30 June 2019 | www.moneymarketing.co.za
@MMMagza
First for the professional personal financial adviser
WHAT’S INSIDE
YOUR JUNE ISSUE
FINANCIAL SERVICES COMPLIANCE: ARE YOU ON TRACK? MoneyMarketing's guide to investing offshore in volatile times
Page 11
It’s time to do a mid-year compliance check-up
Page 7
ELECTIONS 2019: WHERE TO FROM HERE? The results are seen as providing Ramaphosa with a mandate to continue his reform and anti-corruption drive
Page 24
Businesses increasingly exposed to liability risks
S
pecialist risk underwriter SHA released its second Annual Specialist Risk Review last month at a briefing in Johannesburg, revealing that businesses are becoming increasingly exposed to liability risks that have the potential to close them down. The Review contains first-hand insight into the cost and disruptive impact that human failure and error can have on a business. Loss incidents, the Review says, are attributable to what it calls “the declining Human Capital Risk Index (HCRI)”. In the South African context, the declining HCRI can be seen in incidents such as the corporate collapse and failures of the Steinhoff Group, the outbreak of listeriosis in the processed meat industry, as well as the failure of VBS bank and concerns over the external auditor (KPMG) audit sign-off processes. Other examples include the collapsed Johannesburg M1 pedestrian bridge while under construction during rush-hour traffic, as well as the ongoing operational and financial failures at Eskom. According to the Review, as losses resulting from the declining HCRI continue to rise in both
frequency and quantum, the challenges for insurers are becoming apparent. “Globally, capacity and appetite for the liability risk classes are diminishing at a rapid rate. Specialist underwriters are facing job losses, insurance premiums are climbing, and coverage is being curtailed. The risk pool diversification argument resulting in the underpricing of these risk classes has been exposed as the claims liability tail develops fully,” the Review states. It sounds a warning that action must be taken now to ensure a viable and sustainable insurance market that will provide ongoing innovative solutions to businesses well into the future. The Review finds that there are many reasons driving the declining HCRI locally, including declining educational and professional standards aimed at producing more graduates, as well as the mass exodus of highly skilled and experienced professionals from the country, coupled with an
increasingly complex business environment caused by multiple system independencies. And then there’s the human greed factor. Claims data SHA’s own claims data from the last five years shows the very definite link between the increasing liability risks across the board and the country’s flailing economy. The quantum and frequency of claims in professional indemnity, personal injury, and Directors and Officers insurance, have all increased as a result of the growing skills shortages, declining quality of graduates entering the market, lack of proper controls and risk management, and cost-cutting measures. In 2018, SHA paid a record R700m in claims. The Review finds that the average quantum of a liability claim has risen significantly in a relatively short space of time.
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Allan Gray is an authorised financial services provider.
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There’s no time like the future.
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