FIA Insight October 2010 by Greenpepper Communication

3rd 1st Quarter Edition 2008 2010 R19.95 (incl)

INSIGHT FIA CODE OF CONDUCT

Website: www.fia.org.za S A’s PREMIER INTERMEDIARY MAGAZINE 36647575797597359738765-0

Editorâ&#x20AC;&#x2122;s Soapbox

Presidents Message

Code of Conduct

From the Desk of the CEO

Company Profile - Winston Skosana

Direct Insures vs Traditional Brokers International

Defending Against Direct Insurer

Investment Decision

Financial Planning

Insurance Boot Camp

New FAIS Ombud, Notluntu Bam

Professional Indemnity

Treating Customers Rights

Sustainable future for Short-Term Insurers

Accrual date of Retirement Fund Benefits

Motor Insurance questions

Life Insurance confidence Rises

Resilience in Insurance Sector

Motor Insurance Sustainability

Keith Kennedy retires

Small Business

Piracy

Rejection of Motor Claims

Cost of Technology

Short-term Ombudsman

Multinational business

Snippets

Compulsory 3rd Party Insurance

CMS Celebrates 10 years

Opportunities for Global Insurances

Appointments

Humour

Please visit our website: www.fia.org.za

FIA Insight The official mouthpiece of the Financial Intermediaries Association of Southern Africa P O Box 11901 Centurion 0046 Tel: 012 665 0085 Fax: 012 665 0534 Email: info@fia.org.za Website: www.fia.org.za Publisher Financial Intermediaries Association of Southern Africa Chief Executive Officer Manie Booysen manie@fia.org.za Chief Operating Officer Justus van Pletzen justus@fia.org.za President Seamus Casserly seamusc@firstequity.co.za Editor & Media Manager Clive Franks Fax: 086 642 4540 Cell: 082 306 9158 clive@fia.org.za Graphic Design Streak Design cc Cell: 083 447 2010 Editorial Contributors Seamus Casserly, Manie Booysen, Bian van Flymen Mike Stoker, Gareth Stokes, Gari Dombo, Chris Busschau, Andres Franzetti, Jon-Marc Loureiro, Andrew Kemp, Chris Busschau, Tim Timmerman, Jerome Fanning, Natasha Bouwman, Ronnie Napier, Pieter CronjĂŠ, Gari Dombo, Tim Rutherford, Gerdus Dixon, Paul Brightman, Kennedy Ntenjwa, Jacques Pretorius, Brian Martin, James Dean, Mike de Jong. Subscription Rate: R79.80 inclusive of VAT per annum FIA national office has the name of an independent practitioner near you. The views expressed in this magazine are not necessarily those of the FIA. Readers following any advice contained in the magazine, do so at their own risk.

EDITOR’S SOAPBOX

Editor’s Soapbox The 3rd Quarter has been a bit of an anti-climax after the feverish activities of the 2nd Quarter which had the majority of major events as far as the FIA and the industry was concerned, with the prestigious FIA Awards, the historic Insurance Conference and FIA advisory Council. Unfortunately the 3rd Quarter also had some very sad events with the passing of Nan Maclennan a member of the FIA Short-term Exco. Nan will be sorely missed not only for her vibrant and helpful personality but for the valuable contributions she made to the FIA and the industry as a whole. We were also shocked by the sudden death of Brendon Clarke a member of the Protea and West Rand branch of the FIA at the young age of only 38. We would like to extend our deepest sympathy to their family and friends. Members will soon be receiving a new form of communication from the FIA called the FIA Weekly Indaba. This will be replacing the memorandums that members have been inundated with. The format of the FIA Weekly Indaba will be similar to that of the FIA Inform. There will be a general section and a section for each of the various pillars of the FIA, in other words Short-Term, Financial Planning, Healthcare, Employee Benefits, a quarterly summary of discussions held at the various exco’s. The Weekly Indaba will appear in the members only section of the FIA website which means that a member will have to log on using their membership number as the login and the password. The other communications will continue as follows: The FIA INSIGHT Magazine will remain a quarterly publication that will be sent to members with an electronic version appearing on the website approximately two weeks after publication. The FIA INFORM a monthly technical newsletter which will be sent by bulk-mail to members and will also be posted on the website. The FIA Memorandums which will be sent to members as and when required with an electronic version posted on the website.

by Clive Franks

The FIA Weekly Indaba as mentioned above. Congratulations and best wishes to the Golden Division (Protea and West Rand Branches) with their move to 51 Empire Road, Parktown, Johannesburg, where they will continue to serve members with dedication and excellent service from their new home. For the 7th consecutive year the FIA will be joining forces with CANSA for a golf day in support of this worthy cause. Over the years the FIA both nationally and at local branch level have contributed almost half a million Rand to CANSA and have formed a close relationship with their branches throughout the republic. On 12th October 2010 a full field of players will once again be turning out to support this worthy cause at the Centurion Golf Estate, many Insurers and our business partners will be participating and supporting this event. The main sponsors for this event are PG Glass and Altech Netstar. The proceeds collected will enable research in to trying to find cures for this devastating disease. In our daily lives whether at home or at work or in the course of business we frequently have to deal with cancer particularly in the field of Healthcare Insurance. This is an opportunity to support and assist CANSA with their awareness campaign, but more importantly to contribute to the research which will have an impact on the industry in the long term, and quite possibly touch our lives as individuals. Last year the FIA managed to raise R50 000.00 for this worthy cause and we hope to exceed this amount for 2010. We look on this as a hugely important from the FIA’s corporate and social investment contribution to those that are inflicted with this debilitating disease.

FIA PRESIDENT

Message From the President of the FIA to our Members Dear Colleagues, After the events of the World Cup and its impact on our lives and the country as a whole, it is not difficult to understand why 2010 has flown by. The country as a whole received an unbelievably positive profile in the media despite slight problems. Our countrymen who fled abroad pending the “chaos” expected during this period are red-faced having had to watch proceedings from a television in a bar somewhere far away whilst we enjoyed our beautiful stadia and the event itself. What is particularly pleasing to me is that all the risk management procedures and plans established by the organising committee and the contingency plans implemented to deal with, for example, strikes, all went off without a hitch. And with incredibly good humour too! The message from a risk perspective is that when we put our minds to it, we can absolutely do what we need to. It really requires a single-minded drive and purpose with collaboration to achieve these objectives. I'm really proud to be South African and advertise this fact in all my dealings with the international community. Now, it is back to the normal routine of daily business and dealing with clients, sales and insurance markets. The focus at the FIA is now targeting certain specific projects which impact on intermediation as a whole and on building the future of our industry and organisation. A few of these projects are sufficiently important for high level comment as they will certainly impact on us. Insurance Laws Amendment Act At the time of writing the draft regulation changes have yet to be issued for public comment, but we are pretty certain that whilst operationally some changes may be required, these will not impact harshly on the intermediation industry. There may possibly be some structural changes necessary and new disclosure requirements, but in broad terms it will largely be business as usual. The huge advantage is likely the clarification regarding fees earned for services performed on behalf of insurers and assurers. All the convoluted structures implemented in order to circumvent commission capping may be likely to fall away.

applied to all unethical behaviours and we appeal to all FIA members to participate in whistle-blowing on the industry as a whole to assist in cleaning up poor product and bad sales behaviour. We will actively expose scams and facilitate investigation by the FSB. We have negotiated a specific channel with the FSB for this activity and we have an undertaking from the FSB to investigate all reported behaviours and where appropriate, products. You, our members, are the most potent force capable of identifying and initiating action against corrupt practices as you can easily recognise these. We appeal for active participation in this campaign to clean up our image and industry. Healthcare Following the unfortunate recent death of the Deputy Minister, we have reestablished relationships with the Council for Medical Schemes and the Health Ministry. Dedicated work and effort to position the intermediary in this important segment of the market is ongoing and particularly pertinent with the potential advent of the National Health Scheme. Regulatory exams A number of FIA members have participated in the pilot exams which have received mix reaction. In some instances the course material relevancy is limited and the exams similarly need some adjustment. Given what the FSB is attempting to achieve – improved professionalism of the industry as a whole – we are not surprised that some issues have materialised as new waters are being charted. We have received assurances that by the time exams commence in earnest, most of these problems will have been resolved.

Consumer Action It is important for the FIA to have a strong moral position in the industry and in order to position ourselves; we have embarked upon a campaign to root out bad practice, corruption and poor products that plague our industry. Pyramid schemes, property scams and the like are commonly reported in the media and generally linked to the “insurance” industry. Intermediation particularly, has a bad rap as a number of these scams are marketed via brokers. Our position is simple: we have a code of conduct which will be strictly

A few words of caution • Please do not underestimate the effort required to complete these exams. There is considerable studying necessary so please start as early as you can • Make sure that the material sourced is correct and if you want to choose a partner to help with training, ensure appropriate accreditation. If in any doubt please consult Joe Kotze at FIA Centurion office who will assist.

FIA PRESIDENT Stride - Insurance Industry Data exchange project FSB Fees The insurance data exchange initiative is strongly underway and a programme manager has been appointed jointly by the Stride Committee. The FIA is participating actively in this and we are grateful for the number of members, both insurance technical and IT specialists, that have volunteered to assist. Good progress is being made and it appears that we may be able to achieve the objective of personal lines early in 2011 with the entire industry project being completed by September 2011. Good cooperation is being received from all parties and the Regulators are comfortable that appropriate action is taking place. Communication We have yet to finalise the FIA communication plan because as you know, I am particularly concerned about the quality of technical exchange that takes place to our members and also within the FIA. We now have all the tools necessary with the website and email systems functioning to materially improve matters and now need a concerted push to get more interaction with the members. This remains my key priority for the balance of 2010.

This has received considerable attention in the FIA as a result of the unilateral imposition of significant increases. Irrespective of the reasons for these increases, it is extremely difficult for any business to absorb costs which are significantly in excess of inflation. We now have the undertaking from the FSB that the FIA will be consulted prior to any future action of this nature and we hope that we will be able to positively influence them. But please bear in mind that we have no rights in this regard and that the FSB is empowered to do what it wishes to without any consultation. However, in the spirit of openness, consultation and collaboration that we are building with the Regulator, we believe that they will honour this undertaking. The FIA last held a formal strategy review some three years ago just post the merger. We have regularly shared the key principles with the Advisory council for their input so it remains a living document. We were planning to commence a formal review towards the end of 2010 but the Board decided to postpone this in view of cost and timing. We therefore plan to have a brief review of our strategy towards the end of 2010 and will conduct a zero based session in 2011. As always input will be requested from members and the results will be communicated once the process is completed.

Membership Some gains in the medium broker size have been made, but consolidations of businesses appear to be occurring quite frequently. As a result, our net membership appears to be in slight decline and we are developing plans to correct the situation. A specific action has been directed at the agricultural sector with positive results so far. Please continue to encourage all intermediaries to join our association.

Good luck for the second half of the year and may all your profits reflect your increased efforts as the economy grows. Kind regards. Seamus

CODE OF CONDUCT

FIA CODE OF CONDUCT by Brian van Flymen FIA’s Vice –President

In the first article highlighting the provisions of the FIA Code of Conduct we discussed the need for creating public awareness of the fact that our members comply with a rigid ethical Code of Conduct which compels us to conduct business in an honest and transparent manner. The next two provisions of our Code deals with the practical issues surrounding the dissemination of information acquired from an existing or prospective client. Other than the statutory requirements contained in the Protection of Personal Information Bill, contravention of which could lead to prosecution resulting in a fine and or imprisonment, reckless disclosure of confidential information could expose the intermediary to a civil claim. It is therefore of paramount importance that the written consent of the client be obtained. The actual wording of the provision is : They will ensure that any information acquired by a member from a client will not be used or disclosed except in the course of negotiating, maintaining, renewing or servicing the client's financial needs unless the written consent of the client has been obtained.

Where business entails the assessment of acceptance of any risk by an underwriter, to obtain all material information from the client and to communicate same to the underwriter. Obviously the ramifications of providing incorrect or false information to an insurer or assurer would only be experienced at claim stage. The financial impact however could well prove disastrous as the client has redress to both the FAIS Act as well as common law. The fact that the claim settlement is inadequate or even non existent may well lead to the intermediary being forced to fully compensate the client for the loss as well as being subject to fines and penalties in terms of the various acts. The importance of our conduct as members of the FIA as opposed to completing the sale of product should at all times be the overriding consideration. Please bear in mind that informed assistance is always available to our members from the FIA Offices should you require specific advice.

The next provision applies to the intermediary and his obligations to the product suppliers :

FREE ASSIST AND LIFESTYLE BENEFITS TO ALL FIA MEMBERS If you’re not a registered member yet, visit www.oneloyalty.co.za/fia or phone 0861 115 834 and one of our FIA consultants will gladly assist you - don’t delay, join today! ASSIST BENEFITS All FIA members have access to the following assist benefits in the event of an emergency: Emergency Home Assistance Home assist is a 24-hour help line, offering assistance with emergency household repairs that need to be carried out within two hours of the call for assistance and that could result in consequential damages. It may also refer to a situation where a member has no access to essential services such as electricity, hot water or sanitary use. Members have access to an electrician, plumber, locksmith, glazier and tree feller when emergency home repairs are required. Assistance is also available for appliances and nonemergencies, but for the member’s account. This benefit covers three incidents per year up to a maximum of R2 000 and includes a call-out fee and the first hour’s labour.

Access to MedicAlert & Emergency Medical Assist Medic Alert ensures the member has: • A confidential membership number • Updated information on a database available to paramedics, hospitals and family members should it be required in an emergency The following benefits are on access basis only: • Emergency telephonic medical advice and information, 24 hours, 7 days a week • Referrals to crisis lines, medical practitioners and facilities • Emergency medical response to the scene of an incident • Emergency medical transportation to the nearest appropriate medical facility VIP AA Roadside Assistance & Towing FIA members have access to roadside assistance in the event of a flat battery, flat tyre, keys locked in vehicle, fuel assistance and minor roadside–running repairs (limited to R500 per incident). Members also have access to a first tow-in service per incident to the nearest approved dealership (if under warranty), repair centre or panel beater within a 40km radius, starting from the point of dispatch. LIFESTYLE BENEFITS – REAL VALUE, REAL SAVINGS The FIA Lifestyle shopping mall is designed to give FIA members the ultimate shopping experience. Members will be spoilt for choice with a fantastic range of over 300 great brands in the following categories:

Security, Automotive, Boating, Connect, Services, Retail, Health & Vitality, Restaurants, Home & Décor, Kids World, Leisure & Entertainment, Travel, Concierge and Online Shopping. Register now to shop online and print discount vouchers. For more information and full detail on each assist and lifestyle benefit please visit www.oneloyalty.co.za/fia or call 0861 115 834.

C E O

CEO’s Report by Manie Booysen FIA’s CEO MACRO ENVIRONMENT The recent global economic crisis had a severe impact on our local economy and job market with the loss of around 800 000 jobs. Households and businesses are facing tremendous cost pressures, which has also meant that investment and insurance decisions have been placed under extreme pressure with some people simply unable to meet their financial obligations. These are challenging times for financial intermediaries, however, it is now more than ever that the expertise and experience of an adviser is needed by clients to find cost effective solutions that enable consumers to retain cover, medical aid or access to investments but stripping out some of the costs. By helping clients to revise their insurance premiums now before they may be forced to cancel, an intermediary is not only demonstrating his skill but is also assisting his client base at the most crucial time, thereby strengthening and reinforcing the value of the client relationship.

have a major role to play in en su r in g th at these new regulations are adhered to and prioritised. Not only do these measures seek to enforce the rights of consumers but importantly they also serve to improve and build upon the image of the financial intermediary in the eyes of the public. INDUSTRY TRAINING AND DEVELOPMENT At the FIA, we have also recognised the desperate need for formalised training and development to support our members to grow and develop their businesses. As a result, the secretariat of the Advisory Council was tasked with establishing an Education and Development Exco that will be operational during the first quarter of 2011.

CONSUMER EDUCATION In tandem with this, part of our role at the FIA is to educate consumers about the benefits an adviser can bring to their financial affairs. As I have mentioned previously, we have re-prioritised the FIA’s profile in the media and are striving to put forward a fair and just portrait of financial intermediaries to the public.

As part of this new initiative the Western Cape is ready to launch their first pilot modules of the INSURANCE BOOTCAMP. The programme, which has been developed by the FIA in partnership with RISKSA and the Insurance Institute of the Cape of Good Hope, will focus on enhancing basic business skills.

However, we also recognise the damage caused to our industry if an adviser acts in an unscrupulous manner. The role of self-regulation the FIA fulfils in removing unethical intermediaries is crucial to improving the image of our industry and we, like you, take this very seriously.

In the first stage the emphasis is primarily to focus and enhance the skills of those working within the commercial and industrial insurance space from a practical and operational point of view. It is also aimed at industry members who primarily trade within the life, risk and investments side of the profession, but need exposure to commercial insurance skills training.

There are a number of new regulatory changes that are currently being introduced including the Consumer Protection Act, conflict of interest amendments and Treating the Customer Fairly guidelines. All of these are aimed at ensuring that consumer’s rights are put first and at the FIA we

The FIA will reserve the copyright on these study materials and it will later be rolled out on a national level.

PROFILE

Company Profile - Winston Skosana Director of the FIA and is the Chief Operating Officer and a Director of Marsh South Africa by Clive Franks Preamble: With the desire of finding out more about what the FIA Board members do besides devoting their valuable time to the FIA; FIA INSGHT will be conducting interviews with them in each quarter. Our seventh interview is with Winston Skosana director of the FIA. Winston is the Chief Operating Officer and Director of Marsh South Africa. FIA: As a director of the FIA and the huge responsibility and amount of time it consumes, especially with all the involved and delicate and often complicated mergers and your passion to see the success of the FIA, do you find that this has had an adverse effect on the time you are able to devote to Marsh South Africa? It remains a question of effective time management and balancing the contribution made to FIA activities and the day to day involvement at Marsh and the correct prioritisation of time devoted to each of the activities declared Winston. Being involved in the FIA is a necessary contribution that one has to make as the FIA talks industry issues that affects all of us that are involved in the industry, so it is imperative that senior members of the industry are involved with the FIA and its activities. This is to ensure that collectively we as an industry speak with one voice in terms of positioning the industry when interacting with the regulators, and dealing with consumer concerns and issues, and also generally that the public should know that there is one port of call in engaging with the intermediary association and the industry at large he emphasised. FIA: In what way do you feel that you are making the most contribution to the FIA? I think that firstly one cannot underestimate the time involvement given the changes that are affecting the industry and providing the necessary input and contribution to the relevant committees that are affecting the industry. This cutting edge intellectual contribution and debate, which is being made at all levels of the FIA whether on board or committee level, and becomes even more apparent in maintaining a high level of relevancy to the industry as a whole. FIA: What issues are you as a director of the FIA currently involved in? Mainly issues that affect the FIA at the Short-term insurance level up to now, but unfortunately had to step down from the short-term exco due to my many other commitments, however on the Board level I am generally involved in all issues that affect the industry i.e. transformation, regulatory issues, membership concerns and branding of the FIA.

FIA: What is the greatest benefit Marsh can bring to the consumer? The greatest benefit that Marsh as a company brings to the table is adherence to high levels of quality service, respect for the customer, treating the customer with integrity and basically competing fairly. This is to ensure that whatever products we bring to the consumers, speak to the needs of the customers, so fulfilling that need of the customer is what Marsh brings forth he declared. FIA: What is Marsh's mission statement? I would rather discuss Marsh's value proposition to customers which we call 3D which consist of Define, Design and Deliver. To describe that in more detail is that we define client/prospects opportunities, we design their solutions and deliver superior results to the client, which places us on the cutting edge in terms of innovation and being at the forefront of anticipating and working around risk solutions which are specific or tailor-made to clients and the challenges they are faced with. FIA: What words of advice do you have for the consumer particularly in light of the recent global economic downturn? Consumers need to be circumspect in choosing the products that they need and that with the recent situation that we witnessed with the financial meltdown, but also before they decide on restricting insurance coverage or compromising their insurance requirements they should consider very carefully before reaching those decisions. The best advice I could give the consumer is to sit down with your adviser and carefully explore your needs in order that you are not left high and dry by discarding what is essential to your financial survival. FIA: Do you think that we have reached the turnaround in the financial crisis in South Africa? We are receiving mixed signals depending on the industry you are operating in, some industries were affected badly than others and in some there was no impact at all, so it dependant on which industry one operates in. Generally CEO's that were interviewed post the 2010 World Cup indicated that there was a mood of cautious optimism, but we have not reached the point that we can say with absolute certainty that we have reached the turnaround point. There are signs that we are emerging from the doldrums of the financial market collapse and will see in the next few months how things progress but generally I would say that we are on a better footing and platform than we were compared to eighteen months ago he imparted.

PROFILE

FIA: What words of advice do you have for the intermediaries going forward? The advice that I have for intermediaries going for are: 1. It is important for the intermediaries to be at the forefront and ahead of the game to be able to design solutions for the consumer 2. Also for intermediaries to share and work with each other so that the industry understands the challenges that are being faced. The FIA provides that platform for intermediaries to network, interface and to engage providing them with an umbrella association that assists them to deal with issues that affects them with one voice. 3. The final one is that I am passionate about is ongoing personal development so that intermediaries continuously sharpen their skills, whether those be technical, managerial leadership or customer relationship skills.

FIA: What is your feeling with regards to the RE1 & RE2 Level Examinations? The regulator wants to improve the level of competency so that consumers are aware they are dealing with a competent and professional industry. The exams will have a cost impact to companies in that employees will have to take time off work in order to participate in the exams which in turn will affect productivity. Employees will also need a certain amount of study leave so that they are fully prepared for the exams. Rather than complain about these exams we should embrace them and asses and advise our staff how to best prepare in order to meet the minimum requirements in order that they may give the consumer the comfort of their competency. In terms of RE1 & RE2 I would make an analogy to a sportsman going on to the playing field with all his minimum equipment such as boots, team shirt and shin pads just as an example. FIA: How do you see the FIA's interaction with the regulators such as the FSB? I see the interaction between the FIA and the FSB as a progressive move and we continue to establish an understanding of each other, The FSB has specific interests from the industry itself and how it functions and the FIA has specific interest of ensuring that its members are not prejudiced by whatever regulatory issues are being introduced. I would regard it as a necessary relationship that has to be nurtured between the industry and the FSB. The FAIS Ombudsman Act as a reference to ensure that the industry abides by all the rules in an objective and fair manner, so the ombudsman is a necessary player in the market and we welcome his/her role in this industry.

FIA: What incentives are there for young people to join our industry and how do you think we will be able to attract them? That I think will be a long journey as I think it is not necessarily the FIA that will drive that initiative. The FIA will have to work with SAIA/INSETA and members especially the small and large corporates ensuring that insurance becomes one of the alternate careers of choice. The benefits of the current financial crisis is that instead of graduates talking of going into the banking/investment houses as first choices of careers, those industries are no longer recruiting in numbers. As a result there are top quality graduates who are unemployed currently and who are looking for opportunities and the insurance industry is poised to take advantage of that situation and employing this talent and giving them an alternative career.

The Insurance industry has a chance to position itself to compete with others in term of nurturing and growing talent, giving youngsters a chance to fly and become better citizens of this country.

FIA: Are you willing to share a brief CV and a glimpse in to the private life of Winston Skosana When you are not involved with the business of the FIA & Marsh? When I am not involved with the FIA or Marsh, I try to spend quality time with my wife Bess and two lovely daughters Khanyisile and Thandiwe. On weekends I also try to catch up on my very very raw golfing skills .I also like to gym a couple of times a month, and enjoy jogging. I am also a very keen follower of the beautiful game of soccer being a staunch supporter of Moroka Swallows and as far as rugby is concerned I support the Blue Bulls. I am also involved in my local church Ebenezar, in Randfontein and a few community projects such as the learning foundation at my former high school which encourages the culture of learning among the youth. I also enjoy going to theatre and think that if my career was not insurance I would be a theatre director and poet. And also enjoy listening to Afro Jazz and music from the rest of the African Continent. Winston is a graduate of UNISA, UCT, GIBS and Wharton Business School (Pennsylvania, USA).

I N T E R N AT I O N A L

The Great Debate: Direct Insurers vs. Traditional Brokers By Andres Franzetti, Business Development Manager, Clements International When was the last time you used a travel agent to book a flight? Most likely, it is difficult to remember exactly when that was. Gone are the days when people used travel agents to make travel plans and purchases. Today, when a traveller needs to purchase an airline ticket, it is a relatively easy task of searching online and comparing prices. Within a few clicks, you can book a trip across the world, no special expertise required. This example is an appropriate analogy for the visible change taking place in the insurance industry in which client preference is shifting toward direct insurers and away from traditional brokers.

absence of an i n t e r m e d i a r y. Large insurers can provide coverage over a large geographical area and offer 24-hour customer service call centres. For those customers seeking lower prices and less personal attention, direct insurers can satisfy those needs.

Although the business landscape is changing how people purchase insurance, there are still opportunities for brokers to refine their role and profitably exist alongside direct insurers. Several factors have made doing business more difficult for traditional brokers, including, but not limited to, stricter regulations, technology, advertising and cost efficiency.

Although direct insurers heavily emphasize cost savings in their advertising, higher operating costs can often result in inflated premiums. They also have less flexibility than brokers, who can often offer discounts for bundled policies, as well as provide multiple quotes from various carriers, offering the end user a more competitively priced option.

First, stricter regulations are being imposed on advisors to register, undergo continuous training and become an expert in a specific field as opposed to having more general expertise. This involves a substantial investment of time and resources which may be difficult for some brokers to comply with, but ultimately, this is all done in an effort to ensure a high degree of competency and standards within the profession.

Direct insurers typically work out of a call centre, which can be an advantage or disadvantage depending on the client and the level of service required. A direct insurer cannot provide face to face consultations and communication is conducted completely over the phone with no guarantee that you will talk to the same person more than once. Although call centre staff may be very knowledgeable about the products they sell, they likely are not industry experts with years of experience in risk management. Direct insurers also obtain multiple quotes for the same coverage to ensure customers get the best deal possible and they provide helpful assistance with claims processing. However, a qualified broker often has years of hands-on experience and can offer personal consultations to ensure clients obtain adequate coverage, especially in unique situations.

Next, technological advances have made the purchasing process easier and more efficient. Customers looking for insurance coverage can independently research online from anywhere in the world and conduct the entire process from their phone or computer. In addition, people have become more trusting of technology to perform even the most complex, financial transactions, from transferring funds between bank accounts, paying bills, buying or selling a car, and in this case, purchasing insurance for themselves and their loved ones. This new consumer attitude could be due in part to greater receptivity to online advertising, which has allowed direct insurers with large advertising budgets to gain visibility and momentum in the insurance marketplace. Increased advertising budgets are making direct insurers highly visible and accessible to the end user. Companies are also using creative marketing to target younger customers who are more comfortable doing business online, which means the traditional broker stands to become even more irrelevant to future generations of consumers. Consequently, traditional brokers have started to feel the impact on their bottom lines. There are a certainly a few advantages of purchasing insurance from a direct insurer. Customers benefit from discounted premiums with the

In order to remain competitive and relevant, brokers need to diversify their product offerings and servicing capabilities. One way to achieve this is through identifying and entering niche markets, such as international or high risk insurance, so that brokers focus on promoting their expertise and specialized knowledge, which a customer service representative at a call centre cannot provide. Direct insurers can satisfy the needs of the individual and small to mid-size organizations with affordable premiums. However, clients with complex portfolios or large companies with sizeable assets will still require short-term insurance advisors with the appropriate experience, qualifications and reputations to manage their risks. Understandably, these clients have more at stake and higher potential for loss, requiring more indepth consultation and client interaction. This is where the future lies for traditional brokers â&#x20AC;&#x201C; in advisory roles where they can offer specialized knowledge and personal service to more demanding clientele.

L O C A L LY

Defending against Direct Insurers By Jon-Marc Loureiro GM Business Development Renasa Insurance Company Limited Melanie Brown wrote in an article published in the May 2010 Cover magazine that “Although still holding dominant shares, Santam and Mutual & Federal continue to lose market share, largely to the direct market.” Outsurance started twelve years ago, Auto and General before that and Dial Direct five years later and already they have picked off a handsome amount of business, and with the entrance of MiWay into the market, this trend is clearly continuing. This trend is escalated because the direct insurers have begun writing commercial lines and no longer limit themselves to personal lines. It is a worrying and dangerous development for the brokers and also for all those insurers who accept business through intermediaries. Contrary to what the direct insurers would have everyone believe, we do not agree that it is the acquisition cost that makes intermediary business more expensive, but rather there are two very distinct reasons which allow the direct insurers to be perceived as more competitively priced. We submit that the most important reason is that they price each risk individually (as opposed to cross subsidising) and the other reason is that they have greater control at the claims stage. The single biggest coup by the direct insurers was that they were able to lure away from the traditional intermediaries their prized insured’s while leaving behind the riskier and underrated risks. They do this by pricing each risk separately and so are able to offer the better risks at more competitive rates than those which insured clients were formerly paying when they were brokered. At the recent FIA dinner, whilst talking with one of our Administrator clients, it was mentioned that a particular broker with whom he was considering doing business had some “not great” business that he was being asked to accommodate because overall the portfolio was “fantastic”. The suggestion was that the cross subsidisation of the bad risks by the good risks meant that the entire portfolio could run at an acceptable loss ratio. This way of doing business allows direct insurers to offer lower rates for the better risks which, in the traditional market, subsidize the worse risks. This the direct insurers achieve under the marketing appeal that they are cutting out the exorbitant costs of the fat middleman. However in reality, all they are doing is selecting the better risks which they can underwrite at lower rates. By doing this, and still building fat into those rates, they are able to offer a gimmicky return of premium bonus to further attract clients and at the same time they continue to make profits way above the industry average. This process of emigration of the better risks puts pressure on the sustainability of the Group Schemes who, by losing their better clients, are left with the risks more prone to claims which are consequently underpriced. Direct insurers received much publicity by highlighting the savings that they could offer insured’s – but of course this was only for those risks that they had carefully selected. The Group Scheme Broker or Administrator who has an underwriting pen and has traditional, simple and less sophisticated methods to determine motor rates (such as the

sum insured, age of driver and no claim bonus) is at a disadvantage. The result is that in the wide por tfolio of business of Group Scheme Brokers and Administrators there are a great many risks for which premiums are statistically too expensive in relation to their risk profile and other businesses which is statistically too cheap in relation to its risk profile. However, this type of rating methodology excludes all the other critical rating factors such as the power to weight ratio, the demographics of the insured, the creditworthiness of the insured and many others. The direct insurers have the resources, data and the gap in the market to identify risk profiles that are mispriced and to price them correctly. This focus by the direct insurers on the better mispriced risks of the intermediated market segment allows them to advertise themselves as the more competitive alternative to the traditional model of business – not because they are offering a cheaper product but instead because they are cutting out the “fat” middleman. And looking back, we (both the intermediary and the insurer who accepts business brought by the intermediary) were all to blame for allowing this to happen. However, it is now time and imperative to counter this by insurers offering intermediaries proper and sustainable risk profiling of the risks that insurers write. And, how do we achieve this? By insurers providing independent brokers with the mechanisms to determine rates scientifically and to manage efficiently the cost of claims but doing so in a manner that allows the independent broker to remain just that – “independent”. The independence of the broker (i.e. the ability to market freely – i.e. to shift business - to an array of insurers) can only be preserved by making these tools available to brokers who operate on policy administration systems which are independent of insurers. In this way brokers can still control the issue of policies and the settlement of claims thereby preserving high levels of service. Yet, the benefits of scientific underwriting and the efficient control of claims costs on which this relies can still be exploited by independent brokers provided that the independent policy and claims administration systems on which they operate are integrated to the insurer systems which provide these controls.

INVESTMENTS

The Investment Decision making Value chain – Who should do What? By Andrew Kemp, Head of Asset Consulting at Liberty Corporate

Introduction

The advisers

The trustees of a retirement fund have a fiduciary responsibility towards the fund’s investments and so are accordingly ultimately responsible for all investment decisions taken by the fund. This relatively straightforward responsibility is made infinitely more complex by the fact that trustees generally are not investment specialists and so do not often have the specialised knowledge and expertise to make these decisions in an informed manner. Indeed, the field of investment management is broad and contains many areas of specialisation, making it difficult for one person to effectively manage the entire spectrum of investment decisions facing a board of trustees. The result of this lack of specialist knowledge is that trustees utilise the services of consultants and investment managers. The lines between consultants (advisers) and investment managers (implementers) has blurred in recent times, which means that it is often difficult for trustees to understand the advantages and disadvantages of using any specific service provider. The purpose of this article is to outline the various broad categories of advisers and implementers, look briefly at the services each provide and attempt to highlight the advantages of each approach as well as the potential conflicts of interest and agency problems caused by the asymmetry of information.

The blurring of the lines of responsibility between asset consultants, implemented consultants, managers and multi managers is often the cause of heated debates concerning potential conflicts of interest, and who is in the best position to advise the Board. Essentially the core of most the discussion regarding conflict of interest revolves around the conflict inherent in advising a client and then being the actual implementer of said advice. Typically one then reports on how well one is implementing the intended investment strategy – a case of marking one’s own homework. On the other hand, a compelling argument can be made for allowing the advisor to assist with the implementation as it creates greater accountability for achieving the fund’s overall investment objectives. In order to explore this more deeply it is useful to divide the adviser – implementer universe into some broad categories. This isn’t a definitive categorisation, but is really categorised on the (sometimes subtle) differences which I perceive in the market. The chart below illustrates the different role players, moving through the spectrum from pure advice through to pure implementation.

Advice

Implementation

Traditional asset consultant

Implemented consultant

Structures solutions multimanagers

Very Similar

Multimanagers

Single investment managers

INVESTMENTS

might be the most appropriate for a client, but its inclusion might have a

The lines between consultants (advisers) and investment managers (implementers) has blurred in recent times, which means that it is often difficult for trustees to understand the advantages and

detrimental impact on the implemented consultant's profit margin. In addition, the implemented consultant typically repor ts on the performance of the implemented solutions, and so an incentive exists to be less than transparent when performance is poor. Structured solutions multi managers are very similar to an implemented consultant, but really advise clients on the best way to utilise their products to achieve their investment objectives. It is a very subtle

disadvantages of using any specific

difference between the true implemented consultant who is packaging

service provider.

use his products, and in most cases these can only really be

his best advice, and a multi manager who is advising on the best way to distinguished by the actions of the specific advisor. There are similar pros and cons to this approach as with the implemented consultant, but

Asset consultants in the traditional sense provide advice to retirement

in some ways the agency conflict over manager selection is perhaps

fund clients based on an analysis of the fund's age profile, risk tolerance,

slightly clearer as there is a clearer understanding that the client is

and liabilities, coupled with a view of which investment managers are

ultimately buying a product. On the other hand, there may be an incentive

appropriate for the client. In this case they purely fulfil the role of adviser

for this type of advisor to force a fit between the clients' needs and his

and do not implement any of the actual advice given; rather they, in

particular product range.

consultation with the client, tend to utilise investment managers to do the actual implementation. Generally there are not really any inherent

Multimanagers and single investment managers are typically thought of

conflicts of interest in this relationship provided that the client pays the

as purely implementers, although a recent trend has been for

asset consulting fee and there is no relationship between how the adviser

multimanagers to move towards the structured solutions model by

generates income and the investment managers recommended. The

adding varying levels of consulting. Generally however, there is not too

potential drawback of this type of adviser is that they are often accused

much potential for conflict of interests at this level aside from potential

of not taking enough accountability for the ultimate investment result.

concerns regarding portfolio churn, brokerage and trade allocation. The

This is because the consultant can generally blame the investment

disadvantage of this is that the end client is generally fairly

manager for poor performance and appoint another one. The question of

unsophisticated in investment matters, and often ends up buying an

why an inappropriate manager was originally selected often doesn't

investment product which is inappropriate for the needs of the fund.

come to the fore. There are clearly pros and cons to all approaches, with the potential for

Implemented consultants provide a more interesting area of debate.

conflicts of interests in virtually all of the relationships and so there does

They advise the retirement fund on the policy and strategy component of

not appear to be any one perfect system which eliminates all potential

the fund's investments in much the same way as a traditional asset

conflict but also ensures accountability on the advisor, who after all

consultant, but they also seek to provide the solution. The solution is

should have the required level of investment skill and experience.

presented as a packaged â&#x20AC;&#x153;best advice of how to implementâ&#x20AC;? for the

Accordingly trustees would be well advised to understand where the

fund's specific needs, generally in some form of a multimanaged

potential exists for any conflict and how the advisor intends to manage it.

solution, often targeting a real return which the consultant has

At the end of the day, personal integrity is as important as competence,

determined to be appropriate based on a needs analysis of the fund. In

and trustees should strive to determine the character of both the advisor

some ways this is an attractive proposition, as the adviser is taking on full

and the company he is representing. It is also important for trustees to

responsibility for ensuring that the fund achieves its investment

remember that no matter who they outsource responsibilities to, the

objectives. On the other hand, this does introduce the potential for

ultimate responsibility for the investment management of their fund lies

selective reporting and potential agency problems with regard to the

with them, and so there can be no substitute for trustees applying their

selection of managers. This typically can occur when a certain manager

minds.

FINANCIAL PLANNING

Change – Fight it? or Embrace it? By Chris Busschau – Chairperson FIA Financial Planning Exco.

I have been in this great industry for 38 years. During that time the industry has been through constant change. And 2010 is no exception!

financial calamities of the loss of bread winners, we help people to maintain a life after severe disability, we ensure that ordinary people can retire with dignity, and we help people to educate their children, save for major events and accumulate wealth.

We already have the new Code on the Conflict of Interests, and the FSB has distributed its proposals for “Treating Customers Fairly”. The Consumer Protection Act is upon us, and we will soon see the beginning of Workflow 2 of the proposals contained in the National Treasury Discussion Paper on Savings Products in the Insurance Industry.

We are a proud industry!

But, before you start to think that this all sounds like a financial services version of Alvin Toffler's great book “Future Shock”, I'd like to remind you of how much we have seen in the past!

RESILIENT AND FLEXIBLE Financial Intermediaries have to be the most resilient and flexible people in the economy! To give you just some of the changes that we have embraced in my time in the industry: ?

? ?

? ? ?

I have been able to identify 31 life assurance companies that were operating in 1972. And most brokers had contracts with almost every single one. Imagine dealing with more than 20 Broker Consultants! However, there were only 3 registered unit trusts at that time! Personal computers hadn't even been through of – we calculated premiums from rate books (if you remember them, you are showing your age!) or else we phoned the life offices and asked for quotes – which could take a day or two to be delivered. The 6th Schedule of the Income Tax Act set out to eliminate single premium insured investments – but our flexibility saw the introduction of “5 by 5's”. We even came up with income producing structures that we called “back to backs”. th The 6 Schedule was made even tougher through the introduction of a requirement for life cover to be included in these products, but we coped! All sorts of changes were made to the regulations surrounding company owned policies. The commission structures were change several times, and adaptation became the name of the game. The process of what eventually led to FAIS began after the Masterbond and Supreme Bond debacles, with draft legislation called the Financial Advice Bill (FAB) being debated for years.

THE NEW CHANGES The Conflict of Interests code has attracted massive attention. Many people are seeing it as a very negative influence. But is that true? Certainly, there will be some impact. But does it present major problems? Lets look at them. Incentive trips offered by product houses will disappear – but ? that was a “nice to have” rather than an element of an intermediary's income. Strictly prescribed limits and conditions have been introduced ? for training courses and workshops run by the product houses, but these will continue to be offered. The requirement that we clearly disclose any arrangements ? with specific product houses that could lead to their products being favoured by an intermediary will require some changes to documentation. But it really is a no-brainer – we probably should have been doing that any way. In fact, the emphasis on disclosure in order to clarify our ? affiliations and the way we function is clearly consumercentric and will, in the long run, improve the reputation of the industry in the minds of clients. The Treating Customers Fairly document is still very much at the beginning of the discussion stage. The initial document places a significant focus on product houses, with most of the elements that involve intermediaries being a restatement of the principles that we are already applying as a result of FAIS. This may change over time, but at this stage it looks very much as if it will in fact help intermediaries by requiring product houses to improve the way they deal with customers, and this certainly has the potential to improve the image of the overall industry. The Consumer Protection Act does not apply to those products that fall under FAIS, so you will only need to apply its strict rules if you do business outside of our industry. As to Workflow 2, talks haven't even started yet. But you can rest assured that the FIA will be in there, boxing on behalf of both intermediaries and consumers to ensure the most balanced outcomes. We will be coming to you for input once we know where this is heading. So, all in all, the latest changes and proposed changes will require some adaptation on our part, but they certainly look set to improve the environment for us to function successfully. A time to embrace the changes and turn them to your advantage!

And of course, we've had all the other more recent changes. But still we intermediaries continue to advise our clients, we save families from the

E D U C AT I O N A N D T R A I N I N G

Insurance Boot Camp By Tim Timmerman Chairperson of the FIA Tygerberg Branch “Give a man a fish; you have fed him for today. Teach a man to fish; and you have fed him for a lifetime”—Author unknown. At the annual IISA and SAIA conference in May 2010 at Sun City, the FIA was included for the first time, in view of their significance in the insurance industry. It was very significant that virtually all the speakers made some reference to the importance of getting our industry “up-skilled” or improving on the education of our staff in the insurance industry. It is without doubt, a very important factor and for various reasons, the knowledge levels of our staff have diminished over the past few years. This is widely acknowledged across all spectrums of insurance, whether in Life and Investments or short term; broking or an underwriter. Over the past year, the Western Cape Division of FIA has been seeking ways in which we can indeed solve this problem. We have held numerous meetings with a range of role players and the hurdles identified, have been similar. The primary hurdles are the financial aspect and the relevance of course material, specifically in light of changes in legislation and the proposed regulatory changes by the FSB. These aspects as well as the recent events at the IISA and their college are some of the reasons why the focus on education has waned. The FIA Tygerberg branch conducted a survey among members and it was discovered that in addition to the recognised academic qualifications such as AIISA and FIISA, our members needed refresher courses and basic courses on the “day-to-day” issues of insurance. A basic plan was formulated and approved at National Advisory in 2009. The Western Cape division has formulated an Education portfolio which is chaired by Shane Accom. This committee met on various occasions and formulated the structure of the education strategy. After an informal discussion with Andy Mark of RISKSA toward the end of last year, a number of items of common interest were identified. It was agreed to incorporate IICoGH (Insurance Institute of the Cape of Good Hope) and together, Insurance Bootcamp – back to basics, was Aims and Objectives: • To promote and enhance the basic skill levels of members in respect of various classes and elements of insurance with a particular focus on the operational environment. • This training program is also designed to target novice industry entrants and existing Broker's staff, at the basic to intermediate level, with due regard to day-day operational ability not catered for within the current formal educational structure. • It is also aimed at industry members who primarily trade within the life, risk and investments aspect of the profession, but need exposure to commercial insurance skills training. • An advanced syllabus aimed at enhancing the skills of the senior practitioners has also been developed and will run simultaneously.

Methodology: The seminars will take place in the form of lectures and industry experts will be asked to present on a subject. It will be generic and not geared to highlight any company's strengths. Following the lecture / presentation, delegates will be divided into syndicates and practical application of the topic will be encouraged. The various daily tasks such as Needs Analysis and Risk Management will be incorporated along with realistic scenarios so as to enhance the practical application of the theory that was presented. Procedural Considerations: Once confirmation of attendance and proof of payment has been received, a record of attendees will be finalised and each delegate will be presented with a Certificate of Attendance at the conclusion of the seminar. These details will be kept in a central data base along with the course presentation as well as a recording of the lecture. These records will be presented to the FSB for CPD consideration. Structure: The structure of the Insurance Bootcamp model is simple in that it is a joint venture between the FIA, RISKSA and IICoGH. It has however been developed in such a way that it can be rolled out to the many regions in RSA, that require such education. The structure also makes provision for a financial boost in that it allows for the branches and regions of FIA and the various institutes, to convene the bookings and recruit more members for their respective organisations. Roll Out: As you will have seen, the first seminar takes place on 16 September at the Pepper Club in Cape Town. The subject presented will be on Buildings Combined and it will be presented by Melanie Venter of CIA. The following seminar will be in October and cover the fields of Fire and / or Business Interruption. Details will be disseminated soon. After an analysis of the performance of these seminars, the collective effectiveness will be assessed and roll out will commence to the various regions. We anticipate that this will take place early next year. Conclusion: We are excited about the launch and success of this project and are convinced that this project will offer an alternative to the professionalising of the insurance industry. In achieving the goals that we envisage, we believe that the overall skills levels within the industry will improve and thereby enable the industry as a whole to offer a far superior service to their clients. In addition, it is foreseen that with such improvements within the skills levels, the knock on effect will not only reduce potential PI claims but also assist members in satisfying the FAIS criteria such as Treat the Client Fairly and in offering Professional advice.

FA I S

New FAIS Ombud Notluntu Bam answers some questions from the FIA By Clive Franks

FIA: Do you think that the criteria for granting FSP licences are being applied to your satisfaction. This is out of my scope given that the Office is in no way involved in the licensing process. Whilst I believe that every effort is being made to ensure that only those individuals that are truly fit and proper succeed in obtaining a license this is perhaps a question that would be more appropriately directed at the regulator. FIA: Is enough being done about consumer education and awareness This is still an aspect that requires attention. The low savings rate which cuts across all socio economic classes evidences flawed individual financial management. Whilst there is a degree of information available through the mass media it is either overwhelming or caters more for those that are at least financially literate. There is very little emphasis on the lower income market being the area most in need of attention.

FIA: How do you percieve the role of the FIA and how do you see the relationship developing in the future? The very fact that there is a code of conduct binding on members offers a measure of assurance to consumers. In particular I am interested in the paragraph that states that FIA undertakes to “Assist stakeholders and regulatory authorities to eradicate unauthorised and undesirable practices within the financial services industry.” In line with my answer to your first question there is a need for us all to start accepting a greater degree of responsibility. We can no longer simply place the blame elsewhere but instead we all need to work together to ensure a more ethical financial services industry. Any organization that enhances integrity within the industry will receive the full support of the Office and as such we look forward to continuing our relationship with FIA. There is no doubt that these interactions enhance our own understanding of what is after all a continuously evolving industry. FIA: Do you think enough recognition is being given to the intermediaries commitment to consumer excellence? With intermediaries being the link between the client and the financial institution, they are the ones who often bear the brunt of consumer dissatisfaction. Admittedly in some instances where product design or marketing is at fault this should have been questioned prior to marketing the product to their clients. That being said there are many committed intermediaries performing an invaluable role in society. Unfortunately there is more of a focus on instances where problems have arisen than the undoubtedly far more numerous

instances of appropriate advice and assistance having been rendered. Ver y seldom are consumers made aware of the assistance that is rendered in wrapping up an estate or the many follow up’s to ensure that pension fund monies are transferred or policies paid out. Frequently correct advice has made the difference between a comfortable retirement as opposed to depending on friends and relatives. Given our generally poor savings level we are more in such individuals than ever before. Regrettably far too few of these types of individuals are entering the industry and perhaps a more concerted effort needs to be made to recognise the role that they play in society. FIA: Do you think that the consumer is sufficiently aware of the recourse the have through your office? The fact that we still receive many complaints that are not within our jurisdiction is indicative of the fact that the consumers are still unsure of their rights or even if so aware; which is the correct forum in which to lodge a complaint.

FIA: What is your message to members of the FIA? The current economic downturn is a difficult time for both advisers and consumers alike. Selecting appropriate products and reassuring anxious clients takes up even more valuable time than it normally would. Yet it is just such times that differentiate committed advisers who have their client’s interests at heart from those that are only in the business for the short term.

FIA: Can you please fill us in on yorur personal background and what you enjoy doing outside of your office hours? I am South African born, raised in the Eastern Cape in a family of six children and a lawyer by profession. I am currently in my second year of study towards an MBA with Wits Business School. Whenever I find the time, I like to go to gym. I try and do so at least four times a week.

P I

Professional Indemnity under the Microscope By Jerome Fanning of Alexander Forbes Professions and a member of the FIA explains the inner workings of Professional Indemnity insurance

Q: What is Professional Indemnity? A: Professional Indemnity (PI) insurance protects businesses from often financially crippling and reputation damaging claims made by dissatisfied clients. When professionals make errors or omissions or provide defective designs, they can be sued in negligence or breach of contract. PI insurance provides financial protection to meet the costs that may become payable. Areas of exposure to a business could include: Negligence or Breach of duty of care. 'A Broker failed to immediately notify Insurers of an accident notification and waited for a claim form from the customer that never arrived. Insurers repudiated the claim on the basis of late notification.' Intellectual Property – Unintentionally infringing on others' copyrights, trademarks, broadcasting rights, any act of passing off. 'A text book drawing is adapted by a Graphic Designer to create a logo. A third party sues for breach of copyright.' Loss of Documents & Data – Damaged, lost or stolen data or documents belonging to your clients. 'A Computer consultant advises installation of non-compatible software corrupting a client's customer database.' Employee Dishonesty – Liability arising from the theft of clients' money. 'Money is stolen from an Estate Agent's client account.' PI is aimed at protecting the insured against their legal liability to pay damages to claimants who have sustained a loss arising from the insured's services. This legal liability arises from the duty of care we all owe to one another. Professionals hold themselves out of to be experts and have a heightened duty of care compared to the 'average person on the ground'. Q: Who would need PI insurance? A: Any person, company or partnership providing advice, designs, specifications or other professional services can be described as a “professional”. The most obvious examples are Attorneys, Accountants and Doctors. These are commonly known as the 'traditional or old professions' and, generally speaking, the bodies that oversee these professions require their members to purchase PI cover. In more recent times with the rapid growth of the service economy there has been an increasing array of firms providing services ranging from IT to Management to Recruitment and now even Lifestyle Consultancy. These “newer professions” will also have an exposure to claims by their customers and other parties as a result of loss due to a “failure” or an alleged failure in the professional service. Even when a business does not charge a fee they may be liable for negligent advice. Non-profit organisations such as charities or trade associations will often have a PI exposure.

Q: How is cover arranged? A: Generally speaking, a proposal form will be submitted to an Underwriter via a Broker. Most forms would include the following four key categories: Activities – For example, how is an Insurance Intermediary's work split between short term, life & pensions and financial planning. Fee income - In most cases the Underwriter will apply a rate to the fees to determine a premium. The rate is the figure set by the Insurer based on the likelihood that a claim may have to be paid on the policy. The rate will often be specific to the activities undertaken. Claims record – Both frequency and severity will be considered and premiums may be loaded or discounted accordingly. Qualifications &/or experience – Does the person(s) providing professional advice or services have the knowledge and capability to do so. Q: How is the policy structured? A: A Professional Indemnity policy is underwritten on a “Claims Made” basis. This means that the policy covers claims first made against the insured and notified to the insurer during the period of insurance, irrespective of the date of the alleged act which gave rise to the claim. Where there has been no previous insurance, it is common to apply a retroactive cover exclusion, i.e. to exclude consequences of acts, errors or omissions committed prior to the inception date. However, this exclusion can often be waived and retroactive cover purchased at an addition premium. According to Manwood Underwriters; “The Policy is renewable on an annual basis, the 'Retroactive Date' defines the starting point in time of the Professional Indemnity Insurance cover”. Q: How do professionals incur liability? A: Where a professional's act, error or omission adversely affects other people or their property, or causes financial loss, the aggrieved party may be able to bring a claim under civil law, seeking an award of compensation (know as damages). The main areas of civil law affecting PI insurance are: At common law or in tort (a tort is a civil wrong e.g. negligence) Professional negligence can be defined as: “The failure to meet the standards of care to be expected from the average competent and experienced practitioner so as to render the professional person committing the act, error or omission liable at to a client or some other third party.” The vast majority of claims against professionals and other service providers will relate to financial losses although some professionals such as those in healthcare can be sued for injury.

P I

It is important to remember that PI will cover the costs of defending a claim as well as settling it. Doing something wrong and being accused of doing something wrong are two different things. You can be the best practitioner in the world but you cannot stop a client suing you. In today's legal system, even proving innocence can be very costly. Manwood says, “The indemnity granted applies only to claims first made against the Insured and notified to the Underwriters during the current Period of Insurance”. “It is the Insured's obligation to promptly notify Underwriters of a claim made or which they suspect may be made, against them and to provide such additional information and documentation as Underwriters may reasonable require”. Q. What is protected? A: All PI policies will indemnify the insured against their legal liability to pay: 1. Damages for claims against the insured 2. Legal costs awarded against the insured 3. Defence costs incurred in defending a claim arising out of an alleged negligent act, error or omission in the practice of their profession. A claim from a client who tripped over a Broker's office carpet would thus not be covered as it did not arise out of a breach of professional duty.

Q. What other benefits and features might a PI policy include? A: Certain extensions may be included in the cover. These differ from insurer to insurer and some are sub-limited whilst others follow the policy limit. The following are examples of what is available: Claims arising out of defamatory statements made by you in the conduct of the business (generally excludes publication in any journal, magazine, newspaper or on radio or television). Claims arising out of any dishonest or malicious act of any employee (excludes fidelity cover). Costs incurred in the replacement or restoration of lost Documents. Please note that any legal liability arising out of this loss would be covered under the body of the policy. Alexander Forbes Professions is part of the Alexander Forbes Group, one of the largest insurance brokers in the world. Our Professions team has the experience and expertise to provide you with a policy best suited to your needs. Our intimate knowledge of the PI market, coupled with excellent relationships with insurers, enable us to obtain optimum terms from the market. We focus on delivering fast, efficient service and strive for market leadership through building and maintaining strong relationships with our clients, and delivering to their expectations.

C PA

Another Reason to do the Right Thing by Your Customers By Natasha Bouwman, Supervisor at the Institute of Directors of Southern Africa’s (IoDSA) Centre for Corporate Governance.

Institute of Directors says new Consumer Protection Act supports good governance principles The new Consumer Protection Act, the final parts of which are due to kick in on 24 October this year, has companies in a flap about potentially huge claims over substandard products. “But companies that are already complying with the principles of good corporate governance contained in the King Report on Corporate Governance (King III) shouldn't have anything to worry about,” says Natasha Bouwman, Supervisor at the Institute of Directors of Southern Africa's (IoDSA) Centre for Corporate Governance. “The ones who should be panicking are those who've never heeded the IoDSA's call for organisations to be guided by King III; specifically, provisions that call for boards to take tough decisions – like those to recall products – taking into account the interests of customers and other company stakeholders.”

could cost it more in the long run anyway,” she says. “However, Johnson & Johnson's survived the 1982 decision to recall Tylenol following deaths caused by the product, which is still one of the top-selling painkillers in the world. The bottom line is: they managed to rebuild consumer trust because of the tough decision they took at the time.” Earlier this year, Nestle also decided to recall some of its coffee products due to concerns over jars breaking during the delivery process. By doing so, Nestle demonstrated its commitment to quality and safety as 'a nonnegotiable priority'. “In the end, it all comes down to 'doing unto others as you'd have them do unto you',” concludes Bouwman. “Keep this in mind in all decisionmaking, and your company shouldn't have anything to worry about.”

Surveys show that while the first priority of company stakeholders is the quality of products or services, their second priority is trust and confidence in the company, according to Bouwman. “Although the board is accountable to the company, the board should not ignore the legitimate interests and expectations of its stakeholders, whom it should keep in mind when making decisions,” she says. The spirit of King III is to encourage boards to recall potentially hazardous products, even if this means economic losses. “Taking account of consumer interests will prove the integrity of a business and build a reputation as a responsible corporate citizen, which will result greater returns in the long term,” she adds. On the other hand, says Bouwman, failure to protect consumers could result in liability imposed by consumer protection laws. The new Consumer Protection Act will hold producers, importers, distributors and retailers liable for harm caused by substandard products. The Act will allow consumers to claim compensation from these persons for any harm caused by goods that are unsafe, product failures, defective goods or not adequately warning consumers of hazards that might arise from the goods. “Product recalls strike fear into the hearts of any organisation, but history has shown that avoiding them inevitably causes reputational damage that

SAIA

Foundations in place to ensure a Sustainable Future for Short-Term Insurers A new board of directors for short-term insurers was elected at the Annual General Meeting (AGM) of the South African Insurance Association (SAIA) that was held at the Johannesburg Country Club in Auckland Park. The evening ended with the SAIA Annual Cocktail Function, themed, "Foundations for the future". This networking event is seen by many as the highlight of the short-term insurance calendar. "Tonight, once again, the major issues facing our industry will be highlighted and discussed. Suitably, it has also become tradition for our annual themes to be symbolic of where we believe the SAIA is in terms of its development and the position in which the short-term insurance market finds itself," said Mr Ronnie Napier , Chair of the SAIA in his official address which focused on the solid foundations recently laid by the Association. "This year, the theme, "Laying foundations for the future" was chosen because we believe that, of late, the SAIA has become involved in issues and initiatives that will lay the cornerstone for the future of the short-term insurance industry." "Only recently, the SAIA created a new SAIA Code of Conduct, which was signed and accepted by all of our member companies." "A new SAIA Motor Strategy was also drafted and the implementation thereof has commenced to ensure the sustainability of the largest class of business for insurers." "The Association has also recently put in place a new SAIA Consumer Education Strategy which enables the industry to continue to make an impact with its widely acknowledged collaborative foundation consumer education initiative." "We have also been awarded two international grants for consumer education, one of which will be cited as a case study and an international example of best practice," said Mr Napier.

Mr Napier added that he believes that the newly selected Board members have a major role to play to enable SAIA to promote and represent the interests of the short-term insurance industry, while leading and enhancing the efforts of the industry to become recognised and trusted as an important contributor to the South African economy and society. "Our theme reflects the importance of the SAIA's undertakings and we are looking forward to an exciting year ahead, building on the solid foundations that we have put in place," he concluded.

Mr Napier added that the SAIA is also currently establishing an industry approach on Data Sharing as required in terms of the Insurance Laws Amendment Act, and engaging with the Financial Services Board towards the launch of a South African version of the European Solvency II Solvency Assessment and Management regime.

"Only recently, the SAIA created a new

This effort is intended by the Financial Services Board to promote the soundness of insurance companies through the effective application of international regulatory and supervisory standards.

signed and accepted by all of our

"With the aim to position the SAIA to ensure sustainable success, the SAIA Board amended the structure of the Association and the SAIA Key Strategic Areas now include: Image & Reputation, Legislation & Regulation,

Operations, Transformation, Motor, Reinsurers, Short-term and Reinsurers Data Exchange (STRIDE) and Sustainability," said Mr Napier. Mr Napier congratulated the newly elected SAIA Board members and thanked them for making time available to serve the industry. The newly elected SAIA Board members are: Blain, Michael - Centriq Insurance Co. Ltd Creamer, Tom - Auto & General Insurance Co Ltd Dombo, Garikai - Alexander Forbes Insurance Co. Ltd Durek, Mike - ACE Insurance Ltd Kennedy, Keith - Mutual & Federal Insurance Co. Ltd Kirk, Ian - Santam Ltd Klennert, Achim - Hannover Reinsurance Africa Ltd Kohler, Nic - Hollard Insurance Co. Ltd Munnoch, Guy - Zurich Insurance Co. Ltd Ngulube, Junior - Munich Reinsurance Company of Africa Ltd Omar, Nash - Etana Insurance Co. Ltd Roos, Willem - OUTsurance Insurance Co. Ltd Samie, Adam - Lion of Africa Insurance Co. Ltd Schoeman, Herman - Guardrisk Insurance Co. Ltd Sibanda, John - Lloyd's Truter, Mike - Credit Guarantee Insurance Corp. of Africa

SAIA Code of Conduct, which was

member companies."

E B

Accrual date of Retirement Fund Benefits for Tax Purposes By Pieter Cronje Chair FIA Employee Benefits Exco

The accrual dates for tax purposes of the different types of benefit payments payable by a retirement fund are dependent on the specific event giving rise to the benefit payment. When determining what the accrual date for tax purposes of such payments must be, the applicable provisions of the Income Tax Act (“ITA”) cannot be read in isolation. The relevant provisions of the Pension Funds Act (“PFA”) and the rules of the specific fund must also be taken into account.

an administrator prior to the member's actual exit date from the fund. Some administrators regard such election forms as invalid and instruct the member to complete a new election form, whilst others regard it as a valid election form with the deemed accrual date being the member's date of exit from the fund. Guidance on this must also be provided by the legislator. 2.

Withdrawal/Resignation Benefits With effect from 1 March 2009, paragraph 4(1) of the Second Schedule to the ITA provides that the accrual date of a member's withdrawal benefit for tax purposes will be the date that the member elects to have the benefit paid in cash, or the date on which the benefit is transferred to another approved fund. Elects to have the benefit paid There is currently uncertainty in the industry as to what the words “elects to have the benefit paid” alludes to. SARS interprets it as the date that the election form is signed by the member. Another opinion within the industry is that it is the date that the fund is to pay the benefits according to the member's election, whilst some other industry role players are of the view that it refers to the date of receipt by the fund of the member's completed election form. The Taxation Laws Amendment Bill, 2010, proposes an amendment to paragraph 4(1) of the Second Schedule to the ITA, to make it clear that the accrual date is the date that the election form is signed by the member. Fails to make election If a member fails to sign and/or complete a withdrawal form and thereby fails to make an election, his or her withdrawal benefit will be retained in the fund and will not accrue for tax purposes until such time as the member makes an election. If the benefit is retained in the fund for a period longer than 24 months from the date of the member's exit from the fund, the benefit will become an unclaimed benefit and will be dealt with in terms of the fund's unclaimed benefits policy.

Retirement Benefits The rules of a fund will determine the accrual date of a member's retirement benefit for tax purposes. It will either be the date defined as the member's normal retirement date in the rules of the fund, or a date coinciding with or following the date on which the member reaches his or her defined normal retirement date. If the rules of the fund are silent on this, General Note 11/95 provides that SARS will regard the accrual date of a member's retirement benefit as the next day following the member's retirement date. Compulsory annuities: SARS Practice Note RF 1/2004 provides that while members who have retired are entitled to elect the frequency of pension payments (i.e. monthly, quarterly, annually etc) and to vary their choice, a fund is not permitted to postpone the entitlement of a pension benefit to a date later than the end of the month following the month in which the member retired from employment, whether or not the payment of the benefit occurs later.

Timing of election form Currently, discrepancies also exist in the manner in which fund administrators deal with election forms that are completed and sent to

benefits is, one must look at the provisions of section 28 of the PFA, read together with a Binding Class Ruling issued by SARS on 28 May 2010 (â&#x20AC;&#x153;BCR 019â&#x20AC;?).

Any lump sum that becomes payable to a beneficiary following the death

Section 28 of the PFA provides that a liquidator must give notice that the fund's preliminary liquidation account is open for inspection to all interested persons. All interested persons are then entitled to lodge objections to such preliminary liquidation accounts. If no objections are lodged, the Registrar will direct the liquidator to complete the fund's liquidation.

of a member is deemed for tax purposes to accrue to the deceased member the day immediately prior

In terms of BCR 019, the accrual date for tax purposes of liquidation benefits will be the date that the Registrar directs the liquidator to complete the liquidation as envisaged in section 28 of the PFA.

to his or her death. This means that any amount taken as a lump sum will be taxed in the same way as if the member had retired the day before he or she died. 3.

Retrenchment/Involuntary Termination of Service Benefits The ITA does not contain any specific provision regarding the accrual date for tax purposes of lump sum retrenchment benefits. Thus, in order to be able to determine the accrual date of lump sum retrenchment benefits, reference would have to be made to the rules of a fund in order to ascertain whether the rules provide any indication as to when accrual is deemed to have taken place. In circumstances where a fund's rules are silent on this issue, reference should be made to SARS General Note 11/95, which provides guidance on when accrual is deemed to have taken place in respect of benefits that are payable upon a member's retirement from employment. In terms of this General Note, the lump sum retrenchment benefit would be deemed to have accrued to the member on the day following the member's last day of membership of the fund.

Death Benefits Any lump sum that becomes payable to a beneficiary following the death of a member is deemed for tax purposes to accrue to the deceased member the day immediately prior to his or her death. This means that any amount taken as a lump sum will be taxed in the same way as if the member had retired the day before he or she died.

Deferred Benefits The accrual date for tax purposes in respect of the benefits of deferred members is either the date that such deferred member reaches the normal retirement age as defined in terms of the fund's rules, or, subject to the rules providing for such election, the date on which the deferred member makes an election to receive the benefit in cash.

Liquidation Benefits Where members receive their benefits in cash on the liquidation of a fund, such cash payments are regarded as withdrawal benefit cash payments for tax purposes. The withdrawal lump sum tax table is thus applicable in respect of such payments. To determine what the accrual date for tax purposes of liquidation

Section 37D-deductions Divorce Proceeds Deduction made prior to the member's exit from the fund: With effect from 1 March 2009 and in respect of all amounts deducted after 1 March 2009, the date of accrual of the allocated portion of the pension interest payable to a non-member spouse, will be the date of election by the non-member spouse on how such amount must be dealt with (that is, paid in cash or transferred to another approved fund). If no election is made by the non-member spouse, the accrual date will be the date on which the fund is supposed to pay the benefit in cash to the non-member spouse in terms of section 37D(4)(b) of the PFA. Deduction made on the member's exit from the fund: The date of accrual for tax purposes of the allocated portion of the pension interest payable to a non-member spouse will be the date of accrual for tax purposes of the member spouse's withdrawal benefit as discussed in paragraph 1 above. Maintenance Payments With effect from 1 October 2009, deductions made from a member's benefit to make payments to a maintenance claimant before the member exits the fund are deemed to accrue to that member as income on the date of such deduction being made from the member's benefit in the fund. Other section 37D-deductions: As set out above, the taxation of withdrawal benefits are currently deferred until the member elects a cash payment. In the event of certain deductions being made in terms of section 37D of the PFA (such as housing loan debt or if the member caused damage to the employer by reason of dishonesty, fraud, theft or misconduct) such amounts paid to third parties will therefore sometimes only be taxed some time after payment to such third parties. The tax directive will be delayed until the member elects to receive the benefit in cash or until the benefit is transferred to another approved fund. Because of, inter alia, the funding risks that funds are facing as the remaining benefits in the fund may not be sufficient to cover the tax liability in respect of such section 37D-third party payments being made, it was proposed in the Taxation Laws Amendment Bill, 2010, that such section 37D-deductions and the tax payable on these deductions made on or after 1 March 2011, will trigger a tax accrual event at the moment of pay-out.

COVER

Ask the Right Insurance Questions By Gari Dombo, Managing Director, Alexander Forbes Insurance a member of the FIA.

It is often difficult to think of all the relevant questions to ask upfront when taking out an insurance policy. In hindsight, and unfortunately once things have already gone wrong, it is usually easier to spot the questions you should have asked. The guiding principle always is - over disclose to your insurer than not disclose at all.

There are many ways to do this, “you may increase the security of your property by taking out an armed response contract linked to your burglar alarm. You could also take on a share of the risk yourself, by taking a voluntary excess, or by reducing the scope of cover.” You can attend an advanced drivers' course, get your policy to be on a named driver basis, re-visit use of your vehicle say from business to personal use etc.

“Since people in the insurance industry, however, know the kinds of things that go wrong most often they are the best placed to advise on the kinds of questions that prospective buyers of insurance should always be sure to ask” says Gari Dombo, Managing Director, Alexander Forbes Insurance. Questions which consumers should always be certain to ask include: ?

Why am I paying more if my vehicle is of the same value as my neighbours'? If you think about it, part prices could be different, or the frequency and severity of accidents could vary from vehicle to vehicle. While smaller new cars and the older luxury models might retail at the same value, their repair costs are very different.

You may also have a different profile to your neighbour, e.g age of regular driver or claim history. ?

Is my vehicle covered outside the border?

Motor insurance policies limit cover to countries listed in their territorial limits clause – countries listed in these clauses sometimes differ from insurer to insurer. “If you are travelling across borders make sure to check the territorial limits of your comprehensive motor vehicle policy” advises Dombo. Does insurance cater for people in a relationship? Insurance treats all people in long term relationships (LTR's) the same. Married or not, gay or straight, you can still be insured. In short, for insurance purposes, all LTR's are now treated in the same way that married couples were treated in the past.

Is my home insured for its correct value? You should insure your home for the cost to rebuild all the buildings from scratch. If you do this, your insurer will cover the costs of rebuilding your property to its original dimensions and quality in the event it is destroyed or damaged. Yet inflation sees the cost of building increase every year. As such, home owners should regularly update their policies to avoid being underinsured and having to make up the difference themselves in case of disaster. The insured value should exclude the value of the ground itself.

How long does a bad driving record affect premiums, does it ever go away if you don't get involved in accidents? Most insurers use a “Claim Free Group” system. A discount accumulates for each year that you don't claim, and each time you claim the discount is reduced. Client loss ratios are measured over time. So, the longer one is with an insurer and the better one's claims record, the lower one's premium is rated.

Do I need to tell my Insurer that I am now renting out my house? Insurers rely on the information that clients supply to accurately assess the risk that each client faces. This is why clients must advise their insurance providers of any changes that may affect their risk profile. Insurers use this information to assemble the most suitable cover for their clients' lifestyles. As such, any changes that improve a clients' risk profile should also be passed on to the insurers as this may result in lower premiums. On the same token any changes that negatively impacts a client's risk profile must be disclosed to allow the insurer an opportunity to re-rate policy, impose terms and conditions, revisit excess structure and in a few cases decline client cover.

How can I lower my monthly insurance premiums?

Are my valuables covered when I go on holiday? An all risks policy - providing 24/7 worldwide cover, insures you for any possessions that you might take with when you travel. The catch, however, warns Dombo, is that the insured needs to prove the value of a loss. You should also be sure that the sum insured is enough to replace the items. Continued on page 55

LIFE

Life Insurance confidence Rises again, despite Weaker investment Income

By Tim Rutherford, Ernst and Young’s Life Insurance sector spokesperson

Life Insurance confidence continued to rise in the second quarter, despite weaker investor sentiment and equity markets, resulting in sagging investment income. Life insurers reported buoyant profits growth, despite slowing premiums. In a quarterly survey, the results of which were released today, Ernst & Young reports that life insurance confidence rose sharply, from 77 index points in the previous quarter to its current level of 91. This means that nine out of ten life insurers were satisfied with business conditions in the 2nd quarter of 2010. This is up sharply from the position of one year ago, when only five out of ten life insurers felt satisfied. This is the 28th quarterly survey measuring confidence in the life insurance industry. The research is conducted by the Bureau for Economic Research in Stellenbosch. Life Insurance Confidence has returned to pre-crisis levels

the lapse reduction exercise. This is an ongoing challenge for the life insurance sector, and the signs appear promising that their renewed efforts to address these leakages are paying rewards.’ In addition, says Rutherford, 'Usually periods where investment income is either slowing or contracting, results in pressure on profits growth. This did not happen in the current quarter. The degree of investment income decline would typically depend on the underlying investment portfolios, although both equities and bonds came under pressure in the 2nd quarter, as local interest rates continued to fall. Other survey findings include: 1

2 3

A contraction in employee numbers – the first time since the survey's inception there has been an absolute decline in headcount in both administrative employees and agents. Growing value of new business volumes. A sharp rise in the administration expense / premium income ratio, despite slowing administration and marketing expenses. Growth in investment related contracts remains higher than that of risk-based contracts, despite a steep fall in both categories.

Comments Tim Rutherford, Ernst and Young's Life Insurance sector spokesperson, ' Life insurers reported strong profits growth during the quarter, and this has undoubtedly driven the strong sentiment. These higher profits came despite contracting investment income, which was already severely depleted in the midst of the global financial crisis. In addition, income was also hurt by slower premium growth, which one would expect to result in profit contraction, at the very least. However, he adds, 'slower growth in operating expenses and sales remuneration helped to offset the slower income flows. He continues, ' One area where life insurers appear to have made significant progress is in reducing lapses, and in slowing the level of policy surrenders. The slower lapse rate has surely boosted the level of inflow growth, while flat surrender levels helped contribute to slower growth in outflows.' In fact, he adds, 'life insurers have made their best progress yet in addressing lapse rates, since the survey's inception seven years ago. And there appears to have been a focus too on simultaneously addressing surrender leakages, in tandem with

Comments Rutherford, ' Life insurers have had a strong focus on their cost base for a while – certainly since latter 2008, and into 2009. But through this period, there was not an industry wide cut in headcount. In fact, headcount kept rising through that period, despite the sharp profit contractions experienced. Often, corporate restructuring takes time to take effect, and we think that the current headcount reduction is really a reflection of past efforts to restructure. The expectation is that headcount within insurance companies will remain flat in the immediate quarter ahead, although the agency headcount is likely to rise once again.’ Rutherford concludes, 'While life insurers were undoubtedly hurt by the global liquidity crisis, the extent of their pain was not as entrenched as it was for banks, which have yet to meaningfully recover. Bank confidence levels in fact hit a record low level in the second quarter while life insurers' confidence hit a very strong level. However, it is a bit of an unknown whether the global economy is heading for the so called double-dip recession, in which case renewed investor uncertainty could still pressure life insurers' income flows and thereby profits in the quarters ahead.

S U RV E Y

Insurance sector displays Resilience in face of Downturn – KPMG survey By Gerdus Dixon KPMG Director and National Insurance Industry Leader The South African short- and long-term insurance industries, while battling against constrained economic conditions which prevailed in 2009, face more stable prospects in 2010. In addition, proposed new regulatory capital requirements have broadly been welcomed by the sector although uncertainty exists around the costs implementing it will bring, where players are in relation to the process of implementation and the features of the post implementation landscape. The insurance industry as a whole has, however, approached regulatory reform with optimism that benefits over the longer term will far outweigh the costs. These are some of the findings of The South African Insurance Industry Survey 2010 launched by KPMG in South Africa. The results of the survey are based on the analysis of the 2009 annual financial results of par ticipating insurance companies complemented by other publically available data. The survey also details some market developments that KPMG expects in 2010. The short-term insurance sector aspect of the survey includes nine of the ten largest players in the South African market. Participating insurers reported a drop in underwriting profits to R164m in 2009 from R1 141m in 2008. “Apart from the tough trading conditions, this drop can be explained by looking at the high frequency and severity of industrial property claims that affected this sector. Motor risks also continued to be a concern to the industry as insurers look for ways of better risk selection, pricing and reducing the cost of vehicle repairs. It is noted that the short-term insurance industr y has welcomed a government initiative to explore the introduction of a compulsory motor vehicle insurance scheme which it is hoped will ensure the long-term sustainability of motor insurance.” One of the key challenges for South African short-term insurers is to improve the efficiency of doing business. “In the absence of strong premium growth opportunities, emphasis needs to be placed on the containment of costs to ensure acceptable underwriting margins and returns to shareholders,” said Dixon. Not surprising then we are seeing a number of insurers engaged in business transformation programmes. Better use of information technology can not only assist in this regard, but also improve the total customer experience. The emergence of the South African recession and continued investment market volatility did not provide a sound launch pad to the long-term insurance market going into 2009. This pressure manifested in increasing lapse rates. “Furthermore, the number of single-premium products sold was down by 18% in the first part of 2009 compared to the equivalent period in the previous year,” said Dixon. “This could be explained by the reluctance of policy holders to look at long-term investments in strained economic times in favour of liquidity.”

But 2009 was a year of two halves for the life insurance industry. In tandem with the recovery of the investment markets, there was a revival in the longterm insurance market in the second half of 2009, the survey found. The second half of the year recorded a 22% increase in single-premium income compared to the first half of the year. To complement this, lapse rates decreased by 3% in the latter half of 2009 compared to the first half. “This is a heartening finding as it shows that the efforts of the industry in being flexible as to how it treated policyholders had a positive impact on the sector,” observes Dixon. The resilience displayed by the sector in the latter half of 2009 bodes well for 2010 although new business will be tough going, especially high margin business, he said. An ongoing feature probed by the survey is the implementation of the Solvency Assessment and Management (SAM) regime in the South African insurance industry. “SAM is in effect the equivalent of the European Solvency II regulatory regime and the Financial Services Board in South Africa has initiated a project that aims to ensure that we will have a framework for our environment by 2014.” The survey found that most players in the industry are in favour of the proposed framework with 88% of respondents in various stages of implementation. While there is uncertainty about the impact of the new regulations on the industry, 48% of respondents expect benefits to outweigh costs and 32% expect benefits to equal costs. “While the companies surveyed indicated that they were concerned with where they are in the process of implementation, it is pleasing to note that they are being pro-active about implementation. The uncertainty is understandable as it will be a long process and it covers unchartered waters,” said Dixon. The implementation process in South Africa has been deliberately phased to be behind that of Europe so that lessons learnt there can be adapted for the South African context. “The regulator is also trying to ensure that it is as consultative a process as possible,” says Dixon. “While we understand the apprehension that the survey results have revealed, the sector should not feel that they are alone in the process of SAM implementation. We can draw on the experiences of sector colleagues from the banking industry as it relates the Basel II implementation and the Solvency II guidance material from Europe.” “Overall, we are happy that the survey has confirmed our feelings about the resilience of the industry and its ability to be pro-active towards regulatory change.” For a copy of the survey, please visit http://tiny.cc/a0j4h

MOTOR INSURANCE

The Sustainability of Motor Insurance in South Africa By Michael E. Stoker Insurance GatewayÂŽ a division of Stoker Risk and ICT (Pty) Ltd www.insurancegateway.co.za It is amazing to think that out of all of the activity surrounding the short-term insurance industry in South Africa, some 40% to 50% of the industry's premium income, relates to motor insurance. It is small wonder then that the industry is galvanising together to ensure the sustainability of motor insurance, in the face of deteriorating underwriting results. Clearly the industry has recognised that an ever increasing spiral in premiums is not the answer to remediation of the deteriorating results, as affordability issues will ultimately result in consumers lapsing cover.

Basis of Indemnity A further quandary which insurers face is that each year vehicle values reduce and so premiums when based on a rate applied to the value of the vehicle reduce, whilst repair costs continue to escalate. As a consequence also under discussion is the possibility of offering different forms of indemnity, for example one where approved â&#x20AC;&#x153;genericâ&#x20AC;? parts are used as opposed to original manufacturers parts.

High crime and accident rates are said to be the main reasons behind the deterioration, with unlicensed drivers, poor driving skills, inappropriate driver behaviour, a lack of law enforcement, the unroadworthy state of many vehicles on the road and road infrastructure challenges, being significant contributors to the high accident rate.

Vehicle Telematics This powerful technology enables the collection of driver behaviour data which goes way beyond simply recording the distance travelled, which is said to facilitate a far more accurate premium rating structure, based on the insured's driver profile.

The high cost of repairs, in particular spare parts, the availability of parts and the impact this has on repair times is also a significant contributor towards the deterioration of underwriting results.

Such rating engines are already in use in Europe and the USA however there are lingering concerns about privacy issues and in some countries for example I think it was in France, where it is against the law for anyone other than Traffic Police to measure anyone's speed, so systems had to be adjusted to accommodate for this. Examples of local insurers using telematics include Hollard who offer the Pay as You Drive System and MiWay's, MiDriveStyle option.

The low percentage of vehicles on the road that are insured further exacerbates the deterioration, since in most cases there is little or no chance of recovering damages from an uninsured guilty party. It is estimated that only 35% of the 9,5 million vehicles on South Africa's roads are insured. The alarm was sounded at The Insurance Conference in May this year with a separate breakaway session on the sustainability of motor insurance and a follow-up to this was held by the Insurance Institute of South Africa at the PIP (Promote Insurance Professionally) Seminar in July.

Telematics certainly lends itself to innovation. For example, a UK insurer who had identified that drivers who had recently acquired their drivers licence were more prone to accidents during peak hour traffic, offers discounts to such drivers who do not use their vehicle during peak hour periods. Not that the insured then couldn't when the need arose, as the premium would literally be calculated at the end of each month, based on that month's driving profile.

SAIA Motor Strategy Action Plan That motor insurers are serious about this is evidenced by implementation of the Motor Strategy Action Plan by the South African Insurance Association. The action plan has three prongs to it and SAIA have established three new committees to handle this, each with a particular focus on the issues surrounding the sustainability of motor insurance.

It is unfortunate that I have not come across, at least in the public domain, any studies on the legal implications of telematic applications in South Africa, in the context of the Protection of Personal Information Act and our road traffic laws; and I mention this purely to stimulate open debate in this regard.

The Motor Vehicle Drivers Committee will consider all relevant issues around the drivers of motor vehicles, whether they are insured or uninsured, as well as all other road users including pedestrians. The Vehicle Committee will consider all relevant issues around insured and uninsured vehicles on our roads. The Vehicle Crime Committee will consider all relevant issues around vehicle crime, with close collaboration with the South African Insurance Crime Bureau and Business Against Crime SA. AARTO Implementation It is hoped the long awaited implementation of the Administrative Adjudication of Road Traffic Offences Act, No. 46 of 1998 (AARTO) will bring about a change in driver behaviour as in terms of the Act, infringements will result in demerit points being issued against drivers, which can ultimately lead to suspension of a person's driving license. Introduction of micro-chipped number plates A new number plate system is to be introduced whereby number plates will contain a micro-chip with the vehicle and the owner's details. Although this will take some while, as it is yet to be phased in, apart from the other perceived benefits, this new system may also assist in getting unlicensed vehicles off the

road and could lead to an increase in the recovery of stolen vehicles.

Compulsory Third Party Property Damage Insurance Compulsory third party property damage insurance has to be the big one. This is supported industry wide, as well as by the Automobile Association. Considering that approximately only one third of vehicles on the road are insured, compulsory third party property damage insurance would immediately triple the size of the risk pool, which should have the impact of reducing premiums. If the government are committed to free trade, there should be no debate, as is currently the case, about whether such compulsory insurance should be administered by the state or by private enterprise, given also that the shortterm insurance industry in South Africa being well regulated and having an enormously strong infrastructure, is well equipped and experienced to handle such a scheme. Moreover, perceptions that a sizeable fund would need to be created before implementation of such a scheme are misguided, as motor own damage portfolios typically operate on a pay as you go basis, with little or no long tail risk. Unfortunately, given the typical time span for the passage of legislation, this one will not be a quick fix. The challenges faced by motor insurers are many and varied, where solutions include collaboration with the authorities and other stakeholders in the economy and the industry can be commended for their concerted efforts to find solutions, in order to ensure the sustainability of motor insurance.

RETIREMENT

Keith Kennedy announces his retirement as CEO of Mutual & Federal Keith Kennedy, CEO of Mutual & Federal has expressed his intention to retire in the first quarter of 2011.

“At the time of my appointment as CEO, I had a clear view of what needed to be done and I believe that I have achieved what I set out to do. My first major focus was to restructure the company to ensure an improved financial performance and this was achieved with the support of both staff and brokers. Through the change process, I have appointed a new executive team and I am confident in their ability to lead the company through future strategic changes. The issue of minority shareholding was also resolved and the acquisition of Old Mutual of 100% of Mutual & Federal was successfully implemented. We also took advantage of leveraging on group synergies by assisting Old Mutual to launch a short term product into the mass market, through iWyze.”

Following the acquisition by Old Mutual of the minority shareholdings in Mutual & Federal the company has carried out a strategic review and has developed a three to five year strategic programme which will deliver real step change for Mutual & Federal. Given that Kennedy will reach mandatory retirement age during the implementation period, he has decided to take early retirement allowing the new CEO to take ownership of the step change programme.

We also took advantage of leveraging on group synergies by assisting Old Mutual to launch a short term product into the mass market, through iWyze.” Chairman, JB Magwaza believes that Kennedy built a strong foundation and directly contributed to the short-term insurer's accomplishments. He says, “I wish to thank Keith for the role he played during the difficult transitional phase of the last few years.”

To ensure a smooth transition, Kennedy will aid the board in the recruitment of a suitable replacement.

Kennedy concludes, “I would like to thank all Mutual & Federal staff for their commitment and dedication over the last few years. I have built strong relationships in the industry over the last 27 years and have every intention of continuing to add value to the industry associations in a non-executive capacity into the future.”

RISK MANAGEMENT

Small Business - The Mirror Test By Paul Brightman - ART (Pty) Ltd.

So you have a small business or an idea for one - where do you start and what must you have to keep the business thriving? The most important ingredients for any business, and their significance, are as follows: 1. A predictable, secure, spread, sustainable income; without this you have no security - this as your primary business legitimacy indicator. 2. Risk management activities plan - this is your business risk health protection indicator. 3. Sufficient organisational resource options, at least two of each key item (either your own or outsourced to trusted business partners) this is your structural strength indicator. 4. A contemporary, tested Business Continuity Plan (BCP), (sometimes called a disaster recovery plan, although this is a less positive title) – this is your adaption indicator. 5. A strong, almost personal, spirit or culture - your only true unique difference. If you have these five items noted above then you have a business that you can manage or sell. How many of us can claim ownership of these elements in our business for any length of time? One could almost assess businesses and people using these criteria. There are ‘nice to haves’ too, which you might deem essential to accelerate or boost business success in the early stages of development. These include: 1. One or more unique products or services, a unique delivery method and the means to develop more once they have been replicated. 2. Trustworthy, communicative, responsive business partners, including legal, banking and insurance. 3. A strong team around you. 4. Access to cheap investment capital. 5. Excellent marketing and promotional channels. 6. A positive profile within your customer base. 7. Previous success. 8. Market leadership. 9. A sense of humour. The above nine items and many more besides, are not necessities and will develop over time if you attain business success; they will come to you. In previous articles we’ve explored the many reasons why risk management is not practiced formally. Here are the principal and principle motivators for doing so: 1. Risk management is an internationally recognised best practice, for all sizes and types of business, in any location(s). 2. Intellectuals, business theorists, advisors, financiers, business schools propose and expound it uses and benefits. 3. Regulators agreed and have made it a legal requirement for all businesses in many large developed economies around the world. 4. It is a common-sense choice too as it prompts you to plan and act ahead. 5. If your competitors practice risk management and you don’t then you are handing them a competitive advantage and one that they can laud over you in their marketing.

Assuming that you are now thinking of using or augmenting your risk management practices, what should you seek to achieve? Always remember business risks belong to you as the main shareholder(s). They are your responsibility and noone else’s. The 2008 Companies Act, due to be enacted in the third quarter of 2010, holds you personally liable for the consequences of your actions or inactions in your business. Risk management books and degree courses refer to risk propensity (willingness to retain - adverse or tolerant?), propriquinity (importance to you), severity, return frequencies and probabilities. In reality, most corporate risk managers regularly expend much time and energy identifying all sorts of potential hazards, then they ignore the majority of them as these risks are too remote or expensive to contain. It is worth mentioning that a good corporate risk manager always has a robust, comprehensive, tested Business Continuity Plan though, which is expected to respond to almost all triggers; take note.

Always remember business risks belong to you as the main shareholder(s). They are your responsibility and noone else’s. The 2008 Companies Act, due to be enacted in the third quarter of 2010, holds you personally liable for the consequences of your actions or inactions in your business. Another lesson for all business owners, large and small, is that there is an almost unchanging set of strategic, structural or inherent risks; call them what you will. Whilst these don’t change quickly, our exposure to them does over time. The trick is find (and manage) your key risks before they find you. Contact us if you would like to discover, debate and mitigate the risks in your own profile. One last point to consider. We tend to focus on external risks that have the potential to affect us. On occasion we elect to change our business structures or products and services, thereby exposing ourselves to internally generated risks. The impact of project cancellations and delays are considered into our plans. The distraction factor is often missed though. A change project takes on a life of its own and distracts us from our main business. Be aware of this in your planning. Mirrors can be great teachers. Picture your business and reflect whether you would embrace the experience of being your own customer. Would you trust you to deliver on your business promises beyond this year? How long is your guarantee and what is it worth without risk management?

MARINE INSURANCE

South African Businesses unknowingly run the Risk of Piracy By Kennedy Ntenjwa of Alexander Forbes Risk Services Marine.

While the Horn of Africa seems a long way away and most South African goods reach Asia and Europe by other routes, a growth in piracy has doubled the cost of hull insurance, upped the chances of General Average being applied to cargoes, multiplied the risks that freight forwarders assume on behalf of their clients, and increased the overall risk exposure of South African businesses with goods or materials that travel the high seas. Given the very real costs that piracy has added to shipping cargoes “South African businesses that merely rely on freight forwarders to get it all right may end up paying much more – or even forfeiting their cargoes” warns Kennedy Ntenjwa of Alexander Forbes Risk Services Marine. The recent increase in piracy off Somalia is driven by Mogadishu’s inability to ensure the safety of it national and international waters. Until a concerted international effort is put in place to either stabilise Somalia internally or provide blanket protection to all vessels travelling around the Horn of Africa, the phenomenon is only likely to increase. In the meantime piracy has very real cost and insurance implications for all South African businesses with goods or materials that move by sea. Traditionally, Marine Hull Insurance, purchased by ship owners from internationally registered Protection and Indemnity (P & I) Clubs or International Underwriters, covers loss at sea, including sinking, piracy or any other physical damage to the vessel. Marine Cargo Insurance, on the other hand, covers the goods carried by ships. This is usually taken out by the owners of the cargo or the freight forwarders that book the cargo on behalf of the owners. Marine Cargo Insurance is obtained from normal commercial insurers, through brokers like Alexander Forbes. In recent months the increase in piracy has seen some ships quoted Marine Hull Insurance rates in the region of 0.5 to 1 percent of the value of the vessel – with this increasing significantly depending on the routes that the ship will be taking. Piracy has, on the other hand, had “surprisingly little impact on the Marine Cargo Insurance market where we have not seen the same increase in rates as observed in the Hull Insurance market” says Ntenjwa. This is all the more remarkable since goods that have been delayed are likely to experience an increase in contract cancellations and fines or penalties for breach of contract arising from such delays.

To avoid the risk of incurring delay costs it is important, where possible, to build more time in to import and export transactions to provide for unscheduled delays. Alternately “businesses with goods on the high seas should consider purchasing Marine Project Delay cover, particularly on project related cargoes” advises Ntenjwa. Also of increasing concern is that if a shipping line declares General Average, then all parties with goods aboard the vessel are required to contribute towards the loss – in a proportion equal to their share of the overall value of the cargo. With the increase in piracy General Average is being declared more often on cargoes travelling around the Horn of Africa “further illustrating the importance of having marine cargo insurance in place - on all sea freight cargoes” explains Ntenjwa. In short, thanks to piracy the whole process of insuring vessels and their cargo has become both more risky and costly, even for those businesses in South Africa which consider themselves far removed from the risk of piracy. Given these very real increased risks and costs, Ntenjwa warns South African businesses to avoid a situation where they do not make a detailed review of the risks that they face. “Companies that do not take the time to understand and fully cover the risk that their vessels or cargoes may face on the high seas could end up with some nasty and costly surprises” concludes Ntenjwa.

In recent months the increase in piracy has seen some ships quoted Marine Hull Insurance rates in the region of 0.5 to 1 percent of the value of the vessel – with this increasing significantly depending on the routes that the ship will be taking.

MOTOR CLAIMS

Ten most common reasons for rejecting motor claims By Gari Dombo Managing Director Alexander Forbes Insurance a member of the FIA It is devastating when your car is damaged but even more disappointing to find that your insurer won't pay up because you were not covered for a particular eventuality. Insurance protects people against unexpected events and whatever their policies define as a risk. Circumstances do, however, arise where “an insurer may refuse to settle a claim because of an exclusion or breach of policy condition” says Gari Dombo, Managing Director, Alexander Forbes Insurance. While insurance even protects you from loss caused by your own negligence it will not cover gross negligence, namely, where the insurer can show that you intentionally disregarded a situation knowing that the loss was likely or probable.

Driving across our borders – There is no cover when you drive beyond the territorial limits stipulated in your policy. Most insurers cover you within the borders of South Africa and in immediate surrounding countries. If you plan to drive out of the territorial limits of your policy you need to have cover extended for where you are going.

Failing to report an incident to the police within 24 hours – most insurance policies clearly state that you have to inform the police within 24 hours if you are involved in an accident or if your car has been stolen.

Using a vehicle for business purposes - check the “use description” that applies to your vehicle carefully. Insurers differ in their use descriptions and you may not have the cover that you think. For example Private Use may include driving to and from work and attending the occasional meeting, but some wordings do not. The idea here is to be able to get a sense of how far the vehicle will be driven e.g. sales reps drive their vehicles all the time and the chances of getting involved in an accident are also high, whereas a pensioner is never in peak hour traffic.

Allowing a friend to drive a vehicle – if you allow a friend or anybody to drive your car without informing your insurer, you may end up footing the bill for an accident. This is because some insurers restrict driving to nominated drivers.

Suspended or cancelled license – your insurer won't pay up if they find out that you do not have a valid driver's license at the time of the accident. Insurers see you as contravening the law and insurance does not cover any illegal activity. Some insurers will go further and reject a claim if a person you lend your car to is unlicensed even if you didn't know.

Car modifications – you need to inform your insurer whenever you modify your car to change its performance. They would need to know for example, when you have modified the engine or added turbos as this may affect the rate that is charged. If you have installed a new sound system, mags or other accessories, these may not be covered unless you advise first.

! Driving under the influence of alcohol or drugs - motor insurers will

Not Installing security devices – some insurers will not pay you out if you have not installed the standard security devices in your vehicle that they require, like an alarm and immobiliser or a tracking and recovery system.

As such, Dombo advises clients to be wary of the following most common causes of rejection:

not pay out if you were driving over the legal blood alcohol limit or have been tested positive for misusing drugs. Other policies simply state that while under the influence while others specify a limit. Some insurers will go further and reject a claim if the person you lend your car to is under the influence even if you didn't know.

Not taking your car for an inspection – with certain insurers, if you are insuring a newly acquired or used car or have decided to change insurance companies you may need to take your car for an inspection. They want to see that your vehicle exists and that it is not damaged. If you do not do this, your claim may be rejected.

Relocating and changing parking areas –If you decide to move to a new flat or buy a new house, it is very important that your insurer knows about your new location and parking arrangement. The changed circumstances can affect your risk profile and rate.

Since the above list is by no means exhaustive it is very important to read and understand the small print on your insurance policy. “Once you have read and understood the policy and you are still unhappy about your insurer's decision not to settle your claim you can always approach the Insurance Ombudsman” advises Dombo. The Ombudsman acts as a mediator between unsatisfied clients and their insurance companies. “The Ombudsman considers all claims as long as they are below R800 000 and are filed by a policy holder or their legal representative” concludes Dombo.

TECHNOLOGY

The cost of Technology on motor vehicle Insurance By Jacques Pretorius Managing Director of Absa idirect Ltd

The evolution within the vehicle industry has been both staggering and inspiring. Most of the enhancements we see today are the result of technological advancements that have been made over the past couple of years. Can you imagine your vehicle without electric windows or climate control? It is no longer a novelty to have optional extras such as rain sensored windscreens, park distance control (PDC) and even on board satellite navigation. Some of the vehicles of today sport the latest gadgets that make them easily identifiable even at night thanks to direction-sensing and xenon lights. Yet, how many drivers stop to ask, "how do these luxuries impact my insurance premiums?" Bumper bashing continues to increase in frequency as traffic volumes swell on our roads. Usually, the repair cost for this type of damage sustained to a vehicle is relatively low. However, the average repair cost on a bumper with PDC will increase because of the technological components involved. A normal shattered windscreen can easily be repaired at reasonable cost, yet the average cost to replace a windscreen with rain sensors will be significantly impacted by the technology used. This can largely be attributed to the fact that in many cases, these technologies cannot be easily repaired, but have to be replaced in their entirety. This eventually drives up the average repair cost of the vehicle. The total cost of repairing a vehicle can typically span from initial assessment of damages to repairs and replacement of parts. This cost may be affected by many interlinked factors that are usually beyond the control of the Insurer, and has a direct impact on premiums.

generally continue to increase, as will for example the paint and labour required for repairs. All these increases are influenced by inflationary movements. The slightest tweaking of the technology used in the automobile manufacturing industry could impact on the cost of repairing or replacing parts. Insurance premiums are usually determined using pricing models designed to take various factors into account. Of course, pricing models differ among Insurers as not all use the same rating factors. Selecting the correct cover on your vehicle remains fundamentally important.

The total cost of repairing a vehicle can typically span from initial assessment of damages to repairs and replacement of parts. This cost may be affected

If you can, amongst many other factors, control the cost of repairs, you can potentially control the impact on premiums. However, Insurers are unable to control certain factors, especially those that are coupled by inflation and currency movements.

by many interlinked factors that

Consumers are faced with the fact that prices for car parts do not go down. Your car may depreciate in value, but the cost of its parts will

of the Insurer, and has a direct

are usually beyond the control

impact on premiums.

CONSUMER COMPLAINTS

The Short-Term Insurance Ombudsman is Concerned over the number of Consumer Complaints regarding Motor Vehicle warranty Contracts. By Brian Martin, Short-term Ombudsman

The Ombudsman for Short-term Insurance is disturbed by the number of complaints received from consumers in relation to motor vehicle warranty contracts which are purchased from dealers at the time of purchase of the motor vehicle, or when a manufacturer’s warranty on the vehicle is due to expire. These products are marketed as being insurance policies administered by “insurance administrators” and have all the hallmarks of an insurance policy. Later on when a “claim” is rejected by the “insurance administrator” consumers may be advised, that if they are unhappy with the decision of the administrator, to seek assistance from the Ombudsman. However, when the Ombudsman receives a complaint and investigates the matter it frequently transpires that the product sold to the consumer was not an insurance policy underwritten by a registered insurer, but is in fact nothing more than a contractual arrangement concluded between the consumer and the dealer concerned. The consumer is thereafter left high and dry in relation to any recourse against the dealer as the dealer is not a registered insurer and consequently falls outside of the jurisdiction of the Ombudsman for Short-Term Insurance.

that in the event of any dispute or complaint, they will be left with no recourse against the dealer other than through the legal process, which is extremely costly and time consuming to pursue. The dealer may also prove to be of dubious standing. Consumers are encouraged to fully acquaint themselves with the nature of the benefits provided by such contracts and to carefully consider whether the product offered covers the consumers’ needs. “Ask questions regarding the product and in particular whether it is underwritten by a registered insurer”, says Brian Martin, the Ombudsman for Short-Term Insurance. If a product is held out as being an insurance policy make sure that it is underwritten by a registered short-term insurer. Consumers can check if an insurance company is registered by contacting the Financial Services Board on 012 428-8000.

When such complaints are in turn referred to the Motor Industry Ombudsman that

When such complaints are in turn referred to the Motor Industry Ombudsman that Ombudsman declines to intervene on the basis that he deals with complaints relating to motor vehicles and not financial services products. The Ombudsman has referred the matter to the Financial Services Board, as the regulator, for consideration, but in the meantime consumers are urged to exercise great caution in the purchase of such products and in particular to enquire, at the time of purchase, whether the product offered is an underwritten insurance policy. If the product offered is nothing more than a contract with a dealer, consumers’ attention is drawn to the fact

Ombudsman declines to intervene on the basis that he deals with complaints relating to motor vehicles and not financial services products.

M U LT I N AT I O N A L I N S U R A N C E

Multinational Business? Look for a Multinational Insurer By Mike de Jong A&H Business Development Manager at ACE Insurance South Africa

Business today is global. Companies seeking to establish and maintain a competitive advantage built on volumes and access to markets, are seeking to establish themselves across borders and into territories which promise healthy returns. That much is true for many South African companies as it is for their international counterparts; underdeveloped markets in much of Africa as well as developing markets in Europe hold the promise of rapid growth and booming trade. But as companies send their executives into these markets, they also face a variety of risks – to health and wellbeing. For that reason, says Mike de Jong, A&H Business Development Manager at ACE Insurance South Africa, it is indispensable to insure against these risks. “Many South African companies are expanding their business interests to other markets in Africa and around the world. They are thus becoming, or already are, multinational companies.” From an insurance perspective, he continues, multinational companies have substantially complex requirements. “Accident and Health risk for multinationals is broad. It includes any risks which relate to a company, subsidiary or associate in a foreign country, any risk where a company employs local nationals in that foreign country and any risk where an ex-pat employed overseas is contracted to the foreign country subsidiary,” he explains. To service multinational companies correctly and compliantly, brokers and insurers are faced with various problems linked with placing cover for overseas territories, as well as the complexity and size of the organisation involved, de Jong continues. He says there are three options that can be considered when looking to place cover: •

•

The parent company places all cover required into a single insurance policy in South Africa, without putting in place policies in the countries where the subsidiaries are located. This can only be achieved if the subsidiary countries allow ‘non-admitted’ cover; this introduces various legal, compliance and tax risks. The parent company leaves its local subsidiaries to find their own cover. This may cause a lack of uniformity within the company, and the individual policies may cost more than having one fully integrated multinational programme. The parent company puts in place a fully integrated programme where if necessary, local admitted coverage at subsidiary level is

provided, and any additional cover and limits over the local admitted cover is provided for in a multinational programme. On this basis (called the Admitted Basis), the parent company ensures that legal, compliance and tax issues are adequately and consistently handled through a uniform programme. In the past, de Jong says a prevailing view was that if a large portion of the risk resided in South Africa, or if premiums and claims were paid via the company’s South African office in Rand, then the insurance need not be concerned with local legislation or laws. However, he says this is a flawed approach. “In order to provide appropriate cover, the insurer, broker and insured have to consider legislation and local compliance requirements. Failure to do so can result in a number of negative outcomes, such as non - compliance with local laws, penalties and fines for all parties concerned and tax liability for non-compliance and repatriating claims payments. Such a structure can also result in non-compliance with FAIS and consumer protection laws and reputational risk for all parties concerned,” he explains. On the subject of compliance, de Jong points out that with the ever-changing regulatory climate, it is important to work with an insurer which understands local rules and customs. “Writing business on a fully Admitted Basis ensures full and proper compliance in all respects,” he states. Effectively handling the complex requirements of multinational companies is among ACE Insurance’s strengths, de Jong says. The company has, since its 1985 inception, specialised in various line of insurance, including Accident and Health, and is itself a multinational company. He explains its approach: “Our underwriting professionals start by understanding the specific business; we partner with the client to structure the most appropriate insurance programme. We draw on our international knowledge to complement local expertise to structure programmes that respects local laws and regulations.” With operations in over 50 countries, he says ACE provides insurance cover in over 170 territories. “The ACE team can even provide solutions in countries where non-admitted policies are prohibited on the strength of its internal systems, which enables ACE to offer policies that meet local requirements around the world, while keeping abreast of the evolving regulatory environment,” he concludes.

New INSETA internship empowers intellectually disabled South Africans

Hollard: Letitia Jacobs and Colin Lowery

Alexander Forbes: Frankie Duvenhage & Zandisile Futha

The Insurance Sector Education and Training Authority (INSETA) has launched an internship programme for the intellectually disabled which is helping equip young adults who have completed their training to gain valuable experience in the workplace ensuring their competitiveness in the open labour market. In South Africa, there are at least 2.5 million people with disabilities and those with intellectual disabilities form a significant part of this group and have traditionally faced a number of different barriers that prevent them from gaining access to opportunities. A major barrier to employment of these young adults can be attributed to myths, misconception and apprehension about people with disabilities. Employers must ensure that workplace sensitisation training takes place to dispel perceptions and create a more inclusive workplace. “There is a significant need for this type of initiative that INSETA is facilitating,” said Sandra Dunn, CEO of INSETA. The main objective is to give those with intellectual disabilities the opportunity to be a part of the workplace and to help facilitate their transition from school to work to independent living. The ultimate goal is for them to participate meaningfully in the workplace and the economy, added Dunn. “It is a pilot internship that has been long overdue. Employers who wish to embark on such an initiative must ensure that reputable partners, like Living Link, are used to ensure that the right fit is done with the learners and the workplaces,” said Dunn. Partnering with The Living Link, the project is running from April 2010 until April 2011 and is already proving to be a success. The Living Link has successfully challenged barriers by working towards economic participation, inclusion and social justice for people with intellectual impairments, enabling them to participate in mainstream society. The non-profit organisation was founded by Ingrid Menzel and her daughter Julia. Menzel’s other daughter, Nadine, has an intellectual impairment. “This internship is a first for us and means a great deal as the aim of the organisation is to find employment for our graduates. By having such a project in place, we were able to place six graduates at once and these young people can now use the skills they learnt in training and make a

Indwe: Kelebogile Mathonsi & Mahlane Manchidi

valuable contribution to the company where they work,” said Menzel. Vivienne Delaney, Senior Manager of Learning and Development at Indwe Holdings, one of the companies taking on board the interns, is proud to be involved in the programme. “Indwe has taken on two intellectually disabled learners on a one-year internship programme. They were selected by the Living Link to make sure their abilities and skills could match the specific needs of our office environment. They are doing a sterling job and have been assisting in our mail room, HR department and with promotional activities,” said Delaney, adding that the company is looking forward to the months ahead. Peter Tippett, Finance Manager at Alexander Forbes, also reports that the interns they have taken on board have performed excellently. “They have settled in nicely and the support from The Living Link has been fantastic. It has been a learning curve for everyone in the company but one that we have all enjoyed being a part of. Once this internship is over we are keen to take on more graduates down the line if possible as we think it is incredibly beneficial both to the graduates and to the company,” he said. Paula Mendes, Learning Consultant at Hollard, reports that their two interns have settled in well and that all is running smoothly. “Both the staff and interns are very happy and have adjusted well. One intern is working as a data capturer in one of our partner firms and the other is working in our HR department. Reports from both teams are very positive.” INSETA hopes to continue this internship in the future. “We will be looking to expand this initiative and for more companies to participate. It is running very successfully and the insurance companies involved have really gone out of their way to make this a success,” said Dunn. “We are hoping to double the 2011 intake of intellectually challenged interns as employers begin to see the benefits of having a truly diverse workforce.” INSETA has exceeded the targets set by the Department of Higher Education and Training in the area of training those with disabilities. These results also show that the insurance industry is succeeding in integrating disabled workers into the workplace and that insurance companies are increasingly trying to create an inclusive work environment.

SNIPPETS Western Cape The Western Cape held their divisional meeting on Friday, 30 July at Kleinmond. On the previous afternoon the delegates started to arrive and met for workshops on the different portfolios. After the workshops, everybody enjoyed the evening with an informal braai together. Momentum sponsored the meeting and was represented by MC Theart and Danian du Plessis. Special guests from FIA were former divisional chairman, John Bezuidenhout, CEO Manie Booysen and President Seamus Casserley. Manie and Seamus were given the opportunity to address the committee at the meeting the next day.

North West Klerksdorp Record Reports Van Wyk is number 1 Tennis star Hannes Van Wyk from Klerksdorp has been chosen to represent SA as number one player in Antalya, Turkey during October this year in the world super senior team competition. He has been accepted by invitation as member of the elite group of the international tennis club including international stars like Roger Federer,

Ken Rosewall and Wayne Ferreira. Congratulations to Kosie Prinsloo for 30 years service to (IBC) nowFIA and Charl Oosthuizen for 20 years. Condolences to Hannes van Wyk whose son-inlaw who lost his life in motorcycle accident. We would like to extend our heartfelt sypathy to his wife Chandré and children Kyle (19) en Candice (18) who is busy with her matric exams. We would also like to extend our heartfelt sympathy to Theuns de Bruyn and family who lost their son to cancer.

FIA Jacaranda “Potjiekosdag” - 21 July 2010 at Rietvlei Lapa

SNIPPETS Cover Magazine Thursday 26 August 2010 saw the launch of the new look Cover Magazine by Tony van Niekerk and was well attended by captains of the industry across the board.

Sanlam Investment Management (SIM) One of South Africa’s most awarded fund managers has been named as the top global fund manager (category: financials) by prestigious UK-based publication, Investment Week. Kokkie Kooyman of Sanlam Investment Management (SIM) Global, who was up against stiff competition from around the world, accepted the award at a ceremony at London’s Royal Albert Hall. Kooyman, global fund manager at SIM Global, was the only nominee from South Africa at the awards. He has managed the Global Financial Fund for 10 years and during that period it has achieved a compound annual return of 14 percent in US dollar terms for investors, despite the two bear markets that occurred over the decade. The award winning fund has also consistently ranked in the top three financial funds over the past six years.

Durban ROB SMYTHE 20. 09.1941 - 01. 09. 2010 From humble beginnings as an Office Boy with Old Mutual at the age of 17, Rob Smythe spent 52 years at the crease, serving the needs of his clients -many, many of whom remained loyal to the end. Rob served such companies as Legal and General, African Eagle, Anglo American Life and Southern Life with distinction, both in Sales and Management positions as well as being a committed SA Eagle Agent/Broker for in excess of 40 years. In 1987, with his brother Pat as a partner, they formed Smythe Bros. Insurance Brokers and developed a true family brokerage based on the

National Office Leigh-Ann Zackey our Netball star participated in the provincial tournament held in Potchefstroom 9-14 August she played for the Northern Gauteng team, as captain of the team winning the tournament. She was awarded with the best defender award. The Africa qualifying was held at Mamelodie 3 – 11

simple mission statement - Secure Sincere Service. As an avid sportsman, Rob played both cricket and golf with skill and passion, in an era that included such doyens of our industry such as McGlew, McClean and Saggers.He was acknowledged by his peers as being a fast bowler, unlucky not to have been awarded higher representative honours. Rob respected the industry, its purpose and the clients that form its fabric. In return he was rewarded with success, loyalty and happiness in his long career as well as the knowledge that the brokerage, in the hands of family, will continue its commitment to the simple art of service. Rob was one of the original members of the Durban Branch. We would like to extend our deepest sympathy to his family, friends and colleagues.

September where she played for the Protea team. They won the tournament which meant they qualified for the World Champs next year. Once again she received the award for the best defender. Leigh-Ann is a member of Team South Africa participating in The Commonwealth games that is to beheld in India New Delhi from the 26 September – 17 October. We wish her and the Netball Proteas all the success and best of luck in representing the country.

T H I R D PA R T Y I N S U R A N C E

Compulsory third party insurance looms

By Gareth Stokes online editor for FA News.

The cost of owning, operating and maintaining a motor vehicle is set to rise exponentially over the next couple of years as motorists face the c o mbine d wrath o f government, the South African National Roads Agency Limited (SANRAL) and the shortterm insurance industry. Vehicle owners incur a variety of fixed and variable expenses. Fixed costs include the “sticker price” of the vehicle, insurance premiums and registration and licensing costs, while variable costs typically include the per kilometre cost of petrol and regular servicing. The price of a new vehicle – already high by international standards – is going up from 1 September this year. Buyers can expect a “spike” in the sticker price of their new passenger or light commercial vehicle thanks to government's carbon emissions tax. The “green” tax of R75 for each gram of emissions beyond the legislated 120g/km CO2 will add approximately R5 000 to a Mercedes C-Class or BMW 3-Series. And Finance Minister Pravin Gordhan has already intimated the tax could be extended to second hand vehicles in coming years. Short-term insurance brokers will have to consider the impact of this “green” tax when arriving at valuations for new vehicle covers. You're going to pay more for every kilometre travelled from mid-2011 too… Not because of monthly increases in the pump price of 93Unleaded, but because of the R21 billion spent by SANRAL on improving the country's roads. Gauteng drivers will be hardest hit as they're forced to dip deep into their pockets to pay tolls of around 50c per kilometre travelled. And now for the coup de tat from the insurance industry. Viviene Pearson, then SAIA Manager: Motor, said in April: “For the past year or so the motor insurance industry and the motor insurance business class has come under quite a bit of pressure, with most of our member companies in this

area experiencing a lot of difficulty.” One of a range of measures proposed by the South African Insurance Association (SAIA) to restore profitability in this product space is to introduce some form of compulsory third party motor vehicle insurance. Government seems keen to discuss the idea. Minister of Transport, S'bu Ndebele was quoted in a recent Fin24.com article, titled Car Insurance may become Mandatory, as saying, “government is considering making third party insurance compulsory for all drivers using public roads.” Given the statistic that only 65% of the country's 8.5 million vehicle pool currently has insurance there shouldn't be any cause for surprise. How would this tax be collected? It's possible the compulsory third party insurance could be “sold” alongside the annual vehicle licence. “We are at this stage considering all sorts of options,” said Pearson, “but it's going to be important to find the most appropriate way to implement the solution to accommodate South Africa's unique circumstances.” One solution mooted is for insured drivers to present an annual insurance certificate at licensing stage, with an option for uninsured drivers to simply purchase the compulsory insurance at the licensing window. Alternatively all vehicles would pay for mandatory third party insurance at licensing stage, after which the driver could purchase voluntary comprehensive insurance to top up. Although only in proposal stage, don't be surprised when you arrive at your licensing office in 2012 to hear the cashier ask you for a license fee, your green tax levy plus a handful of “buffalos” to pay for third party insurance too.

You're going to pay more for every kilometre travelled from mid-2011 too… Not because of monthly increases in the pump price of 93-Unleaded, but because of the R21 billion spent by SANRAL on improving the country's roads.

CMS

Council of Medical Schemes Celebrates 10th Anniversary On 2 September Dr Manto Gantsho addressed the press regarding the CMS celebration of a decade of challenges and achievements of this multi-billion Rand industry which touches the lives of millions of people overview of its role over the past 10 years. Dr Gantsho was appointed as the second Registrar for Medical Schemes and Chief Executive for Medical Schemes on 1 June 2010. Having qualified and practised as a medical doctor, and in the various positions he has held until now, Dr Gantsho has dedicated his entire life to helping people. His new leadership role at the regulatory body overseeing the medical schemes industry is perhaps best described as merely a diversification of his commitment to improving the lives others. At the helm of the Council for medical Schemes, his new responsibility for the most part is protecting those who often do not realise that they need to be protected: the beneficiaries of medical schemes and the public. He had this to say: The mandate of the CMS is prescribed in the Medical Schemes Act and it is clear: we are here primarily for the beneficiaries of medical schemes. At the same time, and to be fair, we extend a hand of friendship to medical schemes and the businesses affiliated with them: we observe and guide their collective efforts to create an industry which is sustainable in the long run and where human rights are respected and business practices are healthy too. We will continue to regulate those who fall within our jurisdiction without fear or favour.

We are also acutely aware of the need to expand the access to quality care to many more South Africans. We have therefore pledged our ongoing and unwavering support to the process of developing a National Health Insurance system for our country. It is, in fact, one of our duties – and a welcome one at that – to advise the Minister of Health on possible interventions aimed at the full realisation of national health policy. We will do everything in our power to support the process aimed at ensuring universal access to quality care in South Africa. I believe we have the knowledge, capacity and experience to assist where we are required to do so. “We stand firm and committed to the regulatory responsibilities as they pertain to beneficiaries, medical schemes, and the broader health insurance industry.” “I intend to lead the team in an efficient and effective way to achieve a bigger, better, and stronger Council for Medical Schemes.”

A D V E RTO R I A L

EMK- Estate Analysis and Financial Planning Software The EMK software was developed as a tool to empower a financial planner in the life-insurance industry, who can provide a client with accurate and ethically correct advice. A financial planner, who conducts a holistic analysis of a client’s portfolio, in the presence of the client, can explore many possible scenarios. This creates a platform of trust from where wealth can be created, protected and maintained by means of intellectual decision-making based on the significant and meaningful results obtained. SARS has tested the EMK software, and confirmed the results to be financially accurate and legally correct. The EMK software is upgraded annually. Feedback from current users of the EMK software include statements such as “my lapses are nearly zero” , “the client understands the financial planning analysis”, “the average premium per policy has nearly doubled “ and “the system eliminates complication in the market.” .These comments may be attributed to some of the unique features of the EMK software, including: • An integrated and interactive database for a portfolio of clients. • A translation option for a bilingual (English and Afrikaans) interface. • The user-friendly and understandable menu-driven navigation. • A family target rather than an individual or a product-based focus. • A collection of help screens (e.g. relevant legislation: deductions allowances – tax, estate and sessions). • A variety of separate reports which can be combined as a final analysis report. These reports may be previewed or printed. • The system warnings that appear when vital information is not correctly supplied. • An option to generate and print the last will and testament of a client. The dynamic benefits of the EMK software include: • Income Tax. The automatic calculation of contributions towards RA’s is available. The tax savings, as well as average and marginal rates for tax on single amount benefits are shown. • Retirement Fund. The benefits and taxes are calculated.

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Insurance Portfolio. The impact of different sessions and beneficiaries on estate tax and administration costs can be determined. Balance sheet. The calculation of the impact of limited rights created and enjoyed, the accrual, as well as any possible bequest on the estate can be demonstrated. Business Interest. The value of business interests, including subsidiaries and client-value, can be determined for buy and sell agreements as well as an asset in the estate. Will. The impact of any possible bequests, Art.4 (q) amount, and accrual on estate tax can be determined. A testamentary determination can be tested. These impacts can be shown graphically. A will can be generated as an editable MS-Word document. Estate. The tax payable by the estate is calculated. A liquidity test is done, and any shortfall or surplus amount is calculated. Problem identification. A warning message appears when problem is identified, e.g. the lack of sufficient funds to finalise an estate. Possible solutions may be tested. Financial Planning. A meaningful financial planning may be done for the event of death, disability or retirement. This analysis takes deficit/surplus of funds in the estate, life expectancies, needs, increased rate of needs, sources of income, and capital sources into account. This allows for informed and knowledgeable decisions on investments and provisions for the future.

For further information or demonstration of the EMK software please contact: • Call: Magda Pretorius at 021 9104232 or Coert Steynberg 082 852 8829. • E-mail: management@emk.co.za

www.solsure.co.za

IFRS 4

IFRS 4 Presents Major Opportunities for Global Insurance Industry By James Dean, Ernst & Young’s Global IFRS Insurance Leader Ernst & Young welcomes the long-awaited exposure draft (ED) on phase II of International Financial Reporting Standard (IFRS) 4 Insurance Contracts, adding that there is now real potential for insurance companies to include IFRS into their wider implementation programs for capital management. The IFRS 4 exposure draft, which has been a decade in development, was published by the International Accounting Standards Board (IASB) and, once transitioned into a standard in 12 months time, will replace a confusion of grandfathered generally agreed accounting principles (GAAPs) with a single IFRS for all insurance contracts. To date, insurers have been relying upon the GAAP of their individual countries or elements of US GAAP. James Dean, Ernst & Young’s Global IFRS Insurance Leader, comments: “Without doubt, IFRS 4 will create a level playing field for the insurance industry, providing all financial statement users and preparers – from policyholders to investors to analysts, competitors and regulators – with greater comparability and transparency about performance as a direct result of consistent measurement and presentation models brought by the standard. There will be a consistent financial reporting structure for the industry – and this has to be welcomed. The standard has been long-awaited and it is essential that the industry takes part in the critical four-month consultation period ahead.”

both short-term and long-term insurers. At present the income statements for these insurers are quite different and thus in the future the income statements of insurers will not be easily comparable to those presently produced. This means that analysts will have to understand the impact of the changes on their models. As many users find insurance accounting, particularly that of long-term insurers, difficult to understand, the proposals are aimed at making it easier to understand what drive the profits of such companies. The other benefit is that financial statements will be more comparable, not only between companies operating in South Africa, but also between insurers in different countries. “Key performance indicators will change, supporting improved decision making. For many insurers, meeting these challenges head on could act as a catalyst to sort out the current burden of supporting multiple measurement systems and transform their business for the better,” concludes Coppin. Comments Tim Rutherford, Ernst and Young’s Life Insurance sector spokesperson, while the current version of IFRS 4 is being complied with by most insurers in South Africa, the updated version, is intended to allow users other than experts, to better understand the economics of the insurer, and therefore local insurers will need to review the revised standard carefully for their ability to comply.

Short term pain for long term gain Dean adds: “Implementing the new IFRS standard is likely to be a complex process for insurers but there will be important milestones to meet in the next few years. However, with everyone playing by the same rules in future, implementing IFRS 4 is likely to be a short term pain for a much longer term gain. The benefits to the industry and the wider financial community cannot be underestimated. Insurers will have greater certainty about how their organization is viewed and evaluated by investors, regulators and other key stakeholders, reducing the cost of capital.”

Implementing the new IFRS standard is likely to be a complex process for insurers but there will be important milestones to meet in the next few

Business challenges ahead

years. However, with everyone playing

Insurers across the board will have to ensure their IT systems are able to provide the required information to comply with the proposals. At the same time, insurers will face an increased challenge in communicating their results due to investors focus on cash generation, variations in profit drivers and, for some life companies, diversity in embedded value accounting.

by the same rules in future, implementing IFRS 4 is likely to be a short term pain for a much longer term gain.

Garth Coppin, the national director for accounting for Ernst & Young in South Africa, comments: “The proposals apply the same principles to

APPOINTMENTS

Compass Group SA Drieka Wilso (1) has been appointed Chief Financial Officer at Compass Group Southern Africa. Drika has 15 years’ experience in the banking and financial industry in South Africa and abroad.

Chartis South Africa and Chartis Life (formerly AIG) where he held the position of Regional General Counsel and Company Secretary. He holds a BA and a BProc from the Rand Afrikaans University and has a wealth of experience working in a corporate environment.

MUA MUA, the executive motor and home insurance provider, has appointed Lynda Brown (2) as the new Regional Manager of its KwaZulu-Natal office. Brown has been involved in the insurance industry for 30 years, having worked first as an underwriter before moving up to become Sales Manager for both Commercial and Personal Insurance. She is a FIISA and Chartered Insurer and is extremely active within the Insurance Institute of KwaZulu Natal, having served as Chairman of the Education Committee and now as the incoming Deputy President.

Centrique Lindi Dovey (7) – newly appointed Reporting Accountant in Centriq Insurance’s Finance department for possible publication. Dovey obtained her B.compt degree (UNISA) and articles in 2003 and her B.com honours degree in financial accounting (UNISA) in 2008. She has extensive experience in the accounting and taxation field and was a Fund Accountant at Alexander Forbes Financial Services before joining Centriq.

Cannon Asset Managers Andrew Dittberner (3) has been promoted to Senior Investment Manager at Cannon Asset Managers in recognition of his contribution to the business and his importance to the investment team, which he joined three years ago. Having been involved in the successful management of Cannon Asset Manager's global portfolios Andrew's responsibilities will now extend to the domestic arena. This promotion comes hot on the heels of a major accolade. Andrew was recently awarded the Economic Research Southern Africa first prize for Masters-level Economics at Wits University.

Absa Group Ltd (Absa) Absa Group Ltd (Absa) announced the appointment of Nomkhita Nqweni (4) as Managing Executive of Absa Wealth with effect from the 1st of June 2010. Nqweni joins Absa Wealth, Absa’s High Net Worth (HNW) wealth management offering which is affiliated to Barclays Wealth, following a distinguished career with the Alexander Forbes Group spanning almost 13 years.

Compass Insurance Dean Delport (5) will be joining Compass Insurance as from 1 July 2010 in the position of Executive: Insurance. Dean will serve on the Compass Executive team and will be responsible for both the Portfolio Management and Claims functions.

Zurich Zurich South Africa has announced the appointment of George Kostopoulos (6) as its new General Counsel and Group Company Secretary. George, an admitted attorney, joins Zurich from

Mutual & Federal Lindsay Robertson (8) has been appointed as the new General Manager for Specialist and External Platform Business at Mutual & Federal, one of South Africa’s leading short-term insurers. Robertson’s appointment is effective from 1 July 2010. Rober tson has 26 years of insurance experience which will benefit her in the new role.

Mutual & Federal appoints Strategic Change Executive Howard Walker (9) has been appointed to the position of Strategic Change Executive at Mutual & Federal with effect from 1 July 2010. Walker holds a B.Sc (Actuarial Science) and has held senior positions with Old Mutual South Africa and Alexander Forbes Financial Services. He has been a Fellow of the Faculty of Actuaries (Edinburgh) since June 1988, and was admitted as a Fellow of the Institute of Life and Pensions Advisers (FILPA), now known as the Financial Planning Institute (FPI), in 1991. Howard’s role will be to implement strategic change throughout Mutual & Federal, and his wealth of experience will certainly be beneficial to the company. Mutual & Federal appoints Group Manager for Risk Financing Nick Matthews (10) has been appointed as the new Group Manager for Risk Financing at Mutual & Federal. He moved into this role in June 2010. Matthews joined Mutual & Federal in 1993 and has held the position of Manager Risk Finance since June 2004. This experience and knowledge of the company will benefit him in the new role and his appointment provides continuity in risk financing.

APPOINTMENTS

Medscheme

Kevin Aron (11), the outgoing managing director of Medscheme Health has been appointed Group Chief Operations Officer (COO) for the Medscheme Group from 1 July 2010. He joined Medscheme in 2001, moving from Group Financial Manager to Financial Director of Solutio (now Medscheme Health Risk Solutions), Medscheme's managed healthcare operation. In April 2004 Kevin was appointed Group Sales and Marketing Director and later to the position of Managing Director of Medscheme Health, Medscheme's medical scheme administration operation. The Medscheme Group has announced the appointment of Wallace Holmes (12) to the position of Financial Director for JSE-listed holding company AfroCentric Investment Corporation (AfroCentric). Holmes will also retain his other two positions as Financial Director for both Medscheme and Lethimvula Investments.

Medihelp Medihelp, South Africa's third largest open scheme has elected Mr Pieter Vosloo (13) as new chairman on its Board of Trustees at its 104th Annual General Meeting (AGM) held in Pretoria recently. Vosloo replaced the previous Chairman, Mr Hennie Koekemoer, who did not stand for the position of chairman or vice-chairman this year. Koekemoer, the chairman since 2007, is however still a member of the Board.

Glacier Tanya Cohen (14) has been appointed head of Fiduciary Services at Glacier with effect from 15 July 2010. Her main objective is to enhance our trust and fiduciary services offering for the affluent market under the Glacier banner. This includes making available a sophisticated and comprehensive suite of estate planning services to meet the needs of Glacier's affluent client base.

Peregrine Wealth and asset management group Peregrine today announced the appointment of Jan van Niekerk (15) as group CEO. Van Niekerk will take over from Peregrine co-founder and current CEO, Sean Melnick (16), who will assume the position of Deputy Chairman of the group, while Leonard Harris (17) will retain the position of independent, non-executive Chairman.

Hanover Re The Supervisory Boards of Hannover R端ckversicherung AG and E+S R端ckversicherung AG have appointed Dr. Klaus Miller (18) as a full member of the Executive Board with effect from 1 September 2010. In concert with Dr. Wolf Becke, Dr. Miller will lead the life and health reinsurance business group of the Hannover Re Group (Hannover Life Re), assuming market responsibility for Northern and Central Europe.

APPOINTMENTS

Investment Solutions Ntai Phofololo (20) has been appointed as Marketing Manager: Individual Investments and Ben Jooste (19) Portfolio Manager: Individual Investments at Investment Solutions PWC PricewaterhouseCoopers (PwC) is pleased to announce the appointment of Sizwe Masondo (21) as its new partner in Assurance – Mining, as well as Tanya Rae (22) has been promoted to Assurance Partner – CIPS

COVER

Continued from page 32

In the case of gadgets and jewellery as well as special items like artwork “you must be able to supply a valuation certificate when you claim. Clients should also be aware that collector's trends, fashion, currency fluctuations and inflation will all influence current value making it important to regularly update the value of any possessions that you insure” explains Dombo. ?

Loyalty and honesty to one's insurer - does it pay? “The relationship that one has with one's insurer is definitely taken into consideration when it comes to paying claims. In fact, over the years, insurers build up detailed risk profiles of clients, particularly regarding the veracity of their claims” says Dombo.

In fact, when it comes to insurance, simple price comparison is a dangerous guide as the value of insurance lies in what it covers, not necessarily what it costs. And with insurance companies using new channels, like the internet, to punt their products it is increasingly easy for customers to fall into the trap of instant price-driven comparisons – available at the click of a button.

Direct, traditional or hybrid insurers, what is the difference? Traditional insurers have been around the longest. They deal with clients through brokers who develop close relationships with their clients and tailor the cover to best suit their needs. Direct Insurers cut out the broker to deal directly with the client, usually through call centers and internet sites. Hybrid insurers on the other hand provide a personalised insurance service more efficiently by using inhouse professional service consultants. They provide the best of both elements of direct and traditional insurers.

There is an increasing tendency amongst consumers to reduce the process of purchasing insurance to simple online price comparisons.

Is it safe to purchase insurance online? Yes “as long as you take time to understand what you are buying,” says Dombo.

What if I miss a monthly payment? Strictly, if you miss a monthly payment your insurer is within their rights to reject your claim. Most companies, however, do provide a period of grace. (Most common is 15 days from date that payment was due.) Certainly “Alexander Forbes will only reject a claim that happens after a second consecutive missed payment” says Dombo.

The above list of questions is by no means conclusive “if you have any enquiries about your insurance cover it is always a good idea to approach your broker or insurer, or thoroughly go through your insurance policy to better understand the terms and conditions of your cover,” adds Dombo. The only facts that count are those embedded on your insurance policy. Relying on the internet, friends or hearsay will only misguide you.

HUMOUR

Laugh and the World Laughs with You... Hippies In the mid-sixties, there was a hippy named Benny in San Francisco. Benny was real hip, but he just couldn't grow a beard like the rest of the flower child guys in Haight-Ashbury (Hashbury). One day Benny met up with a Gypsy Lady who liked him enough to grant him a wish, so, naturally, Benny wished for a beard. Gypsy Lady granted the wish but warned Benny to ALWAYS wear the beard, never cut it off. Well, the years went by, the flower children aged, the hippoy movement sorta died out, Benny went on to a career as a successful financial adviser. Benny decided the beard no longer fit his image so, ignoring the Gypsy Lady's warnings, he shaved it off. **POOF** Benny disintegrated into a pile of ashes, the janitor swept him up and deposited him in a jar. Moral of the story: A Benny shaved is a Benny urned.

Diploma A grandma and her grandson are shopping at the Supermarket. Grandma : "Diploma, give me the sugar. Diploma, put down that packet of sweets.” Cashier : "Granny, is your grandson's name Diploma?" Grandma : “Yes." Cashier : “Why 'Diploma'?” Grandma :"Because I sent my daughter to Technikon and this is what she brought back!"

The Tax System Explained In Beer Suppose that every evening, 10 men go out for beer and the bill for all ten comes to R100. If they paid their bill the way we pay our taxes, it would go something like this :The first four men (the poorest) would pay nothing. The fifth would pay R1. The sixth would pay R3. The seventh would pay R7. The eighth would pay R12. The ninth would pay R18. The tenth man (the richest) would pay R59. So, that's what they decided to do....... The 10 men drank in the bar every evening and were quite happy with the arrangement, until one day, the owner said, "Since you are all such good customers, I'm going to reduce the cost of your daily beer by R20". Drinks for the 10 men would now cost just R80.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free. But what about the other six men? The paying customers? How could they divide the R20 windfall so that everyone would get his fair share? They realised that R20 divided by six is R3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer. So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay. So the fifth man, like the first four, now paid nothing (100% saving). The sixth now paid R2 instead of R3 (33% saving). The seventh now paid R5 instead of R7 (28% saving). The eighth now paid R9 instead of R12 (25% saving). The ninth now paid R14 instead of R18 (22% saving). The tenth now paid R49 instead of R59 (16% saving). Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings. "I only got a rand out of the R20 saving," declared the sixth man. He pointed to the tenth man,"but he got R10!" "Yeah, that's right," exclaimed the fifth man. "I only saved a rand too. It's unfair - he got 10 times more benefit than me!" “That's true!" shouted the seventh man. "Why should he get R10 back, when I got only R2? The wealthy always win!" "Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!" The nine men surrounded the tenth and beat him up. The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill! And that, boys and girls, journalists and government ministers, is how our tax system works. The people who pay the highest taxes will naturally get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier. David R. Kamerschen, Ph.D. Professor of Economics. For those who understand, no explanation is needed. For those who do not understand, no explanation is possible.

3rd 1st Quarter Edition 2008 2010 R19.95 (incl)

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