1st Quarter Edition 2008 2010 R19.95 (incl)
INSIGHT Insuring 2010
Website: www.fia.org.za S A’s PREMIER INTERMEDIARY MAGAZINE 36647575797597359738765-0
www.santam.co.za
Editor’s Soapbox
2
Presidents Message
4
From the Desk of the CEO
6
Agricultural Insurance
8
Company Profile -Brian van Flymen
10
Wise words from our Legal Eagle
14
Teachers to Rest Insured
14
Advice from the Health Care Administrator
16
Advanced Driver Training
17
Chemical Liability
18
Vehicle Insurance rates
20
Kidnappings
21
Spouse in the Estate Plan
22
Rhythm of Life
24
Outlook for 2010
26
Scientific Underwriting
27
Re-emergence of Service led Brokers
30
Mike Stoker
32
Epidemics & 2010 Cancellations
33
Appointments
34
Providing on the Job Skills & Training
35
Gareth Stokes
36
Snippets
38
Financial Maturity
39
Selling Tax Breaks
40
Funeral Cover
43
Building Replacement Costs
45
FAIS Ombud
46
Short-Term Ombud
48
Pensions Sector Alignments
48
Long-Term Ombud
50
Humour
50
WFII Report
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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 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, Justus van Pletzen, Mike Stoker, Adv. Paul Sieberhagen, Gareth Stokes, Dr Tobias Doyer, Pravin Pather, Riette Fern, Abdul Dangor, Ian Kilbride, CFG Research Institute, David Price, Gari Dombo, Simangele Tshabalala, Terry Booysen, Johan Nagel, Craig Burton-Durham, Chris Busschau, Quinten Matthew, Dimitri Balios, Johan Gouws, Shantha Padayachee, Dr Nolwandle Mbalo, Charles Pillai, Jan Hattingh, Ulrich Hoffmann, Brian Martin, Adrian Hofman. 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
by Clive Franks
We are heading into a very event filled 2010. The kick off was the Special
recognise those product providers that they deem leaders in the industry
General Meeting held 19 February held at the Rand Park Golf Club in
from their perspective. Also included in this year's awards are two new
Johannesburg to ratify the merging of the Association of Black Brokers
categories the Under Writing Manager Award and Employees Benefits
(ABIB) and the Financial Intermediaries Association of Southern Africa
Product supplier.
(FIA).
World Cup 2010 Special General Meeting
Everything is all hyped up for the Soccer World Cup and the insurance
19th February a special general meeting was held at the Randpark Ridge
industry also needs to gear up for this event and to prepare South
Golf club in order to ratify the merging of the Association of Black
African, hotel, bed and breakfast (B&B) and home owners looking to
Insurance Brokers (ABIB) with the Financial Insurance Association of
provide accommodation to the estimated 500 000 visitors during the
Southern Africa (FIA). The motion was ratified by the FIA and we are now
FIFA 2010 World Cup. They are opening themselves up to huge potential
waiting for the decision from ABIB.
risks by failing to take out appropriate insurance cover and sufficient public liability cover. The same goes as well for the entire hospitality industry that should cover themselves for the rowdiness of fans in bars
WFII In March from the13 – 16 Seamus Casserly the President of the FIA and
and restaurants and who are often overly robust and destructive and at
Justus van Pletzen COO of the FIA, who is the official representative for
times their behaviour can get out of hand and they commit acts of assault
Africa at the World Federation of Insurance Intermediaries (WFII) were in
on patrons.
th
Buenos Aires, Argentina for the annual WFII Conference. Seamus and Justus engaged with the various representatives from all the countries
Hot Topics
that attended and engaged with them on worldwide trends and
The hot topics during 2010 will be National Health Insurance (NHI) which
developments in the industry, once again emphasizing the major
seems to be advancing at a snail's pace; others are the retirement fund
influence and input that the FIA has worldwide in the industry.
and the continued debate surrounding commissions. These are issues that are being closely monitored by the FIA who will always make sure
Insurance Conference
that our members are well represented at all levels of the decisions to be
The Insurance Conference incorporating the FIA/IISA/SAIA takes place
taken.
from the 23 – 26 May at Sun City which will be jam packed with both National and International Speakers of note addressing the conference
Education
on various topical issues related to the insurance industry and how we
Very importantly and of huge significance is the issue of regulatory
will cope with them. The Advisory Council meeting is to be held on the 24
exams RE1 and RE2 on which Joe Kotzé has provided all our members
& 25 May at the same venue being chaired for the first time by Steven
with very comprehensive interpretations for all aspects of what is
Akakios.
required by them in countless FIA Expresses sent over the past period. In March Road Shows involving FIA, Inseta, Moonstone and the FSB have
2
The FIA Awards
commenced which have been well attended. All intermediaries are able
June sees the prestigious FIA Awards taking place at Emperors' Palace
to get their ducks in a row by attending these before taking part in the
on 3 June the Awards will once more be a glittering affair with all the
exams. This exercise once again demonstrating the wide cooperation
major industry players being represented as the intermediaries will
taking place on industry issues.
www.renasa.co.za
FIA PRESIDENT
Message From the President of the FIA to our Members Having dealt with almost all of the Merger issues and now with Manie Booysen settled in as CEO, our association is well positioned to focus on our key role of developing the profile of the intermediary in South Africa. I am delighted that we have reached this point early in 2010 as there is likely to be an exciting year ahead. This position has only been achieved by the hard work of the membership, the executive and all the volunteers who give unstintingly of their time and expertise. May I thank all of you for the effort that makes the FIA such a positive contributor to the intermediary cause in all sectors of our society. I am honoured to have been asked to lead the organisation for the next period and wish to thank you and the Board of the FIA for your confidence. It is clichéd to refer to the task as being daunting but given the state of flux that we are likely to experience during 2010 as an industry, as a country and in global financial markets, there are considerable challenges which we as a collective and as an organisation will have to overcome. It is these macro issues that are likely to present real obstacles and will require conscious effort to resolve. I have no doubt that we will succeed if we collaborate effectively with one another. Arnold van der Linde, my predecessor and past president, deserves huge credit for his positive leadership of the organisation over the past two years. His unwavering commitment to the improvement and development of the intermediary industry, the brokers and the FIA as the representative body is legendary and I have significant shoes to fill. I am deeply grateful for his enthusiasm, leadership and counsel over the years and am comforted by the fact that he remains part of the executive committee and the Board. Thank you Arnold for all your time and effort over the years and for agreeing to remain committed in the years ahead. If there is a single theme that will overarch most matters affecting brokers in 2010, I am guessing that it will be regulation. Too much has happened over the last few years and it all points to our regulators implementing some new ideas that will require change in the way we operate and manage our businesses. Consumerism, public perceptions and conflict of interest are the main drivers of this initiative and the FIA will be challenged to represent our membership appropriately. There are likely to be a few other challenges to be addressed in addition. For example whilst the recent budget did not allocate funds to the mooted National Health Scheme – I refer to NHI as a scheme rather than as insurance – this does not mean that it is off Government’s radar. We need
4
to remain vigilant in view of the impact of NHI on the brokers specialising in this field. Similarly the issue of climate change and its possible impact on insurance cover that is available to our clients is a very real. A certain insurer is currently specifically limiting cover for storm risks in a defined coastal area. This type of action may fundamentally change the policies we sell and the advice we give to our clients. The proposed National Savings scheme will certainly affect our EB colleagues and brokers advising on investment products. Not all of this is bad news but it will certainly demand that we remain vigilant and adaptable. I am confident that we will be flexible enough to deal with all that comes at us both as business people and as the FIA. Intermediaries are by their nature capable of adapting quickly to different clients, trends and circumstances. That is who we are. 2010 is also the first year in which we as intermediaries are obliged to be fully compliant with the educational requirements of the FAIS Act. We are now having to write entry level exams and, at some stage in the future, will be required to build up educational points for continuous professional development (CPD). This all indicates to me that we are getting closer to being recognised as a profession and this would be fulfilment of a strategic objective of the FIA. Let’s hope for an easy process for their requirements I also ask that members seriously consider involving themselves in the FIA at which ever level suits them personally - branch, division, specialist committees, etc. This will ensure that a wide base of our members will be well informed about our industry and activity. Finally 2010 will be a milestone year in our country’s history when we host the FIFA Soccer world cup. May I wish Bafana Bafana a successful tournament, may all our visitors and all the spectators have a real South African experience and may all the images of our beautiful country and people be positive. Let’s make 2010 the year to remember for all of us. Good luck for all the challenges that lie ahead and thank you for your support.
Regards Seamus
www.mixtelematics.co.za www.matrix.co.za
CEO
From the desk of the Chief Executive Officer When we review the last quarter, one realizes that several adjustments will take place in the financial and insurance industries to ensure future sustainability. Firstly, world leaders held intense, in-depth discussions to ensure that the inputs of developed countries’ to economic recovery will effectively contribute to the overall recovery of all the developing economies. Lessons learned from this international crisis will ensure that the discussions currently underway between the Financial and Insurance supervisors of the major powers will continue and new policies will see the light. We will see that the Solvency 2 project that was developed in the EU will extend to smaller powers that are forced to comply with policies. Secondly, the current global weather and climatic conditions experienced, is unprecedented in the history of man. These phenomena have led to tremendous pressure on the insurance industry worldwide and will surely add a new dimension in risk management and insurance in general. Floods, drought conditions and hailstorms have already led to great pressure on the insurance industry in South Africa.
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The Insurance Conference that is to take place from 24 to 26 June 2010, in Sun City will be jointly presented by the FIA, SAIA and IISA and promises to be a huge success. The conference covers the entire industry, not just Short-term insurance as in the past. For maximum synergy the FIA has decided to make use of this opportunity by holding its Advisory Council meeting during this event. The FIA is currently in a process of reviewing its Code of Conduct to be in line with King 3 requirements. This process will allow the FIA to build the image of the financial intermediary in the consumer arena. The Department of Trade and Industry is currently in the process of finalising the regulations regarding the Consumer Protection Act and an industry code may be used to finalise the position the financial intermediaries. There has been a lot of speculation about the advent of National Health Insurance and recently during an ANC rally in Kimberley; the ANC leader indicated in his speech that such a system would be in place by the end of 2010. During the recent BUSA Council meeting it was decided that the matter would not be addressed by BUSA before it becomes Government policy. It is also important to note that no funding has been budgeted for NHI for 2010/2011. The FIA, through its Health Subcommittee, will continuously monitor this issue to ensure that members' interests are served.
The WFII (World Federation of the Insurance Intermediaries will, at its upcoming conference in Argentina, surely review these aspects thoroughly, and debate this at the various working group discussions that will take place. Seamus Casserly, FIA president, and Justus van Pletzen COO, will attend the conference as representatives from Southern Africa and they will participate in the organized discussion groups.
The rumours about the Conflict of Interest are equally interesting, and we soon expect more finality regarding this issue that surely will affect the playing field. The FIA Exco has had a chance to respond to the draft document as presented by the FSB
On the local front, the Road shows introducing the new competency exams (RE1 and RE2) to the industry have already commenced. These briefings are jointly handled by FIA, FSB, INSETA and Moonstone and are well supported by all stakeholders in the industry. These discussions are also seen as a great opportunity to make contact with non-FIA members.
The year 2010 will definitely be exciting in many respects, and not just because of the giant football event but also by the implementation of rules that will inter alia regulate binder agreements. The implementation of the regulations could definitely be a change in the business practice of insurers and intermediaries.
info@gemjewel.co.za www.gemjewel.co.za
A G R I C U LT U R A L I N S U R A N C E
Understanding Crop Insurance by Dr Tobias Doyer
The South African agricultural sector has an important role in the country’s economy. But being in this industry requires good risk management to deal with unique vulnerabilities such as the harsh and often unpredictable climate. Farmers need a tailored insurance product that can cater for such risks. Crop insurance is unlike other types of insurance such as commercial and personal insurance. Not only are you selling insurance to an informed producer with an acute knowledge of growing crops, but you are also dealing with a highly specialised form of insurance. It requires specialist knowledge, continued research into the science of crop damage, as well as knowledgeable brokers to sell the product. In South Africa, approximately 40% - 45% of all crops harvested are insured, and of this percentage, approximately 55% is insured with Santam. This makes Santam Agriculture the leader in crop insurance in South Africa. In terms of crops insured, grains are most often insured, followed by fruit and, to a lesser extent, vegetables. According to Schalk Schultz, Santam Agriculture crop business development manager, farmers who decide not to insure their crops usually believe they have the financial means to cover any damage. However, there are indications that farmers are becoming more serious about taking out insurance. Schultz attributes this shift to a recent increase in unpredictable weather activities in the summer rainfall areas of South Africa. Schultz explains that crop insurance is a seasonal product and cover for the chosen risks are only granted for a specific growth cycle. Unlike asset insurance, the premium payable for crop insurance is not determined by applying the insurance rate to the insured amount and the cover period. Instead, the rate is applied only to the insured amount, regardless of the number of days that the specific crop
was covered by the insurance policy. Therefore it makes good sense for farmers to enjoy the longest period of cover by insuring their crops as soon as possible after planting. The difficulty for the farmer, however, is determining at what value the crop should be insured. “The reality is that when a crop is planted, the farmer doesn’t know what the actual yield will be as the weather is a major determining factor,” he says. For this reason, crop insurance enables the farmer to adjust the cover upwards as the yield potential or price/ton increases. Unlike asset cover, crop insurance cover is not determined by replacement value, but rather by a realistic value chosen by the insurer at the time of insurance. Apart from the fact that the client can determine the cost of his insurance through price and yield, he also has the choice of how much risk he wants to carry himself. Accurate crop cover requires a multifaceted approach. It involves determining what the effect of damage such as hail is on the plant’s specific growth stage, as well as the potential yield. This is why continuous research into how different crops react to damage at different growth stages is so important to Santam. Schultz explains that farmers always ask two questions: how will damage and losses be assessed, and how much will the insurance cost? It is important to have answers to these questions, backed by solid evidence and research. The research conducted at the Santam experimental farm near Bloemfontein has over the years proved invaluable in this regard. Santam is the only short-term insurer in South Africa with an experimental farm dedicated to scientific research on the effects of various insurable crop perils. This means that its brokers have the scientific support of the best technical team in the business. Continued on page 44
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www.libertycorporate.co.za
C O M PA N Y P R O F I L E
Profile of Brian van Flymen CEO of van Flymen & Associates and Vice-President of the FIA 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 recent mergers and your passion to see the success of the FIA , and with your involvement as the newly elected vice-president of the FIA do you find that this has had an adverse on the time you are able to devote to Van Flymen & Associates. I am most fortunate to be part of a well-established business. The directors and management have many years experience and share my passion for the industry. As a result any adverse effects have been minimal and more than compensated for by the benefits of my involvement. FIA: In what way do you feel that you are making the most contribution to the FIA? Hopefully my experience of over 20 years as a representative of intermediaries associations will be of value. I am passionate about our industry in general and Intermediaries in particular, and as a result of the experience gained and contacts I have made over the years feel competent to engage with various Product Suppliers so as to ensure that we Intermediaries obtain a fair deal.
As past chairman of the Membership Committee, I am gaining a more comprehensive understanding of the requirements of the smaller broker which combined with my knowledge of larger intermediaries, will hopefully equip me to better represent the collective interest of our members. FIA: What does being elected as vice-president of the FIA mean to you? A large degree of personal satisfaction and the hope that I can make a difference by entrenching the Intermediary as the preferred distribution channel of the product providers. FIA: Do you think that there has been a turn-around yet in the recession and what will intermediaries have to do to survive the adverse effects of such glitches in the future? I am guardedly optimistic that we have turned the corner. The Insurance Industry does lag other business activities such as retail and therefore the effects of the upturn tend to filter through at a later stage.
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by Clive Franks
In order to survive in adverse market conditions, the Intermediary must remain relevant to his client who should perceive that the intermediary has 'added value'. I believe this simply means utilising our knowledge to assist our clients and constantly remember that our client's interests' are paramount. FIA: How do you think the 2010 Soccer World Cup is going to impact on us? As I am by nature optimistic, I think the impact on the economy will be positive and the morale in the country be much improved. Hopefully this will lead to an increase in expenditure and a knock on effect of additional insurances/investment services being purchased. On the negative side, I would advise short term Intermediaries who act for homeowners providing accommodation during the event, to make full disclosure to the Insurance Companies. FIA: What incentives are there for young people to join our industry and how do you think we will be able to attract them? This is an area of much concern as we are not attracting people to the industry. In fact there are few people under the age of forty who have expert knowledge of the industry and how it functions. We have to introduce and promote insurance at grassroots level as a career and possibly as a subject to school children and university students in a meaningful, vibrant way. Unfortunately the Insurance Institute for many years has been moribund and is only now beginning to raise public awareness of insurance as a very rewarding vocation and I believe they require the suppor t of us all in both their educational and promotional activities as this is a long term project. The consumer spend on short-term insurance is in excess of R 50 billion per annum which makes us a huge player in the South African economy and if properly marketed an exciting attractive option for young people. FIA: What do you think are the main challenges facing the FIA and its members? To remain relevant by embracing the change in our working environment – it will be of great benefit in the long term. The FIA has to maintain our core values and insist our member's act with integrity at all times. If we follow this mantra we will always remain relevant. I do think our members are beginning to appreciate what we do on their behalf but as always our biggest challenge is the apathy of most members. This is a perennial problem, which can be alleviated by good communications. We are doing an excellent job but must further refine our communications so that members receive only what is of relevance to them.
www.utasa.co.za
C O M PA N Y P R O F I L E FIA: What is the most important message that you have for the members?
specialised areas of liabilities, marine, engineering and construction. We do have a fairly substantial personal lines department catering primarily to our commercial clients.
Look after your clients – always place their interests first. FIA: What is your take on the RE1 and RE2 level exams and do you think we are losing members as a result of them having to take these exams? I would like to encourage members to embrace these exams willingly. In the long run it will benefit not only the Industry but empower our members. Should the number of intermediaries reduce, the amount of business written will not shrink but on the contrary will result in more business for those Intermediaries who are qualified. Whilst there may be a small loss of participants who are fearful of not passing the exams, I would encourage them to not leave the industry but to resit the exams. In this regard our road shows are very useful in informing members of requirements.
Naturally my advice to consumers is to use the services of a competent FIA intermediary. FIA: Are you willing to share a brief CV and glimpse in to the private life of Brian van Flymen when you are not involved with the business of the FIA and Van Flymen & Associates? I was educated at Potchefstroom Boys High where I matriculated in 1968. After a short stint at University, I began work for a Trade Finance company. A few years later in 1975 I began trading for my own account in a very small brokerage where initially I sold marine, motor, personal insurance and life assurance. Over the past 34 years the brokerage has grown steadily with offices in Johannesburg and Pretoria and a staff complement of over 35.
FIA: What is Van Flymen & Associates mission statement?
I have been happily married for over 25 years and am fortunate to have two healthy sons both of whom are in their early twenties.
Van Flymen's mission statement is to provide appropriate and relevant solutions for the risk management requirements of our clients.
My leisure time is taken with golf, travel and generally watching sports on TV particularly rugby.
FIA: Who is Van Flymen & Associates main target market and what is the most valuable advice you can offer to the consumer?
In conclusion I would state that I am a proud Intermediary and hope that I will be of benefit to my fellow intermediaries as Vice-President of FIA.
Our main target market is the commercial insurance arena together with the
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Overnight accommodation for the driver and four passengers (covered up to R500) or 24-hour, Group-B car rental (covered up to R500). The car rental option is subject to availability and the driver must be in possession of a valid driver's license and credit card.
FIA members also have access to a first tow-in service per incident to the nearest approved dealership (if under warranty), repair centre or panelbeater in the event of: • A mechanical / electrical breakdown (covered up to R500 per incident) • Accident damage (cost covered to the nearest approved panelbeater within a 40km radius starting from the point of dispatch)
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cib.co.za
C L I E N T R E L AT I O N S H I P S
The Extra Mile – Little Things that mean a Lot Paul Sieberhagen Advocate of the High Court of RSA The notion of FSP’s running the extra mile for their clients has probably
service providers may already be busy assisting other stricken motorists.
constituted an integral part of service delivery since the birth of the financial
Also, it is common practice for FSP’s to attend the funerals of their clients
services industry in South Africa.
and provide additional comfort to the bereaved family members, but there
The Manner in which it occurs in practice varies widely, and although it
their relatives and friends. When people fly in from other parts of the
mainly centres round business issues and situations, such as negotiating
country two issues inevitably arise – (1) they either forgot an item they
special rates in out of the ordinary investment plans, or meeting with clients
need, i.e. cufflinks, earrings, etc., or (2) their bags were rifled by the airport/
urgently after business hours, etc., running that extra mile can be a
airways staff and stolen items that need to be replaced.
are more ways in which a little assistance can endear the FSP to clients and
powerful boost to both the business and the personal relationship between the parties.
It is suggested that FSP’s compile a list of (a) the likely items that funeral attendees and other clients may require in certain situations, as well as the
An ideal example is the situation wherein either the client’s or his /her
details of shops where these can be obtained, and (b) offer transport to out
spouse’s vehicle breaks down and roadside assistance is necessary, as
of town funeral attendees, should it be required.
well as the presence of another person for the safety and comfort of the stranded motorist. In such situations people inevitably run through their
In fact, the author hereof speculates that most FSP’s already have such
lists of reliable persons to contact, especially as the roadside assistance
lists. CONTACT No.: Cell: 073 000 5028
E D U C AT O R S P E A C E O F M I N D
Teachers to rest insured with Santam January 2010: The Department of Basic Education (DoBE) recently
additional information for their learners. The teachers who qualify for the
launched the Teacher Laptop Initiative aimed at assisting every teacher to
initiative are entitled to a R130 subsidy per month from the Department of
own and use a laptop. The initiative will provide the more than 350 000
Education which will include insurance from Santam.
teachers throughout the country with a monthly allowance which will cover the purchase costs as well as the costs of connectivity. The main objective
The initiative presents Santam with an opportunity to provide access to
is to improve the use of Information and Communications Technology (ICT)
insurance in the non-traditional market segments. Whilst the life and long
in teaching and learning.
term insurance markets have made significant inroads into this market, short-term insurance players have encountered additional challenges in
Against this background, South Africa’s leading short-term insurer,
penetrating this market. The success of this initiative will ultimately provide
Santam, has offered to provide comprehensive all risk cover - at
increased market share and visibility in the public sector market.
competitive monthly premiums - for any loss and damage to the laptops purchased through
Purchases by teachers of laptops will be phased in from February 2010
this initiative.
with the primary aim of making laptops available to all teachers in the public
Dr. Nolwandle Mbalo, Head: Network Solutions
have access to additional resources that can enhance learning and
education sector. This will improve the quality of teaching as teachers will at Santam says: “We applaud the DoBE for
teaching in the classroom. All laptops will have Internet access and will be
acknowledging the importance of Internet
loaded with school administration and national curriculum software.
access for teachers in order to obtain
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www.ctrack.co.za
H E A LT H C A R E
Regulator advises brokers on Bonitas by Craig Burton-Durham Acting Registrar & CE of Medical Schemes
Healthcare intermediaries will have heard by now that the acting Registrar of Medical Schemes Mr Craig Burton-Durham has filed an
“Do not panic,” advises Mr Burton-Durham. “And remember that, as brokers, any
application with the South Gauteng High Court on 26 January 2010 to urgently place medical scheme Bonitas Medical Fund under curatorship.
advice you give must be based on a
The scheme has since decided to oppose the application and the matter is expected to be heard before a judge on 9 March 2010.
proper assessment of the situation.”
Mr Burton-Durham would again like to reiterate what this Office has been saying to brokers – as well as members of Bonitas, healthcare providers, and the media fraternity – since the story broke: “There are no reasons to worry about the financial soundness of Bonitas or its ability to pay claims.” The Council for Medical Schemes (CMS) would like to emphasise once again that Bonitas remains one of the biggest, strongest, and healthiest schemes in the country. Its solvency ratio stands at well above the 25% required by the Medical Schemes Act (Act 131 of 1998). Its membership continues to grow; it currently stands at over 600 000 beneficiaries. The scheme has sufficient reserves to discharge its obligation to cover the healthcare needs of all its beneficiaries. “Do not panic,” advises Mr Burton-Durham. “And remember that, as brokers, any advice you give must be based on a proper assessment of the situation.” Brokers are again asked to act with restraint. And to always remember the principles of best advice when advising both potential and existing members of the scheme. The only reasons why the acting Registrar has applied for curatorship have to do with certain governance problems at the scheme. They have nothing to do with its financial soundness. The scheme is perfectly viable going forward. Brokers should also distinguish between curatorship and liquidation. They are two very different things.
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Curatorship merely means that an independent and suitably qualified party is appointed by the courts to take over the affairs of the scheme and manage them until a new Board of Trustees is established. The existing Board steps aside and the curator takes its place with all the powers that vest in the Board while the beneficiaries continue to enjoy cover as normal and the scheme continues to function as a going concern. The curator can command further investigations into the affairs of the scheme. Curators report to the Registrar of Medical Schemes as well as the High Cour t which appointed them. They receive guidance from the Office of the Registrar in addressing the
problems
experienced by the scheme. The CMS court papers can be obtained from the court. The case n u m b e r 2010/02947.
i s
D R I V E R E D U C AT I O N
BMW setting the benchmark in Advanced Driver Training by Abdul Dangor
DRIVER TRAINING TAKES ON A NEW MEANING WHEN ONE MEASURES THE RISK IN DRIVING PROMPTING FINANCIAL SERVICE PROVIDERS TO RETHINK STRATEGIES TO NEGATE RISK. South African Financial Service providers continue to fail to recognise the importance of the level of driver education clients have when evaluating the risk of new clients. This is set to change within the next few years as the realisation dawns that road fatalities is the biggest threat to our productive workforce is facing. This will prompt Vehicle, Health and Life insurance companies to place a greater emphasis on the level of driver education amongst it client base. BMW Driver Training is leading the charge of setting new benchmarks in the advanced driver training sector and working on shifting the mindset of SA companies to place a greater emphasis on this form of training. In 2010 BMW Driver Training aim to implement a Unit Standard for Defensive, Collision Avoidance & Skid Control training modules and implementing a Young Driver Program for newly qualified drivers. Although the programs offered are already on par with programs offered in developed countries, attaining local accreditation will facilitate a greater level of confidence from government and private sector. Innovative companies in the financial service industry should start recognising the role of driver training in managing their companies’ risk by developing products that rewards individuals with advance driving skills or encourage clients to take up the training. Getting behind the wheel of a car is the greatest risk situation a person faces daily. South Africa however has for a long time fallen behind in the implementation of this generic training requirement and will face the consequences as the number of road users increase. The impact of inadequate driver education and level of skill may have a detrimental impact on the financial services sector which can be negated through proactive education campaigns. The factors underpinning the necessity for Financial Service providers to reconsider their viewpoint on driver training in the development of products and services include: • The upgrading of major arterial roads in the metropolitan areas of major cities have resulted in travelling speeds increasing and accidents becoming more serious; • The improvement of our public transport system will result in easing traffic congestion but this will also allow people to travel much faster, resulting in bumper bashings becoming more serious due to higher speeds; • Changes in weather conditions due to climate change resulting in severe weather conditions may result in wetter roads in certain regions and resultant road deterioration;
• Prevalence of corruption in the issuing of driver permits; • There is a lack of revision of current driver permit assessment; • Poor driver mindset and attitudes; and • Hijackings. Globally, driver training has for some time witnessed growing importance and most European and US companies provide recognition to clients with this training. Companies that place a high emphasis on employee safety are also adopting this training as policy and employees are obliged to undertake this training as part of their induction into the business. BMW Driver Training currently services several South African and Multi National companies locally. Statistical data indicate that 1.2 million people die annually in car crashes worldwide. In South Africa, estimates are that there are around 800,000 road accidents each year with 15,000 fatalities. Gauteng alone averages around 330 accidents each day. In 2006 estimates suggest that the cost to government as a result of road accidents totalled R 581 billion between 1996 and 2006. This is an alarming figure. Although the government authorities are doing their share through improved traffic policing, much responsibility lies with the private sector to beef-up skills of by incentivising clients through inclusion of advance driver training as part of their offering and/or rewarding clients with accredited driver training certification. In South Africa, it is found that 95 % of casualties on our roads are as a result of poor driver behaviour (DOT National Road Safety Strategy) making driver training an essential component to lower the death rates on our roads. BMW Driver Training challenges key stakeholders in the Insurance, Health and Life insurance service providers to embrace our aim of making our roads safer through improved skill and education levels among drivers.
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CHEMICAL LIABILITY
The Highs and Lows of Chemical Liability
Jan Hattingh, Senior Manager Client Services, Alexander Forbes Risk Services a Member of the FIA
However you look at chemicals they are risky business. Volatile chemicals
The complexity of chemicals cover is exacerbated by the fact that chemical
present a huge explosion and fire risk while even the more stable chemicals
liability usually results in more than one policy being triggered. For example
can incur spillage, pollution and poisoning liability.
in a recent case, a client spilt 800 litres of hydrochloric acid on a third parties’ property - polluting several adjacent properties, corroding fences,
Hence, says Hattingh, Senior Manager Client Services, Alexander Forbes
floors, computer and electrical cabling, cars (from several other business)
Risk Services “the golden rules with insuring chemicals are, firstly, to buy
and office equipment. This accident triggered a series of third party claims
as much as you can afford and, secondly, to accept as little risk as possible
causing millions in damage to a host of other parties - even though 800
- by passing on as much as possible.”
litres of hydrochloric acid costs relatively little.
To get this right you need to make sure that the contracts you enter into are
And, says Hattingh, “legislation is very clear in taking a ‘polluters beware’
guided by professionals who understand the risks that you are accepting
line. In short, full responsibility for the safe handling and transit of
and can ensure that you are covered for the full liability that you have
chemicals rests with the supplier.”
assumed.
The Act also stipulates that, “a supplier should not provide chemicals to a
Extra caution with chemicals is, however, required as liability can be
transport and housing of the chemicals” says Hattingh.
client unless the client has met the requirements for the safe collection, extreme. Hattingh quotes the 1984 Bhopal gas disaster where over 15,000 Indians died and 500,000 were injured.
The problem is not so much with the large suppliers and the big transport companies that they use. These all have the correct equipment, vehicles
“Neither Union Carbide and Dow Chemicals (who took over Union Carbide)
and procedures to move chemicals safely between official storage areas in
nor the Indian government had even remotely enough cover to compensate
the major centres. Moreover, they all have professionally advised and
the victims. The scale of the liability saw decades-long legal battles in both
placed cover. “Problems usually develop, however, when smaller amounts
India and the U.S. and compromised the investment prospects of American
of chemical are purchased by smaller users and moved in, say, a bakkie on
companies in India for over twenty years,” says Hattingh.
a dirt road to be stored in an unsecured shed on someone’s farm” says Hattingh.
The point is there is no formula for calculating chemical risk. Each case needs to be
A supplier would have no control over how these chemicals were being
assessed by professionals able to identify
packaged, transported, stored and housed. Yet if something did go wrong,
the full extent of possible liability. For
according to the Act, the supplier would be held liable if the farmer caused
example, “if arsenic got into domestic
injury to his workers or the environment.
pool chlorine and the producers were faced with liability arising from 100
This is why when you buy something as simple as chlorine for your pool the
000 poisoned swimming pools -
packaging comes with strict and detailed instructions on how to store and
what would this cost?”
handle it. If these instructions are disregarded by the purchaser and damage is caused the supplier is able to distance itself from liability.
Compensation costs aside,
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a team of expensive
Finally, when people think chemical damage they usually think hazardous
assessors, exper ts,
chemicals. But this is not always the case. For example, “in a recent
engineers, officials and
incident a truck dropped its load of flour on Van Reenen’s pass during a rain
interested par ties
storm. While this did nothing to the environment as flour is entirely
would need to work out
biodegradable, when wet if becomes like glue or cement” explains Hatting.
the matrix of risks and
The cost of clearing the pass of this otherwise harmless substance was
covers involved.
substantial – and the supplier was entirely liable.
www.assupol.co.za
TRUST
Loyalty and Honesty to one’s Insurer does Pay by Gari Dombo, Managing Director, Alexander Forbes Insurance a Member of the FIA
Recent innovations in selling insurance as a price-driven commodity offer
“Very clearly, the longer a client has been honest with the insurer, the more
consumers the ease of comparing the price of various insurance products
trust is built up. So, again, loyalty and honesty do pay” says Dombo.
online. However well-intentioned these practices have resulted in a number of claims that border on irresponsibility.
Thirdly, supported motor premiums are often lower than unsupported
One such claim is that loyalty to a particular short-term insurer counts for
contents or any other insurance covered by the same provider, substantial
nothing. This implies that the individual has nothing to lose if he or she
premium discounts can be achieved.
motor premiums. In other words, if you have your vehicle, buildings,
switches to a different insurer. “This is yet another instance where loyalty, this time to a particular This could not be further from the truth.
insurance supplier, does indeed pay” adds Dombo.
“The relationship that one has with one’s insurer is definitely taken into
The ease with which insurance buyers can now access the internet to
consideration when it comes to paying claims. In fact, over the years,
obtain instant cost-based comparisons has had two major effects. Firstly,
insurers build up detailed risk profiles of clients, particularly regarding the
consumers are able to compare costs like never before and, secondly, a
veracity of their claims” says Gari Dombo, Managing Director, Alexander
whole range of new providers and intermediaries have been attracted to the
Forbes Insurance.
personal insurance sector.
For example, in a recent case where a policyholder’s car keys were stolen,
While these developments are potentially beneficial since they empower
the insurer was able to arrange the immediate replacement of the keys and
the consumer with the ability to compare and choose, they also threaten the
re-setting of the vehicles’ security system without delay or inconvenience
basic nature of the insurance contract which is, ultimately, one based on
to the owner. Central to this settlement was the trust established with the
trust developed over time.
client over 29 years. More specifically, pure price comparisons, without a detailed Dombo goes on to cite three instances illustrating the importance of a good
understanding of the variable contents of often very different covers, can
and long-standing insurer-insured relationship when it comes to pricing
also be misleading since the “conditions, exclusions, limits and warrantees
insurance products.
of each contract are material considerations in any comparison of value” explains Dombo.
Firstly, 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
In short, a one-on-one relationship with a provider helps consumers gain a
rated. “So, yes, when it comes to premium discounts, proven honesty and
more comprehensive understanding of insurance and its underlying
loyalty to a single provider does pay” explains Dombo.
contractual obligations. After all, price should only be one of the many
Secondly, ex gratia payments (when an insurer decides to pay out even if,
in the event of accident, loss or injury.
factors taken into consideration when purchasing cover that actually works strictly, a policy may not have covered a particular incident) are commercial decisions made on a case-by-case basis. Though very rarely
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As such “the notion that developing a relationship based on loyalty and trust
awarded, the big consideration in deciding whether to allow an ex gratia
is not central to the concept of insurance is a false one which buyers of
payment is trust, established by consistent honesty over time.
insurance ignore at their peril” concludes Dombo.
CRIME
Kidnapped: Protecting Your Key Assets by CGF Research Institute (Pty) Ltd
There is no doubt that there is a direct correlation between the manner in which technology has changed our world; and the manner in which the acts of crime are perpetrated by the many modern-day thugs who use anything from high tech surveillance equipment, recording devices and cell phones to execute their crime. Sure, we will continue to have the common-day petty criminals who in most cases, have to steal a cell phone, or stealthfully lift a wallet in order to survive. These criminals are not our source for major concern, whilst they are frankly speaking ‘light weight opportunists’ as compared to those who are linked with international syndicates. Most particularly, those criminals who specialise in high-net worth kidnapping of key executives for ransom have become a nightmare for employers, especially for those employees who travel to kidnapping hotspot countries. Make no mistake, the perpetrators involved in this type of kidnapping know what they are doing, and they also know the high stakes involved. The planning of a kidnap for ransom will in all cases involve many hours - even weeks or months -- to meticulously survey and calculate with military precision, every detail of the target kidnap victim. Of course the more valuable the ‘prize’, the greater the reward. In this vein, corporate executives have become ‘fair game’ to professional kidnappers, who understand not only the intimate detail of their target, but also their worth to organisations either materially, financially or their strategic importance to the success of the organisation by which they are employed. Although executive or high-net worth kidnapping is known to be a common occurrence in countries such as Iraq, Mexico, Pakistan, Venezuela, Brazil and the Philippines, countries such as South Africa, the DRC and Tanzania are quickly becoming the new danger zones. There are many reasons for this phenomenon, however the most common reasons which increase the risk of a corporate executive being kidnapped may be linked to countries which have a history of political and social instability, the presence of extremist groups, high crime rates, large disparities between the affluent and the poor, topped by governments which are notorious for either inefficient or corrupt practices. Clearly, an executive sporting a Breitling wrist watch and driving a Bentley for example is a statement made all on its own -particularly in countries known to be kidnapping hotspots -- and this type of attention will most certainly increase the chances of an attack. While accurate figures for kidnapping are sketchy, according to experts, kidnapping for ransom is on the rise in an increasingly globalised market.
Most particularly, those criminals who specialise in high-net worth kidnapping of key executives for ransom have become a nightmare for employers, especially for those employees who travel to kidnapping hotspot countries.
And as the operations of sophisticated internationally based kidnap syndicates expand into more vulnerable countries such as South Africa (now considered a medium to high risk kidnapping country), so the risks attached to a high-net worth individuals being kidnapped increases. The incident itself is usually very traumatic and the shock in itself can have devastating impacts on the health of the victim, as well as the victim’s family and business associates. Bear in mind that there can also be dire implications on the business and its morale, not least the severe interruptions in the operations and its financial impacts. Clearly when a kidnap incident occurs, particularly if it is drawn out for a long period of time, huge strain is placed on the business, giving the hostage takers greater power to extort higher ransoms and more demands. While there are certain laws that protect the basic rights of an individual, be these found within various international treaties, international conventions or even those criminal laws found within our own country (e.g. Prevention of Organised Crime); kidnappers simply don’t care! The price tags attached to high-net worth executives runs into millions and the perpetrators have become quite brazen about their business.
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E S TAT E P L A N N I N G
The Influence of the Spouse in the Estate Plan by Ulrich Hoffmann of Sentinel International Trust Company
In the translation of Max Kaser's book “Romisches Privatrecht”, Rolf Dannenbring translates on the topic of legal capacity based on sex : “With the Romans, as with the Greeks, Teutons and other peoples of the past, women did not enjoy equal rights. Just as women were excluded from the activities of state, so they had no paternal power due to the patriarchal structure of the Roman family; only man could be paterfamilias” Those were the days ……???……….not really…since then the role of woman in society has improved and become more important in everyday life to such an extent that I read an article in a local paper the other day that in the foreseeable future most of the economy would be women-driven. An estate plan should have two legs…a plan during the lifetime and a plan following the death of the planner and here Meyerowitz has given the following definition of an estate plan: “The arrangement, management and securement and disposition of a person's estate so that he, his family and other beneficiaries may enjoy and continue to enjoy the maximum from his estate and his assets during his lifetime and after his death, no matter when the death occurs” So with this in mind, let us look at certain aspects of estate planning where woman and moreover, the spouse plays an important role……but also bear in mind that various acts affecting an estate plan have different definitions of the word “spouse” Whilst it should only be one of the objectives of an estate plan, the saving of taxes is always an important issue when it comes to planning and there are a couple of sections of the Estate Duty Act 45/1955 that play a role here Section 4 (e): Section 4 (e) currently allows as deduction for duty purposes property outside South Africa acquired by the deceased before he became ordinarily resident in South Africa for the first time or, if so resident, donated to him by a donor non-resident at the time of donation, or by inheritance from a person non-resident in South Africa at his death, or out of the profits or proceeds of the aforementioned property. So, what planners need to bear in mind here is that although the first dying (usually the husband…shame…..wonder why …does he want to?), if resident in S.A. at the time of his death, may avail of the section 4(e) deduction, his spouse will not be able to claim the same deduction in her estate, as she would have inherited from a resident. Section 4 (q): Probably the most used deduction is section 4(q), which allows a deduction for so much of the value of any property included in the estate which has not been allowed as a deduction under the foregoing provisions of this section, as accrues to the surviving spouse. Besides the obvious direct bequest or inheritance to the spouse to allow the deduction, most planners make use of a trust and besides the other benefits that a trust holds, it contributes a major share of estate duty savings. The two most common forms are when the spouse is linked as an income beneficiary to the trust. This operates again in two ways 1) The spouse can be given a vested right to the income in a trust created in the estate of the first dying. Effectively this allows for the value of the income right to be calculated according to a formula and claimed as a deduction in terms of section 4(q) in the estate of the first dying The drawback here is that in the estate of the second dying, there will be a vested right to income that passes to the bare dominium holder (owner) and the value of the right passing would need to be calculated and
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reflected in the estate duty addendum of the second dying. 2) The trustees can be given the discretion to allocate income to the spouse. In such a trust there is no vested right to income, so there will also be no add-back in the estate of the second dying. So, the saving, besides the pegging of the growth of the trust assets in both cases, is an example 1 in the estate of the first dying because of the section 4(q) deduction, but in example 2 in the estate of the second dying because there is no ceasing income right that is added into her dutiable estate. Both of these are subject to the provisos set out in the section, but these will not be discussed now. Section 4(m): Section 4(m) allows a deduction for a usufructuary or like interest held by the deceased immediately before death where the property formed part of the dutiable estate of the predeceased spouse, and no deduction in respect of the surviving spouse's interest was allowable under section 4(q) in that estate. Effectively thus it will only apply to usufructs or like interests created before 1 November 1984 when section 4(q) became operative. The Roll-Over There are two types of roll-overs where the spouse plays a roll. The first is insofar as Capital Gains Tax is concerned and the second insofar as the primary abatement under section 4A of the Estate Duty Act is concerned. 1) The Capital Gains Tax Roll-Over: Here the effective liability for capital gains tax can be dealt with by the executor in two ways. If he transfers the assets to a spouse in terms of the provisions of the will, then capital gains tax is postponed until the death of the survivor, or her prior disposal of those assets acquisition. Should those same assets be sold during the administration of the estate, the gain arises within the estate itself and becomes the burden of all the residuary heirs (surviving spouse included) 2) The second form of roll-over is that of the unutilised portion of the primary abatement set out in section 4A of the Estate Duty Act (currently R3.5 million). Effectively it means that whatever is not utilised by way of abatement to reduce the dutiable estate of the first dying's estate may be carried over to the estate of the second – dying …effectively in an estate of R7 million no duty need be paid by utilising section 4(q) in the first dying's estate and the roll-over of section 4A in the second dying's estate (obviously capital growth may result in some duty being due in the second dying's estate unless she makes use of some other planning method) Then, without going into it, the ex-spouse also plays a role in planning in that provision should be made for any claim to be received against the estate by her for maintenance ;….oh and don't think you can disinherit the old dear….The Maintenance of Surviving Spouses Act has you covered there! …but that's another story. In short Mr. Male Chauvinist…..if you think your wife contributes nothing …..think again! …she plays a major role in saving you, or your heirs money through using her to set up an effective estate plan!
w w w. l a n c e t . c o . z a
South Africa’s first Independent Exchange Traded Fund Investment Platform for Financial Advisors go to
www.itransact.co.za for more information
FINANCIAL PLANNING
The Rhythm of Life by Chris Busschau Chair FIA Financial Planning Committee William Shakespeare identified a series of stages in life. His great insight into humanity gave him a clear understanding of the differences in behaviour, attitude, response, needs and even in emotions during those different phases in the journey that we all undertake. This wisdom is no less true for financial planning. The truly professional, insightful and sensitive financial planning salesperson will develop a sixth sense that will facilitate an interaction with a potential client that takes this continuum into consideration. I am convinced that many “lost” sales could have been closed if the sales person only realised that the client has reached a particular point in the journey of life, and the awareness that the client may very well be at a totally different stage from the point that the sales person has reached. There are a number of ways of classifying the stages of life, but I have found the following spectrum a convenient way to visualise the different phases (the ages are, of course, very approximate and will vary from person to person): Start-up 18 to 25
Expenditure and debt 25 to 35
Expansion 35 to 50
Accumulating 50 to 65
Drawing Distributing -down After death 65 to ?
Let’s look at each of these blocks of time! 1. Start up: This is when we first begin to earn an income. This could be straight out of school, or somewhat later after tertiary education, gap years, and the like. At this stage, it is very difficult for most people to think beyond the immediate. The famous saying carpe diem (seize the day!) could have been invented by this grouping! Concepts like retirement planning, risk management (i.e. life assurance) and asset creation are easily swept away by the thought of a new car, an evening out, a holiday, a new i-pod, or a sexy new wardrobe! So, financial services sales people tend to stay away from these folk. How wrong could they be! If there is one thing that can cause a Start-up person to go cold, it is the thought of disablement. Accident prone, they know that a serious physical disability could spell the end of their dreams. So, don’t try to sell the other, long term, sensible things that you would buy – meet this person on their own turf and provide disability cover! 2. Expenditure and debt: Sometime around these ages, marriage, family, house purchase (and mortgage bonds!), school fees, grocery and medical bills, transport costs and family vacations become the dominating thoughts. The prevailing fear at this stage in life is not having enough to pay all the bills. This is when the risk management mind-set needs to be emphasised. Don’t talk about long term investments to someone who is worried about meeting the next mortgage bond payment – talk about a family who are dependent on the income of the breadwinner (or, more commonly, both breadwinners), and about the debt that has to be settled if the bond-payer is no longer earning. Life cover, disability cover, and
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medical cover – these are the burning issues! Of course, this is also the time to prepare a will for the first time. 3. Expansion: As career expands and income increases, old dreams from the teenage years begin to come back into focus! A holiday house, a boat, overseas travel, and lifestyle choices begin to dominate. The risk issues from the previous stage are still there, but are becoming muted. However, this is also a stage of increased aspirational spending, some huge life-style related debts often evolve, and for the first time issues such as estate duty begin to emerge from the environment. Life cover, but at a totally different level, becomes an issue. But, even more so, this stage is the prelude to the next stage, Accumulating. People begin to become very aware of tax efficiency as a basis for remuneration packages, and begin to think about salting some of their income away. Retirement annuities, Deferred Compensation, Unit Trusts and Endowments become more interesting. Also this is the time when those with an entrepreneurial bent begin to start businesses, go into partnerships, begin employing other people. Buy and sell agreements, key person cover, retirement funds, medical schemes, debt redemption plans, sinking funds, contingent liability management. These are critical issues for the business owner at this time. 4. Accumulating: The children are grown, school fees are a memory, and varsity fees are a lot cheaper than private schools! So this is when the opportunity arrives to begin to invest in earnest. The retirement annuities, unit trusts and endowments, the tax effective structures, the maturity of being a bit older – all these come together and provide the impetus for a serious investment plan. 5. Drawing down: At retirement, the earning capability disappears and the typical person has to begin to rely on the assets accumulated in earlier years. Careful, prudent and selective investment structures are needed to maximise the income available from those assets and to solidify the assets in a way that can hedge against inflation. Careful budgeting, re-investment of any surplus income, a regular review of the person’s will – these are the focus. 6. Distribution: Of course, the final stage of life is – death. And this is as important as any of the others. Sensitive advice, a sure and steady mind in an emotional time, a calm, listening ear – this is the role of the sales person. Is it the end of the road? Of course not – a surviving spouse will continue to need the skills of the professional, and the next generation will be moving through its own phases of life. The professional financial sales person’s job is never done – it simply adapts to the rhythm of the lives of the clients!
ahofman@healthacc.co.za
SELF ASSESSMENT
Outlook for 2010 It’s no secret that 2009 was a particularly difficult year for financial institutions. Some fared better than others, but the industry as a whole has had to weather an extended period of very tough trading conditions.
that we recognise the vital role that Advisers play in our industry and understand their needs and challenges, without them, there is simply no business.
With the proliferation of communication and information sharing platforms, consumers – and therefore employees – have a much better understanding of the insurance industry as a whole. They have also begun to take a much greater interest in how their money is being managed. Accountability, transparency, consumer empowerment and customer centricity have all become buzz words in an industry that has recognised the subtle shift in power resulting from far better informed customers who have more choice and power than ever before.
One of main needs highlighted by Advisers is to have increased “face time” with decision makers within the business. Employee Benefits is typically more complex than Life business and another need that is highlighted time and again is for less experienced Advisers to have access to detailed corporate training.
Compounding this challenge, and driven by the sheer volume of media coverage on all things financial, the industry has also had the very difficult task of trying to earn back the public’s trust. Tough times can however present opportunities because they force you to review your business. It is a chance to focus on areas that will make it easier for your clients to do business with you. Some areas to look at are outlined below.
Look for the Devil in the detail It’s a common saying that “the Devil is in the detail”. However in our industry the real Devil is very often just the sheer volume of detail we layer into our business. To address this, one of the first things to do is look at your processes. I should point out that as an industry we do carry a heavy administration burden and it is important to get the balance right between necessary controls and processes which protect our clients – and stripping our unnecessary complexity. Take this chance to identify processes that have become overly cumbersome and reengineer these to improve efficiencies. An example of this is that we have started using a single consolidated “Fact Finding” document which replaces 6 of our old new business forms and which has reduced the number of pages that needed to be completed from 25 to 7. This dramatically improves both the Adviser’s and the Client’s experience.
Adviser partnerships The industry is an intermediated business and we are privileged to have such a dedicated country wide network of Adviser partners. It is imperative
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by David Price, Managing Director, Liberty Corporate
Retention of existing business In the past, insurance companies across the board have probably been guilty of focusing more on looking for new business than on retaining existing Clients. Losing Clients is a massive risk to the future sustainability of any business and in our space we also understand that this has a significant impact on the respective Advisers as well. To counter this, time and resources need to go in to investigating the reasons behind any fund being terminated to ensure that the business can recognise any fund that is at risk significantly more quickly than in the past. Any lessons learnt must be shared within the business to make sure retention is continually improved.
Cost management. For most companies, 2009 necessitated postponing some expenditure and cutting some costs that perhaps in other years would not have been considered. One runs into a danger of becoming “Penny wise, pound foolish” when this happens. A long term view is essential and care must be taken no to cut cost for short term profitability - at the expense of the business’ long term potential.
U N D E RW R I T I N G
Scientific Underwriting and the Broker by Dimitri Balios
In recent years along with the advent of direct insurance plays in the South African market, has come the introduction of scientific underwriting at the point of sale and at renewal. Whilst direct operators have tended to systematise their underwriting via computerised quoting engines, brokers have embraced the notion that there is a fair amount of art mixed in with the science of underwriting and this should not be left to a computer system alone. There are arguments both for and against the scientific approach, but it cannot be denied that, when the volumes involved are large and the time available to underwrite is limited, a scientific approach as a basis for underwriting run-of-the-mill risks is necessary. There are a variety of actuarial approaches to the method of scientific underwriting, the most desirable of which is the approach that determines a required premium based upon the peril to which each risk is exposed. This entails establishing probabilities for each element of the risk and converting their product to a rate to be charged for each peril. The premiums for each peril are then aggregated and a loading for commission, insurer overhead and margin are then added yielding the premium for the risk. All of these calculations are typically embodied in a computerised “rating engine”. As the risk profile for each individual risk is different, so will the probability of the various peril exposures differ for each individual risk, hence differentiated premiums between risks. This brings one to the question: “why would one want to differentiate between insureds?” Why, if, as a group, the premium collected from all the insurer’s risks is sufficient to pay the claims, pay commission and expenses, and leave sufficient profit remaining for the carrier, would one want to differentiate the premium between risks?
Viewing the population of risks as a whole without differentiation, some condone cross-subsidisation. Cross-subsidisation in this context means that relatively good risks pay the same premium as relatively poor risks. Cross-subsidisation is a dangerous strategy as it opens the door to price competition. If one’s book is heavily cross-subsidised, it exposes the book to competition from a carrier who does differentiate. The result will be that risks that are subsidized (typically the poorer risks) will tend to “stick around”, and the risks that are subsidizing others (typically the better risks) will come under pressure to move due to lower premiums being offered by differentiating competitors. The net result of this activity on the book is that there will be fewer better risks to subsidise the poorer risks and the effect will be felt in the loss ratios. Pressure then comes from the carrier either to lift the rate for the book or, if the situation is irredeemable, to cancel. The objective of the broker, as the agent of the insured, is to secure the best deal for his client. One might say that brokers should therefore seek out carriers who do not differentiate in their pricing. However, this strategy is bound to be short-lived for the reasons mentioned above and can only lead to an undesirable situation. Brokers pride themselves on the relationship they hold with their clients, and they need to leverage upon this relationship. Brokers should use their unique position not only to promote differentiation between their clients’ risk profiles, but they should strive to use their unique knowledge of their clients to seek out further rating factors not known or asked for by the carrier when underwriting their clients. The effect of this unique knowledge can typically be made manifest by the use of a discretionary loading or discount wielded by the broker. This approach can be used to great benefit when thwarting the onslaught by direct carriers who do not have the intimate knowledge of their clients that brokers do.
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www.s
auonlin
e.co.za
BROKERS COME BACK
Re-emergence of Serviceled Brokers Good news for Consumers
by Johan Nagel, chief executive officer of First National Bank Insurance Brokers (FNBIB),and member of the FIA
Hard-pressed consumers can look for help from at least one champion in 2010 – the insurance broker committed to the classic, service-led intermediary model. The forecast comes from Johan Nagel, chief executive officer of First National Bank Insurance Brokers (FNBIB), short-term insurance arm of the First National Bank Group. Nagel sees a comeback by brokers that use personal service and customised risk profiling as key differentiators in an increasingly challenging market. He says “a return to the classic broker model is overdue” and adds: “Personal service through a single point of contact will replace impersonal processes.
“Service-led brokers able to play in the affinity-solution space are positioned for growth.” He predicts that the underwriting of blocks of business will increasingly be replaced by individual rating and pricing; a welcome trend for cashstrapped consumers. Consumers with good claims records can also expect to benefit as brokers and insurance once again ‘get personal’. Nagel adds: “Only well-resourced brokers with superior systems will be able to meet these demands. This helps to explain our urgent implementation of state-of-the-art systems in the first quarter of the year.”
“Credible and personal relationships will underpin growth at broker businesses with the confidence, talent and systems needed to drive a return to broker basics.”
The emphasis on service will encourage brokers to “stop playing the direct insurers at their own game”.
Nagel believes the year will be characterised by smart, price-efficient solutions, though price will not be the sole determinant of success as “personal service will be the key differentiator”.
Nagel notes: “Direct insurers play a single-minded pricing game. Brokers have to up their own game by using risk management and customised risk profiling to deliver price efficiency plus personalised service. Pricesensitive consumers with a superior claims record will expect to be rewarded.
Brokers able to unlock synergies and economies of scale are particularly well positioned.
“Fundamental affordability challenges can only be met by business models that deliver a compelling combination of competitive pricing and superior, highly personal service – a pro-consumer scenario if ever there was one.”
Nagel explains: “Consumers understand issues like economies of scale and the benefits that accrue through synergies across a broader por tfolio of financial products. “Brokers able to offer affinity-based solutions across a bigger basket of financial products and
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services will secure competitive advantage. The proviso is that bigger has to mean better service as well as better pricing.
“Credible and personal relationships will underpin growth at broker businesses with the confidence, talent and systems needed to drive a return to broker basics.”
www.mf.co.za
P R O F E S S I O N A L S TA N D A R D S
The Aldermanbury Declaration: Towards Professionalism UK Insurance leaders call for common framework for professional standards By Michael E. Stoker FIISA; FCII Insurance Gateway速 a division of Stoker Risk and ICT (Pty) Ltd. www.insurancegateway.co.za
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It is revealing that, in his highly influential book, The Loyalty Effect, Frederick Reichheld selects insurance brokerage as one of his central case studies to demonstrate the impact of customer loyalty and retention on a firm's profitability. In the first chapter, he analyses the relationship between these variables over a five year period among six of the leading brokerage firms in the United States, concluding that “the firm with the best retention rate has the highest relative profits…Improving retention by five percentage points doubles the profit margin.” He proceeds to quantify the economics of customer loyalty, once marketing costs, cross-selling, referrals and lifetime cost savings are taken into account. If our focus groups are representative of the wider population, it is clear that professionals will attract corporates and retail customers, especially those with a moderate to high disposable income, and will serve those customers for many years. High standards among broking firms are therefore both in the
wider public interest, and give a tangible commercial return”. Back home, here in South Africa, intermediaries who are faced with the FAIS Regulatory Exams, can take heart that their colleagues overseas are embarking on a similar exercise, on a voluntary basis. It is also notable that the Declaration was crafted across disciplines in the general insurance sector and the move locally by industry to engage across disciplines, as evidenced by the combined FIA/IISA/SAIA conference this year, can only be welcomed. You can find out more about the Aldermanbury Declaration from the CII's website at http://www.cii.co.uk/ For more on this year's Insurance Conference visit http://www.theinsuranceconference.co.za/
RISK MANAGEMENT
Epidemics and 2010 Cancellations by Riette Fern, Executive Leader: Strategic Accounts Alexander Forbes Risk Services a Member of the FIA Global epidemics like bird flu and now more recently swine flu, along with an increase in the incidence and spread of a host of other conditions, has forced insurers to take a more inclusive view of risk and liability – especially as South Africa approaches 2010. This year’s World Cup will see South Africa receiving visitors from tropical countries. Meningitis, Congo fever, Rift Valley fever, yellow fever and hepatitis are endemic to many tropical countries and large portions of their populations’ are carriers of these diseases. As such “businesses, governments and especially the leisure industry need risk management plans that address the consequences of pandemics or even normal disease spread” says Riette Fern, Executive Leader: Strategic Accounts Alexander Forbes Risk Services. If your company has people placed around the world, or regularly receives foreign travellers, you face a real risk of suffering loss or litigation as a result of disease outbreaks – regardless of whether you are directly involved. Most existing cover, however, only insures against incidents happening on or near their immediate premises. For example, if “500 Americans cancel a conference in your hotel in Johannesburg because of an epidemic in New York you will most likely not be covered, especially if they cancel because of fear of flue rather than being prevented from travelling by law” explains Fern. As such, global epidemics, or even standard cases of infection, makes cancellation the biggest risk for the South African leisure industry in 2010. And “if you end up with an empty hotel during the world’s biggest sports event you have no recourse against FIFA” adds Fern. So if illness breaks out at a few hotels in Johannesburg causing people to cancel their trip “even though nothing happened at your hotel, SASRIA will not compensate you for any cancellations” explains Fern. Also, most leisure establishments in South Africa are insufficiently covered for the cost of disease-related claims from foreign visitors or the costs associated with caring for sick staff abroad.
For example, “if an expensive Italian soccer star falls ill or dies in your bush camp would your standard liability cover meet the cost of a European claim?” explains Fern. Similarly, “if an employee falls ill while travelling abroad would their South African medical aid cover them for a three week sojourn in an intensive care unit in a London hospital?” To meet the liability challenges facing South African government departments, international businesses and leisure establishments, Fern recommends two types of cover to deal with epidemic risk and infection: • A general business interruption cover providing compensation in the event of mass cancelation due to events that have happened elsewhere, and, • A cover for individuals in the employ of global businesses, government departments or leisure establishments, covering costs that may arise from individual employees travelling abroad or foreign visitors to local establishments. This combination will ensure that “businesses and their personnel are sufficiently covered to deal with the consequences of global epidemics or even localised infections especially as these impact mass cancellation or other claims associated with 2010” concludes Fern.
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APPOINTMENTS
Recent Appointments AON Sandra Hutchison (1) has been appointed to the Executive Committee of Aon South Africa as Human Resources Director of Sub Saharan Africa Gem & Jewel The South African insurance landscape is constantly changing and Gem & Jewel is no exception. Underwriting leaders for retail jewellery businesses, they recently announced Natasha Maroun (2) has stepped into the role of Managing Director, with Gary Cross (3) coming on board as the new Technical Director. Medscheme Modjadji Tati (4) has been appointed: Bonitas General Manager at Medscheme. The following new appointments have been made: Sipho Fokazi (5) has been appointed: Bonitas Fund Manager at Medscheme. Medscheme would like to announce the appointment of Dr. Lungi Nyathi (6) as Key Accounts Manager: GEMS Clinical at Medscheme. Cannon Asset Managers Jason Spilkin (7) joins Cannon Asset Managers from Stark Investments in London where he was an equity analyst on their European Long Short team. Prior to that, Jason worked at Kerzner International in Fort Lauderdale, but he has chosen to return to South Africa. Mutual & Federal Appoints New Chief Risk Officer Mutual & Federal, one of South Africa's leading short-term insurers appointed Paul Hancock (8), B.Com. B.Compt (Hons.), C.A. (S.A.),C.I.A., to the position of general manager: Risk - with effect from 1 January 2010. He formerly held the position of group manager: Risk Finance. Blue Ink Investments Aloysius Jacobs (9) has been appointed as a non-executive director on the Board of Directors of Blue Ink Investments - the Sanlamowned leading manager of fund of hedge funds in South Africa. Jacobs, who has also been nominated to par ticipate in Blue Ink's Investment Committee, is currently the Financial Manager of Ubuntu-Botho Investment Holdings (UBIH). STANLIB Following on from Liberty Holdings' recent appointment of Thabo Dloti as CEO of STANLIB,
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1
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3
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5
6
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9
11
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Sanlam 13 Sanlam Life Insurance Limited has appointed Sagie Nadasen (16) as its chief legal advisor. Nadasen joined Sanlam in 2001 as a legal advisor, and he took up his current position in January 2010. He is responsible for tending to legal and compliance related issues affecting the business of Sanlam Personal Finance (SPF).
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Old Mutual Craig Aitchison (17) has been appointed as Managing Director of Old Mutual Actuaries and Consultants (OMAC), effective from February 2010. Aitchison was previously responsible for the operational management and client service side of the OMAC business.
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the company has confirmed Stewart Rider (10) as its Chief Investment Officer. CIB Lisa Teixeira (11) has been appointed general manager of Personal Lines Underwriting at CIB Insurance Solutions. Teixeira has been in the insurance industry for the past 19 years, 15 of which have been in management positions. New CEO for Institute of Internal Auditors South Africa Dr Claudelle von Eck (12) takes over the reins from outgoing CEO Veronica du Preez at the Institute of Internal Auditors South Africa (IIA SA). Von Eck is well placed to assume this position, having worked with the organisation for over three years in the capacity of Chief Operating Officer (COO). New Board Appointments at Astute Astute, the financial services exchange used by advisers to integrate data from product providers when undertaking financial planning for clients, has announced the appointment of Riaan Dreyer (13) as non-executive director and Gustav Jenkins (14) as alternative nonexecutive director.
Iemas 10 Iemas (Co-operative) Limited has appointed a new Chief Executive Officer as Dries van Rooyen, after 17 years with the Co-operative, will be leaving Iemas at the end of March 2010 due to his retirement. Johan Nel (15) will assume the role of Chief Executive Officer of Iemas effective 1 April 2010.
TRAINING
On the Job training Provides Skills, Networks and Experience by Simangele Tshabalala, HR Head at Alexander Forbes Risk and Insurance Services a member of the FIA With all the hype, disappointment and anger greeting recent matric results focus has fallen on our failed schools system. Central to the discussion is the quality of classroom teaching. As such a discussion with Simangele Tshabalala, HR Head at Alexander Forbes Risk and Insurance Services provides a refreshing alternative to formal, classroom-based, instruction. Tshabalala argues that many of the rare skills and highly technical knowledge required in the insurance industry cannot be taught in a formal classroom situation. “These skills, and the lifetime of accumulated knowledge and networks that makes their delivery possible, need to be learned on the job through close association with people who have been delivering effectively for years” says Tshabalala. To this end Tshabalala has been instrumental in developing a combination of Learnerships and Internships leading to Graduate and even Stars programmes that allows Alexander Forbes to pass on and grow the vast repository of constantly evolving knowledge in its business. Learners are indentified and selected from schools across the country through an open public invitation process conducted through the media. The 34 learners in the current Learnership Programme will experience six months of classroom teaching combined with six months of on-the-job mentorship, leading to a NQ4 level qualification. “With all participants from previously disadvantaged backgrounds, and more than half women, our Learnerships also provide an opportunity to make the industry more representative while meeting our own transformation targets” adds Tshabalala. At the end of the one year Learnership programme approximately 20 of the learners will proceed to Internships at Alexander Forbes, 10 will go to university on a bursary and support scheme while four will leave Alexander Forbes. Tshabalala ads that “even those that leave find the Learnership year hugely empowering since Alexander Forbes’ reputation as the ‘university of insurance’ makes all our learners highly sought after in the market. Most are usually snapped up by our competitors, or even other industries. In this way our training programme makes a broader contribution to the industry and economy by spreading skills and creating opportunities beyond the business." The 12 month Internship Programme which follows the Learnership Programme, involves about 40 individuals, roughly 20 from the Learnership Programme and 20 from university in full time on-the-job technical training under the close supervision of a highly experienced and well-connected mentor. “Since so much of insurance is about relationships, the industry is impossible to penetrate unless you are introduced to knowledge networks by experienced, trusted and well connected practitioners” adds Tshabalala.
After the Internship participants often go directly on to Alexander Forbes’ Stars Programme, specific to Risk Services, where individuals who have shone in the Learnership and Internship phases are groomed for specific roles or identified for succession planning. Alternately, following an Internship, the two year Graduate Programme provides more shadowing of seasoned professionals or business leaders, with participants eventually advancing to managing their own big clients. Insurance is integral to every industry and sector of the economy. Providing hundreds of businesses, government departments, municipalities and other organisations with relevant advice and support requires an intimate knowledge of every industry and sector in our economy. That said, certain disciplines, like Marine and Aviation, for example, are so highly specialist that, even after a Graduate programme, they require a further five years or more working closely with in-house specialists. These skills can’t be acquired theoretically in a classroom and, in fact, only exist in a few individuals in the country. As such “our continuous learning philosophy allows Alexander Forbes to develop, retain and pass on rare skills that can’t be acquired elsewhere” adds Tshabalala. Alexander Forbes’ unique combination of Learnerships, Internships and Graduate and Star programmes offer a flexible and continuous learning stream providing participants with individual grooming, network development and experiential learning - all before they engage with clients. “Jurie Erwee, Chief Executive Officer for Alexander Forbes Risk and Insurance Services, participated in a Learnership programme more than twenty years ago demonstrating the history and proven track record of a process that has the capacity to take learners from the classroom to the boardroom” says Tshabalala. The hands-on, mentored process ensures that participants are not set up for failure. Instead, they gain practical knowledge along with genuine capacity - enabling participants, within a few shor t years, to deal credibly and competently with even the most sophisticated industries and businesses in South Africa. “This on-the-job and closely mentored skills development process allows Alexander Forbes to maintain and improve the quality and professionalism of our brand as an industry leader while transferring rare skills and networks” concludes Tshabalala.
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2 0 1 0 O P P O RT U N I T I E S
The 2010 FIFA World Cup™ is an opportunity to know your client by Gareth Stokes online editor for FA News In less than 80 days the 2010 FIFA World Cup ™ kicks off at the 89 000 seat Soccer City Stadium in Johannesburg. Although the tournament offers few direct opportunities to financial services intermediaries, you can generate new business by targeting ‘soccer’ entrepreneurs and the predicted 450 000 foreign visitors... Financial intermediaries should be asking their clients what they will be doing through the World Cup. The answers they receive will guide them on possible avenues to secure business. Short-term insurance intermediaries are probably best positioned to write new business as the event draws near. They can target the thousands of South African homeowners who hope to strike it rich by renting their homes to foreign visitors during June and July this year. The covers under short-term personal lines policies will have to be ‘change’ to reflect the risk. “The insured risk of your property and its contents changes if you open it to visitors who may not show due care to avoid damages,” says Mary Mlambo, Glenrand MIB’s national marketing manager for personal product solutions. Policyholders must therefore update their short-term insurance cover before concluding rental agreements. Short-term insurance brokers will have to accurately scope the risks involved and adjust premiums appropriately. Insurance giant Santam has some interesting ideas for pre-World Cup marketing. Based on how policyholders view the event they categorise them as entrepreneurs, escapists or enthusiasts. “Each category of policyholder presents brokers with an opportunity to add value and meet clients’ changing requirements during this once-in-a-lifetime sporting event,” says Edward Gibbens, executive head of broker distribution at Santam. Once the broker has identified the ‘type’ of client, selling product becomes much easier. Escapists (those who hope to avoid the event by taking offshore holidays) and enthusiasts (clients who want to follow the event locally) must make their house and assets as secure as possible. Opportunities exist to sell additional covers relevant to their respective travel pursuits. But the greatest opportunity comes from the so-called entrepreneur. Individuals who have decided to rent rooms in their primary residence for the duration of the will need additional (and specialised) insurance cover for them and their guests, particularly public liability cover. A general
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household contents policy is not sufficient for a budding Bed & Breakfast (B&B) operator. To accommodate this customer Santam offers limited cover for small B&B owners who previously did not qualify for insurance due to the size of their business. Cover is available for B&B’s with three or fewer bedrooms where the policyholder remains in the residence on a permanent basis. Entrepreneurs hoping to offer transport in their private vehicles have many obstacles to contend with. Apart from securing the necessary permits and licenses they will have to consider shor t-term insurance cover to provide death and disability covers in the event of accidents, whether on the road or elsewhere. Whether you specialise in short-term, life, healthcare or investment, your business thrives when you have frequent interaction with your clients. The World Cup is a fantastic talking point and provides a great opportunity to touch bases with your clients. In the worst case you simply confirm that your client’s financial services portfolio is up to date. In the best case you identify shortfalls in your client’s cover and write additional business to everyone’s benefit.
Policyholders must therefore update their short-term insurance cover before concluding rental agreements. Short-term insurance brokers will have to accurately scope the risks involved and adjust premiums appropriately.
www.sharemax.co.za
SNIPPETS Newly Appointed Chair of FIA Employee Benefits (EB) Exco Pieter heads up the Technical Department of Absa Consultants and Actuaries. He holds a BCom degree from the University of Potchefstroom, an Honours degree in Economics from Unisa and a LLB degree from the University of Pretoria. He also obtained his CFP and the Advanced Diploma in Financial Planning (specialising in retirement funds). Pieter spent some years at the Financial Services Board in the Pensions Department and has more than 20 years’ experience in the retirement fund industry. As a legal and technical adviser he is able to constantly keep abreast of the developments in the industry. Pieter is a member of various industry bodies and is actively involved in the industry for the last 10 years. He has also done various publications and assisted with publications regarding employer benefits. He is also a long time member of the Employee Benefit Exco and was elected as chairman in February 2010.
FIA Road Show: Golden Division The FIA initiated road shows on the regulatory exams are being finalised. These road shows will be presented in 20 cities and towns throughout South Africa. The FSB, INSETA and Moonstone, an authorized examination body, will inform attendees of their respective roles in the whole process and will ensure that all are fully informed on the matter. There is keen interest in these events and many of the venues are almost booked to capacity. Non-members will also be attending and we therefore urge members to book their seats early. Contact your divisional or branch secretary for more information. The first of these kicked off in Johannesburg at the Mosaiek Life Style Centre, and was very successfully hosted by the FIA Golden Division. This was a very informative exercise that our members benefited from with more than180 attendees. The audience were addressed by Charene Nortier of the FSB and Manager of FAIS, Hjalmar Bekker of Moonstone Examination Body and Jane Appasamy representing INSETA.
FIA Road Show Durban: A second very highly successful Road Show was held in Durban on Wednesday 17 March 2010 with an audience participation of over 250 people.
Continued on page 42
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BUDGETING
Financial Maturity I was recently listening to the radio, while on the way to dropping off my young water polo player Liam at school. It was Gareth Cliff on 5FM and he was busy interviewing Lindsay Williams, a good friend of mine and a great character in the financial broadcasting world, ex of Summit TV and now on Warwick Market Report (6:30pm on FMR 101.3 and www.bizcast.co.za). They discussed the recent budget and just what a “non” budget it was, but what was really funny was the chat about just how fat our average MP’s now are! We must be the only country where a successful budget is to do absolutely nothing and our fat cats really are fat! So what about the budget, yes I agree, what budget? The information as to what is going into a budget is actually available months in advance, via the minutes of the committees and the financial institutions are more than aware of this, or at least I hope they are? Days before we generally have a sense of its overall final shape and these days there are seldom any surprises, which given the current economic climate is probably a good thing. Over the coming year budgeting will become even more important to all South African’s and as we see other economies emerging from recession we may have to wait a little longer before we emerge. As with all economic cycles the first country in is often the first country out, and in the case of this global financial crisis, South Africa went in very late and may be the last train out of the tunnel. Our troubles may not appear to be as deep and damaging, but they may well last longer. What is also interesting to note is that the industries affected most by a particular crisis are obviously going to take longer to recover. Consequently, if a country is more dependent on the particular industry in collapse mode, than say their neighbour, then they are clearly going to be more deeply affected and take longer to recover. A clear example of this is the UK. With a vastly diminished manufacturing sector and a heavy reliance on financial services, some say as much as 40% of GDP, they were bound to be badly hur t by a banking and financial crisis. Germany and France, on the other hand, with only about half of the UK’s reliance on financial services, were always going to be less deeply affected and therefore able to get out of the official recessionary figures quicker.
by Ian Kilbride
general election, the UK’s woes may last years, especially if all cabinet decisions after the election are then made on the “playing fields of Eton!” On a lighter note it’s great to see that our new road systems coming on stream around all our cities. The World Cup has had a great impact on public work schemes and we should benefit from this spending for many years to come. As a nation we can only be immensely proud of all these projects, especially the Gautrain, even if as South African’s we mainly supplied the French / Swiss / Germans and Brits with the labour to assist them on the easier hits. But that does not matter; they are now our rails, tunnels and trains, because we bought them! I am reminded of an elderly chap years ago who when asked if that magnificent head of hair was his own? He replied, “of course it is, it took me years to pay it off!” We may be paying off for our stadiums, roads, tunnels and bridges for longer than that wig but you know what, it all looks great and it beats supplying another 1000 Mercedes S500’s for our socialist MP’s, just so that they can fit it at Conference with their youth league and communist mates! Actually that’s an idea, let’s give all MP’s a bus, taxi and rail pass and scrap the swanky cars, it will save us a for tune in fuel and insurance and they may get to see how their constituents actually live!
On a lighter note it’s great to see that our new road systems coming on stream around all our cities. The World Cup has had a great impact on public work schemes and we should benefit from this spending for many years to come.
The obvious has consequently happened and, with less capital capability that the US and the prospect of a hung parliament after the fast approaching
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R A’ s
Selling tax-breaks no longer enough in RA market – Absa Investments by Johan Gouws, an executive director at Absa Investments a member of the FIA
‘Selling tax-breaks’ is no longer enough in a retirement annuity (RA) market that is increasingly driven by a new generation of smart investors who demand more from their financial advisers.
The platform allows both lump sum payments and regular contributions. The size of monthly contributions can be varied or even halted for a period without penalty.
RA tax efficiency is a powerful “attention-getter”, but generic product features can’t guarantee a growing book of business in a competitive field, says Johan Gouws, an executive director at Absa Investments.
Asset allocations can be periodically re-aligned to meet changing objectives and investment horizons. Changes in risk appetite are easy to accommodate.
Absa Investments regards RAs and products to encourage timely retirement provision as an important growth market now that early withdrawal or transfer from traditional products is less onerous on consumers.
The AIMS platform allows for a transition approach to retirement planning. This capability enables clients to move from pre-retirement to actual retirement without the steep costs that sometimes faced retirees who exited an old-style pension fund and re-committed funds to an annuity.
Gouws adds: “Tax-breaks have become a ‘given’ for pre-retirees who also expect cost savings, flexibility, broad choice and the ability to control their own destiny at all stages of pre- and post-retirement.”
Investors also avoid the need to make significant adjustments to their investments strategies as they move into retirement and can better manage the risks relating to timing the market.
The good news for advisers, says Gouws, is that legislative change to cap penalties has prompted a review by potential investors. New business opportunities for linked RAs could therefore proliferate.
“Pre-planned transition means zero transaction fees and other cost savings,” says Gouws. “It’s just one of the smart solutions offered by Absa Investments.
He notes: “We don’t foresee a sudden boom as the norm is unfortunately still no or low savings towards retirement. Retirement provision often starts too late, but legislative change encourages a new generation of pre-retirees to take full advantage of increased scope for smart, flexible and costefficient planning. “Tax savings are crucial, but are common to all RAs. Further product benefits are needed to clinch the deal. “Linked product providers such as Absa Investment Management Services (AIMS) have already detected the new mood and have tracked an increase in transfers into its new-generation solutions.” AIMS anticipates continuing growth on the back of increasing consumer awareness. Broad choice is already proving a key product benefit. Those investing in retirement and living annuities on the AIMS platform can pick from the full range of funds offered by local asset managers. There is no initial administration fee. Ongoing admin fees are on a sliding scale governed by investment size.
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“The advantage of a more compelling retirement solution for advisers is that it encourages relationship-building, increased trust and a more satisfied client. “We believe these developments contribute to a major area of opportunity for the adviser.”
www.sentineltrust.co.za
SNIPPETS Continued from page 38
PROTEA Golf Day FIA Protea Branch Golf Day took place on the 13th October 2009 at CMR Golf Club. All members in the branch were invited, as well as guests from the Industry, Service providers and Management from FIA Head Office. PG Glass was the main Sponsor. All went well and every player contributed to the success of the day. During the dinner that was served, the Chairman, Phil Cooper, thanked everybody present and prizes were given to the winners of the day, which was Santam who walked away with the trophy. Lydia Cook from PG Glass thanked everybody for their participation and mentioned that it is a privilege to be the main sponsor of Protea Branch.
Boland
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The Boland year end function which was held on 7 and 8 November 2009 on a wine farm, Wederom in the Robertson valley. Photo 1: In the photo are from left to right Rachelle and Marius Potgieter, Riaan and Elna Geldenhuys and Surita and Drikus Hanekom. Photo 2: In this photo are Riaan Geldenhuys, Boland chairman and special guest Marius Potgieter. Marius served as Boland chairman on more than one occasion and left the industry in 2009. The branch wanted to honour his time with the IBC and FIA and presented a special gift of thanks to him at the year-end function.
Tygerberg Year End Function.
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1.Elise Hauptfleisch served on the Tygerberg committee for 8 years and has in the past few years done a lot of work on the Community Involvement portfolio, with Alwyn Bamberger looking on and Juanita Malherbe handing over the flowers. 2. Alwyn Bamberger & Tim Timmerman 3. Alwyn Bamberger & Salomi Steenkamp. 2
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SNIPPETS North Coast Year End Function 11 Dec 2009 Photo 1: Varsilla and Sagie Govender Photo 2: Candice & Mark Price and Mark and Tracey Louch Photo 3: North Coast first breakfast meeting on Wednesday 10th Feb 2010, sponsored by One Loyalty - Lifestyle and Assist Program, Anthony Kotton and Ryan Grill.
FIA West Rand Inaugural Meeting
North West Hannes van Wyk (Chairperson of FIA NW) won the International Tennis Federation Men’s Singles title for Super Seniors held at Rondebosch Cape Town from 6 – 10 March 2010. Beating the World Ranked Player Oscar Marino in the finals in 3 gruelling sets. Hannes is now the number one ranked men’s singles player in South Africa in his Age group and must be considered a sure choice for the National Team going to Turkey later this year. Hannes is also currently SA Men’s Single Badminton Champion of the Golden Eagles Division.
FUNERAL COVER
Funeral Cover vs. Life Cover The question of whether Funeral Cover is necessary if one has Life Insurance Cover is often asked. It has “almost” become generally accepted that as one becomes more “affluent” one progresses from “Funeral Cover” to taking out “Life Cover”. Although this may generally occur, this is indeed not necessarily correct – nor is it probably good advice. Those brokers who are “Life” brokers are aware of how long it may take a Life Assurer to actually pay out policy benefits - not because they are delaying , but rather because of the Policy requirements necessary before any benefits are payable. Generally no benefits will be payable within the 7 days of death of the Insured. This period of 7 days is probably the maximum period acceptable from the death of the Insured until their proposed burial (assuming no delays due to police investigations). Therefore, regardless of who you are, it is hoped that your spouse, or family, have immediate access to R10 000/R20 000 in order to pay for your funeral/cremation/burial (or possibly body repatriation from your place of death to your normal home town). Remember a medical aid looks after one until death occurs – thereafter mortuary fees are for your estates account (or in most cases your spouse/family). Therefore if you happen to die at a
by Adrian Hofman
venue away from your home, your spouse/family will be presented with firstly fees from the mortuary as well as fees for the transport of your body and you have not yet been buried! Funeral Cover, as a rule, will pay out benefits within 48hrs – quick enough to assist most families in arranging a funeral. The only possible restriction regarding this type of cover is that a “Funeral” policy is restricted to a maximum of R18 000 (for an adult) and for some clients this level of cover may not be adequate. One also has to remember that it is not the person who dies who has, or needs the cash available for the funeral costs, but rather the spouse, or family of the deceased/insured. When a death occurs, generally, the bank will ”freeze” the deceased bank account therefore blocking any possible funds available for the spouse or family - as such it is the spouse or family which needs the immediate funds. Funeral Cover provides this!
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A G R I C U LT U R A L I N S U R A N C E
Continued from page 8
In the past, insurance companies used assessment procedures developed
because with disaster relief there is no way of knowing how extensive the
in Europe or the United States to assess hail damage to crops. But Santam
damage will be and how it will happen,” he explains.
identified a need for assessment procedures based on South Africa’s unique climate, soil and cultivars.
Another big question is whether crop insurance products are accessible for the emerging farmer. Tobias Doyer, head of Santam Agriculture,
Crop insurance covers the quantitative and qualitative loss to crops. This
explains the products are no different from those aimed at the commercial
becomes important for crops such as fruit destined for the export market.
farmer. “Emerging farmers face the same risks as commercial farmers
As a result of hail damage, the fruit could have exterior blemishes and
and therefore the products are the same. The big challenge is to support
although it can still be sold at a lower price on local markets, it might no
these farmers in partnership with agribusiness and other institutions to
longer be suitable for the export market.
ensure that their management practices are in line with the requirements of the insurance policy,” Doyer says.
New trends are also emerging in the crop insurance market. Due to the rising cost of production in the agriculture sector and the diminishing
In crop insurance, the broker plays a crucial role in advising farmers on
securities of producers, the need for Multi Peril Crop Insurance (MPCI) in
their risk management programmes. Doyer foresees that their role will
South Africa has grown significantly. This product is designed for the
become even more important, given the increasing complexity of the
farmer and offers the growing crop as collateral when applying for a loan.
agricultural production environment. Santam Agriculture, which was
Cover is essentially based on the producer’s long-term average yield
formed when ARS merged with Santam about two years ago, is a
(LAY) on his total farming unit, of which a certain percentage is then
dedicated business unit focussed exclusively on the needs of farmers and
guaranteed.
the broker network supporting these farmers.
Schultz notes that South Africa is one of few countries in the world where
Brokers selling crop insurance have to receive mandatory training and
multi-peril insurance is available without government support. In Europe
accreditation on an annual basis, and Santam brokers regularly visit the
and USA, premiums are subsidised, and farmers only pay a portion of the
experimental farm to gain a holistic understanding of how crop insurance
full premium. Santam is initiating talks between insurers and government
works. Santam also has the biggest agricultural support team of any
to see if this is also possible in South Africa. “It will be more cost effective
insurer in South Africa. At the end of the day, it is all about providing
for government to subsidise insurance, than to give disaster relief,
certainty to the South African farmer.
BUILDING INSURANCE
The Cost of Replacement by Pravin Pather, Technical and Risk Specialist at Centriq Insurance If an unforeseen disaster such as a fire or flood were to damage or completely destroy your property, you would have to deal with the stress of rebuilding aside from the trauma the loss. If the building was bonded, you would also have to continue paying the instalments on an asset that no longer exists. “Owning a building, whether a home or commercial property, is one of the largest investments that can be made, which is why it is important that your building insurance adequately covers you in the event of the building being destroyed or damaged by fire, earthquake, flood and/or other insured events,” says Pravin Pather, technical and risk specialist at Centriq Insurance. Building insurance is required by law on any property that has been financed, although property owners can elect with whom the building is insured. Pather explains that building insurance covers damage or replacements to the actual building and all the fixtures and fittings therein and does not include contents within the building or business risks etc. “The importance of adequate building insurance,” says Pather, “is that there is a difference between the market value of the property, which includes the stand, its location, as well as the age and condition of the property, and the actual replacement cost of the building.” It generally covers the immovable structures on your property such as walls, roofs, satellite dishes, aerials, your swimming pool, gates and gate motors, underground pipes and cables). Buildings insurance usually provides cover for: • fire, explosion and earthquake • acts of nature such as wind, thunder, lightning, storm, hail, flood and snow • bursting and overflowing of geysers and water pipes • theft • lightning and thunderbolt impact • accidental damage to glass and sanitary ware • alterations and additions • fire brigade charges • subsidence, heave and land slip • temporary accommodation • liability to other people including domestic employees With today’s cost cutting measures featuring strongly in most businesses and households, every monthly payment and premium is being carefully scrutinised. But think again if you are considering cutting out or reducing your building insurance premiums. Pather notes that building insurance is one of the cheapest types of insurance around, costing approximately R20 per R100 000. Therefore Pather advises that property be insured for its true replacement value. This is because being over-insured means that you get the same benefit as you would for a lower premium. “It’s also not worth risking any shortfall to save on the monthly premium,” he says, “because if you are underinsured, the insurance payout will be less than the cost of rebuilding should disaster strike.” Pather also advises that homeowners remember to increase the value insured to cater for costs such as demolition and professional fees.
One factor that many property owners don’t take into account when it comes to their building insurance is building cost inflation. A recent report by Industry Insight, a company that provides relative information to the construction industry, states that with an 8% average increase in the cost of labour (as per CPI expectations), commodity price inflation of between 10% and 15%, diesel price inflation of between 20% and 30%, and mitigated by softer domestically produced material price increases, the overall input cost inflation - a measurement of material and labour costs in the building industry – is expected to increase by between 8% and 12% in 2010. Remember too that any improvements you have made to the property need to be accounted for in the building insurance, no matter whether it is a sectional title or full title property. Pather says your broker should be kept up-to-date with any renovations or additions or any items that increase the replacement value of your building. Pather also advises that if you are shopping around for building insurance quotes, an accurate valuation of the replacement cost of your building is vital. “The valuation serves as a basis from which future cost escalations, among others, are determined.” In addition, Pather says that if insurance companies are quoting on different valuation figures, premiums are bound to vary and you won’t be able to compare apples with apples, so to speak. Pather also advises that in some cases, additional items such as airconditioning units or solar heating panels may be best insured on an all-risk basis. Thatched roofs or wooden structures need individual attention, while a commercial or business insurance policy will be required for residential properties that operate as bed-and-breakfast establishments, or if a business is operated from the home. “Rather be safe than sorry,” says Pather. “If you are in doubt, check with your broker or insurance company if you should increase your cover,” he concludes.
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FA I S
The Adviser must Identify the Financial product or products that will be Appropriate Maintaining his trademark no-nonsense approach, the FAIS Ombud has once again ordered a broker who claimed the Ombud had no jurisdiction to hear the case to make good on a complainant's claim. The broker Willie Jordaan has had his fourth encounter with Charles Pillai the Ombud for Financial Services Providers, arising out of dubious investments made on his advice. Jordaan, a former employee of insurance giant Sanlam, had recommended to several clients that they invest in the now collapsed Fidentia Holdings and, as in this case, a bridging finance scheme.
"If schemes such as bridging finance and so-called investment clubs were to be allowed to be marketed by financial services providers (FSPs) on the basis that they fell outside of the FAIS Act, then it would frustrate the very purpose for which the FAIS Act was designed. "Unscrupulous financial advisors will continue to ensnare unwary investors who may then have no recourse against the provider concerned.
In the latest determination, Jordaan (whose Financial Services Provider licence has been withdrawn by the FSB) recommended to his client of 20 years that he should invest in a bridging finance scheme.
"It may be tempting for the FSP to market products that do not fall within the definition in the Act in the knowledge that they may not be called to account by this Office or the Financial Services Board for the financial service rendered in that regard.
The client, Wilhelm Julius Malan of East London, who had wanted to invest in either retail bonds or a two-year fixed deposit plan at Nedbank, was advised rather to invest in a bridging finance scheme.
"In the matter before me, the product bears all the hallmarks of a financial product, that is, an instrument marketed to the public as worthy of investing in to earn a profit or some benefit.
The scheme was managed by Auctum Capital (Pty) Ltd, the sole director of which was one Hermann Heydenrych who, according to the Ombud, was "the same individual who recruited investments for the now spectacularly failed Fidentia Group".
"To put it colloquially, if it looks like a duck, walks like a duck and squawks like a duck, then it must be a duck," the Ombud said.
An amount of R110 000 was invested in the scheme which subsequently collapsed causing Malan's total investment, including interest which was apparently reinvested, to be lost. In response to the complaint, Jordaan did not dispute that Malan was advised by him to invest in Auctum Capital. Instead he relied on the fact that because bridging finance was not a listed financial product as defined in the FAIS Act, he did not need to comply with the FAIS Act. Thus, so his defence went, the Ombud had no jurisdiction to hear the complaint.
He said his Office had been seized with several cases where intermediaries hid behind the fact that "this is not a financial product". Quoting extensively from a previous case in the matter of Nebbe vs Oosthuizen wherein a broker had invested her client in her own property company, the Ombud said: "As I said in the Nebbe determination, the Respondent in that matter was by the very nature of her work entrusted with the financial well-being of those who consult her. "In rendering financial services to her clients, Respondent would at all times have to ensure that complainant as a consumer of financial services is assured of the protection of his investment.
The bridging finance was ostensibly to be provided to estate agents who were owed commission by sellers of property. The commission would only be paid to the agents on registration of transfer of the property by the conveyancing attorneys.
"Thus any advice that she offers would have to be in the interests of the client and the integrity of the financial services industry. To do otherwise would immediately defeat the objectives of the FAIS Act.�
As property transfers usually take some time to be registered in the Deeds Registry Office and estate agents want immediate access to their commission, bridging finance is a means by which the agents are paid their commission (minus a discount) immediately.
The Ombud said in his ruling that Section 8(1) (c) of the Code provided that after seeking information about a client's financial position and conducting an analysis thereof, the adviser must "identify the financial product or products that will be appropriate (emphasis added) . . .".
The discounted amount accrued to the benefit of the person or entity providing the bridging finance, usually a bridging finance company.
"In other words the adviser is not to give advice on a product that is not a defined financial product.
Dealing with the crisp issue of whether or not he had jurisdiction to deal with the case given that bridging finance is strictly speaking not one of the financial products as defined, the Ombud said the matter did not simply end there.
"If he or she does, they are clearly acting in contravention of the FAIS Act and this Office is, in my view, duty bound to determine such a matter not on the basis whether it does or does not have jurisdiction but on the basis that the FSP is falling foul of the FAIS Act in recommending a product not defined in the Act."
In finding that Jordaan's conduct indeed fell within his remit, the Ombud said: "One may also look at general principles of interpretation where one of the issues one looks at in interpreting legislation is what mischief the particular piece of legislation was designed to prevent.
46
by Charles Pillai
The Ombud said on the basis of facts before him, Jordaan must be held liable for complainant's loss of R110 000.
The FIA's Awards Evening has become a prestigious, much anticipated annual occasion on the Insurance Industry's Calendar, to be held this year at Emperors Palace. The Highlight of the banquet will be the presentation of the Prestigiuos FIA Awards to Financial Service Providers judged by the members of the FIA for providing exceptional quality of products and service levels to FIA Members, and are highly regarded by the industry as a whole and set a benchmark of service excellence all strive to achieve. The Awards this year are in the following categories: 1. Long Term Insurer of the Year – Risk Products 2. Long Term Insurer of the Year – Recurring Savings Products 3. Investment Product Supplier of the Year 4. Health Care Product Supplier of the Year – open schemes only 5. Short-term Personal Lines Insurer of the Year 6. Short-Term Commercial Insurer of the Year 7. Short-Term Corporate Insurer of the Year 8. Employee Benefits Supplier of the Year (New Category) 9. Underwriting Managers of the Year (New Category).
Contact Miekie at the FIA on 012 665 0085 to book your table.
S H O R T- T E R M O M B U D
The Ombudsman for Short-Term Insurance Warns consumers about the Pitfalls of Travel Insurance by Brian Martin
The Ombudsman for Short-Term Insurance urges consumers to familiarise themselves with the terms and conditions of any travel insurance policy they may purchase before they travel and warns of the common pitfalls of travel insurance. “If you are being treated medically whilst overseas and think that your ailment could be seen as a pre-existing medical condition by your insurer, remember to obtain a full report from the doctor who has treated you before you leave the medical facility”, says Brian Martin, The Ombudsman for Short-Term Insurance. The Office recently dealt with a complaint where the insured had consulted a specialist in 2006 after she noticed a lump in one of her breasts. A mammogram and biopsy were carried out. The insured was advised that there was no evidence of cancer. In the early half of 2007 the insured took out a travel policy for a planned trip to Malawi. However shortly before her proposed departure the insured was diagnosed as suffering from breast cancer and her trip was cancelled. The insured filed a claim in terms of the travel policy but liability for the claim was declined by the insurer on the grounds that the insured suffered from a pre-existing condition which was excluded in terms of the policy. After appealing to the Ombudsman for assistance, the complaint was reviewed and the Ombudsman ruled that at the time the insured took out the policy, she
was not suffering from breast cancer and could not be seen to have a pre-existing condition. “Our opinion was that the insured was entitled to be indemnified as provided for by the policy and the insurer subsequently agreed to settle the insured’s claim. It is absolutely imperative that consumers scrutinise the wording of their policy in particular to the sections relating to pre-existing conditions, says Brian.” Should your personal effects be stolen whilst you are on holiday, remember to report the incident to the nearest or local police station wherever you are staying. A common complaint received by the Office is that once the insured has returned home, they have filed a claim for their stolen personal effects, only to have their claim rejected as they did not report the matter to the local police overseas. If you are taking out travel insurance check the age limitations stipulated in the policy to ensure that you qualify. Some insurers allow for additional top up cover to be purchased.
PENSIONS
Talks on Pension Sector Alignments in Africa by Shantha Padayachee African pension fund leaders gather in SA in April to explore a broad, joint agenda of co-operation and possible alignments on mutual challenges facing private pensions sectors. The African delegation, representing the Committee of Insurance, Securities and Non banking financial Authorities (CISNA), will meet, among others, the secretariat of the Financial Services Board (FSB) and will hold extensive talks with the Institute of Retirement Funds (IRF). Some of the issues under the pensions sector spotlight in Africa right now include possible harmonising of legislation, fostering liaison, facilitating the development of a cadre of professional regulators, the emergence of well informed investors and consumers in new, free market economies and adherence to sound corporate governance practices based on international best practice. IRF President Shantha Padayachee says this interaction with African pensions sector leaders follows the attendance of leading protagonists of the African pensions funds sector at last year’s IRF congress in Durban. “Contacts between Africa’s private pensions funds sector have been sporadic in the past. Also, other than in South Africa, the pensions sector is Government dominated, so that social security systems fall far short of needs for various, frequently controversial reasons” adds Padayachee. “However the private pensions sector in Africa is growing and will become a force to be reckoned with in future years. South Africa, on the other hand, has a long standing, robust, private pensions sector and arising out of the mutual challenges we face, the scene is now set for greater, formalised co-operation and alignment on pensions fund issues.” 48
One of the early priorities would be the establishment of platforms for information exchange and the formalisation of contact mechanisms. This groundswell on the pensions front is very much in keeping with the generalised continental integration which has seen South Africa playing a growing and significant role in sub-Saharan Africa in recent years and where alignments are evolving on many fronts she said. “It’s also in keeping with the emergence of an economic development agenda for Africa as a whole, including the Millennium Development Goals for the continent, the increasingly important role of Southern African Development Community (SADEC) and the African Union’s call for an integration agenda for the continent, comprising the four pillars of political, economic, social and cultural integration.” CISNA forms part of the trade, industry, finance and investment directorate of SADEC. The organisation consists of non banking financial institution authorities and providers of intermediary services in SADEC. Adds Padayachee: “Broadly, what we seek are better checks and balances, more interactions and greater consultation to further the evolution of the private pensions sector in Africa. “In this context, the Institute of Retirement Funds in South Africa, which represents numerous private pension funds, could play an important role in the evolution of a new, Pan African Pension Funds organisation but of course it’s early days.”
www.theinsuranceconference.co.za
LONG-TERM OMBUD
Ombudsman sees in Twenty Five years of Service to Consumers A quarter of a century ago, on 3 January 1985, the Ombudsman for Life Assurance scheme was launched. It was the first financial services ombudsman scheme to be founded in South Africa. Judge PJJ Wessels, a retired judge from the Appellate Division (now the Supreme Court of Appeal), took office as the first Ombudsman. The establishment of the scheme arose out of the realisation that consumers and the industry needed a method – outside the court system – to resolve disputes that they could not resolve between themselves. In the first year 31 insurers agreed to be bound by the rules of the scheme. The key elements of the scheme were: • • • • •
the ombudsman would be independent and would not take instruction from anyone regarding the exercise of this authority; the service would be free to complainants, and the industry would bear the costs of the scheme; the ombudsman could take considerations of equity into account; the process would be confidential; complainants would not lose their right to follow the court process if they were dissatisfied with the resolution;
•
there was no monetary limit on the complaints that fell within the jurisdiction. The institution of an ombudsman scheme as an out-of-court dispute resolution mechanism is now firmly established but was ground breaking at the time. Almost all financial services in South Africa now have an alternative dispute resolution scheme such as an ombudsman or adjudicator whether voluntary or statutory. The concept of an ombudsman has also spread to other industries as diverse as the motor industries and dental services. Worldwide the ombudsman concept is a growing trend. Our own scheme has grown and developed over the years (with a slight change of name). In the first year of operation 55 written complaints were received; in comparison, last year our office received 9 087 complaints. In line with schemes both locally and internationally our scheme is constantly improving and adapting to the needs of complainants and the industry. What has not changed is the emphasis on mediation and conciliation to settle disputes, although rulings (binding on insurers) can be made as a last resort. The tradition of appointing a retired judge as an ombudsman has also continued to the present.
HUMOUR
Laugh and the World Laughs with You Insurance
The Know it All
"Do you know the present value of your husband's policy?" the life-insurance salesman asked his client. "What do you mean?" countered the woman. "If you should lose your husband, what would you get?" The woman thought a minute then brightened up and said, "A poodle!"
A small town prosecuting attorney called his first witness to the stand in a trial--a grandmotherly, elderly woman. He approached her and asked, "Mrs. Jones, do you know me?"
Wake Up Call Bernard, who is noted for his gracious manners, was awakened one morning at four forty four a.m. by his ringing telephone. . "Your dog's barking, and it's keeping me awake," said an angry voice. Bernard thanked the caller and politely asked his name and number before hanging up. The next morning at precisely four forty four a.m., Bernard called his neighbor back. "Good morning, Mr. Williams.... Just called to say that I don't have a dog.”
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She responded, "Why, yes, I do know you Mr. Williams. I've known you since you were a young boy. And frankly, you've been a big disappointment to me. You lie, you cheat on your wife, you manipulate people and talk about them behind their backs. You think you're a rising big shot when you haven't the brains to realise you never will amount to anything more than a two-bit paper pusher. Yes, I know you." The lawyer was stunned. Not knowing what else to do he pointed across the room and asked, "Mrs. Williams, do you know the defence attorney?" She again replied, "Why, yes I do. I've known Mr. Bradley since he was a youngster, too. I used to baby-sit him for his parents. And he, too, has been a real disappointment to me. He's lazy, bigoted, he has a drinking problem. The man can't build a normal relationship with anyone and his law practice is one of the shoddiest in the entire state. Yes, I know him." At this point, the judge rapped the courtroom to silence and called both counsellors to the bench. In a very quiet voice, he said with menace, "If either of you asks her if she knows me, you'll be in jail for contempt within 5 minutes!"
WFII
WFII (World Federation of International Intermediaries) Annual Meeting – 14 – 19 MARCH 2010 Feedback Justus Van Pletzen & Seamus Casserly
THE WFII STRUCTURE WFII was established in 1999. Ten years after its creation, WFII is now recognized by all world leading and influential international bodies (OECD, IAIS, WTO, UN, World Bank, IMF) as the single voice of intermediaries in international Public Affairs. WFII has observer status in the OECD and the IAIS and is regularly consulted on current issues in the market. WFII works on the basis of principles and positions and, in its recent history, the structure has proven to be efficient and effective in the promotion and defence of our sector’s interests at an international institution level. The principles and positions of WFII are defined at the World Council meetings. In terms of regulatory standards and liberalization WFII has achieved a number of impressive structural results over the last years. Over the last 12 months WFII has again shown its solidity. The main objectives of the World Council and Executive CSE Committee meeting are: 1. To detect international trends in intermediary-related Public Affairs issues (by exchanging information on national issues). 2.
To give policy direction to WFII on current and future issues on the international Public Affairs agenda.
3.
To exchange information between participants.
The World Council and Executive CSE Committee are thus the policymakers of WFII and consequently the guide for many national associations around the world in structural Public Affairs issues. WFII allows also the exchange of information and the analysis of issues which are potential future drivers of change in the industry. Members of the WFII World Council and Executive CSE Committee come from all corners of the world and represent 5 continents. WFII has its permanent Secretariat in Brussels which coordinates the activities.
The chair of WFII is appointed yearly on a rotating basis (among the chapters). In 2009/2010 Ms. Elizabeth Francy Demaret (US- CIAB) Chaired WFII. Mr Luis Ros (Copaprose) was appointed Chairman for 2010/2011. Alessandro De Besi (BIPAR, Europe) was appointed incoming Chairman.
THE WFII EXECUTIVE CSE MEETING (14 MARCH 2010) The Executive CSE meeting was the first meeting which took place on Sunday 14/03/2010. The meeting was attended by some representatives from each of the five continents, Northern America, Copaprose (Latin America), Europe, Asia and Africa. The main purpose of the Executive CSE meeting is to prepare WFII policies, deal with membership issues and to determine the priorities and agenda for the year. The following two priorities were identified for 2010. 1. Interaction with the IAIS (International Association of Insurers Supervisors). The WFII is an observer member of the IAIS which gives the opportunity to attend their annual meetings. Seamus Casserly President of the FIA attended the meeting in October 2009 in Rio de Janeiro. This gives the intermediaries the opportunity to proactively respond to the regulatory discussions which have the potential of influencing intermediation globally. It is clear that the IAIS relies on the WFII on guidance with regard to intermediation in the insurance industry. This also applies to the South African environment. The next IAIS conference will take place in Dubai in October 2010. The WFII will again be represented at this meeting. 2. Multinational Placements. (See feedback at WFII) Seamus Casserly (President of the FIA) and Justin McGregor (President of IBAC Canada) were appointed as members of the Audit Committee. 51
WFII THE WORLD COUNCIL MEETING (14 TO 15 MARCH 2010)
• Liberalisation of the Industry
The 2010 annual WFII World Council and Executive CSE Committee meetings took place in Buenos Aires on 14 and 15 March 2010. The meeting coincided with the Copaprose Convention. (Intermediaries association for Latin American Countries).
• Multinational placements. In many markets, it is observed that there are issues which create doubts when placing business on a cross-border basis. The Chair of WFII’s multinational working party, Elizabeth Francy Demaret, presented the work plan of WFII. The working group will over the coming year continue to study issues related to multinational placements. For example, the tax aspects of a multinational placement.
The World Council meeting gathered participants from WFII members around the globe and provided an excellent forum for exchanging views and experiences, especially following the financial crisis. Guest speaker was Dr. Adel Mounir Rabeh deputy chairman of the Egyptian Financial Supervisory Authority, IAIS Executive Committee member and deputy Chairman of the IAIS Market Conduct Committee. During the meetings, issues of common interest were identified and discussed (Education of the Public, Multinational placements, Market Conduct, Liberalisation). At a “tour de table” the following issues were identified as being on the public affairs agenda of many associations: • The Financial Crisis and its effect on the insurance market. • New regulatory initiatives following the financial crisis such as: supervisory authority, that would work on conduct issues for intermediaries. • Market Conduct issues. The IAIS had set up a market conduct subcommittee, Chaired by Diane Colton from the Guernsey It was agreed that in 2010-2011 WFII was to focus on the IAIS insurance core principle (ICP) review and particular the one of intermediaries which lays down market conduct rules for intermediaries. It had already been announced at the IAIS annual conference of 2008 that the ICP review would be a priority for the IAIS in the coming few years. Nic De Maesschalck Director of BIPAR (Europe) and of WFII represented WFII on this IAIS subcommittee. The draft document ICP 24 on Insurance Intermediaries was discussed. The main concern was as to whether these should be referred to as principles or standards. Nic will take this up at the next meeting. Dr. Adel Mounir also undertook to take the matter up with the Conduct subcommittee. In his presentation at the Copaprose meeting Dr. Adel mentioned that he is willing to adopt the WFII document. He also pointed out his appreciation for the support and guidance the IAIS enjoys from WFII. The IAIS ICP Draft Principle 25 Code of Business was also discussed. • The World Council also identified the OECD’s work on financial education of the public and intermediaries as one of WFII’s key dossiers. • Microinsurance. It was emphasized that the growing importance of Microinsurance in many markets should be addressed by WFII on its agenda. Luis Ros presented the WFII position paper on Microinsurance which was accepted and adopted.
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COPAPROSE CONGRESS (16 TO 18 MARCH 2010) At the Copaprose congress a panel of 5 continents were given the opportunity to present views to the 1200 delegates on the following topics: Insurance Brokerage – General Context • • • • • • • • •
Presentation of the new WFII Chairman. Invited lecturer – Mr. Nic De Maesschalck (WFII Director) Panel: Current overview of the global insurance brokerage activity. Panellists: LATIN AMERICA: Mr. Luis Ros (WFII President) NORTH AMERICA: Ms. Elizabeth Demaret (Outgoing WFII President) EUROPA: Mr. Jaap Meijers (BIPAR Chairman) ASIA: Mr. Anthony Lim (CIBA President) AFRICA: Mr. Justus Van Pletzen (FIA COO)
In the following edition of the FIA Insight, there will be a detailed feedback from all the various continents pertaining to the following questions: 1. In the country or region that you represent, how is market competition evolving or changing (insurers, brokers, agents, banks, other operators) and what special challenges are agents and brokers facing? How are these challenges affecting the way intermediaries operate and is it creating a positive or negative tendency in their market-share? Have there been shifts in terms of added value services or business models? Are these changes affecting in different ways intermediary participation in private or commercial lines, or in Life and Non-life insurance? Do intermediaries in your region consider the Internet an opportunity or a threat? 2. The three biggest threats for intermediaries in the life insurance space are: 3. How has the World financial crisis of 2009 affected your market, and the business of intermediaries, and what is the outlook for 2010 and going forward? 4. What are the three main issues in the agenda of the trade organization that you represent and how are these issues affecting, or could be affecting, the daily business of intermediaries? 5. What are, in your opinion, the three main drivers that would positively influence the future success of intermediaries?
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