “Fitted to fleets of any sort, it is an innovation of such great value that it will be a valuable add to any broker’s arsenal. We see this as a must-have for fleet owners which intermediaries will have no problem selling to their business clients,” he says.

“There will be a day when the price you pay for insurance will be determined directly by how you drive and not whether you’ve been lucky enough to have few claims or not. We are rewarding good drivers,” he says.

How brokers benefit The question beckons, how do broker benefit from telematics? “It will change the

Ultimately, the internet and direct insurers are making it difficult to compete. While brokers offer good, rich insurance advice, clients don’t always see it that way,” Ossip says.

Ossip adds that with telematics, it changes the game plan. Brokers now know how their clients are driving and how they can change it. Based on that, they can now lower their client’s longterm cost of insurance. “No internet site can compete with that. This opens a new world for brokers that never existed. They become what we term ‘the risk coach’ to their clients.”

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However, Ossip believes that technology can never replace the need for advice. “Clients will always have specific needs. I think a need for a conversation with a client to understand their exact circumstances is more important.

Wallis agrees. “Broker advice is and will remain essential. There is still tremendous value in dealing with an intermediary as brokers are able to bridge the information gap between customers and the insurer; educating consumers about products and helping them understand what is covered and what isn’t”.

According to Ossip, clients who obtain good advice from brokers have a 30 per cent lower rate of complaints to the ombudsman and lapse 40 per cent less on their insurance policies.

“Advice adds value. Telematics offer a layer of advice that differentiates financial advisers from call centres, direct insurers or internet sites,” he says.

Risks and challenges Globally, telematics is a household name in the insurance industry, and in places like Europe, the adoption rate of usage-based insurance (UBI) is very high. Locally, insurance companies have been resistant in rolling out UBI programs, but Stoltz expects this to change over the next year.

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According to Wallis, the adoption rate by drivers has been relatively low owing to the fact that customers are wary of their personal privacy being invaded. “Customers are also worried about how the system will affect their premiums,” she says.

“What could prove to be challenging is upcoming regulatory frameworks – in particular the implementation of the Protection of Personal Information Act (PoPI) – and how it will affect the aggregation and protection of customer data.

Furthermore, cybercrime, which is already a huge risk in terms of protecting customer data, will be compounded with the addition of specific customer information. There may also be a rise in customer poaching where insurers are able to compare customers and pursue better quality drivers at a lower risk,” she says.

Stoltz says that in terms of the PoPI Act, providers and insurers have to protect the confidentiality of any personal information disclosed by subscribers obtained via the telematics devices. “We obtain the explicit, specific and informed consent of our subscribers, and explain how the information collected from the telematics device will be used by both Altech Netstar and the insurer,” he concludes.

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No licence?

No claim

Around 80 per cent of any commercial fleet’s claims arise from operator error. Previous issues of RISKSA looked at the myriad ways of managing and modifying driver behaviour, from satellite tracking to video surveillance. All the methods have proven track records, but what if the operators aren’t even authorised? RISKSA looks at how unlicensed drivers will cost your client dearly.

Dominic Uys

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n September of 2013, the nation was rocked by horrific footage of an out-of control truck careening into a row of cars waiting at a traffic light. A total of 22 people tragically lost their lives in an instant, and the 23-year old driver’s life was changed forever.

This, unfortunately, seems to be an alltoo-common and increasing trend in the commercial transport industry. David Leclézio, CEO of specialist underwriter, Tradesure, warns that business owners who turn a blind eye are likely to face major losses and repudiated claims.

The true cause of the crash is still hotly debated, and every possible factor from the steep gradient of Fields Hill where the accident took place, to poor vehicle maintenance has been considered. During the course of the investigation, however, one key fact surfaced.

The driver had provided fake documents when applying for the job.

“In our experience we have suffered more ‘hijacking’ losses as a result of foreign drivers with fake documents. They tend to sell their loads to criminals for a fair sum of money. The drivers then disappear again. This is exactly what happened to a client recently.

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A driver absconded with an entire load, and it was found that he wasn’t licenced to begin with.

The company did attempt to claim for the truck and the load that was lost, which amounted to millions, but obviously their insurer repudiated the claim because it was found that the client didn’t do due diligence,” he starts.

Foreign drivers attracting employers “Simply put, South Africa has become the landing place for foreign drivers who are looking for jobs that are not available elsewhere. Zimbabwean drivers are prolific, but there are also Swazi or Zambian drivers, and drivers from the Democratic Republic of Congo,” continues Leclézio.

According to him, one of the attractions for South African logistics companies is that they tend to pay foreign drivers less than locals.

“Foreign drivers are often prepared to work longer hours and are always available. For those operators that work cross-border, they feel that foreign drivers do better as they know their own territories better than South African drivers,” he adds.

Leclézio admits that it is difficult to verify foreign licences, however. “To check foreign drivers’ police records and credit status, as the formality through the foreign embassies, is fraught with difficulties. This makes it easier for foreign drivers to use forged documents,” he says.

Checking a foreign driving permit is nonetheless not impossible. For a price of around R700 to R1000, any logistics company can verify a driver’s licence through the traffic authority in his country of origin. The price, while seemingly insignificant when compared to the value of the equipment at risk, still makes many a business owner take pause.

Smaller operations at risk RISKSA spoke to a manager at one of the country’s largest cross-border logistics operators. She points out that most trucking companies see a fairly large turnover in drivers throughout the year.

“There is somewhat of a skills shortage when it comes to competent drivers at this stage.

Drivers also tend not to stay long with one particular company and an operation like ours is constantly hiring and training new drivers,” she says.

“That said, we don’t have time for chancers and our human resources department is very good at weeding out drivers with fake licences or any other issues. We do however see that smaller operations that don’t have HR departments are often taken in by unlicensed drivers,” she adds.

The way in which many smaller companies fasttrack their applicants is a particular problem, according to Leclézio. “We see this over and 

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specialises in medical assessments for longdistance drivers,” Leclézio states.

“He has quite an innovative conveyor belt-like system that covers all the bases while still having a quick turnaround time to accommodate the client’s schedule. If the doctor’s feedback regarding a driver is negative, then our client does not employ that driver,” Leclézio continues.

“We as an industry need to work together, sharing information on drivers and methodologies that work to ensure better driving practise,” he concludes.

Right driver, wrong truck Joos Rossouw, broker at Vision Insurance, retells an interesting case concerning one of his clients. “Our client’s driver was operating with an EC1 licence that allowed him to operate an articulated heavy truck with a mass of up to 18 000 kg. He was, however, driving a much heavier vehicle, requiring an EC licence,” he says.

“This driver ended up colliding with a police vehicle at one of the off-ramps along the N1 and the company claimed from its cover.

Important to note here is the fact that the company didn’t claim for damage to its own vehicle, since that was minimal.

In this instance, the claim was paid out for the third party claim and the driver seemed to have slipped through the cracks, having not even been asked to produce his licence for the insurer,” he says.

over in the industry. The company brings the driver in for an interview, and the owner takes him for a quick test-drive around the block.

He gives the licence a cursory glance and if all checks out on the surface at least, the driver is given the job on the spot,” Leclézio says.

No such thing as plausible deniability Leclézio points out that companies who don’t take the necessary precautions in hiring new drivers risk a lot, and claiming ignorance is not an option.

“We at Tradesure tend to impose additional excesses pertaining to foreign drivers, as we find that they often ‘return home’ when we need them for third party recoveries, or other legal issues that arise when there are claims. This means that we have to abandon recoveries against third parties that would normally bring

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in money to mitigate our losses,” he says.

In addition, Leclézio states that his company makes sure that its clients are kept informed of all the necessary steps and recommendations.

“We make sure that our clients know what their responsibilities are when they take out cover on their fleets.

We also advise them to keep a register of all drivers that they encounter. In the end, that would help all of us; insurers, logistics companies, trucking brokers, and everybody in between to start weeding out the bad eggs.

We also recommend that all drivers undergo a defensive driver training course, and based on that assessment, be employed or not,” he says.

“Lastly, you still have to make sure that even your legally licenced drivers are actually medically fit to drive. Recently one of our clients recommended a doctor in Durban who

“Some time later this same driver overturned one of the company’s other trucks. The damage to the vehicle was extensive, and the claim was substantial. In this instance the insurer made sure to tick all the boxes, including double checking the drivers’ permit. This time the claim was repudiated on the basis that the driver had been improperly licenced,” Rossouw imparts.

The deciding factor in this case study, according to Rossouw, was the claim amount. Rossouw does have some advice for companies looking to employ foreign drivers. “Do the checks that you need to in order to make sure that this driver qualifies. You have to be able to prove that you have gone through reasonable lengths to verify his documentation.

After that, take your driver to a testing centre and have his competency assessed by a traffic official. With that done, you can rightfully claim that your driver conforms to the standards of local authorities, and your insurer should be satisfied,” Rossouw concludes.

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Taking flight

in a tough market Christy van der Merwe

Aviation in Africa comes with its own particular perils, in addition to those experienced globally. While pilots, and the aviation industry in general have always held a certain high-flying sex appeal, the aviation insurance industry in South Africa, has been in a decidedly lacklustre soft-cycle for a number of years now. And now, the entrance of new players is making things even more interesting.

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lobally, the aviation industry has been in the spotlight for all the wrong reasons. Malaysian Airlines flight MH370 disappearing over Asia, and more recently another Malaysian Airlines plane, MH17, shot down over the Ukraine, while an SAA flight to Hong Kong saw a few passengers hospitalised thanks to extreme turbulence.

While the majority find comfort in the fact that they don’t work for Malaysian Airlines, it cannot be denied that the aviation insurance market in South Africa is a tough place to operate – showing no signs of getting easier.

Local incidents and claims data The majority of insurers, underwriters and brokers agree that the beginning of 2014 has been characterised by a higher amount of claims than usual. The majority of the claims have been in the general aviation sector, largly represented by privately owned and recreational aircraft.

According to the South African Civil Aviation Authority (SACAA) accidents and incidents reports available online, the number of

incidents has, in fact, been decreasing since a peak of 182 incidents in 2002. By comparison, the number of incidents reported by the SACAA in 2013 was 43, and in 2014 the SACAA reported only seven incidents having taken place, with one of these resulting in a fatality.

However, this does not align with reports given by intermediaries, underwriters and insurers working in the aviation industry. Brokering firm Dennis Jankelow and Associates reported accident and incidents statistics on its website until May 2014, with information sourced from the SACAA. In May 2014 alone, 20 incidents were reported. These stats are, however, no longer published on the website.

“While the SACAA is the central source for the frequency of aviation incidents, it is worth noting that not all aviation claims, or losses are reported to the SACAA, for example in the cases of lightning strikes, theft, or a hangar crash,” explains Dave Rijntjes from Airspace Africa Underwriters, a division of Natsure.

“In addition, there has been strong growth in the number of units on the SA aviation register of non-certified type aircraft, some of which may not be easily insurable (powered parachute for example). Thus comparing the number of accidents as per the SACAA records should be understood in this context,” adds Rijntjes.

Phindiwe Gwebu, senior manager of communications at SACAA, tells RISKSA that a Memorandum of Understanding (MoU) between the SACAA and the Department of Transport (DoT) signed early in 2013 separated

the duties of the Accident and Incident Investigation Division (AIID) from the SACAA to the DoT. Since the start of 2014, the staff of the AIID report through the executive manager: AIID, Albert Morudi to a nominated official at the DoT on a functional basis. However, AIID continues to be part of the SACAA administratively.

“The SACAA needs to become more involved with regards to providing more transparent information on aircraft investigations, hold more accountability to those who may be indirectly responsible and assist the industry with safety campaigns. Attitudes are developed at schools and particular attention should be paid in this area,” urges Specialised Risk Management (SRM) Aero MD Sean Raath.

Debbie Ray, operations manager at Airborne Insurance Consultants, says that on the book of business that it manages there has not been a significant increase in claims. “It is the usual steady stream of claims we have consistently had over the past nine years,” she adds.

Ray says that flight school claims aren’t often fatal but are made up of hail damage, hard landings, hangar rash, prop strikes and occasionally a total loss. In the operational aircraft, the usual claims include foreign object damage, engine issues, hard landings and every so often a total loss.

With the bigger aircraft and jets there are very few claims, mainly ingestion or foreign object damage. “Our helicopters, where there should be a lot more claims, have run very well over

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the years with just smaller claims and few total losses and fatalities and the last year has been the same,” she states.

“Across the industry we did see a few fatal crashes earlier this year but we have seen this in the past, with about 41 fatalities in 2011, 29 fatalities in 2012, 34 fatalities in 2013 and about 17 to date in 2014. The actual number of accidents in 2011 and 2012 were similar with a slight rise in accidents in 2013 and similar so far in 2014,” explains Ray. When it comes to claims costs, “there is absolutely no doubt that claims costs have increased significantly in rand terms as most spares need to be imported from overseas,” affirms Rijntjes.

Labour costs in South Africa have increased at a rate above inflation as well, pushing prices up further. Besides the actual repair costs, the average insured aircraft fleet is also becoming older with spares more difficult to obtain or alternatively for these to be locally manufactured, thus either method also drives costs higher, Rijntjes says.

Hollywood hero pilots In questioning why the amount of claims following from aviation accidents and incidents might be increasing, the issue of education, training and skills development was raised.

“The main reason for claims in aviation is often as a result of pilot error, or judgment,” explains Raath. He explains that specifically in this sector, there are flight schools and clubs, which are considered higher risk compared to other sectors with a high percentage of accidents occurring as a result of poor decision-making and/or poor judgment.

It goes without saying that the less experience you have as a pilot, the higher risk you may be, although there are obvious exceptions, Raath adds.

The biggest risk is the pilot who has less than 500 hours total time experience or the pilot who is barely keeping current (flying regularly).

The margin for error in an aircraft is so much smaller than other hobbies or pastimes that even with a conscientious and disciplined attitude, pilot error will always be a factor, says Raath.

James Godden, head of underwriter Santam Aviation, highlights that there is definitely a need for improved training in the industry, and adds that the insurance industry is trying to work with the SACAA on this. Godden adds that many of the trainers rising through the ranks

now are a lot younger, not as disciplined, and have an arrogant attitude.

James Perris, managing director at Geneva Risk Management Solutions agrees, adding that many inspectors are also retiring, and highlights that a great number of competent inspectors and trainers have left the country for reasons political, economic and to seek better opportunities.

Many inspectors and trainers have left after becoming disgruntled with the state of current affairs due to political pressure which forces out the ‘right man for the job’ over the one that satisfies an impractical quota. “In the aviation sector, as with many other industries, we’ve seen younger, less experienced, less qualified applicants taking posts over more qualified and experienced candidates.

This is a reality that has created a brain-drain across the board, and it has an effect on our risk levels because we have less experienced,

less qualified people in posts,” Perris explains.

Perris adds that while there are many good flight schools in South Africa, at the end of the day, it is a business, and some are just in it for the money; trying to gain, and retain, their numbers. This is viewed as dangerous practice as it creates an environment where the standard of training can decline because new students are pushed through, for reasons of retention and fear of disturbances to bottom line earnings.

Ray concurs, noting that she has seen an increase of “fly-by-night schools out there that are hurting the industry. They are no good for the students, the training is insufficient, and they force the professional school to drop prices in a difficult industry.”

She does not advocate high prices but says one needs to think what goes into a flight school and what is paid for and make a decision based on this when undertaking training. 

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Aviation-AIG

Across the globe we insure over 80% of the world’s major airlines

Aerospace at AIG As market leaders we work to understand our clients’ exposures. However we know that risks often change. We’re continually working to find solutions and services for the new risks emerging in the aerospace sector, to enable us to meet the challenging needs of our clients and brokers.

Insurance and services provided by member companies of American International Group, Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language. For additional information, please visit our website at www.AIG.com. AIG South Africa Limited is a Licensed Financial Services Provider FSP No. 15805 Reg. No. 1962/003192/06

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That said, Ray maintains that the flights schools that Airborne Insurance Consultants insures, have a very high standard of training, and are doing a “brilliant job”. There has also been an increase in flight simulators of the past few years, which is a cost effective way of practicing before taking flight. “We now insure a few flight simulators, where five years ago, we insured none,” Ray adds.

When it comes to the issue of repairs and maintenance, Rijntjes says that with regards to Airspace Africa’s general aviation class of business, the company’s choice of repairers has shrunk over the years.

Although the quality is still high among the remaining panel of repairers, the underwriter is concerned that not enough young people are entering the industry for the repair and maintenance of aircraft in the future.

Market fundamentals Rates are static, and little to no growth in premium has been experienced in almost six to 10 years. However, we continue to see new entrants to the market, increasing competition and capacity. Coupled with increasing frequency and severity of claims, there is little optimism in the sector at present.

Add to this the fact that the average fleet is ageing, the Rand/Dollar exchange rates make imported parts and repairs increasingly pricey, and a younger generation of more accident prone pilots who require an attitude adjustment is moving up through the ranks – and you have an incredibly challenging operating environment.

And yet, newcomers are entering the market.

These come in the form of Geneva Risk Management Solutions, which has launched it’s ‘Pay-as-you-fly’ product underwritten by Constantia Insurance Company, which has caused waves, as it is a substantially different approach to what exists in the market. Geneva is a registered insurance intermediary with a binder authority and makes Pay-as-you-fly available to clients and sub-brokers.

Perris tells RISKSA that the product was designed to address a gap in the market for mainly recreational flyers, who are either currently not insured, or overpaying for insurance.

The product is underpinned by a tailor-made aviation IT platform, which allows for quotes to be done in five minutes, and over the phone.

Perris says the business model has recently been tweaked. The new model, soon to be launched, will give sub-brokers full brokerage, client ownership, and assurance that clients will not be contacted or pursued to the exclusion of the sub-broker.

Perris says that Geneva is comfortable with the growth experienced in the aviation market since launching its product, and there has been acceptance in the market from sub-brokers and clients alike. “Some have taken our quotes to other insurers, and they have reacted by dropping their rates to compete – this is not a solution by any means.

What is needed is certainly not a decrease in rates in this current climate; but smarter solutions, which deliver lower premiums to the risk-conscious consumer. We believe we’ve achieved this as our model still protects our risk-carriers (and the market) from having to decrease rates.”

Perris adds that the ‘smarter solution’ takes the form of a world-first underwriting matrix, augmented by process automation that leverages new Information Technology platforms. “Simply matching rates without considering the broader, and perhaps more important, elements of what a new model delivers will certainly be dangerous for the entire market in the long-run indeed.

However, if we were simply ignored from the outset, and there was no reaction from the market, then we would have worried, but this proves the model will continue to be a serious contender,” quips Perris, reiterating that there is definite room for lower rates for a targeted consumer. 

The players in the South African aviation insurance market.

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UMAs - Airspace Africa • Azriel Aero • Lloyd’s of London market • Planesure • Santam Aviation Insurers - AIG • Centriq • Constantia • Genric • Infiniti • Natsure • Santam

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Contact us on (011) 467 8577 or email: info@airborneinsurance.co.za www.airborneinsurance.co.za

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Genric Insurance also launched a niche aviation UMA in July 2014. Called Planesure, it is headed up by Jamie Illing, previously from Airspace Africa. “The South African general aviation annual premium is around R500 million of which only R300 million is written locally, in South Africa. The rest is placed overseas into approved and non-approved markets,” said Illing on the scope for growth in the aviation sector in South Africa.

A good illustration is liability premiums, which have been static for the past 10 or more years, explains Rijntjes. “It seems odd that despite the tough trading conditions, there is still overcapacity, not only in the South African context, but worldwide.” Raath does not think that these low rates are sustainable, however this has been said for a number of years and the problem still exists. “For the short to mediumterm traditional aviation insurance will continue to be a tough sector for smaller insurers, and I don’t believe we will see a marked increase in rates. There is simply too much capacity,” Raath predicts.

Rijntjes agrees and explains that aviation insurance is global in nature and from this perspective, does not even make up one per cent of the overall non-life insurance market income.

“Losses, although severe for individual aviation insurance divisions, are relatively modest in respect of the market’s overall picture. That is little comfort for those individuals who are responsible for the profit and loss figures in particular divisions but as a market, it will not react in the near future,” he reiterates.

Unfortunately, as with so many types of insurance, the consumer perception of this type of cover is as a grudge purchase, with pilots not having particularly nice things to say about their insurers. Although the pilot RISKSA spoke to thought that his broker was an insurer and did not know what an underwriter was.

This highlights the need for good advice in the aviation insurance market, and the savvy intermediary will continue to be pivotal to their  client’s flight-path.

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Case studies

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IN

These incidents, from Azriel Aero Aviation, highlight some of the challenges that come with working in the aviation industry in Africa, and the cost associated repairs.

Aircraft type: Cessna Caravan 208B Engine: Pratt & Whitney PT6A-42 turbine Value of aircraft at time of loss: $1.25 million excluding VAT Circumstances of accident: The aircraft was parked at Malakal airstrip in Sudan. Fighting broke out in the vicinity of the airport and a stray bullet hit the aircraft. The bullet penetrated the top skin of the aircraft but also the main spar and the lift strut spar bracket.

Repair costs: Recovery costs R410 707.70 Wing repair R488 192.30 Total cost R898 900 excluding VAT

EVE

ENT

Aircraft type: Cessna Caravan 208B Engine: Pratt & Whitney PT6A-42 turbine Value of aircraft at time of loss: $1.25 million excluding VAT Circumstances of accident: Whilst taking off from a game lodge, a Zebra ran across the runway and although the pilot managed to lift the nose of the aircraft the right horizontal stabiliser of the aircraft hit the Zebra.

Repair costs: Total cost R315 095 excluding VAT

Source: http://www.azrielaviation.co.za/examples.html

The new entrants to the market are, however, alone in their optimism for the insurance aviation sector, and the additional capacity and competition is making things tougher for the more established players. “It is a tough place to operate. When you consider that brokers generate commissions (as a percentage of premium), the aviation insurance market is flat, premium rates are at an all-time low, and we are still seeing more entrants into the market.

I believe due possibly to broader insurance industry issues, this may not change anytime soon. There is simply too much capacity with insurers both locally and overseas looking to generate more income and diversify their books,” reiterates Raath.

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JHB 46757

TOP TIPS Aviation insurers and brokers • Don’t go home early on a Friday. Everyone wants to amend their policy to fly here or there or add a pilot on a Friday, and often at 16h30. No, seriously… aviation insurance, like all insurance, is a service industry, and a broker cannot exist in these competitive times without providing a world-class service and product. – Debbie Ray, Airborne Insurance Consultants.

• Don’t chase premium income. It’s ego.

Pick and choose your clients and insurers carefully. It is relatively easy to write an account but not easy to manage it well. It is very administration intensive, and exposures are high. A client who doesn’t pay premium or an insurer who haggles over small claims is time-consuming and can occupy your resources, and that costs money. Build relationships for the long-term. – Specialised Risk Management (SRM) Aero.

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• Keep your eye on your business and your clients’ needs, and your primary focus off what your competitors are doing. If your client is ‘number one’, you will accelerate the development of the right structures, processes and solutions to meet your clients’ bespoke requirements. As a result, they will remain satisfied with you, and you will retain the client. Ultimately, this will continue to improve the perception of the entire industry in the eyes of owners and pilots, which should always remain our collective objective – James Perris, Geneva Risk Management Solutions.

• Understand the aviation business, preferably from a pilot or flying perspective. The latter will lead to a much better understanding of the risks and in turn, should lead to better advice – Dave Rijntjes, Airspace Africa Underwriters.

• Understand your clients, and what they do. Explain to them the difference between insurance companies and why price is not always the be all and end all. These differences become apparent at claims stage.

– James Godden, Santam Aviation.

• One good staff member is worth more than 10 mediocre ones. Do things differently - if you are doing the same thing as your competitor, there is no reason for a client to move their insurance to you. – Sean Raath, Specialised Risk Management (SRM) Aero.

• Always advise the client the best option and product with the best securities but if the client wants a cheaper option, make sure they are aware of the pitfalls of cheap insurance. Information and transparency is key. – Debbie Ray, Airborne Insurance Consultants.

JHB 46757

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Calibrated Christy van der Merwe

control

As the aviation insurance sector in South Africa continues to chart a course through prolonged turbulent market conditions, Santam Aviation MD, James Godden, emphasises that it is more important than ever to stick to strong underwriting principles and proactively mitigate risk as much as possible.

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with a keener eye and have to be certain before we take on a risk,” explains Godden.

Santam Aviation has the largest portfolio in the sector in South Africa and needs to ensure an acceptable claims ratio and sustainability thereof. “We have to constantly assess if we are moving toward an unacceptable ratio,” he adds.

Underwriting concerns Godden says the top underwriting concerns at present are continued low rates and little to no premium growth, as well as the overall lack of economic growth and perceived instability in South Africa. “The perception of the country is low at the moment. We need more tourism and mining investment – these are the people doing surveys and requiring planes.”

Santam Aviation has also seen an increase in claims over the last year and these are mainly caused by pilot error and attitude.

“We are here to pay legitimate claims,” assures Godden, highlighting that proper claims processing helps Santam Aviation retain clients.

Ensuring an even spread of risk and a diversity in the type of aircraft covered also assists when it comes to paying claims. Godden explains that certain aircraft, for example helicopters, are very expensive to repair and are often unrepairable. These costs have to be carefully weighed.

To illustrate, Godden explains that a private helicopter may cost two million rand and fetch a premium of between R60 000 and R80 000 a year. One would have to write up roughly 40 helicopters to make up one total loss in such an event. And of course, the size of the South African market is limited, with approximately 10 000 insurable units in total in the country.

I

nsurers and underwriters gain tremendous insight into the state of the aviation industry, particularly from claims data and are uniquely placed to advise and encourage upfront risk mitigation among clients.

“We constantly study claims,” says Godden, noting that the company grows to understand problems that emerge with particular aircraft, when the most dangerous flying times are for pilots, or which engine types seem to be failing more than others. Underwriters also learn important maintenance tips of the trade and where is best to hangar your plane. This knowledge can be valuable for clients and insurers.

“With rates having dropped as low as they are, we scrutinise every risk thoroughly. Things were never very lax, but we now look at everything

One of the biggest changes in the market over recent years has been the increasing number of light sport aircraft in South Africa, and this contributes to portfolio diversity.

“Light sport aircraft now make up about 30 per cent of our portfolio,” says Godden.

They are growing in popularity as they are an increasingly advanced, affordable form of aviation.

With this increase in popularity of aircraft among recreational flyers, it is important to ensure the standards of pilot training are maintained.

Training and technical Indeed, beyond just the light sport aircraft market, Godden says there is a need for improvement of training in the aviation industry. The South African Civil Aviation Authority (SACAA) has also highlighted this as

an area of concern and the insurance industry is working in collaboration with the CAA to improve matters.

Training is essential when it comes to the vast array of technological advances in the industry. Improved weather detection, meteorological and navigation systems make things safer in the sky, however, the downside is that this can also make the cockpit an evermore distracting place.

“In days gone by, pilots had to know how to use a map book and a compass, and had to learn to navigate and draw up a pre-flight plan. Now, GPS and advanced systems make flying a lot simpler, but, of course, there is the danger that people become too reliant on this,” cautions Godden.

Claims data also shows that after about 100 hours flying time logged, the likelihood of a ‘fender bender’ type accident is higher, seemingly because pilots become more confident and relaxed. After approximately 300 hours of flying, the pilot is significantly more experienced and could potentially benefit from a lower premium.

Beyond the spotlight on training of pilots, Godden says there is also a need to ensure adequate training of underwriters and brokers in the aviation industry. Often the lack of available time and economic reality means that the resources to invest in proper training are not available. This is true across many businesses and sectors, however, proper training should be prioritised.

Product development Godden reiterates that aviation is a constantly evolving industry and conditions keep getting tougher, but the company is working to mitigate risks.

In terms of product development, Santam Aviation has developed a product for engine breakdown of piston type aircraft. “It has been developed with Dennis Jankelow and Associates and was created because we saw a gap in the market,” he adds. The underwriting management agency forms an important part of the greater Santam portfolio and allows the insurer to offer a thoroughly diversified offering, says Godden.

Santam Aviation fits in well as part of Santam’s seamless cover product, which covers engineering, marine, bonds and guarantees risks. The product adequately and simply covers an entire large-scale project at different levels of progress and the aviation portion of this addresses flight risks. As more business takes place further into Africa, the aviation challenges of hostile weather, dense vegetation, infrastructure issues and conflict require the application of solid underwriting principles.

45

The sky

is the limit Aviation liability cover Christy van der Merwe

Liability cover is regarded as the most important aspect of an aviation insurance policy.

Consideration of pain and suffering, wrongful death, or loss of earnings of a high-net-worth individual as a passenger in an aircraft, can be multiplied by the number of passengers, and can be a frightening thought for operators in the aviation industry.

A

dd to this the potential of property damage or bodily injury claims to persons outside of the aircraft that might result from this same accident, and the consequences can be dire. “We have seen a definite increase in liability claims from passengers, particularly from most of our charter operators working in the tourism industry. The potential legal liability for bodily injury or property damage claims arising from

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an aircraft accident are extremely difficult to predict; and at claim stage the quality of the underwriter and the amount of cover should never be underestimated,� explains Specialised Risk Management (SRM) Aero MD, Sean Raath.

He adds that there is no definitive method available to determine the appropriate liability coverage limit, and while there are methods for brokers to assist clients to determine

amounts, generally it is best to buy as much cover as is affordable.

Dave Rijntjes from Airspace Africa Underwriters confirms that liability cover has always been important, but says there is a lag between limits that will offer proper protection and what is being considered by owners and operators of aircraft as being adequate.

Many commercial operators carry foreign

tourists including Americans, European and Japanese passengers, with many having prebooked their holidays including local transfer flights. As a package deal, these flights may be subject to successive carriage governed by international law and awards made in foreign territories. “But even in South Africa, the number of liabilities claims and awards are outpacing policy limits,” he says.

“This in turn will determine the maximum size parameters of aircraft permitted to operate into and out of the said airport and which will in turn determine the level and nature of liability cover required. Consideration must also be given to the frequency of flights, the nature of these flights and origin of the flight and air traffic control availability,” adds Ranger.

Aviation liability cover is offered on a wide range of legal liabilities associated with aircraft operators or owners, aerodrome operators or owners, maintenance and repair companies, air show organisers, aviation product suppliers, manufacturers, avionic software suppliers as well as service providers including refuellers, caterers, security screeners and the like.

“Imagine too, the potential for liability exposure to the aircraft repairer whose faulty workmanship could have potentially devastating consequences to third party property and passengers. Or the destruction that a hangar fire could cause and the effect that this would have on the operator providing the third party hangarage,” reiterates Ranger.

Specialist underwriter, Carly Ranger from the Aviation division of Infiniti Insurance explains: “Unlike aircraft hull insurance, which is a known quantity, aviation liability is the unknown.

Careful consideration must be given to the limit of indemnity that is purchased. It is not a onesize fits all. Cognisance must be given to the type of licence as the aerodrome operator or owner will largely be governed by the category of their operating license.”

She says that operators or owners of aircraft should consider the size of the fleet operated, the type of aircraft in operation, the seating capacity of the aircraft, the take-off weight of the aircraft as well as the prevailing legislation in the areas of operation, as these factors help determine the prescribed minimum liability limits for both passengers and third parties alike. However, these are only some of the quantifiable determinants.

“We have yet to consider the ‘unknown’ and potentially the most onerous risk to the operator – enter the passenger! It is highly recommended that the operator pay consideration to the ‘profile’ of their passengers – their nationality, whether they are high-net-worth passengers, and where they will be travelling? Were the tickets purchased locally or abroad, and was this through a foreign tour operator?” questions Ranger.

Ranger highlights that passengers are becoming increasingly litigious, and personal damage awards are paying out higher levels of compensation. With consumers afforded better protection under the Consumer Protection Act (operators may no longer contract out of liability), coupled with operator’s increased exposure to international liability through the ratification of passenger conventions – the most notable being the Montreal Convention – you do not have a pretty picture, says Ranger.

“I would caution that when it comes to purchasing liability, enough is quite simply not enough and brokers should choose an insurer that can give the capacity needed for peace of mind,” Ranger concludes.

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47

YOUR PARTNER IN REINSURANCE The mighty Oak is a symbol of courage and power. Legend has it that it is the most powerful of all trees. The mighty Oak stands through all things

RISKSA chats to Gordon McKean, managing director of Oak Tree Intermediaries (Pty) Ltd

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Tell us about the beginning of Oak Tree Intermediaries.

Where do you see the greatest opportunities for growth?

I first got into Reinsurance around 1997 as a treaty underwriter with Hollandia (prior to this I spent roughly six years at three different insurance companies, in varying roles). In 2001, I joined Aon Re Africa to grow the life, health and accident portfolio in sub-Sahara, which (I’m of the belief) I did successfully.

Having cut my teeth there for eight-and-a half years, I decided in 2010 that the time had come for me to go on my own. There are not many reinsurance brokers in the market locally, and it’s an extremely specialised space to be in, but I had the expertise and the courage, and so I took the leap.

Growth outside of South Africa is a key area of focus for us. Geographically, we service the sub-Saharan region, including the Indian Ocean Islands. We also aim to grow our South African portfolio, and this will be done through visible marketing and world class client service.

Oak Tree officially opened its doors on 1 July 2010, with just two clients on the books. The company has now grown to a talented team of 10. We have five brokers and a full support team. We have grown the book to more than 20 key insurance clients, and in our last financial year, we grew our top line by more than 40 per cent.

Debbie Howard is the company’s financial director who also has a shareholding in the business. Debbie has in excess of twenty years of experience in finance and technical accounts, and is a fundamental part of the business. She joined the company in September 2010.

As a smaller brokerage, what differentiates your offering?

We are independent. This gives clients the freedom to talk to us about anything, without any conflict, as we do not handle any retail broking business whatsoever. We also make use of independent London based brokerages which allows us to give our clients’ access to specialist underwriters and their capacity, throughout the globe. In addition to this, and more importantly, we believe that service is our key differentiator. It’s all down to turnaround times, and exceeding clients’ expectations – going the extra mile!

Where are your specific areas of expertise?

Our initial niche/focus was life, health and accident classes of insurance, along with travel and entertainment, but after several requests from clients to move into other lines, we realised that we needed to diversify if we were to grow.

We are happy to say that we are in a position to offer reinsurance support in all classes of insurance – life, health and non-life. No job is too big for us either – and we are more than able to assist in all short-term classes, in

We have the technical expertise and knowledge of the African continent, so we are able to go the extra mile for our clients. We are already servicing clients in eight countries: Ghana, Lesotho, Mauritius, Mozambique, Namibia, South Africa, Swaziland, Zambia.

This is where we truly see our growth potential.

That said, we’re having an incredible year out of the South African market alone.

How do you decide where you place your business?

Gordon McKean, managing director

classes such as property, casualty, liability and miscellaneous accident.

Another area of particular focus for us is assisting underwriting managers (UMA’s) with their reinsurance arrangements and structures, either facultatively, or on the treaty side of things. Currently 88 per cent of our income comes from treaty business and facultative placements make up the remaining 12 per cent, though this book is growing rapidly.

When it comes to cell captive solutions, we are in a position to assist clients both from a South African perspective as well as feeding from Africa into Mauritius. Other off-shore captive options are also available.

What has been the single greatest contributor to Oak Tree’s success to date?

That would be our service offering, without a doubt. We pride ourselves in our relationships with both clients and reinsurers. There isn’t much we can’t do, and we are service-driven and client-orientated. That’s what we’re all about – delivery and getting the job done.

What does the future look like for Oak Tree?

We foresee a great growth opportunity. Our principle of client service and going the extra mile is what will help us get there. We look to entice great talent through the right incentives, and this will assist in the process. The future is bright!

We place clients’ reinsurance risk either locally in South Africa, in the African market, or we access the Lloyd’s market through our association arrangements with London independents – Tysers and Miller – and we ourselves are Lloyd’s approved. Once we have adequately assessed the client’s needs and their specific reinsurance requirements, we pinpoint the most suitable reinsurance market according to the class of business.

In the current environment, what are the challenges for brokers in the reinsurance market?

Over-regulation has to be the number one thing that sticks out. While we understand that the intention is to professionalise the industry, they need to be careful not to carry it too far.

Red tape and beaurocracy are passion-killers.

There needs to be a balance.

What are the challenges for your insurance clients; and how do you solve these?

Soft rates, price-cutting and over-regulating are a few things that spring to mind. There is no easy answer to any of these, but the market needs to pull together by getting rates back to acceptable levels, and the only way that this will happen is when markets take a harder stance.

Regulation has certainly made a lot more work for everyone, and to a degree even created jobs, but for the smaller player, it brings challenges, and possibly even provides a barrier to entry. My advice to the regulator would be that they need to try and avoid overdoing it.49

49

Rising

performer Dominic Uys

Aon Benfield’s Insurance Risk Study 2014 took a look at the growth, profitability and opportunities in the global insurance market. The study found that global premiums for 2013 stand at an all-time high of $4.9 trillion, driven primarily by growth in property and casualty and health markets. South Africa is among the top 16 countries in the study showing greater than 10 per cent growth and all indications are that opportunities will follow.

Dominic Uys

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China are newcomers to the high-growth out performer status.

T

he property and casualty sectors in South Africa collected approximately R110 billion ($10 billion) in premiums in 2013 and recorded a pay-out ratio of 87.6 per cent.

The RSA’s insurance industry was also found to be the highest ranking African country, ahead of Morocco and Nigeria.

Graphing performance Analysing each line individually, the study placed the 50 countries on a graph according to their performance.

“To measure performance, the first three quadrant plots use loss ratio for each line of business while the right-most plot shows combined ratio for all lines of business.

Each plot also provides the gross written premium size,” the study explained.

Growth projections for the next five years also indicated a further $1.6 trillion in global premiums by 2018. South Africa also features in the top quartile of the study’s country opportunity index, which ranks the desirability of doing business in the top 50 countries based on profitability, growth potential, and political risk. While the country was classified as a medium political risk, the projected growth rate for the industry in South Africa over the next five years stands at around 4.4 per cent.

A word about emerging risk Looking forward, the study also noted that one of the most significant emerging risks in the industry remains cyber and big data risks. “In the past year, cyber risk has come into the mainstream as a significant threat to businesses of all sizes. The Heartbleed bug exposed weaknesses in 17 per cent of the internet’s secure web servers.

Growth was determined based on five-year annualised premium growth. Countries with values greater than 7.5 per cent were classified as high growth. Loss ratio and combined ratio performance was determined based on five-year average loss ratio and five-year average combined ratio, respectively.

Both the frequency and severity of cyberattacks are on the rise. Attitudes are changing; businesses now see a data breach as inevitable: not if, but when.

Different sources count data breaches differently, but all agree there is an increasing trend,” the study stated.

Each country’s loss ratio performance was compared against its income level peers, and combined ratio performance is compared against the global combined ratio. Countries with five-year loss ratios lower than the average of their income peers, or combined ratios below the global combined ratio, are classified as out performers.

“Cyber coverage must evolve in order to meet the needs of buyers, and underwriting practices will need to evolve with it. Cyber underwriting is currently focused more on compliance with industry standard practices than on actual risk assessment.

And cyber risk still has an image challenge to overcome: often, it is seen by companies merely as an IT problem, not tied into the larger ERM framework.

The graphs revealed five countries that consistently proved themselves as good performers across motor, property and liability lines: China, Columbia, Ecuador, Indonesia and South Africa. Compared to last year’s report, both South Africa and

This suggests a failure by corporate risk managers to translate cyber exposure into a potential bottom line impact that executives can understand and manage,” Aon concluded.

51

For more information visit our website at www.europassistance.co.za or email info@europassistance.co.za

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BENEFITS THAT BUILD BRAND LOYALTY As a business we ensure our clients have the most current and relevant value-added offerings on the market.

You live. We care.

Summer! What a wonderful time of year – the warm weather is reason to celebrate and South Africans across the country are coming out of hibernation to fill up their calendars with a host of summer-loving drinks, parties and seasonal events.

It is also the count down to the end of the year, and the pace of life definitely gears up a notch as they tackle all the things on their to-do lists. It is a time when any offer of assistance earns respect and appreciation. As a business we ensure our clients have the most current and relevant value-added offerings on the market.

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our

“Our research and development efforts shows that consumers will actively seek out service options that provide peace of mind, convenience as well as the best value for money”, says Rouxlé van Molendorff, CEO of Europ Assistance South Africa. “Our wide range of value-added services– including travel, loyalty and lifestyle benefits - are tailored specifically to suit the requirements of your targeted customer base and are designed to make their world a simpler, healthier and safer place to enjoy. We understand the merit of convenience – Europ Assistance is a global leader in assistance services and recognised for providing customised care solutions across all of life’s circumstances. When we say ‘you live – we care’ you can rest assure we have your customers covered in every eventuality”.

The summer holiday season naturally see a cyclical spike in the usage of certain services, proving the value in this type of customer offering. Van Molendorff says “We are constantly innovating to deliver the most appropriate services to meet the needs of our diverse client base”. Some of our most popular benefits are detailed below: Safe summer socialising The rule of thumb if you are going to be consuming alcohol is to drink responsibly and not get behind the wheel. Europ Assistance SA makes this an easy call with Take Me Home, the designated driver service that ensures you always arrive home safely with the added convenience of having your vehicle safely driven home by a proficient service provider. Van Molendorff comments, “Through client demand, we have also extended the service to include Take Me Home Cab. If you have not travelled in your own vehicle but still require safe and reliable transportation following a long lunch or night out, you can take advantage of our cab service to take you home.” Both services provide members with a responsible, convenient and cost effective means of arriving at their destination safely.

To broaden the service offering, we have just launched Snapp Cab which is a service that allows members to book a cab service any time of day for any event and pay for the service via the mobile application on their smart device. Sophisticated technology allows the member

to have a view of the driver and vice versa 60 minutes before the appointed pick-up time.

Life’s about balance With everyone juggling hectic schedules and feeling the pressure of too few hours in the day, time is an invaluable resource. Europ Assistance SA’s range of Concierge Services is the perfect antidote to the overwhelming pace of modern life. Van Molendorff says, “We have made sourcing goods and services a convenient and effortless experience by truly understanding what client’s need. We have access to a network of an array of service providers and access to an indispensable number of products at preferential rates, saving valuable time and money”. Our service includes everything from planning special occasions, booking venues, sourcing gifts and so much more, at the best possible price through a contact centre as well as customised web and mobile channels.

The gift of convenience There is nothing worse than being stuck without a car and having no alternative means of transportation; even if it is for just one day. “Our solution to the inconvenient situation is our latest offering Vehicle Concierge.

This service was created to give clients quick and convenient access to transportation when their car is not available. “Customers find Vehicle Concierge very useful, particularly when their car is scheduled for a service or if they have been involved in an accident or their vehicle has broken down and needs to be towed,” says Van Molendorff.

These are just a few of the value added benefits available to enhance any product offering. We have consider all situations to provide clients with solution that guarantee convenience, gratification and real cost saving.

Europ Assistance SA has a long standing tradition of exceeding expectations in service delivery, celebrating 30 years in the value-added services industry this year.

With an external service grid of around 8 000 service providers driven through a partnership arrangement with five subsidiary businesses we are perfectly positioned to ‘take care of it’, whether it is the roller coaster ride to the end of the year, or any other time.

7

INSURANCE FRAUD

What to expect tomorrow a much better understanding that insurance fraud is, in fact, not a victimless crime. Doing nothing can affect customer confidence, which ultimately has a negative effect on both growth and retention.

Servaas du Plessis Censeo CEO

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he number of incidents, and the degree of deception involved in fraudulent matters may vary, but it is a common fact that insurance fraud schemes affect the margins of all insurers. In a tightly contested South African short-term and life insurance market, a united approach to prevent fraud has never been more important.

Participation by underwriters in a joint effort to stem losses due to fraud is, however, far from desirable levels with only a selected few in the different sectors joining hands in this fight.

There are many factors inhibiting insurers from joining hands in anti-fraud initiatives. One such factor is the unprecedented number of regulatory changes over the past decade. The variety of approaches to distribution, customer preferences and demand, as well as weather trends, severely stretch margins and add further complexities. It is fully understandable that these factors requiring attention occupy capacity, which moves collaborative anti-fraud initiatives down to the bottom of the priorities list for executives.

The pursuit of customer-focused growth and retention will probably always be the primary driver of most underwriters. Doing nothing about fraud is, however, no longer an option.

It is simply not sustainable for underwriters to subsidise bad with good risks. Customers and intermediaries are becoming more vocal about the effect of fraud on the cost of insurance, with

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The mentioned demands on underwriters require adaptability and flexibility, especially in terms of uniting efforts against unnecessary cost leakage, which include losses, due to fraud.

Similar to the use of analytics to underwrite previously uninsurable risks, some life insurers assess and re-assess health risks throughout the policy lifecycle and not only once at underwriting stage. In the short-term industry, underwriters focus more on when it matters during interaction at policy amendment, policy renewal or at claims stage.

It is unfortunate that fraud detection, in industries with limited information, is not high on the list of priorities of some of the major players in South Africa. Anti-fraud initiatives are primarily driven by the Association of Certified Fraud Examiners (a professional body), as well as the South African Insurance Crime Bureau (short-term insurance industry), but their efforts to unite all in the ongoing battle against fraud seems to be a continuous challenge.

The only way to build a sustainable advantage is not only to develop our own intelligence, but to join and benefit from intelligence derived from industry anti-fraud initiatives. There is a desperate need for the industry to start working together in breaking down information silos, as well as the existing barriers to entry. Ideally, the make-up of such an initiative should include players from all industries in financial

services – from marketing/distribution (direct/ intermediary), actuarial, claims, data and forensic science, legal etc. right through to management by a professional body such as the ACFE. New technologies provide brand new opportunities for the fraudster. Censeo has seen a drastic increase in the fabrication of digital invoices, identification documents and even death certificates over the past four years.

Technology is great, and it has transformed the business landscape for insurers. It also, however, holds true in terms of advanced technologies readily available to fraudsters.

Our strategy to assist in the management of insurance claims fraud risks is to understand the current operational limitations with manual processes. To remain relevant and effective, we have invested in technology to keep us a step ahead of the fraudster. Apart from pre-assessment segmentation analytics, the advances made in mobility allowed us to get involved in the development of several mobile applications, which will allow insurance fraud examiners and managers access to a modern fraud assessment tool. This will also add tremendous value in terms of the adaptation of new fraud management strategies and fraud risk assessments whilst maintaining quality and ethical standards.

Yes, new technology added new challenges in fraud detection, prevention and investigation, but it also created brand new opportunities. The investigative process will remain the same, but the technology will limit most common human errors, as well as the challenge in terms of sustaining the chain of evidence throughout the examination.

Gauteng | Alberton, Tel: 011 613 6161 ; Benoni, Tel: 011 421 1326 ; Bruma, Tell: 011 621 2700; Centurion, Tel: 012 661 1003 ; East Rand Mall, Tel: 011 826 6446; Edenvale, Tell: 011 452 1863; Germiston, Tell: 011 454 0240; Gezina, Tel: 012 335 0400 Honeydew, Tel: 011 678 3999 ; Jhb Central, Tel: 011 493 9911; Menlyn, Tel: 012 348 5007 ; Midrand, Tel: 011 312 1133 / 1162 ; Montana, Tell: 012 548 1414; Pretoria West: 012 327 7065 ; Rivonia, Tel: 011 234 3602 ; Roodepoort, Tel: 011 766-2588 / 2737 ; Sandton, Tel: 011 262 5704 Silverton, Tel: 012 803 7944/9903 ; Springs, Tell:011 811 3085; Strijdom Park - Randburg, Tel: 011 791 4292 ; Vereeniging, Tel: 016 422 9777 / 7564 ; Zambesi, Tel: 012 808 3720 ; North West | Potchefstroom, Tel: 018 294 5525 ; Rustenburg, Tel: 014 592 8101/8149 Mpumalanga | Middleburg, Tell: 013 243 2534; Nelspruit, Tel: 013 752 3832; Secunda, Tel: 017 638 1044/1413 Witbank, Tel: 013 692 5475.

Kwazulu Natal | Empangeni, Tell: 035 787 1627; Durban, Tell: 031 902 9534; Durban Central, Tel: 031 368 2108/9 ; Durban North , Tel: 031 579 5140 ; Kokstad, Tel: 039 727 3123 ; Pietermaritzburg, Tel: 033 386 4408 / 9 ; Pinetown, Tel: 031 700 1474 / 1659 ; Marburg, Tel: 039 682 3317 ; Free State | Bloemfontein, Tel: 051 432 7399 / 8409 ; Welkom, Tel: 057 357 1292/3 Limpopo| Tzaneen, Tel: 015 307 2262 ; Polokwane, Tel: 015 293 0982 Eastern Cape | Port Elizabeth, Tel: 041 368 8550 ; East London, Tel: 043 705 8400 Western Cape | Bellville, Tel: 021 949 0342 / 3 ; George, Tel: 044 878 2861; Maitland, Tel: 021 511 6449 ; Montague Gardens, Tel: 021 552 7058 ; Parow, Tell: 021 930 3227; Somerset West, Tel: 021 850 0096

5

Meyersdal tragedy

highlights construction concerns

The collapse of a structure in the Meyersdal Eco Estate in Johannesburg in August, which claimed the lives of seven construction workers, has reignited concerns among the insurance industry over slipping standards in the construction and engineering sectors in South Africa.

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onstruction and engineering underwriter Mirabilis’ CEO, Russell Myers, tells RISKSA that the lack of training and skills within the construction sector means that vital skills are not being transferred, across all disciplines.

He adds that compliance with safety regulations is often lacking, and this is compounded by the fact that local authorities should be undertaking regular inspections at construction sites, but the capacity for this is constrained.

The Meyersdal Home Owners Association (HOA) confirmed that seven workers were killed in the incident, and nine workers hospitalised.

“The Meyersdal Eco Estate along with Jurgens Bekker attorneys shall set up a trust for the families of the deceased.

The trust will accept donations from the public and will raise funds for several weeks, which will be distributed among the families of the deceased,” said the HOA in a statement.

The contractors on site, confirmed to be Romincon, were in the process of making alterations to the existing home when the collapse occurred. The National Home Builders Registration Council (NHBRC) sent a structural engineer and an inspector to the site to investigate and find the cause of the disaster.

The NHBRC will then decide whether it falls within the ambit of the Housing Consumers Protection Measures Act. The NHBRC confirmed to RISKSA that Romincon is registered with the council, although could not confirm whether or not the building plans had been approved, as this was done by the city council.

Charlé Halgryn, MD at sectional title and community schemes specialist underwriter Corporate-Sure (C-Sure), explained some of

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the risk considerations for an HOA, which is registered as a Section 21 Company governed by the Companies Act. Firstly, the HOA is responsible for insuring all common areas against damage and public liability, however, each of the individually owned properties within the HOA, must be insured by the homeowners at their own expense.

Secondly, says Halgryn, owners must get permission from the HOA if they intend to make changes that will affect the external structure of the building. HOA’s typically establish sets of rules and regulations for the complex and communal areas, as is the case with Meyersdal Nature Estate, which determines that only contractors registered with the NHBRC must undertake construction work within the Estate.

It also determines that owners/employers will, ultimately, be held liable for any damage or unreasonable disturbance inflicted on the Estate by the building contractor or any other party in his employ.

Insurance implications C-Sure explains that a number of insurance

implications would apply to those affected by this tragedy – firstly, at the property at which the renovations were carried out. The building contract will set out who has which obligation to arrange the various insurance policies needed. These include: construction works; public liability; and the existing property.

It is important to note that if the building plans were not approved and specific prescripts were bypassed, the owner and/or the contractor can be held jointly liable for causing the injuries and deaths.

HOA’s cannot control contractors’ safety habits, and negligence claims can easily end up in court. “While it might seem that in this tragic situation the HOA would not be liable for any damages related to the incident, survivors might sue the HOA if the contractor does not have insurance. Whilst HOA’s liability insurance will not defend or pay for work-related injuries or death, it is always recommended that the HOA purchase their own workmen’s compensation insurance to cover incidents similar to this,” says Halgryn.

Many people do not realise that HOA’s fall under the Companies Act, which can potentially

place huge responsibilities on the directors of the HOA for any misconduct or claim. This means that potential claimants can go after the HOA directors for compensation for any injuries or losses specifically associated with the common areas of the HOA. Hence, directors must also ensure appropriate cover is in place – which is available through specialist insurance providers, adds Halgryn.

Simon Colman, underwriting executive at Stalker Hutchison Admiral (SHA) notes that liability claims can run into millions of rands. “A recent engineering Professional Indemnity claim exceeded R50 million, highlighting the fact that a small building company could even face liquidation as a result of liability claims if no effective cover was in place.”

Colman explains that liability-based insurance cover responds to the threat of litigation and covers defence costs, as well as costs associated with damages. Due to the complexity of liability cover, it is important to try and control the insurance elements of a contract by using one broker, with as few policies in place as possible, to cover the entire contract, advises Colman.

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57

Engineering consultants:

c vering the liability risks Like any professional, consultants take out professional indemnity insurance (PI) to cover any negligence in the performance of their professional services. What, however, happens when the lines between the consulting services and legal advice begin to blur? Can a consultant rely on the PI to cover advice negligently rendered that is, by its very nature, legal advice?

Determining who is best placed to carry risk is one of the fundamentals of negotiating any contract in the engineering and construction industry. Employers, contractors, consultants and suppliers pit their respective negotiating powers against one another with a view to shifting risk from themselves, say legal experts from Webber Wentzel.

I

n an industry obsessed with assessing, managing and mitigating against risk, a blatant and very real risk seems to have passed unnoticed under the radar of participants in the industry.

At the early stages of most large-scale projects, employers and engineering, project management and specialist technical consultants meet to compile tender documents, the form of contract and the supporting technical documentation. Following this, each tender is generally adjudicated and a contractor is appointed based on the contractor’s response to the documentation prepared by the consultants.

Most often, a negotiation phase with the contractor predates the signature of the principal

agreements, after which the project proceeds on the basis of the agreed contracts. This simplified example of the contracting process is common to most participants in the industry, but it is during this period that employers and consultants may be exposing themselves to risks not contemplated in the negotiation process.

Here, the lines between engineering and construction advice on the one hand, and legal Dominic Uys advice on the other, can become blurred. The risk to the employer lies in the reliance placed on project contracts and documents that may be technically sound but legally challenged. The risk to the consultants is in their advising on, or their drafting of the project contracts and documents that is a task more appropriately entrusted to, or at least shared with legal practitioners.

Ordinarily, a consultant’s PI provides cover for claims arising out of negligence or error in the performance of the professional services. The professional services are more often than not defined in the policy, for example, professional activities and duties that the consultant is engaged or contracted to perform with regard to design, specification, technical information, management and supervision relating to a particular project.

This definition, in its various forms, may result in the consultant being exposed to liability for an uninsured claim if, in the preparation of or advice on contractual documentation, legal advice is intentionally or unknowingly rendered.

This begs the first question: how often do consultants actually advise on the legal aspects of the project contracts and documents? It is common practice in the industry for consultants to provide particular conditions to standard form contracts in order to assist employers and contractors in distributing risk during the negotiating phase of the project. Amending a standard form contract may expose the parties to legal risks, such as interpretation issues that may be caused by poor drafting.

The second question then is: why should the employer – and for the broker – be concerned?

The simple answer is that the result may be contrary to what was intended and the consultant may, for want of the required legal qualification and skill, be without PI cover.

Brokers would do well to advise employers and consultants to call in the lawyers at an early stage, to perform the legal professional services required in relation to the project contracts and documents.

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ML MEDICAL

Ebola Risks, responses and reality As the largest outbreak of the Ebola virus in history continues to spread across West Africa, it is easy to get caught in the panic, fuelled in many cases by media hype and fear mongering headline antics. While the disease and tragic loss of life associated is all too real, it is important to keep the risk in perspective – and not to miss the fact that the real culprit here is broken healthcare systems.

Sarah Bassett

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T

hough first discovered in 1976, the recent outbreak of the Ebola virus is the largest to date. With more than 3685 probable, confirmed and suspected cases of infection and 1 841 deaths (at the time of writing) the virus is disrupting communities and economies in Guinea, Liberia, Nigeria, Sierra Leone and most recently the Democratic Republic of Congo and Senegal.

“There are at present no Ebola cases reported in South Africa and there is no need for South Africans travelling to, or working in countries that have experienced Ebola outbreaks to be unnecessarily alarmed. Those working in and travelling to impacted areas should however take the necessary precautions to prevent contracting this disease,” says Dr Pete Vincent of Netcare Travel Clinics and Medicross Tokai Family Medical and Dental Centre.

Despite the low risk of infection for travellers emphasised by the World Health Organisaiton (WHO), the South African Government has advised travellers to avoid all non-essential travel to and from Liberia, Guinea or Sierra Leone. “Where travel is absolutely essential, permission must be obtained from the relevant authority,” says South African Airways spokesperson, Tlali Tlaliti.

Until further notice, all travellers to these highrisk regions must obtain written permission directly from the National Department of Health. The restrictions do not apply to any other parts of West Africa, however, and while the media has been guilty of spreading much hype and fear, the medical fraternity continue to stress that with basic precautions, the risk of travel to these areas is negligible.

Critical to maintaining calm is to understand

that Ebola is not airborne, and therefore not as easily spread as viruses such as flu.

Transmission between people occurs as a result of direct contact with blood or other bodily fluids from infected humans. Though it does have a high mortality rate, often quoted at 90 per cent, Charlie Maclean-Bristol, director of training at Business Continuity Training, emphasises that this improves greatly with early treatment, which can reduce mortality to 30 per cent.

“The risk of infection with the Ebola virus is extremely low, even for travellers visiting areas where cases of Ebola have been reported.

This is because contraction of the virus occurs through direct contact with the blood, secretions, bodily fluids or organs of infected individuals or animals (living or dead), which is highly unlikely for the average traveller,” adds  Dr Vincent.

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Understanding the virus According to Dr Vincent, “The Ebola haemorrhagic fever is a severe, acute viral illness usually characterised by fever, muscle pain, headache, a sore throat and intense weakness. The disease then progresses to diarrhoea, vomiting, a rash, impaired kidney and liver function, and internal and external bleeding, and is often fatal.” The Ebola virus has been found in both humans and animals such as bats and primates. You can only contract the virus through exposure to the blood, organs or bodily secretions of infected individuals or animals; the virus cannot be passed on merely by being in the same vicinity as someone with the disease.

Ebola outbreaks are believed to originate from contact with the blood or bodily fluids

diarrhoea

of infected animals, for example, when hunters come into contact with infected dead animals, or when handling the raw meat of infected animals. Once a person in a community contracts the disease, the Ebola virus can spread to other individuals if they have exposure to the blood or bodily fluids of the infected person.

Travellers should take note of the following: • Practise careful hygiene.

• Avoid contact with blood and bodily fluids of other persons.

• Do not touch items that may have come into contact with blood or bodily fluids.

• Avoid burial rituals which involve handling the body.

• Avoid contact with animals or raw meat.

• Get medical care immediately if you develop fever, a sore throat, headache, a rash, diarrhoea, vomiting, aches, stomach pain or red eyes.

• Monitor your health after you return from an area with an Ebola outbreak. If you do develop the above symptoms, be sure to inform your doctor about your recent trip and symptoms before you go to the doctor’s rooms or hospital. The doctor will need to take certain precautions to ensure the protection of others.

• Do not panic if you present with any of these symptoms; remember that the likelihood of you contracting Ebola is very low. Also be aware that the symptoms of Ebola are the same as many other infections, including flu viruses, malaria, dengue fever, typhoid fever and Lassa fever.

“It is also important to note that, after contracting Ebola, it can take up to 21 days to show symptoms of the disease, although eight to 10 days is more common. Until a person exhibits symptoms, they are not contagious, so you don’t need to be concerned about getting the virus from apparently healthy individuals. There is also low risk of spreading the infection in the early stages of the illness,” Dr Vincent advises.

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Insurance concerns “Currently, a travel insurance policy can be purchased to cover a traveller who becomes infected with Ebola. However coverage can change if contracting the virus becomes expected or ‘foreseeable’,” notes Gordon McKean, managing director of reinsurance brokerage, Oak Tree Intermediaries. “As events unfold, updated position statements are and will be added by underwriters issuing statements related to Ebola, whereby one stated that they cannot guarantee that they would be able to provide evacuation/repatriation policy benefits in all circumstances, and the other was claiming ‘business as usual’.”

“Marsh has developed specific travel products with select partners, who have to date not expressed a need to restrict Marshagreed products in respect of the virus or the geographical territories the products cover.

Consequently, all travel policies through Marsh South Africa stand and will respond to the needs as expressed at the time of purchase,” says Carel van der Merwe, managing director of Marsh Commercial Practise.

Medical aid schemes canvassed all confirmed that provided travel is covered in the terms of a member’s policy, and in-hospital treatment for  Ebola would be covered.

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A note for business Tracey Linnell, general manager of advisory services at ContinuitySA, comments that the outbreak should serve as a wake-up call to companies to get pandemic strategies in place as part of their business continuity management plans. “Companies need to look at the current Ebola outbreak and what risks it poses to business and employees, and put protocols in place now. At the same time, they should make sure their overall approach to pandemics is in place.”

“The first step is to have clear guidance for staff travelling to the region or for staff based there. In-line with WHO guidelines, it is not necessary to restrict all travel to these regions, as the method of transmission means the risk for travellers is very low,” David Hutcheson, managing director of business continuity consultancy, Glen Abbot. Companies with employees who travel into the region or that have business relationships in West Africa need to be sure they are educating staff about symptoms and are monitoring the health of atrisk employees. Companies also need to have a plan for getting employees out of countries they might be visiting if borders are closed, Linnell adds.

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• If an employee becomes sick in any affected country and has symptoms similar to Ebola (i.e. malaria), it may prove more difficult than usual to travel regionally or internationally for medical treatment. If an employee does happen to fall ill while traveling, avoid medical facilities treating Ebola cases.

• Authorities could close down borders to combat the disease, thereby stranding employees in the country.

• If an employee does travel to a suspect area or come in contact with a suspect person or contaminated object, they should monitor their health and seek medical attention if they feel sick (fever, headache, achiness, sore throat, diarrhoea, vomiting, stomach pain, rash, or red eyes).

“There is a host of risks consequent to a pandemic; so the best advice is to speak to a qualified intermediary,” van der Merwe adds.

Some practical issues include: • Cost of cancelling trips as a result of a travel-ban.

• Emergency evacuation cover when colleagues or family are stranded as a result of flight-cancellations.

• Adequacy of medical cover, should there be a need to be hospitalised.

• The restrictions imposed on territorial limits needs to be carefully considered. Not only because of the trip-plan but also diversions in the case of airlines that are obliged to divert flights.

A disease of broken healthcare The WHO suggests that as many as 20 000 people may become infected with the virus by early next year and has declared the situation an international public health emergency. In many cases, however, hyped media coverage has made it easy to miss the fact that this is a disease that could be easily contained within the context of a functioning and well-resourced healthcare system. This is yet another example of why investment in the development of robust and functioning healthcare systems should be a global concern and priority.

FEDH2729RSA/2 The Cheese Has Moved

Marsh Risk Consulting, the global risk division of Marsh, has provided organisations with a checklist for prevention and mitigation of Ebola risk for employees travelling or working in affected countries: • Monitor developments via the websites of the WHO, Centre for Disease Control, your national health authority, and local health authorities.

• Educate yourself and employees about Ebola’s transmission and infection-control measures.

• Unless it is business-critical, consider curtailing travel to affected countries or locations.

• Employees considering travel to affected areas may want to reconsider their itinerary or plans, especially if they are ill immediately prior to travel dates.

• Employees in an affected area must avoid high-risk activities such as contact with ill people or the bodies of people who have died from Ebola, with sick or dead wildlife, or with bushmeat.

• Pay strict attention to hygiene. Employees in affected regions should frequently wash their hands or use hand sanitizer, avoid touching their face, and avoid close contact with an obviously sick person.

• Be aware that screening and isolation measures are already or may be put into place, particularly following the WHO’s recommendation that countries affected by Ebola conduct exit screenings at international airports, seaports, and land crossings. Any travellers suspected of being sick or in contact with an infected person could be quarantined.

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9

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The great

demarcation Since being published, the second draft Demarcation Regulations have been deemed premature, unwieldy, discriminatory, unconstitutional, and detrimental to the majority of South Africans who cannot afford medical aid. Health insurance policies have been painted as the enemy to the social solidarity principle that govern medical aid schemes. So who is right?

Melissa Anne Wentzel

T

he Council for Medical Schemes (CMS) has confirmed that over 400 responses to the second draft Demarcation Regulations were received by the Financial Services Board (FSB) and National Treasury at the close of submission for public comment on 31 July 2014.

The purpose of the second draft Demarcation Regulations is to clearly define the business of health insurance policies (specifically gap cover, hospital cash plans, and primary health care policies) from the business of a medical scheme as regulated under the Medical Schemes Act. (MSA) “The revised draft recognises the role that appropriately designed and marketed health insurance policies can play in meeting the need for protection against unanticipated health events; however these products must operate within a framework whereby they complement medical schemes and support the social solidarity principle embodied in medical scheme cover,” says the explanatory memo.

In sickness and in health They say that when two elephants fight it is the grass that suffers; as is the case with the impact

on consumers of the ongoing debate between health insurers and the medical scheme sector.

The conditions proposed on health insurance products aim to protect the sustainability of the medical scheme industry while at the same time serving the needs of those who require additional protection against health related risks.

The issue that health insurers have with the regulations in their current state is that the vast majority of the South African population cannot afford medical scheme contributions and have now gained access to private healthcare through products like primary healthcare insurance policies.

If these types of policies, that offer day-today care like doctor’s visits and prescribed medication, are outlawed it throws these lowerincome individuals back into the morbidly overburdened public health sector.

“The insurance industry is able to offer dayto-day care at a third of the cost of medical schemes. Health insurance gives families with up to five children access to preventative health care for under R500 per month,” says Steph Bester, CEO of The Unlimited Group.

Butsi Tladi, managing director of Alexander Forbes Health, touched on the heart of the issue on a recent CNBC broadcast when she asked: “Should we protect medical scheme members who make up 17 per cent of the South African population at the expense of many other people that could access alternatives?”

“The reality in South Africa is that less than 20 per cent of South Africans are on medical aid and the reason for that is that less than 20 per cent of South Africans can afford to be on medical aids,” says Bester. “These regulations, if they are passed in their current form, are going to come at the cost of the other per cent of the population that will be impacted that currently make use of health insurance products to get some form of benefit.”

According to the memo, the regulations propose the following conditions on health insurance products: • prohibition on health insurance policies from discriminating against any person on the grounds of age, gender, and other criteria; • enhanced product disclosure/marketing requirements; • alignment of broker commission between health insurance and medical  scheme products;

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• enhanced regulatory reporting and monitoring; • product standards which limit policy benefits; and • limitations on bundled type health insurance products which replicate medical schemes.

Director of insurance at the National Treasury, Dr. Reshma Sheoraj, says Treasury acknowledges structural issues within the medical schemes environment with regard to affordability, but she says that health insurance policies that are doing the business of a medical scheme, enticing younger members away from medical aid schemes with lower premiums, are further exacerbating the problem.

“If you allow open competition between medical schemes and health insurance, in the absence of a constructive framework, you undermine the existing framework for medical schemes,” argued Dr. Sheoraj in a live debate with Bester on Power FM in August.

“In essence, the problem becomes: everybody gets old. If you have insurance that only targets the young and healthy then none of us will have health cover when we’re older,” says Professor Alex van den Heever, health economist at the Wits School of Governance, during a recent radio interview on 702 Talk Radio.

Pointing out some of the structural inadequacies in the medical scheme system at the recent

Board of Healthcare Funders (BHF) conference, Insight Actuaries head Christoff Raath highlighted that medical schemes struggle to pay for the mandatory prescribed minimum benefits (PMBs) because there was no Risk Equalisation Fund (REF) implemented, which was supposed to balance those costs. He adds that if there was an equalisation fund in place, “this would force schemes to compete on grounds other than trying to attract young and healthy members.”

Caught in the crossfire Chris McCallum, director of Zest Life, doesn’t believe that gap cover undermines the social solidarity principles that govern medical aid schemes; and explains that it is sold as a topup to medical aid. “The only time gap cover would undermine these principles is if it caused members of medical aid on high options to downgrade to cheaper plans,” says McCallum.

“I have not seen evidence of gap cover causing someone to downgrade their medical aid.” McCallum says that the reason people belong to a medical aid is because of the comprehensive benefits.

While gap cover providers have largely fought their corner in this debate, it is hospital cash plans that have drawn much criticism from medical schemes. At the recent BHF

conference, both long-term insurers and medical schemes highlighted that there is a problem with fraud among hospital cash plans.

“While there is a need for these products, there is a lot of abuse. Our research has shown that people with hospital cash plans go to hospital five times more often that those without, and they stay in hospital 40 to 60 per cent longer,” says Discovery group forensic services head, Marius Smit.

Fraud on the hospital cash plan front causes medical schemes to lose up to 10 times more than long-term insurers, adds Smit. This is because while the hospital cash plan will pick up a portion of the hospital tab, the medical scheme is left to pay the rest. McCullum does not see the benefit of the proposal to align the commission of gap cover products (20 per cent of monthly premiums) with that of a medical aid (three per cent of premiums plus VAT). “I can understand the alignment of commission on a competing product, but gap cover doesn’t compete with medical aid.

I don’t understand the logic at all in making the commission on gap cover the same as a medical aid. We’re not comparing apples with apples; medical aid premiums are (anything from) R1000 per month whereas gap cover is between R100 and R200 per month.”

Tladi, in commentary to the second draft regulations, urged Treasury to review the conditions related to commissions, policy benefit limits, and underwriting and waiting periods which Alexander Forbes Health regards as, ‘unworkable and potentially harmful to the viability and sustainability of gap cover in their current form.’

“In applying these commission levels to the Alexander Forbes Health client base, as an example, annual revenue from gap cover policies would be expected to reduce by approximately 85 per cent,” she says. She emphasises that the impact to their business could potentially result in the retrenchment of 14 per cent of their representative consultants.

Regarding the reduction in the rand limit on claims paid out from an average of R250 000 per member per annum to R50 000, McCullum says the average gap cover claim they receive is around R5 000, but claims are sometimes as high as R80 000 to R100 000 for certain procedures. His concern is that these individuals would not have been able to have these procedures without gap cover.

A cardiac bypass surgery, for instance, will cost you more than R60 000 – and that’s before the anesthetist’s bill arrives.

McCullum highlights the real problem of affordability of health care in South Africa as being the shortage of medical specialists.

“There is a shrinking group of aging specialists

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in South Africa and a high demand for their services; so they are charging accordingly which is a substantial amount above the (medical schemes) tariff.”

Up in the air “When these (health insurance) products are under the framework of the CMS will they still be charged at the same prices? Are customers going to have to pay more for the same benefits? Will they still be able to access the benefits that they have on the products right now?” asks Bester.

“There are definitely discussions under way between the Department of Health, Treasury and the CMS to look at how the affordability issue in the medical schemes environment can be addressed comprehensively,” says Dr. Sheoraj. “I understand from the CMS that current providers of these (health insurance) products are actually approaching them to register as low-income or low-cost medical schemes and the council is willing to adopt a very inclusive approach and relaxing certain requirements within the MSA framework to allow these products to exist. So it’s not true that they’re going to be banned… it’s just a question of which framework,” she adds.

Elsabé Conradie, head of stakeholder relations at the Council for Medical Schemes says: “CMS

is considering how policyholders affected by the regulations can be accommodated, since the current Medical Schemes Act 131 of 1998 does make provision for exemptions, considering for example the existing bargaining council schemes.”

Deferring Demarcation A number of health insurers, among them The Unlimited Group and Alexander Forbes Health, have requested that the final regulations be held off until the conclusion of the Competition Commission’s Market Inquiry into the private healthcare sector has been conducted. They feel that the finalisation of draft regulations would be premature before the findings of the Competition Commission are released.

One of the issues listed in the Competition Commissions Market Inquiry’s draft statement is the inquiry panel’s wish to understand the nature of competition among medical schemes and other providers of health insurance in the South African market and the impact this has on the affordability and quality of products that consumers purchase.

The deadline for the completion of the inquiry is November 2015 and the outcomes could result in the regulation of private healthcare pricing.

The final draft Demarcation Regulations are to be published by November 2014.

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of d ar HF) e o l B rs (B renc a u e e nn und onf a h c t 5 re F can 1 e ca ri Th alth n Af He ther u So

An ocean of opportunities Dominic Uys

The 15th annual Board of Healthcare Funders (BHF) Southern African conference, held at the Durban International Convention Centre in the last week in August saw overarching themes of enabling cooperation between the public and private healthcare sectors. Discussions at the conference ranged from the rising cost of hospital care to prescribed minimum benefits and fraud within the industry.

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HF managing director, Dr Humphrey Zokufa opened the conference with a call to the private healthcare sector to examine ways in which it can expand coverage to all working people in the country.

“As the representative body for medical schemes, we believe that key reforms are required in the private sector for it to be able to offer lower cost medical aid and thereby support government’s efforts for universal coverage of affordable, quality healthcare,” Zokufa said.

Dr Rajesh Patel, head of benefit and risk at the BHF tells RISKSA that the conference also paid much attention to the topic of managed care. “The thinking that we want to promote throughout the industry is that we need to move from a mind-set of money management to one of buying value. Currently, in this industry we collect about R130 billion. We spend about R100 billion in claims. The question should be whether we are buying adequate value with that money. Would we be able to get better value for that claims money?” he starts.

“This is an agenda that we need to start pushing in the industry. Medical schemes are currently perceived as a bottomless pit. Money flows in and it is often unclear what members are getting out of it. We need to start showing value for that money so that members can understand what they are paying premiums for,” Patel continues.

“The BHF conferences have had positive feedback over the past few years, and I do believe that we have managed to make each year’s conference extremely relevant to the issues of the day,” he adds.

Discussions around the Competition Commission’s enquiry into the private healthcare sector; the debate on the demarcation between health insurance policies and medical schemes; strategies for navigating the changing healthcare technology landscape; regional initiatives to promoting access to affordable healthcare in the SADC regions; and emerging trends in healthcare fraud were also on the roster for the event.

SADC in the spotlight Part of the conference was also dedicated to the challenges experienced by the Southern African Development Community (SADC).

“Bear in mind that there is a lot of cross-border healthcare taking place between South Africa and its neighbours. There are many cases where scheme members in other countries come to South Africa for treatment. The billing and claim problems that we experience in South Africa affect these countries as well,” Patel says.

Dennis Alexander, CEO of Botswana-based BOMaid, says that the conference provides a solid platform for growing the issues around healthcare in the Southern African region. “In the past, the BHF tended to focus very much on issues pertaining solely to South Africa. Over the last two years, however, there has been a shift towards issues that are very relevant to the broader community. We are all grappling with issues of access to healthcare, service availability, costing and quality,” he says.

“I believe that we all need to focus on finding the opportunities that these issues could

present. I think that one of the indicators right now, especially in the Southern African region, is the fact that specialist intervention is required in the healthcare system. We urgently need to start looking at means to become more efficient in terms of delivery,” Alexander continues.

and economics for the investigator. Lavelle has a wealth of experience in syndicate-driven medical fraud, having conducted numerous investigations during her time with the Federal Bureau of Investigation (FBI), in the United States.

Fraud under the microscope The so-called ‘bottomless pit’ perception that Patel links to medical schemes also attracts an undesirable element in terms of medical aid fraud. South Africa is not unique in this regard and the conference also attracted some international attention relating to the subject.

“It really is fascinating to hear from our comrades in other countries about the types of problems that they are dealing with. We share many commonalities, and the conference offers opportunities to partner with other countries when it comes to global issues such as counterfeit medicine and organised crime in healthcare,” she tells RISKSA.

Alanna Lavelle, director of enterprise investigation for US-based WellPoint, spoke about emerging trends in healthcare fraud

“There are trends that have started to develop across the African continent, such as counterfeit HIV and oncology pharmaceuticals. I believe

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that this is where international speakers can offer a lot of value since we’ve already been dealing with the same issues for a number of years” Lavelle says.

Lavelle points out that there is also much that the conference can teach the international community. “Now that we have developed these relationships between South Africa, the US, Australia and Great Britain, we have formed an international partnership that allows us to better exchange information relating to fraudulent activity. The conference not only helps us to re-establish these relationships, but we are also very interested in finding out more about what has been occurring in South Africa.

Because South Africa’s healthcare industry is so developed, I am always interested in comparing notes with the other speakers at the conference,” she says.

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Establishment of an essential drugs list

Wi peo reh une are they

One important development that came out of the conference, was the announcement that the BHF and the Department of Health (DoH) would begin to compile an essential drugs list (EDL) for the different levels of care, in order to rectify the skewed advantages of certain pharmaceutical companies currently operating. The process would require that economic evaluations on healthcare products be conducted in partnership with the private healthcare sector.

Gavin Steel, chief director of sector-wide procurement in the DoH, also weighed in, stating that the creation of an EDL is expected to reduce the cost of medicines and address issues around safety and efficiency. It would also result in a seamless transition to the way medicines will be prescribed in a National Health Insurance (NHI) system.

“Cooperation between government and the private funding industry is expected to also address attempts by some pharmaceutical companies to create discord between the two sectors, as part of their marketing strategies,” he said.

Draft legislation aimed at outlawing inducements, such as data fees in the pharmaceutical industry, had already been published, and Steel pointed out that this

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was expected to neutralise the competitive advantage of some pharmaceutical companies in getting their products on medical schemes’ formularies.

Advice on public private partnerships Input on how to establish partnerships between public and private sectors also came from abroad, with Lord Nigel Crisp, a member of the House of Lords and the former CEO of the national health scheme (NHS) in the United Kingdom, emphasising the importance of building strong relationships between the two sectors, as well as a coalition of leadership on all levels of healthcare delivery.

“Getting the relationships right is more important than getting the policy right,” Crisp said. He conceded that it was not an easy process because of the fundamental differences in the thinking of the private and public sectors.

“In the UK, it took many years to convince the government of the value and benefits

of involving the private sector to assist in addressing the many challenges the NHS were facing, such as long waiting lists and a decrease in the quality and accessibility of services,” he added.

Crisp pointed out that the private sector was initially reluctant to get involved until South Africa’s Netcare was brought in to provide some services to the NHS and showed that it could be done successfully without increasing costs. This, according to Crisp, changed the whole ball-game in convincing the private sector to get involved, resulting in the NHS becoming the biggest source of income for private healthcare providers.

“Although a frustrating process, we need to get everybody at every level on board and stop the tendency to blame others for the problems in the system. You need a vision and a plan.

You need the outcomes of that plan to be measurable, while at the same time ensuring that all role players know where they fit in and are receiving the support that will allow them to provide a better service,” Crisp concluded.

omms 08.2014 L7370

Zokufa told delegates that the DOH had already compiled a blueprint on how to partner with the private healthcare funding industry.

“The results of these evaluations won’t be enforced but will be treated as an objective tool that can be used as a departure point for fairness in benefits design,” he said. He indicated that a board composed of public and private healthcare professionals would be appointed for the evaluation process in the near future.

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The BetterBusinessBreakfast

Just what the

doctor odered

With medical schemes in South Africa increasingly under pressure, the recent RISKSA Better Business Breakfast offered attendees some perspective on the state of the medical insurance industry, as well as useful information on how to better service clients.

Dominic Uys

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T

he event, sponsored by Fedhealth, was held at the Wits Medical School in Johannesburg in late August.

Presentations by three attending industry experts ranged from profitability and opportunities in the sector, to the current challenges for medical aid schemes in the country.

Peter Jordan, principal officer at Fedhealth set the tone for the morning’s discussion by noting the importance of increasing medical schemes’ membership among younger, healthier clients. This was echoed by Kristin-Ann Cronjé, chairperson of the Alexander Forbes junior board, who pointed out that the average age for some medical schemes may be as high as 38 years. “For each year a scheme ages, we expect claims to increase by more or less two per cent,” she states.

Robert Wilson, director at Dave Wilson & Associates, highlighted the importance of service level agreements between broker and clients (both individual and corporate).

“Making clients aware of their responsibilities is becoming paramount. Members need to read the material available on the schemes that they are part of, so that they can be aware of whatever potential changes there are year on year. The broker’s job is to assist them in understanding those changes,” Wilson says.

On the concept of member activism, Sibonelo Cele of the CMS said it is imperative that medical scheme members become more cluedup on the schemes, and actively participate as he has seen worrying trends emerging.

“Member apathy seems to be on the increase and as brokers, we need to work against that,” Wilson opined.

They should be used as an indication whether your client should be advised to stay or withdraw from the scheme,” Wilson continues.

“When Cronjé spoke, she also focused on solvency. Sibonelo Cele also touched on it, and we all had an opportunity to view this issue from a broker, actuarial and Council for Medical Schemes’ perspective.”

Service level agreements At the breakfast, Wilson also raised the issue of service level agreements (SLAs) between brokers and their clients. “I posed the question to the audience – ‘how many of you do service level agreements with your individual clients?’ There was just about zero response to that,” he says.

“With corporates it tends to be a standard, but it is very rare to see brokers drawing up SLAs with individuals. We should be doing that, however. Not only that, we should also be incorporating the client’s roles and responsibilities into the SLA. Brokers are required to gather all the relevant information from clients and fulfil their responsibilities in terms of the FAIS act, but if your client changes jobs or even if he dies, there needs to be certainty about who is responsible to follow it up.” Wilson says.

“This healthcare landscape is one of the major challenges facing the medical aid industry, and this also threatens future sustainability of medical schemes in South Africa,” he started.

“It is no longer sufficient to just find the cheapest scheme, or the one that looks best on the surface.

As a broker, you will have to start looking beneath the surface, to make sure that these schemes are actually practicing sustainable business. Will the scheme be around for a long time? Will they be able to deliver the benefits promised to their members? These are things that will need to be looked into on an increasing basis,” Cele added.

“We got a better understanding of where the Council stands on the challenges that we all face in this industry today. It was encouraging to see the Council and the private sector shared the same sentiments on a lot of the issues at hand,” Cronjé says.

“The three different perspectives at the breakfast were really enlightening and it was especially encouraging to see that the CMS were also focused on many of the same challenges that the private sector has been struggling with,” he concludes.

The final speaker of the morning, CMS senior marketing actuary, Sibonelo Cele highlighted the fact that brokers need to perform due diligence when finding a medical aid scheme for their client.

Solvency is important Wilson noted that, while the presentations aimed to be as broad as possible, one issue stood out among the rest. “In my presentation I briefly touched on the topic of the solvency of medical schemes,” he states. “Solvency ratios, as well as the utilisation and pensioner ratios are things that we as brokers should be looking at when it comes to selecting schemes and options.

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R&D is being done within institutions, however, time-constrained public sector doctors often do not get the time and funding to pursue lifechanging avenues of research.

“A health system that does not produce new knowledge, perishes,” said Prof Bongani Mayosi, adding that South Africa must allow talent and curiosity, and encourage it to find new knowledge.

It is within this context that the Discovery Foundation Awards take place, and gives grant funding to public sector professionals, with the aim of bolstering academic medical research in South Africa.

The Discovery Foundation has disbursed R123 million since its establishment in 2006, and has funded 245 medical practitioners, explained Maphai. The target is to invest over R150 million in training and education of 300 medical specialists by 2016.

Public private partnerships

Healthcare research grants

boost public sector R&D Christy van der Merwe

H

ealthcare horror stories abound, and the good news is not lauded nearly enough, as achievements that should be celebrated go unnoticed.

While public sector healthcare professionals are often criticised, overworked and severely under-appreciated, the Discovery Foundation highlighted that doctors in the public sector embody what is good in people, as they work with the indigent who cannot afford expensive medical care, and provide them with much needed empathy, understanding and nurturing.

Discovery Foundation chairman Dr. Vincent Maphai stresses that the problems that South Africa experiences have very little to do with moral indifference, and more to do with capacity.

South Africa has excellent hospitals, and excellent human resources in the healthcare

sector, however, these are not well distributed, and many are not well managed, highlights Dr Jonathan Broomberg, CEO of Discovery Health.

The country faces a complex disease burden, and rural areas often struggle to attract doctors to deal with these specialist fields, when they could earn lucrative salaries in the private sector.

Despite the challenges, South Africa is still at the forefront of healthcare innovation, and produces healthcare professionals that are the envy of the world, which is why they are so often enticed overseas. With the country’s complex disease burden, South Africa is well poised for healthcare research and development (R&D), particularly with regard to tuberculosis, HIV Aids, and heart diseases associated with poverty.

Head of health profession strategy at Discovery Health, Dr. Maurice Goodman, says that the public and private healthcare sectors are increasingly finding ways of complementing each other, and this is vital to move the sector forward collectively in South Africa.

He says that although shortages exist across both sectors, South Africa produces excellent doctors; however, there are challenges that are driving up costs. “Doctors tend to practice in silos, where there is very little teamwork. We need to improve collaboration and integration because this could lower costs.”

He does not feel that rewarding healthcare professionals on the volume and frequency of service is the right way to go about things and says that quality of service should hold more weight.

He says that Discovery is involved in a number of initiatives to drive down costs in the healthcare sector. These include: improving collaboration between the public and private sectors; providing better information to patients and doctors; and identifying new methods of funding, with emphasis on moving from fee for service.

He also stresses the need to embrace digital technology platforms to assist with these costlowering initiatives.

Discovery executive, Dr Ayanda Ntsaluba, affirms that public and private sector resources combined can only achieve a certain amount, thus efficiency of spending is key, and this can be enhanced through collaboration.

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lT

LONG TERM

Covering the big Dominic Uys

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Cancer has become a leading cause of death and disability in the modern world and a study published by Lancet has predicted that South Africa could see an increase of 78 per cent in the number of cancer cases by 2030. At present, South Africa is ranked 50th on the World Cancer Research Fund’s list of countries with the highest cancer prevalence rates.

T

he economic impact of the already high numbers of cases is devastating, and medical schemes seem to be taking significant strain. The trials faced by medical schemes in terms of cancer cover have also not escaped the attention of the Board of Healthcare Funders (BHF).

“If you look at cancer, there are several challenges. Firstly, the burden of the disease is increasing. The incidents of cancer are on the rise. Secondly, the drugs for the treatment of cancer are increasing in price – in particular, at this point in time, the biologicals are becoming very expensive. This adds an exponential component to the costing problem,” says Dr Rajesh Patel, head of benefit and risk at the BHF. “The other component is the doctors’ billing and some of the coding that they use. Members have not been able to benefit from recommendations that came into being to protect medical scheme members, because oncologists have introduced a coding structure. Some of the codes that were introduced in 2004 and 2005 were, in our opinion, to retain their levels of revenue in the face of these recommendations. There is a significant concern about that from the BHF's side and we have raised this on a number of occasions,” he continues.

The true cost of cancer Lauren Pretorius, CEO of advocacy group, Campaigning for Cancer tells RISKSA that the true cost of cancer is seldom covered by medical schemes. “Medical schemes are not like short-term insurance products that cover specific events or circumstances. They cover treatment up to a certain amount in terms of cost and follow protocols that have generally been taken from two doctors’ organisations.

One of the problems is the diversity in the protocols that the medical schemes choose to align themselves with,” she starts.

“Another massive problem is that patients usually don’t understand what treatment really costs.

When someone buys medical scheme cover they tend to think that if a scheme pays out R120 000, for example, that would be enough.

What they don’t understand is that treatment for aggressive cancers could be anything between R500 000 to R1 million. Once that money runs out, the only thing the patient has to fall back on is the 20 per cent co-pay. Still, 20 per cent off a R1 million treatment doesn’t get you far. This is also under the assumption that the drug or treatment isn’t excluded by the patient’s scheme – which is the case with a lot of the newer drugs on the market,” Pretorius says.

“Breast cancer is a particular problem here because there are a lot of biologicals that are required,” she adds.

Pretorius also points out that members are often unaware of their own responsibilities. “We are an advocacy group for cancer patients and we go up against many medical schemes when they deny a member treatment. That said, we also come across a lot of cases where the member is at fault and we feel that members need to be made more aware of their part of the bargain.

To start, members need to understand that if they take a lump sum payment that money is gone, and they can’t claim for more once that is spent,” she says.

“What people also need to understand is that medical schemes’ definitions of cancer are also often quite rigid. Early stages may not fall into the scheme’s definition of cancer and members need to know that removing pre-cancerous growths tend not to be covered by the schemes,” she warns.

Rob Wilson, director at Dave Wilson & Associates offers a broker’s perspective on the matter. “If you want to cover your client across the board, you have to start with income and disability protection. Then you look at dread disease cover, and make sure that certain cancers are actually covered by that. If your client tells you that she has a history of ovarian cancer in the family, then make sure that box is ticked. Bear in mind that your client may also have a life policy that covers dread disease,” he starts.

“It all boils down to your financial needs analysis and making sure that it is done thoroughly. Ask your clients the right questions at the end of the day because once again you need to anticipate the cost and likelihood of treatment, and weigh that up against the cost of the policy in order to justify the cost,” he says.

Highly curable cancer Prostate cancer is one of the dread diseases that have seen an alarming increase over recent years. Many factors have been blamed for the

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“Through Bestmed’s oncology programme, members with testicular and prostate cancer are given an opportunity to register. The programme provides cancer benefits, applying evidencebased medicine principles and considering affordability to the different benefit options. It uses the Standard option of the Independent Clinical Oncology Network (ICON) for all members. The average age for members in this programme is approximately 38 years, with its youngest member being four years old. The prevalence of prostate cancer in the Bestmed population tallies about 4.14 cases per 1000 lives,” says Hamman.

Sooner rather than later Andre Froneman, product specialist at Altrisk tells RISKSA that cover for preventative procedures against cancer makes sense. Altrisk recently launched its Early Cancer Cover benefit, which the company says is an industry first.

spike in reported cases. The fact is, however that prostate cancer is also considered to be highly curable if detected early on.

Besides regular check-ups as part of preventative healthcare, it is also recommended that men try to achieve a healthy lifestyle by exercising frequently, and maintaining a healthy weight, which all plays a role in reducing chances of contracting lifestyle diseases and cancers that prevail in the male gender.

According to medical scheme, Bestmed, around 4439 men have been treated for these types of cancers in the last ten years. The company bases the number on a recent study by the American Cancer Association.

Bestmed, states that it now has 803 diagnosed members which encourages them to take preventative healthcare seriously, and use resources that are available to them for more information about these diseases.

According to Bestmed’s Dr Elsabe Hammann, testicular cancer can be prevented, like many other lifestyle diseases. “The key to living longer is adopting the key pillars of wellness – being active, eating well and looking after yourself,” she says.

“Currently, prostate cancer is the second most frequently diagnosed cancer, and the sixth leading cause of death in males worldwide,” comments Hammann. “About one in seven males are diagnosed with prostate cancer at some point during their lifetime. It can spread to nearby organs, travel through bloodstream or to

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the bones, which can be treated and controlled, however can no longer be cured, at this stage.

Symptoms include; difficulty urinating, blood in the urine or semen, general pain in the lower back, pelvic discomfort, bone pain, and erectile dysfunction,” she says.

On the other hand, testicular cancer causes are still unknown, but research done by the American Cancer Society has shown that genetic changes could play an important role in the development of testicular cancer. Research has also revealed that the risk for the disease is higher in first-degree relatives of cancer patients than in the general population where about 2 per cent of testicular cancer patients reported having an affected relative.

According to Hammann, the most common symptom for testicular cancer is swelling or a knot in one testicle and in most cases, it is not painful and is sometimes ignored by the patient because of its sensitive nature. Heavy sensation in the lower abdomen could be the presenting symptom.

In the past, metastatic testicular cancers were fatal, but recent advances in the treatment of these types of cancer with high-dose chemotherapy have considerably improved the prognosis, reducing the risk of fatality and increasing the cure rates to 90-95 per cent and making testicular cancer highly curable. Patients who experience a hematoma with trauma should undergo evaluation to rule out cancer. The prognosis depends upon the histologic type of cancer, stage, and other features such as tumor marker and type of metastatic disease.

Members who are diagnosed with a defined malignant tumour that has not invaded surrounding tissue can receive cover of up to R100 000. The cover is available as an ancillary benefit to all of the company’s critical illness benefits.

“We also cover prophylactic mastectomies for our female clients with a family history of breast cancer. On our early cancer cover we pay out to clients who, for instance, go for their regular check-up with their doctor and said doctor does tests on a suspicious mole – if by that preventative measure the doctor discovers that the mole is cancerous, the client would have a claim on our early cancer benefit,” Froneman explains.

Froneman states that selecting cancer cover for a client needn’t be difficult. “There are some things to consider and which should be at the top of your client’s mind. If you are looking for cancer cover, you need to have a look at the benefits you are selecting. You need to be aware of what types of cancer are covered by comprehensive cancer schemes and at what levels. Does it cover leukaemia, for instance? How about bone marrow transplants or other procedures? You also have to know whether your client has a family history of cancer and what percentage pay-outs you can possibly get through the scheme that you are selecting,” he says.

“The problem is that, unless your client has a family history, getting this cover is pretty much like insuring against most other events – you are dealing with the unknown. Some brokers lean more towards services. So in the absence of certainty about what cancer your client may get, they will try to get their client the best critical illness care and the broadest possible cancer cover with that provider, just in case,” he concludes.

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2014/08/15 2:15 PM

Who am I?

Defined benefit pension schemes in 2014

Christy van der Merwe

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More and more employers are replacing DB plans with DC plans, primarily because of the expense and long-term obligations associated with running a DB plan.

Craig Aitchison,Old Mutual Corporate GM customer solutions

DEFINED BENEFIT pension plans A defined benefit (DB) plan identifies the specific benefit that will be payable at retirement. This is generally provided in the form of regular payments over client lifetime and beginning at retirement age.

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DEFINED CONTRIBUTION pension plans A defined contribution (DC) plan specifies how much money will go into a retirement plan today. The amount is typically either a percentage of an employee’s salary or a specific amount. Those funds are invested in mutual funds available inside the retirement plan. The amount available at retirement depends on how much the employer contributes to the plan, how much the employee saves in the plan, how long the funds are invested, and how well investments perform inside the plan.

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efined benefit pension plans have fallen out of favour, a trend that started in the 1990s as a shift to defined contribution (DC) plans took hold, when unions made a push toward provident funds. The number of defined benefit (DB) funds in South Africa is now relatively low, and there is growing consolidation of these, as the trend towards other retirement options continues.

Old Mutual Corporate GM customer solutions, Craig Aitchison, highlights that this is because different approaches are required for different macro-economic times, and since 2009 there has been a trend into inflation-linked annuities.

He was addressing participants gathered at the Old Mutual DB management forum, which took place in Johannesburg and Cape Town in August. Here financial advisers heard insights into innovation from European DB pension

de-risking deals, and had the chance to better understand defined benefits in South Africa, and what the trends mean for advisers.

Owing to the move away from defined benefit (DB) plans, Aitchison quipped that DB funds are experiencing a type of existentialism, questioning who they are and trying to understand the demographics. Feedback from the advisers in Cape Town showed that 72 per cent of them worked with closed DB funds, and 100 per cent of these funds had active members, as opposed to pensioner only funds.

Fifty-eight per cent of the audience said their governance budget was medium while 35 per cent said it was high, and 70 per cent said they knew their actual liability value.

International trends Paul Kitson from PricewaterhouseCoopers

in the UK started proceedings by outlining pension risk, and how it is measured, as well as de-risking tools available. He highlighted that de-risking continues to build momentum in the UK. He noted that the UK has gone the opposite direction to most of the world and has moved away from forced annuity, thus there is no compulsory annuitisation, and people can take out their entire pension and spend it all on a yacht if they so wish.

Kitson compared the UK and South African DB markets (see table 1), showing how few of these schemes are left in South Africa. The risks for both countries are the same though, and these include equity, interest rates, inflation and life expectancy.

When trying to reduce the risk, or at least reduce the volatility, Kitson said that one should carefully consider which risks can and should be removed. This must start with knowing where

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your liability lies. One could consider removing unrewarded risks, or the least understood risks, or the risks not part of the long-term strategy, or perhaps the risks that could be pooled.

He said that most de-risking triggers require manual intervention. De-risking could be done through: changing physical assets (selling equities or buying bonds); hedging using swaps; changing benefits paid to individuals; or other de-risking solutions including buy-outs, buy-ins, or longevity swaps.

Highlighting the difficulties with increased life expectancy and increased longevity, Kitson explained that in the UK, 10 years ago the average life expectancy was 83 years, and now it is 97 years – this has a huge impact on what has to be paid out.

The potential of raising the retirement age as a way to cope with increased longevity was mentioned. Australia, for example, is considering raising the retirement age to 70.

Old Mutual corporate’s Trevor Abromowitz highlighted that because of the high unemployment rate in South Africa, extending

the working age would be even more difficult than anywhere else in the world.

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“We need education and we need to inform people about retirement funds and saving.

People need to be aware of their own individual financial level, and the benefits of deferring current consumption for future consumption. The industry is doing a lot to bolster this,” said Abromowitz.

Old Mutual outlined its entire pension product range, encouraging advisers to choose the right solution for their fund’s needs. “When orchestrating a great solution for your retirement fund, it is important to understand the role of the different options available. Each pension instrument meets different needs,” said the company, likening the arrangement of retirement products to a musical performance, highlighting the strengths of each.

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Inflation-linked pensions, with-profit pensions, the inflation-linked annuity, and the dynamically hedged with-profit pension were all said to have a place on stage.

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Trevor Abromowitz, Old Mutual Corporate

Paul Kitson, PWC

Comparison of UK and South African defined benefit markets: Number of DB pension schemes

South Africa

UK

About 600 (including hybrids)

About 6 500

Number over £1 billion assets

About 5 (including hybrids)

About 250

Indexation treatment

As per fund’s pension increase policy. Minimum pension increase as per Pension Funds Act (subject to affordability)

Guaranteed for pensions earned since 1997

Member options

Transfer to another scheme (usually DC) Pensioners outsourced

Transfer to another scheme (usually DC) Remove indexation

Typical retirement choices

Lump sum ranging from 0 per cent to 33.3 per cent, remaining portion as pension

Lump sum ranging from 0 per cent to 25 per cent, remaining portion as pension

Typical assets held

50 per cent local equities 20 per cent bonds 15 per cent offshore equities 5 per cent offshore bonds 10 per cent other

Varies significantly, but typically: 25 per cent equities/ 75 per cent bonds Derivatives to hedge risk common

Main risk exposures

Equity/ Interest rates/ Inflation/ Life expectancy

Equity/ Interest rates/ Inflation/ Life expectancy

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Source: Kitson, PricewaterhouseCoopers

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7 2014/08/28 11:19 AM

ABIL in

perspective S

Laura Owings

The demise of African Bank may have been a dramatic turn of events, but analysts and experts support the strength of South Africa’s financial market.

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outh Africa’s banking sector has been thrown into a tailspin with the August collapse of the country’s largest unsecured lender, African Bank.

Although the bank has weathered tough storms in the past, the resignation of founder and CEO Leon Kirkinis, and the announcement of a R8.5 billion cash need landed the bank under curatorship by the South African Reserve Bank.

The catastrophe has dominated news headlines and put investors on high alert. While the unsteady performance of any financial institution is good cause for concern, investment analysts warn against knee-jerk reactions.

“The impact has been as a result of both the full loss of value of the equity and subordinated debt, and a write down in the senior debt issued

by ABIL,” says Hugh Hacking, head of Old Mutual Corporate Consultants. “Generally the impact of the losses in bonds has had a slightly greater impact than the equity losses as a result of the slightly higher concentration risks in bond portfolios. However, for most funds the impacts have been in the order of normal daily market movements, typically less than one per cent of holdings.”

Given the swift intervention by the South African Reserve Bank, Hacking says the systemic knockon effect should be limited to the losses suffered by holders of ABIL equity and debt.” South Africans should be encouraged to continue saving and feel confident in the stability of our financial sector,” he says.

Such advice is echoed by the Association for Savings and Investment South Africa (ASISA).

In a statement, it assured collective investment scheme (CIS) investors that there is no need to panic about African Bank. Leon Campher, CEO of ASISA, says the exposure of local equity and fixed interest portfolios to African Bank stock and debt instruments is minimal. “Since equity portfolios are priced daily, the unit price you see today has already factored in the decline in the value of the African Bank share price,” says Campher. “Therefore there is no point in selling your units now in reaction to the developments at African Bank.”

He says in the case of the 15 money market portfolios that hold African Bank debt instruments, the total exposure to African Bank is only 1.9 per cent of assets under management within these portfolios. The exposure to African Bank in all other fixedinterest and multi-asset portfolios is also not material.

Campher points out that in terms of the support measures announced by the SARB, African Bank senior debt instruments and wholesale deposits retain 90 per cent of face value.

“Despite the 10 per cent reduction in value, the exposure to African Bank debt instruments is not high enough to cause meaningful losses in the context of the portfolios that hold these instruments.” Campher says fixed interest investors should, therefore, avoid knee-jerk reactions and remember that they invested for a high yield return, which will not be materially affected by the challenges facing African Bank.

Experts also say the strength of South Africa’s financial regulations should not be revisited.

Indeed, the World Economic Forum (WEF) in September ranked South Africa’s financial market development at third place. The annual report rates countries according to 12 pillars of criteria including competitiveness in terms of quality of infrastructure and institutions, efficiency, market sophistication and regulation of securities exchanges.

“Do I think the regulations need to be revisited? No,” says Peter Dempsey, deputy CEO of ASISA. “Do I think there are learnings to be taken from this? Absolutely.”

Dempsey suggests the Twin Peaks model, proposed by the national treasury last year may have facilitated a more coordinated approach to investigating allegations against ABIL. The bill, known formally as the Financial Sector Regulation Bill, proposes the establishment of a Council of Financial Regulators through which two new authorities for financial services as well as other regulators that currently do not report to the finance minister will be expected to coordinate and cooperate in the regulation of all financial products and services. The bill also proposes the establishment of a Financial Stability Oversight Committee to monitor and respond to risks in the financial system and to financial crises, such as the crisis of 2008.

RYNO Killing himself with 30 a day.

Under Twin Peaks, Dempsey says the National Credit Registrar may have investigated African Bank and drawn attention to non-compliance in terms of affordability criteria, for example, and highlighted that a risk may escalate to affect its prudential stability. Regulators would then have the opportunity to communicate and coordinate an approach. “However, right now, you have the likely possibility that one regulator may investigate a party and forget or fail to communicate with another regulator what has been happening,” he says.

“For me, the biggest lesson out of African Bank has been the need for collaboration between the regulatory authorities, which is what the twin peaks environment seeks to achieve.” The Twin Peaks bill has not yet come into effect, however, other measures that are currently in place to respond to financial risks and crises have been criticised.

FedGroup CEO, John Field, points to what he calls a flaw in the Basel III liquidity provisions that might warrant re-examination. “When Basel III came in, it said banks had to have more security for term loans over one year,” he says. “It did not consider short-term loans, such as the unsecured African Bank loans.

Instead, unsecured loans were accepted as part of the liquidity. That seems to me to be a flaw in the logic.”

However, Field says the bulk of the problem is unemployment, which drives unsecured borrowers seeking cash for daily expenses.

“People shouldn’t’ have to borrow money to survive, to buy food. That’s a short-term solution that can only result in disaster,” he says. “We’ve got to find a way to get money through to the lower end of the market, and the best way to do that is to give them employment.”

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Partially

covered Hayley Taylor, underwriting manager at Altrisk

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Underwriting is the process by which a life office accepts or declines a proposal for cover under a risk product. Where a proposal is accepted, underwriting will determine the specific terms on which the policy is accepted – either at ordinary rates or with a loading or exclusion.

What is an exclusion and when is it applied?

regular participation in the activity, making the additional expense redundant.

In the case of long-term insurance, underwriters apply exclusions in instances where there is a high statistical chance of an applicant claiming as a result of the excluded condition or activity. Should the insurance risk be considered too great, the insurer may offer cover on the condition that claims relating to the activity or pre-existing condition are excluded, either permanently or for a defined period of time.

Never assume your client won’t need the cover

Exclusions can apply to past or pre-existing medical conditions; such as a lower back injury, cancer, diabetes or a heart condition.

This reduces the risk to the insurer by not covering the specified body part, health condition or activity. In addition, exclusions can apply to high-risk activities thus, if the applicant is injured or dies while participating in an excluded activity, they will not be covered. Further, an applicant’s occupation may warrant an exclusion.

For example, the applicant’s work may be of a dangerous nature, such as working at heights, underground or in a conflict zone.

In this case, the insurer may offer cover, but exclude cover while at work.

It is important to note that exclusions can have a positive outcome. In many cases, applying exclusions can provide a client with a policy that covers them at standard rates, for everything except the specified exclusion.

The same client may be unable to obtain cover of any sort without exclusions.

What is a loading and when is it applied?

Loadings may be applied to an insurance policy premium, where the risk is higher than average due to health, hobbies or lifestyle factors, but not high enough to require an exclusion. Loadings are therefore applied when statistics make it clear that the insured is likely to claim more than average, based on their health, hobby or work. A loading means that a higher premium will be charged for a life insurance policy due to the greater risk of claiming.

When faced with a difficult-to-insure client with pre-existing and significant health conditions, it’s easy to believe that they won’t be able to get cover. As a financial adviser, your clients rely on your tenacity to fight for their right to get the best possible cover for them.

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Never assume that they won’t ever be faced with a potentially life-threatening condition entirely unrelated to their exclusion. This is exactly what happened to Beth George.

She had previously been declined by traditional insurers for critical illness in its entirety, due to her being a chronic diabetic. Her adviser however managed to get her critical illness cover with Altrisk with an exclusion for cardiovascular, cerebrovascular and kidneys due to these being heightened risks of diabetes.

Within a year after inception of the policy, Beth was diagnosed with kidney cancer – entirely unrelated to her diabetes, but affecting the kidneys which had been excluded under the policy.

Although an insurer could have declined to pay this claim due to the kidney exclusion, Altrisk believed that the exclusion had very specifically related to any potential for renal failure related to Beth’s diabetes.

It was never the intention to exclude cancer, which was an entirely unrelated development. In each and every claim, it is important to assess the merits of each case individually rather than blindly applying the terms of the policy. In Beth’s case, Altrisk made the decision to pay the claim in full despite the kidney exclusion.

Beth’s story presents two important lessons – firstly, never assume that the odds of your difficult-to-insure client being struck down by some other condition unrelated to their exclusion(s) being too low – because they are not. Get them the very best cover you can and fight for it.

By paying a loading on the insurance premiums, the insured person can be fully covered by the policy. In many instances lifestyle factors play a significant role in policy loadings. These factors can include tobacco smoking, physical activity levels, BMI and body weight and blood pressure.

Secondly, and fundamentally, make sure your preferred insurance product provider goes above and beyond to do the right thing for your clients – red tape, small print and legalese should never get in the way of treating your customer fairly.

While certain hobbies may only attract an additional loading on the premium offered, in some cases the client can opt for an exclusion instead. This is particularly relevant in instances where there is no

Your client needs their cover most when it comes to claims time – make sure your insurance provider has a claims settlement ethos you are happy to attach your hard earned reputation to.

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A sensible investment conference

IRMSA

The 10X 2014 investment conference held in August featured a host of diverse speakers and brought interesting insights to the fore.

The conference featured input from National Treasury, investment professionals and even an expert on education. Once again the company placed a strong emphasis on the feasibility of market tracking index funds as retirement vehicles and had some strong arguments to back the claim.

Dominic Uys

T

he second investment conference by retirement fund specialists, 10X, travelled to Johannesburg, Cape Town and Durban over the course of two weeks and saw no shortage of delegates in attendance. Opening the conference was Olano Makhubela, chief director of financial investments and savings at National Treasury. Speaking to a rapt audience, Makhubela set the record straight on Treasury’s plans to reform South Africa’s retirement sector.

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This was followed by Rob Rusconi of Tres Consulting, who offered insights on how brokers can help their clients take responsibility for their retirement. Michelle Ongley, head of institutional business development at 10X asked the question: does member investment choice add value?

And 10X benefits consultant, Fikile Shezi guided delegates through the company’s pre-retirement planning guide and the retirement calculator.

Treasury’s plan Makhubela immediately addressed one of the issues laid out in the 2014 Budget Speech that had caused some debate over the last few months. He notes that preservation of retirement savings before retirement is one of Treasury’s key retirement reform policy priorities.

“We know full well that a total preservation of retirement savings is an unrealistic expectation

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Investments Steven Nathan, CEO 10X

completed after this deadline. The issue is quite a complex one and Treasury will need some time to cover all the bases,” Makhubela says.

Rob Rusconi of Tres Consulting

at this point in time. We are facing too many challenges relating to unemployment, and other problems in South Africa and we realise that this won’t change very quickly. Full preservation is, however, the ideal and as Treasury, we are going to aim to get as close to that goal as possible,” Makhubela starts.

“We need to still sit down with unions, employers and other stakeholders about our proposals before anything is set in stone,” he adds.

He points out that some of the key goals of Treasury’s reform will include; encouraging preservation and portability; enhancing governance of funds; encouraging annuitising at retirement; simplifing the taxation of retirement contributions; encouraging non-retirement saving through tax-free saving plans; and encouraging good value retirement products and services by reviewing costs.

“Treasury has set itself a target of end-2014/ beginning-2015 to come up with a complete draft of retirement reform proposals. However, at this stage I can say that it will probably only be

Makhubela ended his presentation by dispelling one of the rumours pertaining to the reform. “The reforms have nothing to do with nationalising or prescribed assets. There is a sense that we are trying to use the money to fund government projects, but I can assure everyone that we will be doing nothing of the sort. We are not asking individuals to preserve with the Government Employees Pension Fund, and we have not set up a National Pension Fund.”

The host weighs in From 10X’s side, company CEO, Steven Nathan ended the day’s series of talks by demonstrating the resilience of index tracking investment funds. “If you look at the history of any country over a 40-year stretch, there are always going to be events that put the markets into turmoil. In South Africa, you saw the markets take a dive in the 80s during the Soweto riots and the Rubicon speech.

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We’re your type of risk insurer.

1987 saw the stock market dive 23 per cent in one day. But then we also saw the market grow in the 1990s. The traditional business cycle disappeared and then returned with the Nasdaq crash, and so we can go on,” he says.

“Stocks in the market went up and down but the overall market has still shown positive growth over the span of 40 years, as it always does.

The secret of investing is: there is no secret.

The best way to invest for the next 40 years is the same as last 40 years,” Nathan concludes.

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

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Fraud

s r e t bus Fraud in South Africa is an unfortunate reality that companies deal with on a daily basis, in some cases dedicating resources to establishing specialised forensic investigation units. As fast as companies can innovate, there seems to be a criminal element applying their fraudulent mind to stealing from legitimate operations.

Christy van der Merwe

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he insurance industry is one of those being targeted, and the South African Insurance Crime Bureau (SAICB) is trying to crack down on this crime.

RISKSA chatted to SAICB chief operating officer, Hugo van Zyl, to understand the extent of the problem in the industry. The SAICB is a not-forprofit company that was started in 2008, through the South African Insurance Association. There are currently 14 members, which have joined forces against organised crime and fraud within the industry.

You think crime is crippling the South African Insurance industry: why, and what is the extent of the problem?

We have identified about 17 modus operandi and trends that are being used against the insurance industry. ‘Cloned vehicles’ is one of these, where criminals take a salvaged vehicle and steal the unique identifiers of those vehicles,

tally up to R13 million. Another problem is the ‘phantom passengers’ in those vehicles, where criminals put in false road accident fund claims and false third party claims.

What does the SAICB do about this?

A case we called ‘Mr Ghost’. We were not sure who the individual involved was, or if it even was just one individual, but this person took on the identity of numerous old and sometimes deceased people, and he then lodged several claims and opened new policies on a daily basis.

What is the success rate?

The fraudster had different phones, marked with a different identity and company name, and just sat at his house taking calls on certain phones each day.

Are there any fraudulent trends emerging that insurers should be aware of?

Identity theft – where criminals gain personal details and pose as a client who has taken their vehicle to a panel beater for a minor bump. The criminal impersonates the client and collects the vehicle once repaired. They pay the excess to the panel beater, and drive away with that vehicle. We have had 34 of these cases so far, most of these vehicles went to Botswana and Zambia, and there were policemen from these countries involved in the scam. We know who the people involved are, and there is a targeted investigation on the go.

Another example is ‘accident staging’. Criminals get hold of salvaged vehicles, which are still driveable. They then take out a policy, and will have a claim very soon. They have quotations from unscrupulous panel beaters and tow truck drivers, and will have a single vehicle accident at the end of the day, and then will lodge a claim with that company. With some of these groups, the amounts involved in these investigations can

What has been the most interesting case you have seen this year?

We are working closely with the South African Police Service (SAPS) in all provinces and have a good relationship with the head of detectives and his staff. We have Memorandums of Understanding in place with the SAPS through Business Against Crime in SA, and then also with the Road Accident Fund, the Department of Transport and the National Prosecuting Authority’s asset forfeiture unit. We are standing together, and initiating project driven investigations. We are targeting the right groups of organised criminals to get rid of them.

The main thing for us is to prosecute and to have successful convictions in court.

We have taken 16 cases to court at this stage.

All 16 of them had a 100 per cent conviction ratio. We are very proud of that. We have 30 more cases that are being run in court at this stage in South Africa, and we want to maintain the 100 per cent success rate.

and put them onto a robbed, hijacked or stolen vehicle. My biggest problem with that is that they actually kill South Africans, just to make money from those cloned vehicles.

the SAICB, and satellite tracking companies is very good, and we are fighting crime very well together at this stage.

Another project is one we have called ‘ladies of the night’. Ladies will target young men at venues such as the Blue Room or News Café, have a few drinks and then ask the gentlemen if they can drive home with them. The ladies then then give the victim a concoction of drugs including Rohypnol and epilepsy medication, and about 24 hours later, when the victim wakes up, his house is empty and all his vehicles have been stolen.

This happened in the whole of Gauteng.

Fortunately eight of these people were arrested, and there are another eight that we are still looking for. It is an on-going investigation, and we have not had any new cases reported recently, so we are happy about the arrests that took place. The relationship between the SAPS,

The perpetrator ran amok in the industry for many years, and when we did an investigation we found that he called insurance companies posing as black, white and Indian males and females, and all the insurers just took on these policies.

He took most of the insurance industry and other financial services firms for a ride, and he and his wife will now appear in court in March 2015, on many counts of fraud. The total is not very big, but it is a large number of claims, because fast-track claims are under the radar and are being paid out regularly without any investigation.

Are you looking for new members?

We are always on the lookout for new members. The more people we have involved, the more we can do to fight crime. The main problem with regard to crime in South Africa, is that the law enforcement agencies work in silos.

Criminals don’t – they join hands and win the war at this stage.

We urge Insurers to get involved, because the more companies that are involved, the better the success rate will be. We need to stand together and join hands against crime in South Africa. If we only have 14 companies in South Africa that are joining hands, that is a sincere problem for us. Data is key for the SAICB, and we need the data of the entire industry to show the size of the syndicates and get a clear picture of the entire industry.

Current members of the SAICB include: Absa Insurance; AIG; Alexander Forbes; Discovery; Hollard; King Price; Lion of Africa; MiWay; Momentum; Mutual & Federal; Outsurance; Regent; Santam; Standard Bank Insurance; Telesure group; and Zurich.

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Knowthyself Dominic Uys

Risk profiling of retirement fund members is an essential tool when it comes to retirement planning.

One expert raises the question however; does risk profiling carry its own risks?

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dentifying and predicting behaviours and trends among the organisation’s policyholders determine not only investment strategies, but also predict likely losses for the client due to rash investment changes.

Several new funds and policies have been established in recent years, one of the most notable being tailored to the client’s ‘appetite for risk’, it is for the client and his broker to decide what that appetite really is.

Doing a quick risk profile of your client is the accepted method of establishing where his sentiments lie. In composing a risk profile, however, one expert has pointed out that common mistakes might make the exercise counter-productive.

Patrick Barker, private client portfolio manager at Cannon Asset Managers, begins by asking, “How effective are current risk profiling techniques, and do they achieve their aim?”

While Barker’s focus is predominantly on investment techniques, he presents intriguing notions on how a risk profile is assessed.

“There has always been a strong debate around the effectiveness of risk profiling, with protagonists claiming that it is a necessary step in the process of measuring risk tolerance and helps with asset allocation decisions and the opposers stating that it should not be considered at all as the investor’s risk tolerance should be defined by the outcome they expect, given their goal. In other words, they should be informed of what risk tolerance – and therefore asset allocation – they have to accept given their needs,” Barker starts.

Two diverging methods

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The methods for assessment have changed dramatically over the years, starting with simple 25 questionnaires and later evolving to include more scientific practices such as psychometric 5 risk tolerance testing and the like.  0

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“Risk profiling essentially tries to determine investor behaviour and attitude towards risk. It is natural for people to want as high a return as possible, but not all are prepared to tolerate the higher risk that is required to generate that higher return,” Barker says.

One of the biggest flaws in this approach, however, is the simple fact that individuals are often unable to understand their own behaviour.

Questionnaires invariably require honest answers, and while the exercise is based on the assumption that the individual knows himself well enough to accurately portray his behaviour, the truth is that the individual’s true nature is more often than not, subject to change as his environment changes.

“For example, most people will be aggressive in a bull market, particularly nearer the top of the market, and they will be more conservative in a bear market.

Therefore, for the average person, their risk profile is a moving target which will possibly be different in extreme market conditions and more consistent in stable market conditions.

In fact, the most accurate form of profiling would be experience: how does that investor actually behave given a particular set of circumstances?” Barker states.

“Can we truly say that using a risk profile questionnaire as the basis for asset allocation is the right way to structure a portfolio? The common risk profiler incorporates a number of questions, some of which test the client’s possible behaviour given an event, which have a score associated with them. At the end of the questionnaire, the score is totalled and this indicates the client’s relevant risk profile,” he adds.

Barker poses that determining an individual’s risk profile through a process of analysis may be a better approach He states that a risk analysis should start with the goal in mind. “This would usually be the individual’s required income goal in current terms, but projected to a certain age, for example from age 55 to age 90, using current inflation and return rates.

Already-accumulated assets are then factored in and a required return to achieve the goal is calculated, taking inflation into account. This then determines the risk needed to be taken – be it aggressive, moderately aggressive and so on – in order to achieve the desired return,” he states.

The client is then told what risk profile, and therefore asset allocation, is needed to achieve these goals, effectively reaching the goal by doing the process in reverse. This approach, while seemingly better, still harbours some problems, according to Barker.

“When one assesses risk this way, the behaviour of the client is not taken into account which could result in an irrational outcome in a live scenario. As an example, if the client’s required return to achieve their goals is 20 per cent per annum, but their risk profile questionnaire indicates that they are conservative, it is clear that these two do not align.

This client would experience high levels of anxiety when faced with the volatility of such an investment strategy and could make irrational decisions,” he notes.

Best of both This leads Barker to ask the question, would a combination of the two fare better?

“By doing both the planning and then merging it with the risk profile questionnaire of the client, perhaps a better overall picture is painted. This will mean that the client might need to temper their goals or ride the wave of volatility. In addition to this, detailed communication with the client, explaining what each means with an overlay of their objectives, is vital,” he notes.

He adds that there are, however, some prerequisites for effectively merging the two methods. “Risk profile questionnaires need to be far more effective in determining risk tolerance.

The three-question profiler is really only designed to appease regulation requirements but does not serve the client in any way. And the questions asked in some risk profilers could be far more probing. The development of questionnaires using in-depth psychology as the backbone would be far more effective,” he says.

“Perhaps asking a client additional and simple questions such as “Do you have a budget?” would help us to establish how close they are to their reported risk profile. Generally, the more conservative person will budget because they feel the need to watch their spending, for whatever reason, and the more aggressive person will not. Another useful question is “If your investment dropped by 20 per cent would you disinvest, stay invested as is, or add to your investment?”

This would help confirm the risk mind-set of a client. One who chooses to disinvest would lean towards being conservative and the client choosing to add more would lean towards being aggressive,” Barker adds.

Experience, while still being the best form of profiling, is however not always readily available to every broker, according to Barker.

“It therefore makes sense to use as many tools as possible to give the client the best options with the glue being communication and discussion,” Barker concludes.

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Aon07271_

Partner with Aon Best Global Insurance Broker in Africa for 2013* Anton Roux, CEO: Aon South Africa, explains: “This award follows a number of innovative risk management and insurance solutions, empowering human and economic possibilities for our clients to help them achieve sustainable growth, continuity and profitability. Aon has the largest majority-owned network in Africa, servicing clients in 45 out of 54 countries.”

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7 Aon07271_1_E_RSA.indd 1

2014/08/27 11:32 AM

opinion between the two accounting standards bodies over how leases are to be reported on the balance sheet. The IASB has proposed a single model in which assets and liabilities are amortised on a straight-line basis using the effective interest rate, while the FASB has suggested separating between purchases and operating leases.

The latter method would result in a distinction between operating leases – defined as type-A leases – and loans on assets – type-B leases – in the income and cash flow statements. Current accounting rules allow companies to keep operating leases off the books, or to account for capital leases as debt.

“These substantial changes could place companies in a difficult position if their balance sheets are significantly weakened,” said Nusbaum.

New international accounting standard:

potential threat

Proposed changes to the international accounting standard may have a material impact on company balance sheets and could pose a threat to unprepared companies caught off guard.

T

his was the suggestion from Ed Nusbaum, global CEO and chairman of Grant Thornton International, who was addressing executives at a conference in Fancourt, George.

The changes being mooted by the International Accounting Standards Board (IASB) and Financial Accounting Services Board (FASB) will require that all leases other than short-term leases be reported on the balance sheet. This will affect balance sheet ratios that are often used by

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banks both for pricing loans and as the basis for debt covenants.

“The implication is that restated balance sheets Dominic Uys could result in companies breaking their debt covenants, in which case such loans may have to be repaid on demand,” said Nusbaum. “The exact nature of the final changes is still unclear, but what companies with business loans need to acknowledge is that this is a very real threat.”

The uncertainty stems from differences of

Grant Thornton’s International Business Report (IBR) provides tracker insights specifically presenting perceptions into the views and expectations of over 12 500 privately held businesses surveyed in total per year across 44 economies on an annual basis. Data relating to Lease Accounting draws responses from more than 3,000 businesses globally in 45 economies in February 2014.

David Reuben, partner and head of Audit at Grant Thornton Johannesburg, said that despite the heightened awareness by SA business executives, the data indicates that 79 per cent of local companies believed the changes would have no effect on their ability to comply with debt covenants, which is rather concerning.

He explained that this might be due to the belief that capitalised lease loans would possibly fall outside the computation of covenant ratios. “However, with nearly 67 per cent of respondents having business loans and with 49 per cent of them having debt covenants that could be payable on demand if they break these covenants, this is not a trifle matter,” said Reuben.

“As we don’t yet know which way this will go, it’s hard to refute the proposition that all businesses will be affected. If their borrowings or definitions of their borrowings will be affected by the new accounting convention, then most certainly the business will be affected. This talks to the point that each component of financing – capital goods, expansions, working capital, leases – will all require specific attention in financing agreements and not simply a blanket financing facility,” Reuben concluded.

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5

IRMSA -Cruywagen Risk Lab

The Institute of Risk Management South Africa welcomed delegates to the scenic Vineyard Hotel for the Cape Town leg of its annual Cruywagen-IRMSA Risk Foundation Risk Lab. The jam-packed programme featured top speakers on economic, infrastructure, political and cyber risk in South Africa and Africa more broadly.

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edbank senior economist, Nicola Weimar, gave an in-depth analysis of global and local economic risks. She stressed that in South Africa, there is a crucial need to put down the basic infrastructure required to unlock private sector growth and grow the tax base.

She listed constraints in power production as a key economic risk in South Africa, along with inequality issues including strikes and inequality protests which undermine production and exports even further, hurting the economy and increasing the probability of job losses.

for a developing market context, are among the key risks to South Africa’s planned infrastructure project pipeline, according to director Rob Childs from infrastructure consultancy, i@Consulting.

“According to the most recent World Economic Forum Global Competitiveness Report, South Africa falls roughly halfway – rated 63 of 148 countries for infrastructure competitiveness. This rating has been steadily declining over recent years,” said Childs. He added that the country’s National Development Plan (NDP) provides hope in this area, but will require that the country borrow significantly if the goals of the plan are to be met.

“If we want to grow faster, we need to lift the constraints on producers and exporters and eliminate power and other economic infrastructure constraints to reduce the cost of production,” Weimar summed up.

“At full implementation of the NDP with regards to infrastructure spending, gross general government debt as a percentage of GDP will rise from 42.3 per cent to roughly 56 per cent,” he explained. “It is critical that the capital is invested in the right projects.”

Skills and regulation crippling infrastructure Insufficient engineering and artisanal skills, coupled with comparatively excessive legislation

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Skills deficit A critical risk to accelerated infrastructure development is the significant skills and

competency deficit in the country, said Childs.

“South Africa is producing an average of 2 440 graduating engineers every year. In the United Kingdom, the number is 10 765, and in India, it is 763 635.” With the percentage of school-leavers passing mathematics and science subjects appalling low, there is an urgent need for an investment in the education of these skills, and this requires long-term thinking and investment, he emphasised.

Long-term measures required: • An ongoing long-term programme to improve maths proficiency and subscription in both maths and physical sciences at school level.

• Coupled with an increase in bursaries to universities and universities of technology.

• A move away from medium-term contracts for engineering professionals, towards a model of continuity where permanent positions are the norm.

• Smooth infrastructure spending and communication of long-term commitments to the construction industry.

• Increase graduate recruitment and training.

Solutions for the medium to short-term: • Extend retirement ages for engineering professionals.

• Only hire engineering professionals on the basis of competence – given the scarce supply, there is no need for affirmative appointments.

• Greater innovation in project team resourcing, allocation and mobility – coupled with government supply chain reforms.

Regulation: stifling innovation A further critical risk is the comparatively complex regulatory environment in South Africa, when compared with developing economies such as Malaysia and China, said Childs. “By way of example: the Department of Water Affairs and Forestry must comply with some 16 Acts. In addition, it must comply with a multitude of other standards, such as those for construction, accounting compliance and water quality and several others. On top of this, procurement (inclusive of construction), must also be packaged to meet multiple other government policy objectives, such as labour creation, black economic empowerment and others.”

This, he said, is the same across multiple infrastructure development sectors. The result, says Childs, is that professionals in the industry become more concerned with compliance than

with getting things done. “Regulation in South Africa is stifling innovation. You think you’re doing well because you’re complying. We need to reward those that are taking risks and getting things done.”

The need for renewal The country is continually faced with difficult decisions and torn priorities between spending on social support infrastructure, such as poverty alleviation grants, and investment in productive economic infrastructure. This, suggested Childs, requires the development of clearer decisionmaking philosophies and techniques.

“Fortunately, we also have emerging experience and are increasingly demonstrating innovation in the practice of infrastructure asset management.

Government is also increasingly focused on the need for economic infrastructure, reshaping cities for accelerated economic growth, and care of infrastructure,” he added, emphasising that much work was needed to deal with infrastructure renewal in particular.

“Infrastructure lasts a long time, but not forever.

You do have to replace it. And if you don’t maintain it, you have to replace it sooner,” he noted, reiterating the need for adequate capital renewal and maintenance budgeting to ensure that assets last and can be replaced when required. The country is facing a renewals bow wave, he warned.

Renewal measures required: • Valuation of all public infrastructure on the depreciated replacement cost basis; • Quantifying asset lifecycle needs; • Establishing infrastructure risk profiles; • Incorporating risk-based optimised decision-making into planning within public sector organisations, and in national funding allocations; • Developing a national infrastructure risk monitoring system; • Learning how to sell infrastructure lifecycle needs and benefits of appropriately balanced lifecycle needs; and • Investing in infrastructure asset management practices and management capabilities.

Additional speakers included Institute for Future Research director, Andre Roux, who shared insights on possible future risks, noting shifting role of the US economy as China’s power grows, Africa’s ability to correct its governance and education deficits, and the voting behaviour of South African ‘born frees’ as key uncertainties of the future.

Well-known political analyst Justice Malala gave an insightful and humorous overview of SA politics for the next five years. IRMSA president, Sheralee Morland, emphasised the critical need for risk managers to bring all these conversations into their own organisations and strategies.

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No rest for

the corrupt Dominic Uys

Business opportunities in developing countries abound and, especially in Africa, businesses from across the spectrum are expanding their footprint into countries like Kenya, Mozambique and Nigeria. The opportunity for corruption is, unfortunately, also prevalent, and a number of South African, as well as international companies have been accused of corrupt practices in developing markets.

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oth in South Africa and across our borders, players in different sectors have been accused of bribing officials to bring resources into countries or to secure contracts.

In a recent case, an executive director of South Africa’s Pinnacle Holdings was charged with attempting to bribe a senior police official in an attempt to win a contract. In addition to the company’s shares taking a hit, the Johannesburg Stock Exchange (JSE) took up an investigation against the company, alleging a violation of its disclosure rules.

In this year, the Organisation for Economic Cooperation and Development (OECD) also issued a review of South Africa’s efforts to implement anti-bribery measures, finding that corruption in public procurement tenders remained a serious problem.

The issue not only affects companies who don’t play by the rules however, according to David Rix, commercial forensics consultant at Caveat Legal. In the interconnected world of business, Rix notes that it is becoming increasingly important for all businesses to know their partners, clients and service providers intimately.

The law of the lands Rix points out that South African corporates listed on foreign stock exchanges foreign listed firms doing business in other countries are under increasing pressure to comply with the anti-corruption legislation of both the countries in which they are listed, as well as the countries where they operate.

To start, Rix says that all companies doing business in South Africa are required to comply with the Prevention and Combating of Corrupt Activities Act (PreCCA). “However, companies engaged in business with overseas-based entities may also have to comply with the United Kingdom Bribery Act (UKBA) policed by the Serious Fraud Office and the United States Foreign Corrupt Practices Act (FCPA) enforced by the US Securities and Exchange Commission. Brazil, Russia and Australia have adopted similar legislation,” he says.

“South African companies need to be aware of the fact that enforcement agencies in these countries will hold the company listed in their jurisdictions liable for the practices of its business partners elsewhere. In terms of the UKBA, described as the toughest anti-corruption legislation in the world, even individuals or companies that carry on business or part of a business in the UK can be prosecuted in terms of the Act regardless of where the crime occurred,” he adds.

According to Rix, South African companies using foreign agents and suppliers to expand into Africa are particularly at risk since ‘facilitation payments’ are often considered a common business practice in many African countries.

“Arguably the most high-risk industries are those doing work with, or on behalf of, government departments, especially those required to obtain any sort of permits or licences,” he says.

“For example, a UK based manufacturer (company A) distributes its goods via a third party, South African company (company B). An agent or member of company B proceeds to secure a government tender through bribery, thus securing a large market for company A’s goods. In terms of the UKBA, company A can be held liable for the acts of company B. The same applies to US-based companies who fall under the FCPA,” Rix continues.

“If a local branch missteps, it affects the entire global organisation. Generally speaking, it’s the head office or the parent company listed on whichever stock exchange, that is held responsible. If their subsidiary company in South Africa, for example, is caught paying a bribe to secure a government tender, the head office of the company would be facing the fine and the sanction.

I believe that if said company were to reach a settlement, they would in all probability recover that from the South African entity - that’s where I believe the highest risk is for local companies.”

Proper procedures in place

He adds that companies that fall foul of such legislation not only risk being dropped as preferred business partners by foreign companies, but could also face fines or claims worth millions of rand. Rix notes that there are two South African companies listed on both the JSE and the Nasdaq under investigation by US authorities for alleged corruption.

Because of the increased pressure, Rix notes that a number of international companies have started to institute measures to mitigate the risks. “What I’ve noticed is that some of the large American companies, who are a little worried about the risk, prepare an educational package that gets sent to subsidiaries or 3rd party businesses partners.

Both the UKBA and the FCPA make it an offence to tender bribes to foreign officials in order to gain or retain business. The UKBA even goes as far as imposing strict liability on organisations that fail to prevent bribery.

Each member of this business needs to complete this programme, in order to make sure that everyone involved in the business acknowledges and understands the company’s stance on corruption,” Rix says. 

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“The company can now state that it has taken reasonable steps to make sure that these companies understand them and their stance on corruption. Now if something happens, they would, in theory, be able to cut that limb off,” Rix continues.

Rix opines that South African companies with foreign interests or business partners need to consider taking similar steps to ensure that they are protected. He outlines a number of crucial steps to take.

“One of the first things that a company needs to do is to create a charter. It needs to state that the board of the company acknowledges the existence of the relevant legislation and that the company supports it. The charter needs to be disseminated to their own staff, as well as the companies they do business with,” he starts.

Next, the company needs to assess where it currently stands regarding the working methodology of the people within their business. “For example, if they have people that go into Africa or deal with government institutions, they need to assess whether their company ever entertains government officials or takes part in any sort of ‘grease payment’.

If the answer is ‘yes’, the company has to determine how these activities are recorded in the books,” Rix states.

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“At the hand of this assessment, the company next needs to draft policies and procedures.

Then, once again, brief their staff and associates on these new procedures and how they must operate going forward,” he says.

Lastly, Rix adds another crucial step. “A very important part of this is knowing who you’re doing business with. The catchphrase is KYC (know your client). We call it due diligence, and I would say that you need to research your client or partner’s business connections down to two or three degrees,” he says.

Rix adds that this is by all accounts a lengthy process for a company that starts the procedure from scratch. “We advise companies to at least get the ball rolling from their side. That way, if something does happen, the company can at least prove that it is in the process of handling this kind of situation,” he imparts.

Increasing action Rix warns that international businesses across the board are likely to see pressure mount even further in the coming years. “The US anticorruption laws have been around since the 1970s but we have seen a renewed drive to enforce them in the last few years. I believe that we will see a significant increase in corruption investigations being launched against listed companies,” Rix warns.

“I believe one of the reasons that this is going to be happening more frequently, is that if these foreign regulators are successful in their prosecution, they reap massive financial benefits in the form of fines or settlements. I also think that the South African authorities will start taking more action against such companies as well, based on the success of foreign regulators of late,” Rix concludes.

Four South African companies listed on the New York Stock Exchange through derivative vehicles are currently under investigation by the SEC and the US Department of Justice.

Recent cases handled by the SEC also include a charge against California-based technology company, Hewlett-Packard, for violating the FCPA when subsidiaries in three countries made improper payments to government officials to obtain or retain lucrative public contracts. Hewlett-Packard agreed to pay $108 million to settle the SEC charges earlier in this year.

In 2012, the SEC also charged the Londonbased medical device company, Smith & Nephew, with violating the FCPA when its US and German subsidiaries bribed public doctors in Greece for more than a decade to win business. The company and its US subsidiary agreed to pay more than $22 million to settle civil and criminal cases.

The perpetual academic Dominic Uys

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RISKSA stole a few minutes with Peter Hewett, managing director of the independent financial planning firm, Efficient Advise.

Hewett was voted the financial planner of 2014 by the Financial Planning Institute of Southern Africa (FPI) in August. He shares some of his experience and professional insights with us.

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eing named the financial planner of the year by the FPI is no small feat, and it is safe to say that Hewett was up against some stiff competition this year. Nonetheless, spend ten minutes talking to this warm family man, and it becomes clear why the title was bestowed upon him.

We wanted to find out what it takes to become a top financial adviser nowadays.

Tell us a about your career thus far I started my career in financial services with Absa Trust (initially Volkskas Trust). At that stage, I was very young, having just left the army and I didn’t really have much of an idea of what I was signing up for but that was my start in the fiduciary services industry.

I learnt an amazing amount about tax, estate duty and the like during the course of those first few years. We administered deceased and insolvent estates and during that time I got to work with industries from steel businesses to pharmacy groups and everything in between.

financial planning services and consisted of one advisory practice in Cape Town. We restructured and rebranded the business over the last five years and today we are 138 staff and 81 advisers strong.

As far as formal studies go, I did my BCom degree in economics and business management through UNISA. After that, I did my CAIB(SA) (Certified Associate at the Institute of Bankers of South Africa) and CFP (Certified Financial Planner) qualifications.

At the moment, I spend my spare time studying towards my South African Institute of Financial Markets qualification so that I can keep up to speed and up to date. I believe in this industry you need to keep yourself technically astute and up to date, so throughout your career you should never stop learning.

Aside from receiving the financial planner of the year award, what are some of your other career highs?

I received some awards for my academic studies. I achieved top marks in the country for CAIB among others. In my Nedbank and FNB days I won the managing director and top achiever awards at both companies but my proudest achievement by far has been to successfully grow a business like Efficient Advise up from start-up to 138 people.

What has building a business from the ground up taught you?

The last five years have been quite a journey, and there are a few things that I’ve learned. Firstly, any new business obviously requires massive dedication and focus.

Along with that, a good team of key people



The fiduciary services arena is, in my opinion, an excellent background for anyone in the financial services industry to have.

From there I ultimately moved into private client portfolio management at First National Trust for a few years before I went on to work for Bank of England (which eventually became Nedbank) and operated as head of Nedbank Private Banking in Gauteng. There I handled the investment and banking sides of clients’ portfolios and I briefly handled home loans as well.

Ultimately I started my own practice before being approached by the Efficient Group to set up their distribution business. At the time, the Advise business was called FHS

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41812 Risk SA

When you grow over a thousand per cent in five years, as we have, your capital requirements become completely different to what you originally expected.

This was quite a challenge for us because we needed to make sure that we had our processes working right; our product committees were in place; our investments were established and a number of other things that made it so much more complex than just running a one-man operation.

is essential – you’ll never build a business on your own.

You have to identify what sort of competencies are required in your business, and then you need to go out and find people who are more competent than you are in those fields. Make sure that you have the right infrastructure to enable your business to function.

Surprisingly I’ve seen so many financial advisers just strike out on their own and simply hope that it will work.

One important piece of advice that I would give advisers building their companies is to have a proper business plan and then constantly challenge that plan so that you can find all the possible holes. Have realistic expectations and be critical of your own plan.

Lastly, as a financial adviser, you need to build a diversified business. I’ve seen so many people out there that have only risk or medical or short-term practices.

Whenever there is any regulatory or economic development that impacts their industry, they come under huge pressure.

You don’t have to be a jack of all trades – you can outsource certain functions or get those skills in. What is important is that your client sees you as his single point of contact for whatever he needs from a financial advisory perspective.

that we do have risks at the moment in terms of growth going forward.

That will impact on consumers and, in turn, on companies and financial results.

In our own industry, I think that we are going to see a bit of pressure mount over the next few years.

My perception is that the financial service industry may be shrinking slightly in terms of employment. Many of the employment opportunities that are available seem to be a reshuffling in the staff of the larger banks and financial services companies.

Lastly, tell us about your family and how you manage it in between the business and the studies?

Where do you think this industry is going?

My wife, Erica, and I have two sons, Ashley (16) and Andrew (13). I must say that during the week it is difficult to get a lot of time with the family. I try to get home before the kids go to bed because I tend to leave home before anyone wakes up. On Fridays, I always try to get home a little earlier and then we spend a lot of time together.

From a macro-economic perspective, the current level of unemployment and the current economic growth prospects in South Africa are likely to stunt growth in advisory services practices. I do have some concern

We enjoy nature, so we go to the bush as often as we can and we go to Buffelspoort quite a lot. I make a point of spending a lot of time with the kids on the weekend.

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Identify the clients that you want to interact with and make sure that your value proposition is attractive to them.

Understand the market that you want to penetrate and then just look at the different models already in the market.

There are a lot of business models out there, whether they are a franchise, independent, broker group type models and the like. The important thing to remember is that someone else went through all of the hard learning to perfect this model, making it a lot easier for you to establish yourself.

We initially put together a very comprehensive business plan and year on year we’ve ticked the boxes on what we delivered on, what we wanted to do and where we are now.

This is a good thing and you need to continue doing that with your business every year – but I think one of the biggest lessons that I’ve learnt in building this business, is to keep up with your growth.

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2014/08/19 11:48 AM

There might be a gap in the market, but is there a

Matthew Rosenberg, corporate manager, specialist classes at Renasa Insurance Company Limited

market in the gap?

Whether it be transport of rice in ancient China or astronauts to space in the 21st Century, risk transferring mechanisms have always been essential.

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SSP Ad Campaign A 2014 RiskSA.pdf

Niche products are a solution to the market’s cry for a specialised type of insurance.

Historically niche markets would have relied on other risk mitigation mechanisms for example, the financial market.

However, over time, insurance companies have become more inventive in their offerings – now providing insurance policies for numerous atypical risks. In contrast to traditional insurance products, price may not be the single or even the principal driving force behind these products.

While the local short-term insurance market is dominated by large homogenous portfolios primarily managed by a handful of elite players competing on price, the profitability of niche products relies more on understanding the specific market and being able to satisfy it.

The unique nature of these products means that they are able to offer a higher return on investment and, therefore, do not necessarily require a large portfolio of clients.

Consequently smaller/start-up companies, unable to compete with the volume-driven bigger companies, may be enticed to enter this segment of the market. The lack of substitute products allows for these companies to establish themselves, while their niche offering could be a major catalyst for growth within the industry.

However, a novel idea does not necessarily mean a specific product will be a success.

Understanding the market requires the ability to determine which products, despite being innovative and interesting, are unlikely to succeed.

be deemed unsuitable, the market may regress towards relying on habitual methods of mitigating these risks.

Digital Insurance at your fingertips

The demand, as well as the longevity of the product is, therefore, of vital consideration.

Technical market knowledge is certainly an essential aspect in deciphering the niche market and developing/maintaining an appropriate product and insurance companies offering niche products often rely on resources that possess specialist technical knowledge and underwriting experience in a specific discipline.

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Whether the insurance company relies on a specialist division, a specialist class broker or, as is common in South Africa, a UMA (Underwriting Management Agency), these agents of the insurance company are where the market-related expertise exist.

Frequently managed by individuals with firsthand experience of the specific market, these agents possess a thorough understanding of the technical aspects of the relevant market. This also ensures that the attitude of the target consumer is properly understood and that not only is the product developed correctly, but its distribution is handled appropriately.

Even the most innovative and attractive product offering is unlikely to succeed without a proper distribution network. So, whilst a market may well exist within the gap, if adequate market knowledge does not exist it may not appeal to, or even reach, the intended consumers.

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Lastly, despite all analysis done and expertise involved, there will always be an element of luck behind success in a niche market. Being in the right place at the right time, and of course knowing the right people are all vital components of a product’s success.

This aspect is of paramount importance and if a product is to succeed it is important that a prudent demand analysis is carried out and that access to sufficient technical market knowledge exists.

Given the characteristics of the South African insurance market and the fact that it has matured into a highly competitive and regulated oligopoly, a movement towards providing innovative products to a niche market could certainly become vogue as companies look to enter uncharted territory with the hope of achieving higher returns and avoiding direct competition with the elite insurers.

It is crucial that the demand analysis focuses on both current and future market trends. Niche products run the risk of being a fad as, should these products

However, this is not a ‘get-rich-quickscheme’ and, as already highlighted, it is also a road riddled with its own complexities and barriers to entry.

“Even the most innovative and attractive product offering is unlikely to succeed without a proper distribution network.”

Call us on +27(0) 11 384 8600 email info.za@ssp-worldwide.co.za or visit www.ssp-worldwide.com/Africa

2583 TheCheeseHasMoved

T

he question here is whether the supply and demand equilibrium relating to a specific risk results in a viable insurance product, with an explicit focus on niche markets. This is exactly what managing a specialist class division requires; an understanding of these innovative insurance products and the demand for them.

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1

2014/05/05

10:01 AM

The outcome

of the matter

There has been increase speculation in the financial services industry on the effects that the Treating Customers Fairly (TCF) initiative will have on their business. RISKSA chats to Leanne Jackson, head of Market Conduct Strategy at the Financial Services Board (FSB), about where we are with TCF, the Twin Peaks reform, the Retail Distribution Review (RDR), and what to prepare for in 2015.

Melissa Anne Wentzel

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What phase of the Twin Peaks and TCF reform are we currently in?

Where the broader Twin Peaks process is concerned, the National Treasury is currently revising the draft Financial Sector Regulation Bill, which was first published in late 2013 and will establish the two new regulators. A revised version of that bill is expected to be submitted to parliament this year still.

The Financial Sector Regulation Bill will create the Prudential and the Market Conduct Authority. If the Bill is passed this year or early next year, that could mean implementation in the first half of next year (2015). However, creation of the two new authorities is only

where we might propose a fee-based model we do recognise that exceptions may need to be made for the lower income or mass market segment.

There has not been a final decision yet as to what that model will look like. When the RDR discussion document is published for comment it will probably invite specific suggestions on an appropriate model because we recognise that access to fair and affordable advice is vital in that market and we don’t wish to compromise that.

The aftermath of the RDR in the UK saw the number of financial advisers dwindle.

Will South African advisers face a similar fate?

I think we need to treat comparisons with the UK with caution. The nature of the Retail Distribution Review in the UK had a very different scope to what we’re looking at here.

So to assume that there would be similar types of results attributable to our RDR is not something we agree with.

One of the objectives (of the RDR) is to ensure the ongoing sustainability of fair financial advice, so we’re not looking to reduce numbers of advisers – we’re looking to ensure good quality advice through a sustainable model.

Can you describe the benefits of an outcomes-based regulatory approach for financial advisers?

the first phase of the new legal framework.

The next phase will be the harmonising and reviewing of all the different pieces of legislation that the two new authorities are responsible for.

In terms of the TCF initiative specifically, we’ve already begun to implement that in the way we regulate and supervise the industry.

Although the Twin Peaks legal developments will entrench TCF in an overarching way, we’re busy implementing it on an incremental basis at the moment, within our current framework.

With financial services likely moving toward a fee-based model, who will cater to the lower income or ‘mass market’ segment of the retail investor base in South Africa?

There are two things to clarify here: Firstly, the shift to an entirely fee-based model is currently being contemplated in the savings and investments product space. In the case of risk products, it is likely that at least some elements of commission will be retained. Secondly, we’ve made it very clear that even in those areas

An outcomes-based approach is something that we believe will be positive for all stakeholders because it focuses on the end result rather than applying a tick box approach to following rules and processes. It makes a lot of sense for all players in the sector to work towards building a model that delivers the right customer outcomes.

The TCF approach will help to rebalance the responsibility of product suppliers and intermediaries when it comes to fair customer outcomes. It’s probably fair to say that market conduct or consumer protection legislation in South Africa’s financial services sector has been quite heavily slanted towards the conduct of the advisers, sometimes with insufficient focus on the responsibilities of product suppliers. We think financial advisers will be encouraged to realise that we’re looking at making sure responsibility is spread a bit more evenly across the value chain.

What should the financial services industry prepare themselves for in 2015?

The industry, if they have not already done a lot of work in thinking about how they would demonstrate fair treatment, should get to it fast because they’re actually behind the curve.

They should focus on implementing TCF and

really getting it well embedded in their culture, strategy, and processes during 2015 and onwards.

The RDR discussion document should be out in the next couple of months. Implementation time lines for RDR are difficult to confirm at this stage but we realise we will need to give reasonable implementation lead times. Having said that though, we have indicated that there are certain specific conflicted remuneration practices we’re troubled by that will result in interim interventions.

We’ve already published a request for comment on an intended prohibition of sign-on bonuses for recruiting representatives. That’s an example of an interim intervention that’s not going to wait for the full RDR implementation.

Will there be any training?

The FSB and Treasury are committed to being very consultative on this whole process. As any new legislation or policies are developed there will be consultation on those. Treasury is planning, together with the next draft of the Financial Regulation Bill, to publish a policy statement on market conduct regulation, which will clarify the objectives and approach of the new market conduct regulator.

The FSB will always consult on any new measure we introduce.The consultation doesn’t only take the form of issuing a document and asking for comment – wherever appropriate we will run workshops, etc. and try to be as accessible as possible when industry organisations or even particular financial institutions ask to discuss implications.

Over the last three years we have conducted a significant number – easily over a hundred – presentations, meetings, discussions, and workshops with a wide range of stakeholders on the implications and expectations of the TCF framework. There’s a lot of internal training and planning that goes on as well, because TCF also means a shift in our approach to supervising the industry.

So our emphasis is not so much on ‘training’ the industry, but more on being consultative and accessible where guidance is needed..

We’ve also issued different types of written guidance. For example, the TCF Roadmap, the results of a TCF pilot study and a TCF baseline study.

We have also designed a TCF self-assessment tool that we’ve published on our website to enable any type of regulated entity to use and adapt, to inform their own implementation of TCF. The FAIS department has published specific TCF guidance for small advisory firms and for investment managers. Those kinds of initiatives will continue as and when we identify a need for them.

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ASIA

PACIFIC OVERVIEW

COUNTRIES

Norton Rose Fulbright recently published an overview of the regulatory framework for 20 countries in Asia Pacific. The report looks at the ten most common regulatory issues in each country, and identifies regulators and the extent to which foreign insurance companies may be permitted in the region. We bring you ten things you need to know. This month we look at Australia and China.

Australia

Contributed by: Norton Rose Fulbright Australia

1. The regulator The Australian Prudential Authority (APRA) is the prudential regulator, and the Australian Securities and Investments Commission (ASIC) is a consumer protection regulator, for the insurance industry.

General and life insurers and reinsurers carrying out business in Australia must be authorised by, or register with, APRA. Insurers, insurance brokers, agents and distributors must hold an Australian financial service licence (AFSL) issued by ASIC, be authorised by the licensee or rely on an exemption from the licensing requirements.

A reinsurer may operate from abroad without registering with APRA or holding an AFSL. Relevant legislation and regulation is primarily made at the Federal level.

2. Subsidiary/Branch A foreign life insurer may establish a locally incorporated subsidiary to carry out life insurance business in Australia. Alternatively, a US registered life insurer may seek to operate in Australia through a branch as an Eligible Foreign Life Insurance Company (EFLIC).

A foreign general insurer may establish a locally incorporated subsidiary to carry out insurance business in Australia (foreignowned subsidiary). Alternatively, it may operate in Australia through a branch (foreign insurer). A foreign insurer is required to appoint an agent in Australia.

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EFLIC, foreign-owned subsidiaries and foreign insurers are subject to the same APRA requirements as Australian insurers but have different governance requirements.

3. FDI restrictions Generally, approval of the Foreign Investment Review Board must be obtained prior to any foreign person acquiring a direct or indirect interest of 15 per cent or more in an Australian company through the acquisition of shares or assets in the Australian company or any offshore parent of that company.

4. Change of control approvals In addition to the FDI restrictions, an entity that holds an AFSL must notify ASIC of any change in control within 10 business days after the change occurs. Control includes having more than 50 per cent of the votes or shares in the entity or having the capacity to appoint its directors or determine its financial operating policies.

5. Minimum capital The APRA prescribed minimum capital amounts for insurers are: • Life insurer – A$10 million • General insurer – A$5 million (A$2 million for captives).

There are no minimum capital requirements for insurance brokers, agents and financial advisers.

6. Risk-based capital insurers An insurer must have capital in excess of its Prudential Capital Requirement (PCR). The PCR is the prescribed capital amount plus any supervisory adjustments made by APRA in respect of each insurer.

The prescribed capital amount can be calculated using either APRA’s ‘Standard Method’ or an internal model approved

by APRA. The Standard Method calculates the capital amount based on insurance risk, asset risk, asset concentration risk and operational risk.

Currently, life insurers are required to have separate solvency and capital adequacy requirements. Under those solvency requirements, a life insurer’s statutory fund must have a capital base that exceeds 90 per cent of the fund’s prescribed capital amount.

However, APRA is proposing to replace these requirements with the single capital adequacy requirements outlined above.

7. Group supervision

9. Portfolio transfer

APRA has the power to authorise (in the case of a general insurer) or register (in the case of a life insurer) an Australian incorporated non-operating holding company (NOHC) which owns at least one Australian authorised/ registered insurer.

Court approval The transfer of life or general insurance business within Australia must be carried out by a scheme confirmed by the Federal Court of Australia.

An ‘insurable group’ exists if an Australian insurer has controlled entities or is itself the subsidiary of an authorised/registered NOHC. This provides APRA with some level of control over the group that the insurer of NOHC manages. Most of APRA’s powers that apply to an insurer, also apply to a NOHC.

The insurer must provide a copy of the scheme to APRA and ASIC and an approved summary of the scheme to each affected policy owner.

A notice of intention to make the application must also be published in the Federal Government Gazette and advertised in the one or more newspapers approved by APRA.

Although APRA does not have direct oversight of the subsidiaries of an insurer or NOHC, it can impose directly on the insurer or NOHC to take specified actions in relation to their subsidiaries.

APRA approval Alternatively, two registered life insurers may apply to APRA for approval of a transfer of business between them under the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth).

8. Policyholder protection

10. Outsourcing

Life insurer Life insurers are required to maintain statutory funds, which act as a mechanism for quarantining the life insurance business of the company from any other business of the company.

If an insurer outsources any material business activity, it must implement a written policy, approved by its board of directors, to monitor and manage the outsourcing arrangement. A ‘material business activity’ is one that may, if disrupted, have a significant impact on the insurer’s business operations or its ability to manage risks effectively.

General insurer APRA administers the Financial Claims Scheme (FCS), which makes payments to certain policyholders with valid claims on an insolvent general insurer. The government funds the payments made under the scheme and then seeks recovery from the general insurer in the winding up process. Any shortfall may be recovered through a levy on the general insurance sector.

All material outsourcing arrangements must be documented in a legally binding agreement, which must include terms relating to the services to be provided, fees, liability, as well as review and audit procedures. Outsourcing to offshore services providers may be permitted after consultation with APRA.

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China 1. The regulator The China Insurance Regulatory Commission (CIRC) regulates insurance companies and intermediaries, including agents, brokers, loss adjusters and their business operations.

2. Subsidiary/Branch Life and non-life insurer subsidiaries are permitted. Branches of non-life foreign insurers are permitted. Branches of non-life foreign insurer are permitted. Licenses are issued on a ‘province by province’ basis.

3. FDI restrictions Yes. • Non-life: 100 per cent by foreign investor • Life: 50 per cent by foreign investor.

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Contributed by Norton Rose Fulbright LLP

• An insurer branch or subsidiary with less or equal to 25 per cent foreign investment is ‘foreign-funded’ and different administrative regulations apply. E.g. a representative office is required for a two-year ‘seasoning’ period before a foreign-funded insurer may be set up.

RMB 200 million for applying one of the following three basic business: (i) life and annuity insurance, (ii) health insurance and (iii) accident injury insurance, and additional RMB 200 million for adding one more basic business above.

4. Control approvals

RMB 1 billion for carrying out all three basic businesses above, plus one category of the following two additional basic businesses: (i) participating insurance and (ii) universal life insurance.

• Less or equal to five per cent – prior approval of CIRC required.

• More than five per cent – notification to CIRC after transfer.

• Directors and controllers must be approved

by CIRC as ‘fit and proper’.

5. Minimum Capital Insurer (life) – Nationwide:

RMB 1.5 billion for carrying all five basic businesses above.

Branches: RMB 20 million for any single branch and RMB 500 million max for multiple branches.

Insurance (non-life – Nationwide RMB 200 million for applying one of the following basic businesses: (i) motor insurance (including mandatory and commercial), (ii) enterprise/household property insurance and engineering insurance (excluding special risk insurance), (iii) liability insurance, (iv) marine hull/cargo insurance and (v) short-term health/ accident injury insurance, and additional RMB 200 million for adding one more basic business above.

quantify categories of risk (such as insurance risk, market risk, credit risk etc.) supported by comparable amount of capital.

Branches: RMB 20 million for any single branch and RMB 500 million max for multiple branches.

Yes. Funded by industry levies. In the event of insolvency or revocation of the licence of a non-life insurer whose assets are insufficient to pay benefits, a non-life policyholder protection fund covers 100 per cent of losses up to RMB 50,000 and thereafter, 90 per cent of losses for individual policyholders and 80 per cent for corporate policyholders.

Carrying on extended life businesses (such as unit-linked insurance and variable annuity insurance) or extended non-life businesses (such as agricultural insurance, special risk insurance, credit warranty insurance and investment linked insurance) will be subject to higher qualification requirements such as having engaged in requisite basic businesses, average net asset value requirements etc.

6. Risk-based capital Yes. China formally launched Solvency II regime in May 2013, which includes the three-pillar structure. One of the three pillars is the requirements on capital quantification, which obliges an insurer to identify and

7. Group supervision Yes. A group requires two or more insurance companies approved by CIRC and then constitutes all member companies.

8. Policyholder protection

In the event of insolvency or revocation of the licence of a life insurer, the policies are required to be transferred to a new insurer and the policyholder protection fund will make up the shortfall in supporting assets to 90 per cent of individual policyholder liabilities and 80 per cent of corporate policyholder liabilities.

9. Portfolio transfer

policyholders is required for a voluntary portfolio transfer between contracting insurers.

If a policyholder objects or fails to consent, CIRC cannot compel the transfer of a policy.

In the event of insolvency or revocation of the licence of a life insurer, CIRC can compel a portfolio transfer without policyholder consent.

10. Outsourcing There is no unified law on outsourcing applicable to insurance operations. Individual laws address individual areas. For example, there is an express prohibition on outsourcing the management of the security of information systems. Non-core back-office functions may be outsourced to qualified outsource providers (e.g. call centres, customer services and book-keeping).

Next month Hong Kong and India will be profiled.

Yes. Consent of CIRC and individual

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TCF The road ahead for Treating Customers Fairly

More than a few of the regulations and methodologies in South Africa’s financial services industry are based on the example set by the practices in the United Kingdom (UK).

Dominic Uys

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“The Financial Services Board’s (FSB) deputy executive officer, Jonathan Dixon, has already been quoted in May as saying that there will be increasingly harsh penalties for insurers and advisers who do not embed TCF practices into their frameworks as an utmost priority.

F

rom the Twin Peaks regulatory system, to the recent and vehemently debated binder regulations for the insurance industry have their origins across the pond.

Could recent developments in the Treating Customers Fairly (TCF) arena now signal what South Africa will be in for two years down the line?

A significant number of insurance product providers and brokerages in the UK have recently been given fines for violating the TCF principles. The 20 highest fines that the UK’s Financial Conduct Authority (FCA) have doled out over the past year and a half alone, reportedly amounts to more than £180 million. Breaches range from failing to ensure suitable advice had been given to customers, to poor complaints handling and inadequate administration processes.

This outcomes-based regulatory and supervisory approach was designed to ensure that specific, clearly articulated fairness outcomes for financial services consumers are delivered by regulated financial firms. And companies are expected to deliver on these.

Ryan Chegwidden, executive head of product and technical at Altrisk, is of the opinion that this trend is very likely to cross over onto South African shores, given the similarities between the two regulatory systems.

The TCF approach places emphasis on the outcomes and suitability of the advice provided, product design, the responsibilities of all role players throughout the distribution channel and the manner in which products are marketed. Ensuring that customers are treated fairly is now a joint responsibility for product providers and advisers. At the same time, the retail distribution review (RDR) currently underway also needs to ensure that the advice, distribution and earnings structures for advisers support the delivery of TCF outcomes,” Chegwidden says.

“The bottom line is that the FSB has expressed a desire to not only develop and monitor the TCF framework, but also to enforce adherence.

This would include initial negotiation of any corrective action by engaging with the firm’s senior management as per the TCF roadmap, right through to formal action against the firm if the breach was deemed to be a significant risk to consumers,” he continues.

The FSB’s current enforcement powers include: administrative fines and penalties; declaration of business practices to be undesirable, with associated powers to order cessation or amendment of the practices concerned; suspension or withdrawal of regulatory licenses; termination or withdrawal of the approval of certain individuals to act in certain capacities; damages and compensation awards; and referral of certain matters to the High Court or National Prosecuting Authority.

In essence, the step-up in punitive action by the UK regulatory body signals a wave of fines to come in the South African arena, according to Chegwidden. But one question does however arise from this: While South Africa’s FSB and regulatory system mirrors the UK’s example, does this mean that South African companies also behave exactly like their UK counterparts?

The answer to this is definitely open to debate.

Ask any company about its TCF compliance and they would be most vocal in their answer.

The regulatory bodies may however feel that there is some left to be desired.

Peter Todd, president of the Insurance Institute of South Africa (IISA) points out more self-regulation

is required within the insurance industry. Deputy director general of the National Treasury, Ismail Momoniat, also recently stated that the policy wordings for many insurers in the market can still be made clearer and contain less. His proposed solution, creating a standardised policy wording, has been met with some criticism however.

Key cases in the UK Local and international based companies alike have come under fire by the FCA, and the TCF principles are seeing increasingly harsh enforcement. Fines as high as £30 million have been handed out for failure to meet multiple TCF principles, and indications are that this will only gain momentum.

A few of the larger and widely publicised cases of fines imposed by the FCA include the £8.3 million penalty against Stonebridge International Insurance in August of this year.

The company outsourced the sales and customer services operations of its personal accident, accidental death and accidental cash plan insurance products to various authorised intermediaries.

The FCA found that the policies had failed on a number of TCF principles, including weaknesses in systems and controls, poor oversight of outsourced functions, inadequate information disclosure at point of sale and a failure to take reasonable steps to ensure that customers were treated fairly.

In September of last year, Clydesdale, owned

by National Australia Bank, was fined £8.9 million for underpaying on mortgages, while insurer, Scottish Equitable was hit with a £40 million fine for poor administrative procedures in 2012. Also in this year, Credit Suisse International was ordered to pay £2.4 million for failing to ensure financial promotions for one of its products were clear, fair and not misleading.

The words of David Rix, commercial forensics consultant at Caveat Legal, sum up what the industry is likely to see. “We will definitely start to witness the financial regulators in the country take increased legal action against companies that fall foul of the law.

The example has been set by international regulators who have won a number of key cases against companies. And the South African authorities will definitely start following suit based on the successes of their overseas counterparts.”

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Are professionals

Mike Lledo CEO of Consolidated Financial Planning

W

wealthier than most?

e are all aware that extreme wealth often correlates to a lower education standard: Richard Branson has no college degree; Walt Disney dropped out of high school at age 16, as did Henry Ford; while Steve Jobs only attended one semester of college.

As professionals, our earnings potential is sometimes envied by others. Such people seldom factor in the years of foregone income while studying and completing articles/ traineeships. While we were studying others were earning and – assuming they saved – enjoying the benefits of compounding wealth for longer.

Still more surprising, extreme education seems to correlate to lower wealth levels – something pointed out by Paul Leonard CFP, an executive director of Consolidated and FPI Media Award winner, presenting recently at an Audit Partners Conference.

Leonard also highlighted a correlation between savings and stability: according to the book The Millionaire Next Door, he said, wealthy families don’t move a lot. Half of millionaires have lived in the same house for more than 20 years and do not flash their wealth.

The key to this disparity, said Leonard, was that while the highly educated were busy studying, others had started earning. The three mantras of wealth creation are: your income generating capacity; how long you work; and your ability to spend less than you earn and save.

Each of these three factors leaves one with more capital to save each month. The higher your income, the more you can potentially save and the longer you work, the more you can save because savings compound.

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He quoted Thomas Stanley’s book Stop Acting Rich, which states: “Nothing has a greater impact on your wealth and your consumption than your choices of house and neighbourhood.

If you live in a high-priced home in an exclusive community, you will spend more than you should and your ability to save and build wealth will be compromised. People who live in million-dollar homes are not millionaires.

They may be high-income producers but, by

trying to emulate glittering rich millionaires, they are living a treadmill existence”.

He points to two benefits of frugality: you can save more; and you ultimately need to save less.

Look at the maths: On an income of R500,000 but spending just R400,000 one can invest R100,000 and retire when that nest egg is big enough to generate R400,000 a year. On the other hand someone who spends, say, R480,000 can only invest R20,000 to a portfolio that must eventually help provide R480,000 a year in retirement. In other words, he is saving less yet needs to accumulate more.

Income is not wealth. Wealth is what you accumulate not what you earn.

The three mantras of wealth creation are: your income generating capacity; how long you work; and your ability to spend less than you earn and save.

JO

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Consolidating ICT infrastructure

post-M&A Captains of the insurance industry have told RISKSA that managing the changeover process once all the merger or acquisition paperwork is done, is one of the most vital steps to ensure a successful merged organisation.

C

Paul Fick chief technology officer at Jasco Electronics Holdings

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onsolidation of information and communication technology (ICT) infrastructure plays a major role in this, and Paul Fick, chief technology officer at Jasco Electronics Holdings highlights the potential pitfalls and explains what a successful strategy in this regard entails.

functions, not to mention disparate ICT solutions including Customer Relationship Management (CRM), Enterprise Resource Planning (ERP) and financial or accounting systems. Running two complete sets of solutions across each organisation is often not cost effective and can cause further challenges down the line.

Mergers and acquisitions allow organisations to achieve business objectives, however, this strategy has the potential to create enormous complexity when it comes to consolidating the operations of the two disparate organisations involved in the merger or acquisition.

Each business will have its own premises, as well as its own human resources (HR)

To leverage maximum effectiveness and business benefit from a merger or acquisition, it is typically advisable to consolidate ICT infrastructure. While not always a simple task, proper planning, preparation and some forethought can reduce the complexity that is associated with the consolidation of disparate ICT solutions and infrastructure.

Mergers and acquisitions are often used by organisations to gain access to expertise, additional profits, new markets and customers, technology and technology partnerships, or processes and infrastructure, or a combination of these.

Understanding the reasons behind the merger or acquisition is the first step in ensuring successful consolidation of ICT, as it is vital to ensure that during this process, operations are not disrupted, nor is the merged or acquired company damaged or destroyed.

When it comes to consolidating ICT, the deal structure itself also needs to be considered – was it a clean acquisition that will allow for a complete merger into the purchasing organisation?

If not, it may be necessary to keep infrastructure separate indefinitely or for some time. In this instance, it is vital to still capitalise on synergies wherever possible. In addition, it is necessary to understand whether or not management and control needs to be centralised. If so, more integration will be required.

One of the most obvious challenges with running two sets of ICT infrastructure is the cost duplication in terms of the licensing, support, maintenance and infrastructure required to accommodate such a siloed approach.

In addition, if infrastructures are run separately, the end result will inevitably be disparate systems that may not provide easy exchange or consolidation of information.

Support becomes a challenge, since often two different skills sets are necessary, requiring two different support teams.

In this scenario, it becomes impossible to leverage economies of scale in terms of people and systems, and it is more difficult to capitalise

on volume purchasing. In addition, the integration and consolidation of financial, business support systems and operational support systems is not easy and often downright impossible.

These challenges can cause a number of issues for the business. A siloed approach to technology inevitably causes lack of visibility due to the difficulty in obtaining a complete, consolidated view of the organisation.

In addition, ICT plays a supporting role for the business. If IT systems are not properly integrated and the systems do not work in similar ways, this will have a negative impact on operations and business efficiency.

Planning is paramount Converging separate ICT solutions and infrastructures requires careful planning and execution to ensure the most successful outcome. Firstly, gaining an understanding of both businesses and the merger or acquisition deal is essential in order to understand whether or not systems should, in fact, be integrated or should remain separate.

From there, the various systems should be mapped, along with processes, to enable a greater understanding of the systems and infrastructure as well as the reasons why they are used. Any possible synergies should also be explored, and the cost impact of convergence must be fully understood.

Furthermore, it is vital to have a roll-back plan, in order to ensure that historical information or the ability to access such information is not lost. Above all, during any consolidation, the ability for customers and other stakeholders to communicate with the business must be preserved, as well as its internal communication ability, otherwise this

could mean lost revenue, damaged reputation and possible future business loss.

If planned and executed properly, over off-peak periods, or during evenings and weekends, the downtime associated with such a consolidation can be negligible, minimising the negative impact to operations.

Over and above careful planning and implementation, return on investment (ROI) must be carefully monitored. In general, the ROI is positive from the consolidation of ICT infrastructure, however such a process must never be done blindly. Without the right consideration, the consolidation could end up costing more than running the infrastructures separately.

It is also vital to maintain the support of the people within both the purchasing and the acquired organisation. Soft issues such as lack of communication, lack of change management and lack of stakeholder management can destroy any perceived ROI. A converged ICT infrastructure can provide a number of benefits, including often-significant cost savings as well as greater systems integration, leading to improved information availability across the merged organisation.

Consolidated ICT is also easier to run and maintain, and supports operational excellence through more efficient project management, improved financial reporting and planning, as well as more accurate budgeting and forecasting.

In order to ensure the best outcome for current and future mergers and acquisitions, organisations should always plan carefully, document the process, ensure that lessons learnt are articulated and embedded in the process documentation, and above all ensure they do not make the same mistake twice.

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Managing big data needs

education and skills

Gary Allemann MD at Master Data Management

Big data is currently one of the most talked-about megatrends affecting the insurance world, along with cloud computing, customer centricity and data-centric legislation such as the Protection of Personal Information (PoPI) Act. 126 8 4

N

ot only have these trends created a surging interest in data, they have also underscored the requirement for strong data management skills – and this has highlighted a definite skills gap.

While training is available on specific products and toolsets, there is a fundamental shortage of staff with the generic skills required to effectively manage data and incorporate Business Intelligence (BI) and analytics into an organisation. Online data management education and certification from elearningcurve.com is one option available to corporates to address the skills shortage.

The challenge with big data is that technology alone is not the ‘silver bullet’ for organisations to leverage the insights it can deliver. The same can be said for the cloud, legislative requirements, ‘single view of the customer’ and the myriad other data-related challenges facing organisations today.

Data management lies at the heart of successfully tackling these issues, across a number of different competencies including Master Data Management (MDM), data governance, data quality, business intelligence, data integration and more. However, the skill sets required to perform these tasks are

in short supply. This means that should organisations attempt to hire in the required skills, they are chasing the same small pool of individuals as every other business. Scarce skills are, thus far more expensive and difficult to obtain, with the result that data management becomes costly.

Compounding this challenge is the fact that the majority of available training is focused on specific tool sets and not generic data management, BI and analytics skills. These niche ‘skilled’ employees often cannot define the business problem, understand what a BI project should look like, design appropriate architecture, deploy it, and so on. This is akin to teaching someone to use word processing software before teaching them how to read and write. They may be able to use the tools, but are unable to derive value because they do not understand the underlying business problems or issues at stake, nor how to resolve them.

The new programs offered Master Data Management a solution to the skills shortage challenge. The material forms the foundation of a sound corporate education program for all data management staff.

Skills development is more than just a social responsibility; it is critical for companies to get value from technology. eLearning provides access to the knowledge and experience of a range of specialists at an affordable cost and a time and place that is convenient for participants. The focus is to help participants obtain skills that can be practically applied in real-world scenarios and knowledge of the purpose and benefits of information management.

Courses are supplemented with optional exams, allowing participants to qualify for the internationally recognised Certified Information Management Professional (CIMP) accreditation in the IM discipline of choice.

Yvette Janse van Rensburg, CIMP, selected the courses as she felt that a formal education was necessary to master the complexities of master data management. “I was pleasantly surprised by the quality of the training material as well as the tutors themselves. All were highly respected and experienced subject matter experts in their field of knowledge,” says Janse van Rensburg, who selected the courses because data management is becoming a focus at her workplace.

“Understanding master data management is difficult. There is so much information out there, that it becomes quite confusing for the individual to master this broad subject without formal training,” she adds.

Yvette recently completed her fifth exam, to become South Africa’s first CIMP in master data management. “The courses are not easy.

You will have to do some studying, but for the focused learner they are do-able. I successfully completed five modules in the Master Data Management track and therefore earned my MDM Certified Information Management Professional (CIMP) accreditation. Other members of our team are close behind.”

“I feel much more equipped to work on MDM projects and to avoid being part of the statistics of the many failed MDM projects out there,” reiterates Janse van Rensburg. eLearning that focuses on delivering real skills and worthwhile investment into education offers a cost effective way for organisations in South Africa to develop the necessary data management skills as part of their corporate education scheme and budget. By so doing, enterprises are empowered to leverage the business benefits of improved data insight, including traditional business analytics, as well as big data and enhanced data management.

Gary Allemann is the MD of the company Master Data Management, and works with clients in financial services, government, mining and telecommunications in South Africa.

Software solutions with the right genes WWW. INNOSYS. CO.Z A

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

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Living Your

Brand

Michelle Camps

Much emphasis is placed on branding an organisation and what a good brand represents, but how important is the individual’s personal brand in the mix and how well do they live this brand?

A

t this point, I tend to get a few blank stares when I address this concept to clients. What do I mean by personal brand? Surely there is just the company brand with individuals trained to represent the brand values based on the information they’ve been taught and off they go into the world to sell the company’s ideals and products?

The people personality component in any organisation, especially the sales people, can make or break the company’s brand image; so is it enough to assume that, based on their experience, equipping them with product knowledge and an overview of the company’s brand is sufficient?

Some of the great marketer’s like Richard Branson or Steve Jobs founded their organisations and imprinted their personal brand style to their corporate brands. It would appear that their personal lives and opinions don’t/didn’t differ from their vision of their corporate brands.

This is truly living the brand in both their personal and corporate capacity.

Perhaps easier to achieve as an entrepreneur launching your company and ensuring this personal brand essence resonates with the company ethos. It is, however, a little more difficult joining a company and adopting a foreign brand if we do not know what our own brand stands for. The concept that we are our own brands is not unique, but it is often not understood or even thought about. Unless we know who we are and what we stand for personally, how can we possibly succeed?

Sales people are expected to represent the brand but if they do not know who they are and what they believe in, there is no way to know that they even aspire to what they are selling. It would be akin to a health fanatic representing an unhealthy fast food brand and truly inspiring people to eat more junk food. Granted, if they succeeded one could argue that they are then great sales people.

But seriously, I am quite surprised to find how many people cannot answer the question of what their personal brand stands for, but they can enthusiastically expand on the brand and service they are selling.

Knowing your personal brand helps in aligning your career choices to what you stand for and, ultimately, ensuring overall satisfaction in what you do. How many highly energetic, great sales people do you come across who are exactly the same in their personal environment as they are in the workplace? This is a sure sign that they are living their brand – they know what they stand for, and it resonates through every touch point of their lives.

“Your brand is what people say about you when you’re not in the room” – Jeff Bezos, Founder of Amazon.

Michelle Camps is a marketing and communications specialist with a wealth of experience covering a broad spectrum of industries from financial services and healthcare to aviation and tourism. Michelle is an independent consultant assisting clients with marketing and communications strategy, brand management and business development. If you have questions for Michelle regarding advice for your business, please forward these c/o editor@risksa.co.za

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If you don’t ask you don’t get Brought to you by

THE VOICE OF THE INDUSTRY

Anton Pretorius

RISKSA’s annual Insurance Bootcamp series of seminars is more than just an early-morning catch-up with industry peers. While the coffee is always good and the conference facility top-class, Insurance Bootcamp provides brokers and financial intermediaries with informative talks from a panel of experts discussing relevant industry subjects.

A special thanks to Our diamond sponsor

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Our platinum sponsor

T

he 2014 Insurance Bootcamp series of seminars was hosted by RISKSA magazine, with the support of the Financial Intermediaries Association (FIA) and the Insurance Institute of the Cape of Good Hope (IICoGH), Hollard and Santam Insurance. The third (and final) Insurance Bootcamp of 2014 saw 1 700 brokers attend, with the live broadcast reaching 150 people in boardrooms across the country. This IB dealt with commercial property insurance, including building combined and sectional title, and brokers who attended have learnt that “if you don’t ask, you don’t get”.

The point, as stressed by speaker Ben Tonkin, a former technical training officer at FNB Insurance Brokers and former FIA director, was that unless policies clearly cover eventualities and unless brokers address specific additions and exclusions with their clients, the likelihood exists that there will be issues come claim time.

“It’s like sex: if you don’t ask, you don’t get,” he quipped, to guffaws from the audience.

Other speakers at the events, which took place in Cape Town, Durban and Johannesburg, included John Sutton, managing director of Sutton Loss Adjusters, Vic Saunders, head of bank and national brokers at Hollard Broker Markers and Mike Addison, director of Addsure.

Tonkin introduced his presentation with a current and topical case study – the recent 5.5-magnitude earthquake that shook a large part of Gauteng during August. Stemming from mining activity, Tonkin pointed out that this was

usually excluded from earthquake cover in most insurance policies. “I hope all your clients have mining tremor cover,” he said.

The magic words in any policy are ‘unless stated in the schedule to be insured’. He called on insurers and brokers to form partnerships founded on integrity, trust and knowledge. “If we work together, we double our strength,” he said.

John Sutton, a specialist claims assessor, spoke about the various pitfalls that exist with determining loss – some more than others.

“Factors include the type of construction, the nature of the roof, types of walls and floors, types of finishes and whether the site is industrial or office space,” he said.

After showing the audience a dramatic video of a hot water cylinder exploding after its safety features were disabled, Sutton explained that the correct installation of cylinders as well as following regulatory procedures will mitigate any damages should a cylinder fail.

“Understand what you’re insuring. Underwriters should inspect the property, understand its intended use, identify technical limitations and what the client’s needs are,” he said.

“Make sure you do risk prevention with your clients instead of cure,” Saunders advised.

He emphasised that brokers and insurers understand and mitigate risks when deciding on coverage, including factors such as fire services in poor state, low municipal water pressures,

the current economic climate, high lightning and flood areas, power surges and ageing infrastructure. Addison unpacked insurance in the sectional title context, explaining the roles and responsibilities of body corporates and sectional title owners.

Our venue partner, The Clock Tower Pavilion Conference Centre near the V&A Waterfront, does not just boast scenic views of Table Bay, but also offers world-class conference facilities. The same goes for Durban’s Gateway Hotel in Umhlanga. While the rain came pouring down in both Cape Town and Durban, it did not dampen the spirits of brokers eager to learn about the ins and outs of commercial property insurance.

The 2014 Insurance Bootcamp culminated in style at the Protea Hotel Balalaika in Johannesburg. The Johannesburg event was also live-streamed to audiences in other centres with one viewer even reporting that she was sitting on a beach while watching the IB. Huge thanks to the committee for taking the time to assist: Tim Timmerman, Sandra Snowball, Natasha Wyborn and Riaan Geldenhuys. Thanks to the associations IICoGH, FIA, IISA and IIG. Topics for next year’s series of RISKSA’s Insurance Bootcamp seminars will be announced soon, so keep an eye on your inbox. RISKSA would also like to extend our gratitude to our sponsors for making every leg of Insurance Bootcamp memorable. For more information, visit www.risksa.com.

THE VOICE OF THE INDUSTRY

Insurance Bootcamp is powered by RISKSA magazine and partners with the Insurance Institute of the Cape of Good Hope (IICoGH) and the Financial Intermediaries Association of Southern Africa (FIA).

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news

Sanlams announced new child illness benefit Sanlam has announced the launch of a new child illness and injury benefit to their existing cover range that features 24 unique claim events when it comes to children’s diseases, injuries and impairments, and covers up to R1 million paid in a lump sum.

Sanlam product actuary Petrie Marx says children’s benefits are not entirely unique to the market, but most of them cover mainly dread disease. “

Carl Louw, chief marketing officer of Auto & General, accepting the BASA Award.

Auto & General receives first-time sponsor award Auto & General Insurance was presented with the ‘First-Time Sponsor Award’ at the 17 th annual Business Day BASA Award, held in Johannesburg.

The Awards recognise and encourage excellence and innovation in the field of business support for the arts. The judges evaluated the success of each sponsorship and bringing genuine benefits to the arts organisation.

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Auto & General sponsors both the prestigious Naledi Theatre Awards and the Auto & General Theatre on the Square. CEO Leon Vermaak said: “We’re thrilled and honoured.

South Africa is blessed with extraordinary talent and through our sponsorship we want to give our actors, writers, directors, designers, comedians, musicians and technicians the support they deserve.”

In addition, Auto & General was recently announced as ‘Best Insurer’ in the commercial vehicle and fleet sector at the inaugural TruckX Conference and Awards held at the Maslow Hotel in Sandton in August.

As an ultimate safety net we also have a catch-all claim event to cover any other diseases or injuries not specifically listed, but severe enough to warrant a payment.

Both this and our ICU claim event are an absolute first in the standalone children’s benefits market,” he said.

Fulcrum and Flexi partnership to fuel industry The Fulcrum Group has announced that, from September, it has acquired a majority stake in well-known insurance management system Flexibroker. Fulcrum CEO Vaughan Jones, said: “Fulcrum already provides premium collections, premium financing, treasury and specialist lending services to the insurance industry – largely within the intermediary space. It has long been our intention to add a technology partner into the mix to ensure an even more efficient product offering to clients. Fulcrum has always enjoyed a strong relationship with Flexi, coupled with the passionate and informed people within the team.”

Assupol announces new life and funeral benefit Insurer Assupol launched a revolutionary value-add benefit on its funeral and life products, called On-Call Plus benefit during the month of August.

On-Call Plus is an optional benefit that allows beneficiaries to spend on goods and services that are crucial in the days after a loved one has died, and includes four aspects: the industry-first instantGroceries (trademark), airtime, electricity and transport.

Within minutes after a valid claims has been registered, the instantGroceries benefit is paid to the beneficiary’s cell phone using USSD technology to deliver an electronic voucher or WiCode. This voucher can be used at Boxer, Checkers, Pick n Pay and Shoprite retailers countrywide.

Don’t Risk It

Fulcrum chairman Ian Bain, CEO Vaughan Jones, Flexibroker chairman John Burnett (seated) and director Oliver Burnett seal the deal.

Branding the Insurance Industry since 1995

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In-house Graphics Department We’ve got it covered

Give Sandy a call to see HOW WE DO IT!

Email: sandy@crbrands.co.za

Tel: 011 837 2000

For more info visit: www.crbrands.co.za

THE BRAND BEHIND YOUR BRAND

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FPI partners with Old Mutual Corporate The Financial Planning Institute (FPI) announced a corporate partnership with Old Mutual Corporate; an agreement to invest in the training and development of the organisation’s financial planning professionals.

According to Old Mutual Corporate’s head of enablement Lungile Xaba, “Through this partnership, Old Mutual Corporate, together with the FPI can ensure that its staff is continually being developed professionally and ensure a financiallyempowered society, especially as we help clients to meet their financial and retirement needs at every stage of their lives.”

Professional new cover holder at Lloyd’s Professional Risk Underwriters Africa is proud to announce that, in partnership with Amlin Underwriting, the second-largest syndicate at Lloyd’s in 2013, it has been successfully tribulanised and is the approved cover holder at Lloyd’s of London.

Intended for South Africa and Africa, they offer primary, excess of loss, and umbrella layers. Gary La Grange and Stuart Mullins have been appointed in the roles of joint managing directors.

La Grange said: “The unique approach and understanding of the South African and African markets made partnering with the Amlin International Casualty and Professional Indemnity divisions an obvious, and positive, choice”.

Brimstone reports excellent interim results Brimstone announced excellent interim results for the six months ended 30 June 2014.

Profits for the period under review improved significantly to R309.7 million from R165 million in the same period last year.

Headline earnings per share increased to 96 per cent due to positive fair value adjustments in underlying investments. CEO Mustaq Brey said: “We are pleased with this solid set of results, which was driven by positive fair market value adjustments of underlying investments, further acquisitions, and the efficient restructuring of financial arrangements. These corporate and investment activities all contributed positively to our financial results.”

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newappointments Astute

Astute, the company that provides data integration services to the South African financial services industry has announced the appointment of Jacques Rossouw Jacques Rossouw as managing director. Prem Govender, chairperson of Astute said, “It’s a pleasure to welcome Jacques as new managing director.

His ability to see the big picture as well as strong strategic focus and emphasis on people and processes will serve the business well in an increasingly complex and regulated financial services industry.”

Echelon

Lesedi Letwaba

Christopher Nunes

business development at Centriq Insurance recently. She entered the insurance industry as part of the Alexander Forbes Risk Services graduate trainee programme and was then appointed as an account executive.

Centriq Insurance

Christopher Nunes has joined Centriq Insurance as client manager of their UMA division. Chris holds a BCom Internal Audit degree from the University of South Africa (UNISA).

Lesedi Letwaba has been appointed as regulation and compliance executive of

He worked as a senior internal auditor at Santam before joining the Centriq team.

Darrel Dawson

Echelon Insurance is proud to announce the promotion of Darrel Dawson to CEO of Echelon private client insurance. Dawson, former head of Echelon's UMA, is excited about his new position.

SAIA The South African Insurance Association has promoted Lelo Ntshalintshali as the association’s new general manager of stakeholder relations and communication, responsible for the newly-formed portfolio. Ntshalintshali is not a newcomer to the SAIA, having joined the association in October in 2011.

She was responsible for the continued implementation of the short-term insurance industry’s consumer education initiative.

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will be a massive change for Kirk, because he has been on the exco at Sanlam for years, and interacts regularly with various role players. In his new position, Kirk will be responsible for the operational business entities and will report to van Zyl. “I think the biggest challenge will be to keep the business growing at 15 per cent a year.

For a business with a market cap of over R140 billion that means adding about R20 billion worth of value to the business every year,” explains van Zyl. The second biggest challenge, he adds, will be the push to continually grow offshore businesses. “The growth has been sizeable and good, but they [the recently acquired international businesses] are more like investments at this stage.

The challenge now is to have them managed as an integral part of the business, and make Sanlam a truly international business. Ian is well placed to do that, he has the people skills and the links, and that is important.”

Santam’s future CEO

From Santam

to Sanlam

– Kirk’s new role

C

urrent Santam CEO Ian Kirk will take over as deputy group chief executive of Sanlam from 1 January 2015, with a view to take over as CEO at the end of 2015. Sanlam CEO Dr Johan van Zyl will retire at the end of 2015, when Kirk will take over the helm.

Van Zyl tells RISKSA that the companies chose to make the announcement well in advance

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to ensure stability and a smooth leadership handover. “The market response to the announcement has been very positive. Ian is extremely well qualified and is no stranger.

He has been in the industry for ages,” said van Zyl.

Changes and challenges Van Zyl does not think the new appointment

The second vital characteristic will be for the new leader to understand that, while the direct business is important, Santam was built on and is still a largely intermediated business, and support of these intermediaries is crucial.

There are four months to find a replacement at Santam, and both companies want to ensure it is done properly. The relevant decisionmakers will be looking inside and outside the company.

“The board is dominated by independent views and as a major shareholder, Sanlam wants to see the best person in the position.

And there is no rush. Neither myself or Ian are going anywhere, so if the incumbent can only start at the end of January that is fine, we can continue in our positions for another month. There is a little bit of flexibility,” assures van Zyl. Topping van Zyl’s list in his remaining 15 months at Sanlam, is ensuring that the forthcoming leadership change is bedded down properly. In addition to that, budgets are at the top of his mind. “We must grow the business by 15 per cent a year. That means we must find additional opportunities to add about R22 billion embedded value to the company,” he reiterates.

HAVASWW-D63331/E

Commenting on the required attributes to take over the role of CEO of Santam, van Zyl says that the number one requirement will be significant industry knowledge of the fast moving short-term insurance industry.

pretoria 2012

HAVASWW-D63331/E

Put the right people together, and a couple of local vets can take on a global scourge.

When a pair of local veterinarians noted that no one had ever charted the anatomy of a rhino, they had no idea they were about to launch a new front in the fight to save South Africa’s precious rhino population. With a little help from their professional community, they managed to raise funds to buy a rhino-sized scanner and the highly specialised software needed to map their unique physiology, and launch their foundation, Saving the Survivors. The formidable duo rescue and rehabilitate the many rhinos that survive poaching attacks – as well as their orphaned babies.

Find out why it pays to keep the right company www.pps.co.za #joinourtable

YOUNG TALENT Karusha Naicker

chairlady for the Social Committee for the IIKZN “The camaraderie within the industry is incredible. There is no other industry that I know of that will come together as one body to celebrate their successes.”

SHOWCASE Fuelled by

George Martin

Fulcrum is a firm believer that people and passion fuel an industry and that young talent is an essential driver in any field. It’s for this reason that we have teamed up with RISKSA to run a feature showcasing the young talent that is driving and inspiring their workforce. This feature will run in RISKSA every quarter, culminating in a finale networking and social event in 2015. For the latest updates and more information on each of those featured, plus photos, keep tabs on www.thefulcrumgroup.co.za.

In this first feature, we focus on some of the young people who are serving on industry bodies and find out what inspires them most, and how essential young talent within the sector is.

Industry events to look out for: IICOGH - IICOGH’s Annual Gala Dinner at the Lookout ,

Granger Bay 26 November

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IIG

- the IIG Annual dinner 6 November 2014

IIB

- Insurance Institute of the Border Annual Dinner 2014

IIKZN

- 2014 IIKZN Gala Dinner

council member of the IICOGH. “The short-term insurance industry evolves continuously and I am fortunate to be part of a team that leads this evolution. There are endless opportunities for young and dynamic individuals who have a passion to succeed.”

If you have someone in mind who you feel is fuelling the industry that you think we should feature, let us know on www.facebook.com/ thefulcrumgroupsa or Tweet us @Fulcrumeer.

Mashudu Mamathuba

Olivia Smith

co-opted member of the IIG Council

member of the IIG Council

“Being a young professional in the insurance industry, I want to encourage the young talent to get more involved in local industry bodies, and as per the IIG slogan, simply enjoy ‘Intelligent Networking’.”

“The young people I know within the insurance environment are enthusiastic about insurance, and are interested to grow and do more for the industry. There is really so much potential for our industry and those within it.”

Jayne Reeves

Colin Moodley

social representative on the IIB

member of the IIG Council

“Being able to help people is something that inspires me the most. When it comes to young talent, it is imperative for our industry as a whole to have ‘new blood’. This is a big factor if we want to see our business grow.”

“The young (talent) currently involved within the industry are vibrant and enthusiastic, and are always looking for opportunities.

Young people are the future of our trade, South Africa and the world – we need to invest in them.”

Brent Lyall

Justin Naylor

president of the Insurance Institute of Gauteng (IIG) “I have been in the insurance industry for the past 11 years and can honestly say that I feel inspired every day. There is a phenomenal amount of dynamic people and young talent within the industry.

The people make our industry an incredible place to work.”

Warwick ScottRodger

member of senior management on the IIG “Young talent within an industry is key as it brings new energy to the workplace and cultivates more questioning of the current status quo. Meaningful mentorship programmes offered by corporates are essential in equipping this industry with the right people who can add real value.”

Zuriel Naiker

deputy president of the IIG “Young talent within an industry is critically important and is the dual responsibility of the young, talented, ambitious individuals out there, as well as the matured segment of the insurance landscape.”

Candice Mentasti

member of the Social Committee for the IIKZN “The diversity of expertise that I deal with on a daily basis is something that inspires me most about our industry. There are no limits, and there are endless opportunities to further develop oneself.”

Jono Bruton

president of the Insurance Institute Cape of Good Hope (IICOGH)

media and communications officer for the IIB

“My inspiration started by growing up with a father who has been in the industry for over 45 years and is a role model to me. I have been involved in insurance for 15 years and have found that, due to all the different dimensions and aspects of this business, we generate friendships that I don’t think any industry could match.”

“Besides the incredibly intelligent and driven individuals I have met in my 11 years in this industry, the generosity of the insurance sector really warms my heart and inspires me to add to the flame. This continues to grow my confidence that I am in the right place to make a difference in the world.”

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events King Price broker lunch

Lireas Conference The Lireas Conference was held at the Arabella Country Estate in Hermanus in August. This annual event is where Lireas comes together with its business partners to reflect, learn and celebrate the Lireas family’s successes and achievements. This year a total of 50 delegates attended the conference.

After a light lunch, the bus took delegates

to two wine tasting facilities, Lavierge and Hermanuspietersfontein. The wine tasting was a perfect opportunity for business partners to catch up with a well-deserved glass in hand. The day wound down with dinner at the Harbour Rock restaurant which was preceded by a quick and chilly few minutes of whale watching from the shores.

Valerie Hayter, MD of Lireas welcomed all the guests to the conference.

Short-term insurer King Price invited a select group of brokers to the Klein Roosboom wine farm in Durbanville for its broker lunch in September. The relative newcomer in the market has to date made great strides in the direct marketing arena and has recently started to branch out to the broker community to grow the company’s footprint. “We feel that the broker market will really do a lot for us in terms of growing our market reach,” said King Price’s head of broker markets, Johan Smit. Smit shared some information on King Price’s strategy going forward, and led a straight and honest question and answer session on product offerings and broker concerns.

Board of Healthcare Funders’ 15th annual convention

IICoGH Scavenger Hunt The Insurance Institute of the Cape of Good Hope (IICoGH) recently hosted a fun rally day/scavenger hunt for its members during the month of September. The Hunt commenced at The Oval Clubhouse in Cape Town. One of the stops on this scavenger hunt was at the RISKSA offices in Century City where members had to collect goodie bags filled with padkos. Requirements of the scavenger hunt were: A sense of humour and team spirit, access to WhatsApp and Twitter, R50 in cash and a gift pack made up of soap, shampoo and body lotion which was then donated to charity. An interesting and fun initiative like only IICoGH can arrange!

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It was a thoroughly thoughtprovoking day at the Board of Healthcare Funders’ 15th annual convention held at the Durban International Convention Centre during August. Input and insight from South Africa's Minister of Health, Aaron Motsoaledi, members from the Council of Medical Schemes (CMS), as well as international experts and local consultants and actuaries, ensured that there was no shortage of hot debate. Delegates enjoyed the exhibition where loads of goodies were given away.

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MO

On MU clai

Som • • •

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MUA an a

YOU CAN NOW OFFER YOUR CLIENTS SOMETHING MONEY CAN’T BUY: MORE TIME One luxury your clients never have is the luxury of time. Therefore, we are proud to introduce MUA’s new Concierge service; this service will take care of the time-consuming process of claims-related events on your client’s behalf.

Some of the perks of this service include: • having your client’s insured vehicle picked up from their home or work and taken to be assessed for damages as well as fetched after repairs; • being dropped off for a routine service; or • your client being picked up and chauffeured home in case they had one too many drinks.

This service is available to MUA policyholders at a fee of R30 per month and allows for up to 12 trips per year. To find out more about all the benefits and terms and conditions of use, please mail our Managing Director, Christelle Fourie, and her team at cfourie@mua.co.za

www.mua.co.za | info@mua.co.za | 0861 682 467 MUA Insurance Acceptances (Pty) Ltd is an authorised Financial Services Provider (FSP No. 37947) underwriting on behalf of Auto & General Insurance Company Limited, an authorised financial service provider (FSP No. 16354)

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news international

Ivory Coast Brokerslink expands African footprint

Nigeria Continental Re sees 28 per cent income growth

Continental Reinsurance Plc has reported an increase of 28 per cent in gross premium income to NGN15.86 billion in 2013, compared to NGN12.40 billion recorded in 2012. The non-life and life businesses grew by 32 per cent and 11 per cent respectively. Total comprehensive income grew by 19 per cent from NGN1.75 billion in 2012 to NGN2.09 billion in 2013.

Underwriting profit increased by 25 per cent from NGN1.35 billion in 2012 to NGN1.68 billion in 2013, mainly due to a higher growth in premium than the increase in combined costs. The 2013 underwriting profit ratio, as a percentage of gross premium income at 11 per cent, remaining the same as the previous year. The reinsurer’s loss ratio remained unchanged for both years at 47 per cent.

In its 2014 half year report the PRC reveals that there have been 116 global incidents of piracy and armed robbery so far this year, down on the 138 incidents during the same period last year.

Southeast Asia Piracy down globally, hijack trend in Southeast Asia

The Piracy Reporting Centre (PRC) of the International Chamber of Commerce (ICC) International Maritime Bureau (IMB) has raised concerns over a worrying trend of small tanker hijacks in Southeast Asian waters.

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In 2014, 10 vessels were hijacked, seven fired upon, 78 boarded and 21 reported attempted attacks. Two hundred crewmembers were taken hostage, five kidnapped from their vessels and there were two fatalities, the report says.

In Southeast Asia, at least six known cases of coastal tankers being hijacked for their cargoes of diesel or gas oil have been reported since April. This has sparked fears of a new trend in pirate attacks in the area.

Previously, the majority of attacks in the region had been on vessels, mainly at anchor, boarded for petty theft.

Global independent insurance broker network, Brokerslink, has announced the opening of a new operation in Abidjan, the primary economic centre of the Ivory Coast, by member Filhet-Allard Group.

Brokerlink currently manages premium volumes in excess of $15 billion globally. “This is a major step in our strategy to expand in the French-speaking parts of Africa where we have been involved in marine business for decades. Having a local company will strengthen our capabilities in marine and allow us to develop employee benefits businesses as well as to support the Brokerslink members,� comments Henry Allard, a Board Director of Filhet-Allard Group.

Brokerslink has recently announced the establishment of a dedicated regional structure focused on the Middle East and Africa.

Global AM Best downgrades reinsurance sector

AM Best has downgraded its ratings outlook on the global reinsurance sector to negative from stable citing ‘ongoing market challenges’.

The rating agency said that these challenges will ‘hinder the potential for positive rating outlooks and upgrades and over time may result in negative rating pressure’.

annual output of Hungary,” comments Stanley Subramoney, strategy leader of PwC’s South Market Region, Southern Africa Sanlam Emerging Markets concludes acquisitions

Africa

Sanlam Emerging Markets (SEM) has announced that all the conditions have been met to complete its acquisition of a stake in NICO Holdings’ general insurance businesses in Malawi, Tanzania, Uganda and Zambia. The transaction was agreed to in June 2014.

Its negative outlook is based on a longer-term view than its typical 12-18 month forecast, and the rating agency does not anticipate a significant number of individual company negative outlooks or downgrades over the very near term.

Following the completion of the transaction, SEM, the cluster within the Sanlam Group tasked with expansion into international emerging markets, now holds 49 per cent in NICO’s general insurance operations in Malawi, 49 per cent in Zambia, 48.4 per cent in Uganda and 32.7 per cent in Tanzania.

Capacity drives further fall in global insurance rates

Africa’s top cities of the future

By 2030, Africa is expected to have the biggest labour force in the world along with the fastest economic growth rates, according to the latest Global Economy Watch released

by PricewaterhouseCoopers (PwC).

While most major corporations are already active in the four largest cities in sub-Saharan Africa – Johannesburg, Kinshasa, Lagos and Nairobi – PwC economists believe it’s the ‘next 10’ biggest cities in that could be most exciting for foreign investors.

The population of these cities is projected to almost double by 2030, growing by around 32 million people. The latest United Nations projections show that by 2030, two of the ‘next 10' – Dar es Salaam and Luanda – could have bigger populations than London has now.

“The report projects that economic activity in the ‘next 10’ cities could grow around $140 billion by 2030. This is roughly equivalent to the current

In a briefing entitled Weakening Operating Fundamentals Tip Reinsurance Sector Outlook to negative, AM Best said that it is increasingly apparent that as compression continues to bear down on investment yields and underwriting margins the strain on reinsurers’ profitability will ultimately place a drag on their financial strength.

SEM already held a 49 per cent stake in NICO Life insurance in Malawi and SEM holds a 25.1 per cent stake in NICO Holdings.

Says SEM’s chief executive officer, Heinie Werth: “We are pleased with the conclusion of this transaction which further entrenches our relationship with NICO and strengthens our position in the region. We look forward to working with our partners in growing a sustainable business. We believe our industry experience and expertise will continue to add value to both our business partners and customers.”

Global insurance rates fell for the fifth consecutive quarter with property rates down by an average of 4.6 per cent in Q2 2014, casualty and financial lines down by 0.6 per cent and professional lines down by 2.3 per cent, according to figures from Marsh.

Rates in continental Europe dropped approximately six per cent on average with both property and casualty rates falling faster than at any time since the third quarter of 2011, Marsh’s Global Insurance Quarterly Briefing reports.

Marsh said that the global and European declines were driven by continued strong capacity – particularly for property risks – and an absence of significant losses during the second quarter of 2014.

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2014 Team profiles PA R T T W O

On the open water, all are equal and hierarchy is determined by your skill at sea. At the inaugural RISKSA Regatta in 2013, CEOs, mailroom clerks and brokers were unified under the sail of a 30-foot yacht, battling competitors and elements alike. The objective was clear: to have loads of fun and, win the RISKSA Regatta! This year promises to be even bigger and better. We look at team rosters for 2014.

One Team ONE Financial Services performed admirably at last year’s inaugural event with a strong seventh place finish. This year, they are determined to make amends and bring the fight to the water.

Under the leadership of skipper Chantel Trodel, the team reckon they’ve got a fighting chance for finishing first at the 2014 edition. The team includes Andrew Harvey, Schalk van Rensburg, Elesh Bisla, Wayne Mann, Rene Cornelissen, Sid Beeton, Peter Mortimer and Curtis Davey.

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Why did you decide to enter the RISKSA Regatta?

It’s always been on our bucket list to experience Cape Town from the water, specifically Table Bay. Last year proved to be a lot of fun for the ONE staff who participated and it left a lasting memory in their minds.

How do you rate your chances?

With an awesome, professional crew and some amazing ONE colleagues, we have what it takes and we stand an excellent chance of winning!

What GEES will you be bringing to the event?

Not only will we be bringing bucket loads of GEES, but we’ll also bring a sense of humour and a team of ONE’s.

What do you expect from this year’s RISKSA Regatta?

We expect to have lots of fun and meet many industry folk who have big ONES! We also expect to get sunburnt, soaked, stiff and sore – all in a day’s work.

What messages do you have for spectators and competitors?

To spectators we say, come down and support the ONE team and we’re open to bribes of sunscreen, deep heat and alcohol – we’re going to need it! And to the competing teams, we say: Be afraid, be very afraid. The ONE team is going to have much more fun than you.

Beyond Infiniti Newcomer Infiniti Insurance is ready to lock ‘n load at the 2014 RISKSA Regatta. Their team consists of Chris Troskie, Dustin Dumaresq and Debbie George and Ildiko Richardson (branch manager of Infiniti’s new liability branch). They’ll be joined by the CEO’s of four of our underwriting managers – Bradley Kuhn (Vanguard small craft underwriters), Ian Smith (Tri-Marine), Paul Halley (Ascent hospitality underwriters) and Brett Hannington (Buckingham Risk Solutions).

Why did you decide to enter the RISKSA Regatta?

Working as a team to achieve a common goal is a big part of the Infiniti culture, and this is a team effort, so we felt that we should be part of it. Camargue won last year, and we decided that they needed some competition.

How do you rate your chances?

As mentioned, we’re specialists in our field.

We’re bright and determined. Bring this to the party and you have a winning team. Our chances… very good!

What GEES will you be bringing to the event?

Infiniti Insurance and our partners only bring our A-team… so watch this space.

What do you expect from this year’s RISKSA Regatta?

It takes dedication and guts to rise above the rest in your specialist fields. We expect our team to show their true grit and determination on the day, which is sure to be a pleasure to behold.

What messages do you have for spectators and competitors?

This might be Infiniti Insurance’s first RISKSA Regatta, but when the thoroughbred’s come to town, then the competition pales. If you are a gambling man or woman, the Infiniti Insurance team is a ‘sure thing’. To competing teams: Watch out! And may the best team win.

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Amanzi’s Pride Two industry giants have decided to join forces in this year’s RISKSA Regatta. Whether it’s strategy or simply to confuse the competition, MUA and Auto & General are not only sharing a boat but may perhaps share in the spoils of victory too!

The team is made up of Auto & General and MUA Acceptances representatives.

Why did you decide to enter the RISKSA Regatta?

We believe that the RISKSA Regatta will be a great team building opportunity. As you know, MUA Acceptances recently partnered up with Telesure Investment Holdings to underwrite on behalf of Auto & General Insurance. We are going to use this experience to get to know our new colleagues a bit better and see what they’re made of on the open ocean.

How do you rate your chances?

We’re mostly in it for the experience and don’t put our expectations of a podium position too high on our priority list. We simply look forward to proving that the MUA and Auto & General team are worth their salt at sea.

What GEES will you be bringing to the event?

Apart from the obvious GEES and spirit among our ranks, our focus is to make our companies proud and cement our newly-forged partnership.

What do you expect from this year’s RISKSA Regatta?

We expect nothing more than a gruelling, yet exciting challenge, some healthy competition from fellow participating teams and some good, clean fun.

What messages do you have for spectators and competitors?

We encourage our clients, readers and fans to come out and support our cause. Ships ahoy, they say! And we would love to see each and every one of your faces, getting behind our team – they’re going to need the support. To the competitors, we’re a force to be reckoned with, so be afraid! Be very afraid! (Insert Dr Evil laugh here…)

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What GEES will you be bringing to the event?

We believe in working and living with a clear purpose in mind. We will lead from the front, accept any challenge head on, and pioneer new benchmarks for the RISKSA Regatta.

Les Guardians Of The Sea Winners of the inaugural RISKSA Regatta, Camargue’s Les Guardians of the Sea, enters the fold. Against all odds, this team conquered the seas and left a string of fellow (and more experienced) competitors in its wake as they crossed the finish line. Will they be able to successfully defend their title this year? Or will they allow others to stake claim to the podium.

We think not – at least, not without a fight. The team consists of Lucian Carciumaru, Gerhard de Bruin, Caroline Yeo, Ana Mullins, Mitch Marescia, Catherine Berry and John Stebbing.

Why did you decide to enter the RISKSA Regatta?

Not only is this one of one of the most fun events on the insurance and financial services sector’s calendar, but we entered to defend our title as 2013 Champions.

How do you rate your chances?

The trophy is in our ‘stable’ – so our chances should be pretty good. We’ve got the necessary winner’s confidence.

What do you expect from this year’s RISKSA Regatta?

We expect all participants to embrace the challenges with commitment, fuelled with the same passion as the Camargue team. That same passion is what took us across the finish line ahead of everyone else last year.

What messages do you have for spectators and competitors?

To our spectators, we say: We are idealists and pioneering experts. We are progressive – building on what has been proven, but not settling here. To our competitors: We’re looking at building a legacy and dominating the RISKSA Regatta – one person, one challenge and one victory at a time.

Z T a fi a n b r

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Zenith For The Accomplished (Pty) Ltd, partnered by The Hollard Insurance Company Limited, manage and design insurance products for an elect market of financially accomplished individuals. Our products are augmented by their distribution through an elect broker network who presents after sales advice to policy holders, based on the content of a comprehensive inventory and risk appraisal obtained from independent industry leaders.

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5 Zenith For The Accomplished (Pty) Ltd is a licensed Financial Services Provider, Underwritten by The Hollard Insurance Co. Ltd, an authorised Financial Services Provider. FSB Number:147 36469

Time

Investment

T

he notion that time is money has never been more literal than when investing in high-end watches. A luxury timepiece can increase in value, but shelling out for the first flashy and expensive watch you see could have adverse results. Like any investment, knowledge and patience is essential.

In 1999, a Patek Philippe 1933 ‘Henry Graves Supercomplication’ pocket watch sold at a Sotheby’s auction for $11 million. It was, at the time, the highest price ever paid for a timepiece at auction. Sotheby’s recently announced that the watch will once again be up for auction in November, this time expected to surpass the $18 million mark. A tidy investment – albeit a major one.

Luxury watches have gained significant interest since that sale. In 2013 Christie’s in Geneva auctioned 50 Rolex Daytonas, a model dating

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back 50 years. The total of that sale was $13.5 million, the most expensive of which was a 1969 Paul Newman model, which sold for $1 million. Interestingly, the watch itself was never owned nor worn by the actor, but merely represented the model he wore in the 1970s.

While these amounts surpass normal appreciation expectations, chances are slim that a 10-year-old Rolex or Tag Heuer may fetch similar profitable returns. Most expensive watches do not qualify as investments, even at costs of R100 000, there is no guarantee of earning while wearing. Brand, rarity, age and movement are all essential in determining watch value.

The watch “Certain watches are investments. The best chance of having something that will appreciate

Luka Vracar

in real terms over time is to go for iconic models that have already stayed the course in the face of ever-changing trends. For example, the Breitling Navitimer, which has never been out of production since its launch in 1952, remains one of the brand’s top sellers today,” says Ian Piguet, managing director of Breitling in South Africa.

Brand history offers insight into legacy and quality. Often watchmakers have several models, but it is the older models as opposed to contemporary lines, that give credence to a brand and grow popularity.

Breitling’s Navitimer was designed and built for pilots and aviation enthusiasts, whilst Rolex also built a reputation for making watches dedicated to specific professions, such as the iconic Submariner for divers. Patek Philippe, on the other hand, is known for manufacturing

Vacheron Constantin Established in 1755, the oldest watchmaker in the world may not be as popular as Rolex or Patek Philippe, but its bold design and brand history will ensure a favourable resale value. The brand’s vintage models offer some of the best value for money on the market.

Patek Philippe

Brands to consider

Breitling Established in 1884, Breitling is one of South Africa’s favourite high-end marks. A vintage Navitimer from Breitling has a classic aviation design and will keep a high resale value. The model was launched in 1952 and is regarded as the signature of the brand.

its own parts, its innovation and complicated movements.

“Watches powered by mechanical movements, are generally more likely to appreciate than those with quartz movements. If the watch has a ‘manufacture’ movement, made in-house by the brand, it is also more likely to appreciate,” adds Piguet.

A vintage Patek Philippe sits at the higher end of the price scale. An investment grade model could range between R500 000 and R5 million, due to its complex movements and rarity. Whereas Rolex manufacture close to a million wristwatches each year, Patek Philippe only makes 50 000.

choices, due to their rarity, particularly when looking at more contemporary watchmakers.

These models are, however, not without risks.

Piguet warns that some limited editions and ‘trendy’ watches can quickly become dated as the trend wanes, and this will have adverse effects on the investment value.

Piguet indicates that watches made of precious metals will also make good investments, as the watch itself may not be rare, the metals will continue to appreciate. This is true for precious stones as well. The most expensive watch in the world is a 201 carat Chopard that sold for $25 million in 2000. With 874 diamonds, it is not at first apparent that this world renowned artefact is, in fact, a watch.

Association with a popular figure or being previously owned by a celebrity will also ensure the value skyrockets, as has been seen at recent auctions. Eric Clapton’s Patek Philippe sold for $3.6 million at a Christie’s auction, while a gold, square-faced 1929 Longines that was owned by none other than Albert Einstein sold for $600 000 in 2008.

Rarity is perhaps the most significant criterion of an investment watch. The rarer a particular model, the more valuable it is. For example, Patek Philippe released a limited number of stainless steel watches in the 1940s and 1950s.

At the time the watches were not popular but today, one would make a valuable investment.

Last year, a gold 1950s Patek Philippe sold for just over $2 million at a Christie’s auction.

The market

Limited edition watches may also be favourable

Investing in high-end watches is risky business, and should be considered only as part of a

Audemars Piguet Audemars Piguet produces 25 000 timepieces each year, which makes them even rarer than Patek Philippe watches.

The Royal Oak Offshore models are their best sellers, and are highly complex with chronographs that offer split-second timing.

Entry level models of the Royal Oak Offshore models start at around R150 000.

multitier investment solution. Second-hand watches, like luxury cars, depreciate from first use. The market can be fickle and it is not uncommon that a watch’s value can depreciate to a fraction of the original purchase price.

“One should bear in mind that our currency has depreciated substantially over the past few years and that a watch purchased five years ago will cost substantially more to replace today,” adds Piguet, who recommends that owners have their timepieces appraised at least once a year.

This will give an indication of the watch’s appreciation. Appraisals are also essential for insurance purposes, as owners need to ensure that the watch is adequately covered in case of theft, loss or damage. Rising prices in luxury watches means that a piece that has not been evaluated in at least three years is most likely underinsured. Many watch collectors insure their collections separately from other assets, to ensure fully inclusive cover.

The high-end watch market is notorious for replicas and it is essential buyers utilise a reputable source and receive original documentation to ensure the watch’s authenticity, when purchasing an expensive watch as an investment, especially if the watch is vintage.

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Property investments can pay off for entrepreneurs Laura Owings

Small business owners and entrepreneurs looking for new investments should look no further than their own office spaces.

RISKSA uncovers why commercial property is a great investment.

R

ecognised as one of the more stable investments, commercial property presents a valuable long-term option that can produce positive returns and additional income and security. “For business owners, investment in a commercial property would be an investment in their future, without necessarily being an investment in their core business,” says Mike Walters, divisional head of Renprop Commercial.

The owner-occupier gets a number of add-on benefits as well. According to David Reid, JHI Properties investment sales broker, owneroccupiers are not exposed to lease escalations and are likely to see value improve or even exceed the inflation rate. “Furthermore, if you do not utilise or occupy the entire building, rental income from a tenant can provide an additional income stream or return,” he says.

According to Walters, entrepreneurs create wealth or their retirement plan by putting properties into separate entities like trusts or private companies with the same or other shareholders. The core business would then be placed in the premises as a tenant.

As many companies battle with uncertainty in the current economic climate, owning can provide an element of business security by owning their space. “Commercial Property loans are only available on a 10-year term, and a deposit between 20 per cent and 30 per cent will be required by the banks,” he says.

Walters says the basic principle of this investment equation is that after a 10-year period, the money spent on rent could have been put towards ownership of a commercial building, which over time will become an asset.

“As the capital value of the property increases, so will the investment and asset base,” he says.

Aside from the low interest rates, and possible fluctuations, Walters points out that it’s currently still a buyer’s market in the office space sector, meaning market conditions favour buyers in that there are a number of value- for-money premises available for purchase. The cyclical nature of the lease cycle, however, drives the

need for interested property owners to keep ahead of trends, according to Reid. “There are tenants who may be reaching the end of their lease cycles and looking for new space, so there is a certain amount of movement all the time,” he says.

“A further factor in the market is that wellperforming, investment properties with good yields tend to be in demand and are often tightly held by investors, so that may be an exception to the buyer’s market,” he says.

Walters says investing in commercial property is a far less volatile option than investing in the equity market, provided that the property is situated in a prime location with the tenant as the business and the same shareholders as the landlord.

However, Reid encourages entrepreneurs to also consider investing in the JSE listed property sector. “Although the returns may be lower than direct investment in commercial property, the risk is better spread and protected.”

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Top five reasons to invest in commercial property: Property investment is inflation-hedged, which means that it will either match or outstrip inflation in the long-term.

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The rental is a tax deductible expense in the core business.

No risk of tenants not paying rent or not looking after the property if the investor’s core business is a tenant.

With a commercial bond, the investor can fix the price in today’s terms and pay it off over 10 years using ‘before tax money’, as the interest paid on the bond is tax deductible.

Entrepreneurs can create wealth by putting properties into separate entities, like trusts or private companies, with the core business in the premises as a tenant.

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2013/10/15 10:00 AM

Sharp Presence:

AQUOS board Bigger is better‌ or, at least, it makes an impression. The Sharp AQUOS interactive whiteboard is a versatile and effective way to project a message in ways usually reserved for the latest Blu-ray blockbuster. From the conference room to trade shows, this 70-inch behemoth is the next phase of presentation.

Luka Vracar

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T

he likes of CNN, SuperSport, have used oversized touchscreen panels to flip through images, play video, and point out key details. The AQUOS is a high definition LCD touch panel designed to not only offer a new dynamism to presentations and the exchange of ideas, but to do so with ease, with a set of versatile software tools that offer complete control and engagement with the content.

We looked at the AQUOS PNL 702B model and were surprised by the level of sophistication. Touchscreens have become the essential feature for smartphones and tablets, and it was only a matter of time before the panels became as big as the high-definition screens in our living rooms. Each AQUOS board also comes with a ‘pen’ and eraser, however it can still be used with your hands, or even with the on-screen keyboard and mouse, but beyond the basic components, the board can be customized to nearly any application.

The board The 70-inch screen size is unmistakable and from the moment you enter the room, it commanded your attention. And Sharp makes

these up to 90-inches! Straight away we can imagine that the panel’s size would make it ideal for use as digital signage at expos, hotel lobbies, retail locations and conference areas. With its additional interactive features, the AQUOS board would be more useful than traditional LCD flatscreen at exhibitions. Sharp says that the board has been engineered for 24/7 commercial use, and it appears to be very durable.

The display itself is high-definition, and the video quality is exceptional when used as a monitor. To use it for video an external playback device such as your notebook or a Blu-ray player is needed. Sharp’s UV2A photo-alignment technology creates brilliant colour. The images are crisp and the backlit design enhances brightness and legibility

Using it While we are used to tapping away on our smartphones and tablets, scrawling on the 70-inch touchscreen is really impressive.

The board makes use of multiple infrared sensors to accurately detect the touch points, allowing for highly responsive writing. However, during meetings and presentations, the AQUOS board is much more than a glorified chalkboard.

Sharp’s software application integrated with the board comes with a host of interactive features.

presentation progresses. Integrating pictures, fonts, colours, even line width seem to have endless options, and for us these features made the board seem like a combination of Microsoft Paint and Microsoft Office suite.

All work can be saved in various formats. A key feature is the board’s direct communication capabilities with mobile devices running the Touch Display Link app that comes with the board itself. With this feature, the board’s user interface pops up on your tablet, so whatever you want to write on your tablet pops up on the board, and vice versa.

The board also communicates directly with all multifunctional peripherals (MFP) such as your office scanner and printer. This means that you can scan documents directly to the board, and after making revisions, adding notes or annotating text and images, you are able to save the updated work to a PC or send it straight back to the printer.

Verdict

You can select to work on a plain background, graph paper, or one of the other preloaded backgrounds from the extensive database. This includes calendars, to-do lists, meeting logs, your own work files, and anything else you wish to upload and present.

Like an iPad, with two fingers the dual-touch interface lets you easily enlarge, reduce, or rotate an image.

You will probably need both hands for a screen this size though. But while the touchscreen novelty might wear off and you will find yourself reaching for the board pen sooner than your own digits, the practical uses it offers makes the AQUOS board one of the most innovative and effective office tools we have seen yet. We cannot find much to fault it.

Interaction with the background, writing, and display options are controlled with a set of easy-to-use toolbars that allow you to select a variety of drawing and operation choices with the tap of the icon. From handwriting recognition that even managed to read our usually ineligible scribble and save it as a text file, to PowerPoint Integration that lets you write over and highlight notes as your

You can expect the price to be high, but once the board is linked up to the rest of your office equipment and your colleagues have adapted to the board’s software application the functionality will, we are confident, significantly increase communication at meetings and presentations, allowing all parties to leave with the message you intended.

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Investing in a new nationality

Dominic Uys

A second passport can infinitely simplify travel and conducting international business.

Offering access to a handful of countries, one globally connected company recently extended its reach into South Africa to bring high net worth individuals the opportunity to buy dual citizenship.

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M

any South Africans are intimately familiar with the test of fortitude and resolve known as the visa application process. With only a handful of countries that South African citizens can visit sans visa, the most popular destinations require significant paperwork, seemingly endless queues and personal interviews. New immigration and visa laws are also not doing any favours for travellers.

Under the new application process, businesses that deal across international borders will now

need to acquire a recommendation letter from the Department of Trade and Industry.

Visas are then only granted for three years at a time.

Arton Capital, a company that facilitates the trade in citizenship, recently made its services available to South Africa through local company, Vivid Luxury. The company targets high net worth individuals, offering them either residency or citizenship in a list of countries, ranging from Bulgaria to Canada and the USA. “We are taking the concept of a world without boundaries into the future. My dream is to empower individuals and families to become global,” says Armand Arton, CEO of Arton Capital. “The key to citizenship by investment is the long-term ties it creates, something that’s passed through generations – not only the business the investor will be involved in with the country, but the business of his children and grandchildren,” he adds.

“We live in an era where things are simplified daily, enabling us to be more productive and successful. Yet, conducting business between countries seems to be more impenetrable at a time when the consumer is sourcing products and services from every corner of the globe. Doing business abroad is still an ordeal. Most businessmen often hold only one citizenship and passport, leaving them vulnerable to capital controls and movement restrictions,” Arton continues.

According to Arton, the easiest way to acquire a second passport is through citizenship by investment or the purchase of real estate in a foreign country. “We are seeing interest by South African families in countries like St. Kitts and Antigua, for example,” he states.

Economic citizenship Over the years, a number of countries have developed their own programmes for gaining citizenship through investment. Countries like Portugal and Spain require foreign investors to buy property of or over a set price in order to automatically gain citizenship. Other options can be more complex, requiring the investor to set up businesses in the country and employ a specific number of locals.

In the case of Arton, the company offers investors access to Antigua and Barbuda; Bulgaria; Canada; Cyprus; Dominica; Grenada; Hungary; St. Kitts; the United Kingdom and the USA.

Initial investments could range from anything between $693 586 to $1 million and, as stated, requirements vary.

Cyprus, for example, stipulates that the applicant must hold a permanent privatelyowned residence in the Republic of Cyprus, the purchase price of which must be at least €500,000 plus applicable VAT. From there, the applicant can choose from six investment options in order to secure his passport.

The first of these consists of mixed investments and a donation to a state fund. The next option, direct investment, requires that the applicant invest at least €5 million in property, financial assets or businesses in the country, and maintain ownership for at least three years.

Alternatively the applicant can make a bank deposit of at least €5 million for three years in a Cypriot bank.

The fourth option is any combination of the first three options (amounting to at least €5 million). Alternatively applicants can choose to become shareholders or beneficiary owners of a company, the management of which is in the Republic of Cyprus. The company needs to have contributed at least €500,000 per annum, in the past three years to state funds.

The final option is open to applicants that have incurred an impairment in deposits on one of the country’s banks amounting to a total of at least €3 million. They may then also apply for Cypriot citizenship.

There is however an important distinction that needs to be made between countries with economic citizenship programmes and those with investor visa programmes, such as Canada. These offer permanent residency upon investment (once again this is usually into real estate of business) in the countries but citizenship is only granted after the applicant has lived in the country for around four to five years.

It should also be noted that Canada, which is listed among the countries in Arton’s offering, has largely shut down its investment programme, now only offering investors limited access into the province of Quebec.

While buying up property or starting a business in a country that offers economic citizenship guarantees ease of access to that particular nation, a second passport can also allow for visa-free access as well as the rights to live in other countries. Presently, the Cypriot passport is ranked as the 14th most useful passport in the world, granting the owner visa-free or visa

on arrival access to 167 countries and rights to live in 28 European countries.

Beware the tricksters Second passports have understandably become increasingly desirable throughout the world and, as one would expect, this has given rise to many scams. Typical scams that have come to light so far have sold their applicants: • Cancelled economic citizenship programs – While there are new countries starting to offer citizenship by investment programs, others no longer exist. For instance, Ireland once offered citizenship in exchange for investment in the country. Applicants who are not up to date with developments in other countries are often taken in.

• Camouflage passports - These are passports from countries that no longer exist, like British Honduras or Rhodesia.

Some websites claim to be able to sell applicants the passports of a country that changed its name and never offered second passports.

• Diplomatic passports – The passports reserved for country diplomats carry a number of benefits beyond mere freedom of movement within a foreign country. Diplomats are, however, subject to extremely high standards, and these passports are not sold.

“The business elite sector is growing rapidly in countries like South Africa. Potential South African investors are generally not aware of global citizenship programmes. The wealthier South Africans become, the more they want to experience the same standards as those in developed countries. This way they can offer their children an education in the top universities offshore, through the purchase of a second citizenship,” Arton concludes.

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TRAVEL -START .co.za Survey

About Travelstart

Since 1999, Travelstart has provided the simplest way to book domestic and international flights online.

Travelstart’s mission is to make air travel easier for the customer in the aspects of searching, comparing and booking flights. In addition customers can also compare prices and book hotels, car rental and holiday packages. Travelstart is in Egypt, Kenya, the Middle East, Namibia, Nigeria, South Africa, Tanzania and Turkey.Â

Airport hypes & gripes

The research, compiled by local travel booking website, Travelstart.co.za, measured public sentiment towards domestic airport services, and highlighted the persistent issue of luggage pilferage in South African airports.

P

ublic opinion soared against Airports Company South Africa (ACSA) in a recent survey of more than 6000 jetsetters conducted by Travelstart. The new research shows that exorbitant airport parking fees, careless handling of luggage, unclear PA system announcements, lack of free Wi-Fi and

0%

10%

20%

30%

surly check-in staff rank high in the minds of passengers who frequent airports around the country. Questionable bathroom cleanliness, aggressive security personnel and lack of facilities are among lesser annoyances that were revealed by a broad cross section of business and leisure travellers who took part in the study.

40%

50%

60%

70%

80%

Overpriced parking fees Surly check-in staff Careless handling of luggage Aggressive security Questionable bathroom Unclear PA system Lack of facilities Lack of free Wi-Fi Lack of shops

158 8 4

What is your biggest gripe with our airports?

90%

100%

%

26%

have been a victim of baggage theft; the majority of these incidents taking place at O.R. Tambo International Airport.

Luggage Pilferage The most alarming discovery from the Travelstart survey is that of the more than 6000 travellers who participated in the survey, 26 per cent had been victims of luggage theft.

Furthermore, of the 26 per cent who had their luggage tampered with, an astounding 83 per cent of these incidents happened at O.R. Tambo International Airport. “The number of baggage pilferage incidents taking place at O.R. Tambo is abnormally high compared to other major airports such as Cape Town

83%

of luggage tampering incidents happened at O.R. Tambo International Airport.

and Durban where 9 per cent and 4 per cent of respondents reported incidents of theft respectively”, said Jarvis.

ACSA responded to Travelstart’s findings: “As ACSA strives to improve its mishandled bag rate, the company continuously measures and reviews its baggage processes against international standards with the objective of remaining competent and competitive. As a result of these efforts the number of pilfered bags has been reduced to the point where the airport now averages between 50 and 70 bags pilfered per month, compared to on average 150 bags three years ago.”

Wi-Fi However, it’s not all doom and gloom for ACSA, an overwhelming 65 per cent of survey participants cited free Wi-Fi as the feature most likely to improve the airport experience. All nine of ACSA airports currently offer free Wi-Fi services of either 30 minutes or 50MB of data.

Once the 30 minutes have lapsed, or 50MB of data limit is reached, users are able to top up the facility on a pay-asyou-go basis. This value-add service is aligned and benchmarked with other international airports of similar size.

159 5

Airport Parking ACSA spokesperson Unathi Batyashe-Fillis commented on the issue of overpriced airport parking fees: “ACSA offers its customers state-of-the-art parking facilities equipped with features such as car registration plate recognition matched against the parking ticket used to exit the parking area.

This offers a safer environment for customers’ vehicles, with no car theft or human attacks having been recorded at any of our airports for many years.”

While ACSA offers its customers a choice of parking products with differentiated tariff structures across their major airports, Travelstart’s Russell Jarvis highlighted survey

respondents’ gripes, “We have heard of many instances where the public have been forced to pay for short-term parking as there is no availability in long-term, and between ACSA and Katanga shirking their responsibilities to customers, valid grievances are often left unresolved.”

According to ACSA, airport parking rates are much lower than other international airport tariffs and are effectively approved by the Regulator and not by a contractor. In addition, statistics from their parking management systems indicate that even at peak occupancy the different parking products very seldom record full occupancy.

“The long-stay parking products are well patronised and in high demand especially during school holidays, and subsequently

additional long-stay parking bays have been released in both Cape Town International Airport and King Shaka International Airport this year.” said Batyashe-Fillis.

72%

of South Africans say overpriced parking fees are their biggest irritation when it comes to the domestic airport experience.

Check-In Interestingly, almost as many passengers use counter checkin at the airport, as those who use online checkin; 43 per cent and 45 per cent respectively.

“The counter check-in versus online check-in figure becomes a little less surprising when you consider that in many instances the bag drop queue has been known to take a lot longer than simply going through the entire check in procedure when you arrive at the airport”, said Travelstart. According to ACSA the average queuing time at O.R. Tambo International Airport in 2013 for bag drop off queues was 7 minutes, 38 seconds, as opposed to the average queuing time at economy check-in counters of 11 minutes, 37 seconds.

Any complaints raised against the service offerings at Airports Company South Africa may be logged with the customer care department who will escalate the matter for resolve accordingly.

160 8 6

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7

Carel Nolte has been a passionate member of the South African insurance industry since 2000. His column aims to educate, cause a smile, instill pride and stimulate debate. He welcomes contrary views and debate and can be reached via carel@comms.co.za.

Kuier with Carel

T

‘Charity begins at home’ is a saying that is very much untrue in our fantastic country or industry.

he South African insurance community is a diverse, generous, can-do bunch of people who have – through my own limited 14 years in our industry – raised tens of millions of rands, supported amazing causes and have made a real, sustainable difference in so many lives ... Often not to the benefit of ‘home’ but rather to the larger community.

As is abundantly clear to regular readers of this column, I take any and every opportunity to promote insurance (sometimes I even manage to hide my intermediary bias!) and our CSI track record is no exception. At a recent bancassurance conference in Cape Town, Sanlam CEO, Johan van Zyl, commented that he really liked the grey shoe jokes about him and his team based out in Belville – making the point that he loves the fact that his competitors are already R100 million behind them, just because they need to serve their fancy offices.

A cynic may think that van Zyl simply keeps that money for the shareholders, but through clever diversification (did you know that those grey shoes are already pounding pavements in nearly 20 other Africa countries?) and by contributing millions annually to charity initiatives, Sanlam has and continues to promote major community upliftment.

I suspect that there are many women-only dinner clubs like the one started by Dianne White and Daphne Peters about three years back (like the Freemasons, these are a bit of a secret, and only some people wear funny outfits, so probably just as well). Some may think these 30 or so insurance women get together at various restaurants across Jozi just to try out new places, network and talk about the size of Milenko Skoro’s latest – policy. But

I heard whispers that numerous charity drives have emanated from this group. And, by the way, if you want to know the best place for real French onion soup, as well as just about any news in the industry, put on a dress, swing an invite, and meet up with White and Peters.

Our regional institutes have an uncanny ability to combine fun with helping others. Whether it’s the Eastern Cape folk at the Border Institute donning beanies and then donating them after their quiz night, or the Gauteng wanna-be MasterChefs who cook up mean potjies at the annual cookoff and raise cash for charity, there is an abundance of fun ways to contribute. The IIKZN has managed to combine education with charity. At a recent seminar on Fire safety, the institute managed to donate part of the registration fees to a local charity assisting burn victims. Innovative and caring (need I point out the idea was a broker’s?).

One of our most successful charity initiatives in the industry must be the SAIA facilitated consumer education committee. Using companies’ CSI money, not only do we educate our future and current clients about financial well-being, we empower them to assist us in growing the economy. Charity is not about handouts – it is giving those less fortunate the ability to rise up and be the best they can be.

Not to be outdone, the IISA, FIA and SAIA at their annual golf day at Sun City, ask golfers to donate old golf shirts for the caddies and their families. (Allowing some of us to play this year was a bit of charity also – thank you. Playing off a penalty 12 handicap on the Gary Player isn’t pretty...)

Talking about being outdone – earlier this year the big boss at Aon, Anton Roux, challenged me and a few others (via Twitter and Facebook so there was nowhere to hide) to the Ice Bucket Challenge to raise funds for ASL. Thankfully my broker taught me to read my policy, and I found out it was ‘dump ice over your head’ OR ‘donate money!’

Thanks Anton, and watch out for your charity challenge.

So, dear fellow insurance practitioners, yet more reasons to share with your family and friends around the braai, dinner table and sports fields – insurance is an industry we are justifiably proud to be a part of. Apart from providing employment to hundreds of thousands of people, our industry – through companies and individuals – contribute daily to building a country we can all be proud, and happy, to call our home.

I end with a quote from 50 year veteran, industry trainer Ben Tonkin’s wise words (on sex, policy wording and my addition, help for charities) – if you don’t ask, you don’t get. Well Ben, judging by how Sandra and some of those women were looking at you, your wife better watch out as you can still get, a lot!

PS – if you don’t know where to donate, consider lending (you get it back) money at www.kiva.org or locally, www.different.org has a nice way of looking at raising funds.

Or simply look at the person next to you at work and ask them what they need. Often a kind word is enough. Failing that, get involved in your local institute and keep on making a difference, whilst having fun.

Please stay in touch via carel@comms.co.za, and look out for November’s column where we learn bit about who lives where and with whom.

8 4 TL 162

RISK-SA Advert B - Final.pdf

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2014/09/02

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2014/09/05 11:18 AM