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contents June 2015

10 Inside

Germanwings airplane disaster

20 |

short term

20 / Eye in the sky: drone insurance waiting in the wings 24 / Insuring satellites: space junk, sun, and other risks 32 / Big fish in a shrinking pond 38 / SA: all the potential still there

50 |

medical

50 / Healthcare hustle: a tempting target for thieves 54 / The supported birth renaissance

60 |

long term

60 / Undercover pilots 68 / A unified attitude towards retirement risk 70 / There is no benefit in non-disclosure

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Eye in the sky

Spy Satellite 40798902

Spy vs spy

74 | managing risk 74 / Spy vs spy: South Africa’s secret satellite 80 / New risks in a changing industry

86 |

career

86 / Lessons from the PSG Conference 2015 90 / Digital Focus: interconnected benefits 98 / Feel the fear, and laugh anyway 102 / News 108 / Events

114 |

LIFESTYLE

114 / Camp Jabulani 120 / Don’t talk to strangers!

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Dearreader

’m bummed. Our RISKSA TV weekly episodes have been so well received (check out our Facebook page or RISKSA.COM website for links every Friday at 11:00) that when the opportunity arose to boost our collection of studio equipment with the addition of a state of the art drone, complete with gimbal mounted GoPro camera, a five satellite GPS with ‘home’ function (if signal is lost the drone flies itself back to you), and even 3D gamer-style glasses that connect wirelessly to the quadcopter and allows the operator a ‘pilot’s’ eye view of exactly what the drone sees from its eye-in-the-sky perspective, being the early adopter that I am, I jumped at the chance to buy it. (It came barely used in great condition and at a price that allowed me to get it past Nicky without too much argument.) So why am I bummed? Because now the ever-vacillating South African Civil Aviation Authority says that I can’t fly it. Even over my own property. Even if I’m not earning money from the flight or even if I’m just trying to find out how the damn thing works. Not until they've decided what the rules are. Read Anton Pretorius’ piece on specialist drone insurance inside this issue on page 20. While on things aeronautical the Germanwings flight 9525 pilot suicide left most of us shocked to the core. As the news broke in our newsroom we were all convinced that this was another dastardly terror attack. But as the facts began to unfold we learned that the co-pilot, one Andreas Lubitz, was a little depressed and so thought he would end it all by murdering his 150 passengers on the ill-fated flight. Is there anything left that is making sense in the world? On a recent flight back from George airport in the Western Cape I fell victim, for the first time, to ACSA’s new carry-on bag size and weight restrictions when after a spot check, my carry-on bag weighed in at a sliver under 10kgs. No amount of appealing could sway the determined airport employee, and so I travelled home with my precious cameras and electronics stashed between my various jacket pockets and my lap. Be warned, you might be next. We’re off to Tunisia next week for the big AIO conference. Be sure to check out our next issue for a full report. In the interim, I hope you enjoy this, our aviation issue, as much as we enjoyed creating it for you...

Inside

Germanwings

airplane disaster Sven Hugo

Another 150 dead in the latest in a spate of disasters for the aviation industry. Although the Germanwings tragedy has been classified by prosecutors a homicide rather than an accident, the slew of headlines over the last 15 months could leave anyone questioning the safety of the skies. 10

he human tragedy of these incidents is colossal and makes for heartwrenching and dramatic news. For airlines, knock on impacts are considerable, and the massive recovery and investigation efforts are just the beginning of a long journey to get back on track. RISKSA delves into the real state of risk in the aviation sector and unpacks how thorough coverage can mitigate the multiple impacts of such a loss.

Flight 4U9525 On 24 March 2015, first officer Andreas Lubitz and captain Patrick Sondheimer steered the nose of a Germanwings Airbus AB320200 northeast towards Düsseldorf, Germany, after departing from Barcelona in Spain. Germanwings Flight 4U9525 – carrying 144 passengers and six crewmembers – never made it across the French Alps. It crashed 100km northwest of Nice, killing all on board. Shock

permeated the media and headlines left the general public reeling from the news of another major loss following what seemed to be one of the worst years for aviation in decades. It wasn’t until investigators retrieved the data captured by the cockpit voice recorder and the flight data recorder, or the so-called black box from inside the plane, that baffling evidence emerged. It appeared that somewhere above the Alps one of the pilots manipulated the auto-pilot settings to put the plane into a steady descent to 100 feet with repeated accelerations in the last eight minutes before crashing at 6 000 feet above sea-level. In doing so, he was able to override the auto-security presets that would otherwise have sounded the excessive-speed alarm. A French prosecutor said this evidence, coupled with recordings on the voice recorder, confirms that Lubitz had locked captain Sondheimer from the cockpit and, while breathing easily as evidenced by the recording, proceeded with his plan. 

It is important to note that at present there are two ongoing investigations into the Germanwings crash: that of the French Investigation Bureau (BEA) investigating the immediate evidence of the accident, alongside a criminal investigation by the state, galvanised by the loss of human life. The notoriously secretive BEA is yet to release a final report while the French prosecutor has already publicly stated that Lubitz was directly responsible for the crash; a statement many experts criticised as being pre-emptive. The fact is, however, that another airplane has gone down after the aviation industry last year recorded the highest loss of life in aircraft crashes in three decades, as shown in a report released by the Air Transport Association (IATA). One could be forgiven for thinking that it is time to switch to boat travel but this statistic is misleading as the occurrence of accidents for airlines with IATA membership has actually steadily declined year on year from 0.89 accidents per million flights in 2009 to 0.12 in 2014. An aircraft disaster is, by nature, a highly dramatised event, and the sound statistics of the exponentially higher risk of being killed in a bicycle accident or being fatally struck

by lightning than in an airplane crash will not dampen the initial outcry. The Malaysian Airlines flight that went missing in the Pacific and a flight of the same airline that was shot down occurred within months of each other and still loom heavily. A disaster like this is traumatic, but it need not spell the end for the airline involved. Experts agree – and history has shown – that if an airline has a comprehensive insurance policy, and a crisis communication plan in place, it can mitigate and recover from a disaster of the magnitude such as the Germanwings crash.

The long road to payouts In a BEA report, Genesis of a Feedback System Based on Human Factors for the Prevention of Accidents in General Aviation, the bureau warns of the lengthy and intricate procedures that follow a plane crash. “In the realm of public air transport, technical investigations into accidents and serious incidents may become extremely complex, since organisations are highly structured, the parties involved are clearly identified, and procedures are standardised,” the report notes. The longtail nature of these investigations has a direct bearing on liability claims, and a crash of this magnitude involves the gamut of players in the insurance industry. James Godden, head of aviation at Santam, says claims involving aviation liability litigation can be particularly lengthy due to the individual terms of each passenger and

the varying time required for legal matters to run their course. “The complexity of an aviation claim will also add to the timeframe due to the fact that [input from] various experts will be needed,” Godden says. In a statement released by Allianz Global Corporate and Security (AGCS), a division of Allianz responsible for underwriting the Germanwings claim, the insurer says a preliminary reserve of approximately $300 billion was set up to cover all initial claims and costs, including compensation payments to the next of kin, accident support and investigation services of the crash, legal support, as well as the hull value of the aircraft. The liability for the hull is handled by a separate consortium of ‘hull war’ insurers. War-risk insurance covers loss or damages and liabilities arising from war liabilities, including hi-jacking or any unlawful seizure or wrongful exercise of control of the aircraft or crew in flight (including any attempt at such seizure or control) made by any person on board the aircraft acting without the consent of the insured. Dave Rintjes, director at Airspace Africa, a division of Natsure Insurance, says he believes the cover of the hull may be settled under AVS103, where the hull and war underwriters have agreed to each cover 50 per cent of the claim until the cause of the accident is legally determined. 

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An initial reserve is set up by aviation insurers and is likely to vary from this amount ($300 billion) pending an investigation. “The reserve figures will be adjusted as full information is confirmed, reflecting the compensation for all affected under these policies, which will be met fully and fairly in line with the applicable law,” AGCS says. “Every claim will be fully honoured on an individual basis. In such difficult circumstances, the process of fully analysing and assessing each case is likely to take some time. This is why Lufthansa Group, with support from its insurers, is offering an immediate interim payment of 50 000 EUR on behalf of Germanwings to next of kin to address immediate financial needs.” Understandably, Allianz is not able to provide the minutiae of the liability claim as investigations are currently at a sensitive stage. Rintjes says that there are still many missing pieces to the puzzle, and the final aspects

of liability are still to be determined. “We presume that the flight was carried out under The Montreal Convention (more formally known as the Convention for the Unification of Certain Rules for International Carriage by Air), a multilateral treaty adopted by a diplomatic meeting of International Civil Aviation Organisation (ICAO) member states in 1999,” he says. “It’s this Convention that will regulate compensation to the deceased passengers’ dependants.” Rintjes says each passenger’s legal liability will be determined following the outcome of the investigation into whether it is a war claim or not. “The passenger liability cover is underwritten in the aviation market both with regard to liabilities arising from accidental loss as well as liability losses that arise out of a deliberate act or omission (war liabilities),” he says. “Should this be deemed to have been a deliberate act, arguments will be put forward that may have a further impact on the application of the Montreal Convention, should it apply, with regard to the definition of wilful misconduct.”

Graham Speller, director at Dennis Jankelow and Associates, a leading aviation insurer in South Africa, explains that under the Montreal Convention a carrier is strictly liable – without proof of negligence – to the equivalent of 114 100 Special Drawing Rights (SDRs), a currency that consists of a ‘basket’ of currencies, as Speller explains, that include the euro, sterling, yen and US dollar. The SDR is currently valued at approximately $1.37 which translates to a strict liability sum of up to $156 000 per individual. However, in the event of demonstrable carrier negligence the applicable limit is no longer relevant, and the carrier is liable to a potentially unlimited sum per individual, says Speller. “Given the circumstances it is highly unlikely that Germanwings will try and defend claims on the grounds that it was in no way negligent or responsible for the actions of the employee.”

The €50 000 ($53 966) that Germanwings has paid to the next of kin has no bearing on the above liabilities as set out by the Montreal Convention and is an initial payment to deal with immediate financial responsibilities. If the court concludes that it was wilful misconduct on the part of Germanwings the next of kin of each passenger is liable to further claims from the insurer which is settled by individual legal proceedings. Speller says the insurance claims will invoke hull war risks for the destruction of the aircraft through an act of sabotage to the approximate value of $6 500 000, third-party liability for the ‘clean-up’ costs for which there is no estimate available at present, and passenger/cargo liability for claims arising from the death of passengers and destruction of baggage and cargo, for which the current industry estimate stands at $300 000 000. At present the Montreal Convention (also known as MC99) only applies to airlines in countries where the Convention has been ratified and countries such as Indonesia, the Philippines, Thailand and Vietnam have yet to sign up. Even a global superpower like Russia is yet to ratify the Convention. According to the IATA policy document, the global ratification of the Montreal Convention is top-priority. 

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Global Aviation Safety Study (2014)

25 Average lifespan of a commercial aircraft. 57

Percentage of accidents that occur during descent and landing.

Percentage of airplane crashes due to human error.

1 in 29 000 000 Chances of dying in a plane crash in the US and EU. 49

Survivability percentage in business class.

Survivability percentage in the rear cabin.

5.3 Aircraft per million fights lost in Africa in 2012 3.2 Aircraft per million flights lost worldwide. 6.83 Jet hull loss rate per million flights in Africa from 2009-2013. 0.58 Jett hull loss rate per million flights in the industry from 2009-2013.

“MC99 gives consumers better protection and compensation and facilitates faster air cargo shipments while airlines enjoy greater certainty about the rules affecting their liability,” the organisation says in a report. A major loss like this requires a huge amount of work for insurers, legal representatives and everyone involved in the placement of insurance, together with reinsurers and other parties in order to achieve an efficient and smooth settlement. It may take years to finalise, says Speller. “Depending on the circumstances, claims, especially those arising from death or serious injury, may take many years to finalise, particularly where minor dependents (children) are involved, since their right to claim may only become extinguished (by prescription) once they have reached adulthood.”

Ratings and the risk of long-tail One of the major risks facing a carrier in a long-tail claim is an insurer failing to pay or becoming insolvent before it has settled its liabilities, leaving the policyholder with the liability and no effective insurance coverage, says Speller. “This is why the selection of insurers is so important and why most insurance brokers and risk managers will require that coverage is effected only with insurers who have demonstrable financial security,” he says. “Ratings agencies such as Standard & Poor’s and AM Best specialise in analysing insurance companies and it applies these ratings to those insurers. It can provide a useful guide

16 8

to the relative financial strength of one Insurer compared with another,” says Speller.

Reputation fallout At the moment, there is no specialist consequential loss insurance for the aviation market that would cover business loss as a direct result of an accident, says Speller, but the best way for an airline to contain reputational damage is in the way it handles the disaster. “If it handles the situation carefully and professionally, the travelling public will usually ‘forgive’ fairly quickly,” he says. “Many airlines and major non-airline aviation operators will retain the services of emergency response consultants that specialise in handling the external aspects of an aviation disaster, be it dealing with the press, setting up call centres, arranging for identification and repatriation of mortal remains and so forth. These specialist companies will often be the difference between a substantial level of ‘reputational damage’ and an airline that is able to survive the consequences of a disaster and return to normal service and profitability within a relatively short period.”

Travel insurance When Germanwings Flight 4U9525 crashed, a flurry of actions were set in motion. The media reacted with expected headlines, the airline sympathetically replied and the investigation and insurance processes kicked into high gear. In the frenzy of activity and multiple priorities,

some of the underlying issues, such as repatriation, often fall by the wayside. Anriëth Symon, head of travel at Zurich Insurance in South Africa, says all of Zurich’s policies cover repatriation of the body as well as the logistical processes involved. Had there been any survivors, all of the insured’s needs would have been taken care of, says Symon. “If there are survivors, which is very rarely the case in accidents like these, the insured will be taken by ambulance to a hospital in contract with the insurance company. Employees from the company will liaise with medical personnel and family members of the insured and help with arranging return flights as soon as the passenger is fit to fly,” she says. “In case of death, death benefits included in the contract are paid out in full regardless of other policies under the insured’s name.” No specialist insurance is necessary as all policies include cover for accidents of this nature that fall under the same category as terrorist attacks. As with other liabilities, it may take some time to sort through the logistics of the claim. “In the case of death, we need to get finality from the pathology department in the country where the accident took place before we can proceed with repatriation arrangements,” says Symon. “Then we have to find a carrier that will agree to transport the remains, which some airlines or flight captains won’t easily agree to.” In cases like the Germanwings accident, the death benefits part of the claim would actually be easier to conclude as the cause of death is obvious, says Symon. “The company will pay out the moment it receives the necessary documents and the death certificate of the deceased.”

Managing public perception The pressures of an aviation disaster are manifold, says Linden Birns, a partner at BHK Consulting, specialists in crisis communication in the airline industry. The pace at which the public seeks answers is at odds with the pace of proceedings such as a criminal investigation or various legal processes, says Birns. “The public expectation is that an airline should have the answers instantly available,” he says. “If we can see things happen in real-time, we want the answers in real-time.” Even with the information at hand, airlines are often legally obliged to withhold that information due to legal and regulatory protocols. A responsible organisation with good leadership should firstly do its utmost to mitigate the traumatic experience for victims and families of the victims, says Birns. “What an airline can’t do is start speculating about the causes of the accident or offer one set of ideas in order to divert from another,” he says. “That’s illegal.” The organisation must identify gaps in the framework that led to the accident and try to ensure that it doesn’t happen again. 

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It is an ordeal for a company, but if the company and its employees have a solid and well-exercised crisis communication plan that is regularly updated, it can emerge with its reputation intact, says Birns. The trajectory of public and investor opinion is often reflected in the airline’s share price following an accident – if it’s a listed company of course. “You’ll see a dip in the share price immediately following news of an accident and depending on how they handle it, you’ll see the perceived value of the share price of the company fluctuate,” he says. “The share price is all about perception.” Birns says he’s not aware of any existing insurance policies that would cover potential business loss resulting from an airline accident. “Companies are, however, able to get discounted insurance if they pass the International Aviation Safety Assessments (IASA) safety audit.” One of the prerequisites of the bi-yearly audit is that an airline has a comprehensive emergency plan in place including a crisis communication plan; a plan Lufthansa seems to firmly have in place. A quick perusal of their site shows almost bi-daily press releases and updates almost every couple of

days. The airline offers flights and transport to and from Marseille near the crash site for next of kin of the deceased to pay their respects, and Thomas Winkelmann, Germanwings CEO, shares his condolences in a video on the site. Regarding remedial measures, Birns says that considerable political pressure is often applied to an airline in the event of a sensitive accident of this nature, as was evident with the introduction of the armoured doors in the cockpit that immediately followed 9/11. “Neither the manufacturer, airline nor pilot wanted the doors to be installed as it was going to create more problems than solutions, but the political opinion at the time was that the cockpit needs to be fortified to keep the bad guys out,” says Birns. The ‘bad guys’ should, however, be stopped at airport security, he says. “When they’re on the plane it’s too late.”

On local soil Comair, who operates under low-cost airline, Kulula, as well as British Airways, is in discussion with the South African Civil Aviation Authority

(SACAA) and other regulators about possible changes to safety procedures at the airline following the Germanwings incident. In the interim, the airline has introduced preliminary safety precautions. “Pilots will minimise their requirement to leave the flight deck as far as possible. If a cockpit crewmember does indeed require leaving the cockpit, a cabin attendant will move into the cockpit for the duration of the cockpit crewmember’s absence,” a statement from the airline says. Comair’s operations director, captain Martin Lowe, says pilots that fly with Comair receive adequate training and rest as well as undergo extensive psychometric assessments before they are employed. “Our pilots are trained to recognise and deal with abnormal behaviour on the flight deck and are encouraged to report abnormal behaviour immediately,” he says. “Pilots are monitored by their fleet management team to ensure mental fitness as far as possible.” The company also has a programme in place to support pilots in managing their emotional wellbeing. “In partnership with the Independent Counselling and Advisory Services (ICAS) which provides a 24 hour a day, 365 days a year personal support, the company invests in an employee-wellbeing programme to ensure its pilots, as well as its other employees, have access to the assistance and support they might need in managing their overall well-being, including their psychological and emotional wellbeing,” says Lowe.

Looking forward In its 2014 report, Allianz says that even though exposure or potential loss has increased by more than 50 per cent since 2000 due to an increase in flights, the improved safety environment is reflected in the premiums for aviation insurance, which were at their lowest prior to the increase in airplane losses in 2014. “Exposure’s increased from $576 billion in 2000 to $896 billion. This means that if exposure growth continues at the same rate, we can expect it to break through the $1 trillion barrier within the next five years and possibly even earlier,” the insurer says. Godden at Sanlam Aviation says the most recent crash will probably not have a massive impact on insurance premiums in the aviation market. “Despite some big claims of late there is still a great deal of insurance capacity available,” he says. Rintjes agrees and doesn’t foresee any impact on underwriting in the aviation industry. In the meantime, the safest and quickest way of travelling remains thousands of feet off the ground in a metal capsule hurtling along at hundreds of kilometres per hour. However unsafe that sounds, the odds of dying while riding a bicycle are 100 times greater than flying, odds that any betting man would back, especially if his life depended on it.

Eye in

the sky Drone insurance waiting in the wings

Anton Pretorius

Insurance for drones is still ‘up in the air,’ hinging on whether government will pass the aviation industry’s newly proposed regulations for Remotely Piloted Aircraft. However, authorities remain positive that the outcome will be favourable, meaning it’s clear skies up ahead for the commercial use and insurance of drones. But underwriting in the relatively ‘new’ field of unmanned aircraft systems can get complicated. RISKSA unpack the risks.

uring March, State Farm Insurance became the first insurer in the US to receive permission from the Federal Aviation Administration (FAA) to test drones for commercial use. Since then, the FAA has approved requests from financial services company United Services Automobile Association (USAA) and American International Group (AIG) to test the use of unmanned aerial vehicles (aka drones) for their business. Insurers in the US claim to apply the use of drones for assessing structural damage during the claims process or review insurance claims following natural disasters. By identifying human movement, flooded areas, damaged infrastructure or obstructed roads, drones have even proved to be a crucial tool for aid workers in the aftermath of the devastating earthquake that struck Nepal. Phil Fouche, underwriting director at Airspace Africa, a division of Natsure, says that even though there are currently insurance products waiting in the wings, Airspace Africa’s hands are tied pending the outcome of the proposed regulation currently under review by government. “We haven’t rolled out our drone insurance product yet for the simple reason that final regulation hasn’t been homologated yet. We understand that new proposed regulation is currently under review by the minister of transport, and the entire industry is waiting with baited breath as to the outcome and if it will be accepted into legislation,” says Fouche. He agrees that the market is rife with potential business for drones. “We know of several antipoaching units interested in drones and some who are already utilising them to combat poaching. And there are even talks of courier companies using drones to deliver your mail and parcels to your premises in the near future,” he says. “The product will be comprehensive insurance with a liability component attached to it. The risk will be underwritten on a standalone individual basis. There are many variables in this business, and we’re also still getting our heads around it. Drones come in various shapes and sizes with rules applying for each one. Unfortunately, we cannot offer anything to the market until the new regulation is finalised and implemented,” he says.

Fouche says that Airspace Africa underwrites on behalf of a syndicate of Lloyd’s of London and that there is a concept product already in place and ready to roll out. “I believe that even once the regulations have been published, it’s not going to be an automatic integration into the industry." He adds that it’ll be baby steps for everyone and that the industry has a bit of a learning curve ahead of it. “Those flying drones commercially will need to obtain an aerial operating certificate from the SACAA, which could take up to a few months.” “From a liability aspect, there are several risks associated with drones. There’s always the possibility of a drone causing a mid-air collision with an airliner, even though SACAA is confident that the safety regulations in the newly proposed legislation will help prevent this,” Fouche says. He adds that there has been a keen interest in drone insurance products. “We’ve had numerous requests. But drone operators are aware that of the fact that their hands are still tied until the new regulation is drafted. Drone pilots will also need to undergo some form of licensing process too, which might further delay the inception of this kind of operation,” he says.

Legislation status quo A few years back, our online media was abuzz with the topic of drones. It was alleged that the South African government banned the use of remotely piloted aircraft (RPA), subsequently pre-venting our lucrative film and agricultural industries from using drones. However, the story wasn’t exactly true. According to a press release issued by the South African Civil Aviation Authority (SACAA), there is currently no law allowing the use of drones beyond those established for recreational and sporting purposes. Therefore, anyone using drones for commercial purposes without a special license was breaking the law. In terms of existing regulation, the illegal operation of RPAs or drones could result in a R50 000 fine or 10 years imprisonment, or both. SACAA spokesperson Subash Devkaran says, “Currently, local aviation law prohibits the use of RPAs from operating in South African airspace.

RPAs do not yet comply with the existing civil aviation regulations. The regulation consists of several requirements, including the necessary registration documents of the aircraft and issuing a certificate of airworthiness.” But the good news is that SACAA has introduced specific regulations last year, which would allow the recreational and commercial use of drones. According to Devkaran, the new proposed draft regulation is currently under review by the South African Minister of Transport, Dipuo Peters, and awaiting approval. However, the Ministry of Transport could not be reach for comment at the time of print, and there is currently no indication as to when the regulation will be homologated. According to Devkaran, it’s still difficult to say when government will approve the regulation. “We’re confident that the response from the minister will be positive. We have developed a very specific set of regulations, which deals exclusively with the operation of RPAs. Once the regulations are approved, it’ll allow us to issue approval that’ll permit the operation of RPAs for commercial use,” Devkaran says. If these regulations are approved, it will be groundbreaking, not only for drones and RPAs, but also for the South African business sector. “It’s a very comprehensive set of legislation. It looks at all aspects of safety in operating an RPA. To get approval, you will need an RPA license and organisations would need an operating certificate. Of course, there will be restrictions like flying in adverse weather conditions, landing on roads or operating in controlled airspace,” he says.

Risks and benefits Devkaran says that there are tremendous economic benefits businesses could realise from

permitting RPAs in our airspace. “Farmers can effectively use drones for spraying pesticide and water over their crops. In South Africa, we have a water shortage, and better crops mean we can feed more people,” he says. He adds that drones are also effectively applied for a number of research and scientific applications, such as coastal research, and obtaining information on climate change. The legalisation of drones will certainly have a rippling effect on the aviation industry, whether positive or negative remains to be seen. “Given the low costs of operating an RPA compared to the more traditionally manned helicopter for power line and building inspection, mining, stock monitoring or even terrain mapping, we’ve found that it makes more economical sense. RPA can perform their operations more efficiently and economically than manned helicopters,” says Devkaran. However, realising these drone-related business opportunities, a multitude of insurance liability and coverage issues must be addressed, ranging from personal injury to aerial surveillance and invasion of privacy. “Watch as underwriters get much more specific. They will come up with standards and new policy wording and require that you do not be a negligent drone owner. If you consider getting a drone in the future, make sure you understand responsible drone ownership,” says Fouche. Some operate in airspace shared with other airliners. And some drones are capable of flying up to 90 000 feet (27 500m). “Now put this in the hands of someone who is unfamiliar with the risks, and it could result in a catastrophe with a commercial airliner. RPAs with petrol motors can crash and create a fire. It could result in the loss of innocent bystanders or members of the public,” says Devkaran.

Devkaran says that where the new regulation is effective is in the level of comprehensiveness. “We have developed a very unique classification scheme for RPAs that was well received by the Inter-national Civil Aviation Authority. What we know is that RPAs comes in all shapes and sizes, and the possibilities of the kind of technology being developed is endless. Combined with our existing regulations, we’d like to think that the classification scheme will ensure a very high level of safety and security,” Devkaran says. “The newly proposed draft regulation will also have several requirements. Firstly, you’ll need a certificate of registration for your RPA. You will need an RPA pilot license and RPA operating certifi-cate. In the latter, we’ll specify what kind of privileges you have and where you’re allowed to operate. You’ll also need an air service licence. Once you have all those approvals, you will be able to operate your RPA according to the privileges specified in your operating certificate,” Devkaran says. “Each RPA must be registered with the SACAA so that we can ensure control over this kind of aircraft. Instead of a ‘blanket exception that will allow any kind of specific operation, the SACAA draft regulation proposes that the authority will issue RPA operating certificates on a case-by-case basis based on the intended operation.

A case-by-case assessment According to Devkaran, there are various kinds of drone operators, each with a different set of risks. “You get those who use RPAs in very remote areas, performing agricultural operations, like inspecting crops over a large area of land. Compare that to someone who uses a drone over a CBD to perform building, pipeline or power line inspections. The risks are different in each case, and, therefore, the restrictions on the new regulations will be different,” Devkaran explains. He says that once the new regulation is implemented, the SACAA will be issuing RPA operating certificates on a case-by-case assessment, based on the intended operation. In the USA, for example, there is no fixed set of regulation, and approvals are granted on a case-to-case basis. Devkaran adds that the danger of the current legislation is that there is no consistency amongst applicants. The new regulatory framework will allow applicants to be treated equally provided they meet the necessary requirements,” he concludes.

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Insuring satellites: SPACE JUNK, SUN, AND OTHER RISKS

Luka Vracar

2 000 pieces of debris into orbit that continue to spread. While in 2010 and 2011 the crew of the ISS had to evacuate the station prior to near misses with large objects.

ritics fawned at the special effects of the 2013 film Gravity, which won best picture at the Academy Awards for its portrayal of two astronauts stuck in space after they were struck by space debris while repairing the Hubble Telescope. While fiction, the film illustrated one of the leading risks faced by satellites in Earth’s orbit: space junk.

The launch of Intelsat 1 in 1965, the very first commercial telecommunications satellite, was also the first satellite to ever have insurance. It was insured for risks on the ground. Now, with half a century worth of man-made debris in orbit, Earth’s orbit is a minefield and cover is needed more than ever.

After almost 60 years of space exploration, mankind has left behind a fair share of decommissioned satellites, space station parts, and other debris in the planet’s Low Earth Orbit (LEO), which is between 160km and 2 000km above earth. This ‘junk’ has been colliding for years, breaking into thousands of smaller shards, and travels at upwards of 10 kilometers per second. The kinetic energy of each piece is huge and increases with the object’s mass, making it a threat to anything in its path. It is such a threat to satellites and other spacecraft that the North American Aerospace Defense Command (NORAD), NASA and other space agencies catalogue and track all debris larger than 10cm, all 16 000 pieces, a number that increases with every collision. It is estimated that there are a minimum of 300 000 pieces that range between 1cm and 10cm. “The space debris situation has become irreversible,” said Thierry Colliot, managing director of SpaceCo, an Allianz subsidiary that provides insurance for satellites. “The population of objects is so high that it won’t decay on its own due to atmospheric drag. Instead, it’s actually increasing as objects collide and produce fragments, which in turn collide in a runaway chain called the Kessler Syndrome.” This is what happens in Gravity: a Russian missile strikes a decommissioned satellite and the resulting debris field destroys the Hubble telescope and an American space shuttle, when the, now much larger, debris field orbits the Earth once again, it destroys the International Space Station (ISS). This is also what happened in 2009 when a defunct Russian satellite, Kosmos 2251, collided with a working American commercial satellite. The impact destroyed both satellites, sending more than

An Allianz report, Space Risks: A new generation of challenges, states that to avoid collisions and or to mitigate their effects, there are various measures that can be employed. Currently, if a collision can be predicted long enough in advance, avoidance maneuvers are initiated. However, this is rare because the debris travels at extreme speeds and their trajectories cannot always be predicted reliably. The report also states that in the case of minor collisions, such as the weathering caused by the 35 million shards less than 1cm across, certain materials or impact absorption systems can protect satellites. Those satellites found higher in Geostationary Earth Orbit (GEO), which orbit higher than LEO satellites, are exposed to less risk, as there is less congestion. The Allianz report notes that there is an estimated 1 000 inactive and 300 active satellites in this part of space. “A collision risk arises if an operator loses control of a satellite or if a satellite is no longer controlled because it has reached the end of its life. In this case, its position naturally begins to drift due to the irregularities in Earth’s gravitational field combined with other perturbing forces, primarily solar winds and gravitational attraction of the sun and moon,” says Colliot. In order to prevent the continued build up of space debris, the report also proposes several ways to clean up orbit. The first is End-ofLife deorbiting: “Here, all satellites must be disposed of within 25 years of mission’s end. This is achieved by the destructive re-entry into Earth’s atmosphere. Most of the structure burns up, owing to drag and the intense heat that it generates.” However, it is not enough to merely ensure that new and future satellites are disposed of in this way. The Allianz report adds that approximately 10 major debris objects, selected on the basis of their mass, altitude and orbit inclination, need to be actively removed each year until the number of debris is reduced to safe levels. One of the more fantastic ideas to actively remove debris is by destroying it with the use of lasers.

Additional risks Solar flares from the sun produce geomagnetic storms (such as the Northern Lights), which can disrupt communication transmissions of satellites. While modern satellites are designed to withstand solar flares up to a certain point, about 40 satellites are believed to have suffered critical or catastrophic malfunctions as a direct result of geomagnetic storms. However, the report states that it is often difficult to attribute a problem to this type of radiation event, rather than to a flaw elsewhere in the system. “The risks associated with solar flares are closely monitored, since they could affect several satellites at the same time. However, the probability of a major solar flure erupting, such as the one in 1859, remains low,” says Colliot. Throughout their lifespan, satellites need to be able to withstand harsh environments, says Colliot. Modern satellites have to deal with conditions that include solar radiation, extreme temperature changes, pressure, and orbital drift. The report notes that the launch phase is perhaps one of the most dangerous times for a satellite because the carrier rockets that launch the satellite into orbit subject the satellite to huge variations in temperature and pressure. Not to mention the risks of an unsuccessful launch, i.e. the rockets exploding or failing shortly after lift-off. “Once in orbit, satellites and their internal subsystems are exposed to temperature extremes. Exposure to the sun varies and depends on the satellite’s orientation in reference to the sun. Also, the proximity of heat-sensitive components to satellite parts that generate high temperatures plays a critical role,” the report states. Satellites, particularly those in LEO, are exposed to perpetual expansion and contraction of the atmosphere, caused by temperature variation linked to the solar cycle, the report notes. During periods of the greatest solar activity, the atmosphere expands and reaches higher altitudes, which has a braking effect on the satellite and could push it off course – leading to a need of more fuel and complex maneuvers.

Insuring for the outer limits It is clear that space is not the vast vacuum that we perceive it to be, at least not in Earth’s orbit. Considering the technological level and the extensive financial effort that it takes to put a satellite into orbit and maintain its operation during its life span, insurance is essential. The costs involved, should anything happen, are immense. Not only is the loss quantified by the value of the satellite itself, but business interruption as well, particularly in situations of tremendous public attention, such as broadcasts of major sporting events,

interruptions such as these could prove financially and reputationally disastrous for TV broadcasters and communication services. According to the Allianz report, the average insured satellite in LEO has a value of $40 million and an operation lifespan of five years. In GEO, where most of the commercial telecom missions operate, the satellites are worth an average of $200 million and are in operation for up to 15 years.

detail, including the ability of its transponders to provide the necessary geographic coverage, its built-in redundancies to cope with component failures, and the various failure mode analyses. Should an incident occur that reduces the satellite’s operation capacity, insurance liability is assessed in proportion to the demonstrated level of loss,” the report states.

“When a contract is taken out, the satellite and the services it will deliver are studied in

Typically, satellites are insured against damage under ‘all risks except’ type of policies, and the insurance is divided into three parts, with each form of cover reflecting the various stages of a satellite’s life: pre-launch, launch, and in-orbit insurance.

Pre-launch insurance:

Launch insurance:

Munich Re Pre-launch insurance provides all-risks coverage while the satellite is being transported to the launch pad, while it is being attached to the launch vehicle (the rocket), as well as for the configurations and storage leading up to the launch itself. Allianz provides additional coverage during the manufacturing and testing phase prior to the transportation of the satellite – assembly, integration and test coverage (AIT).

The launch of a satellite is perhaps the riskiest stage. The rocket needs to propel the satellite at 11 kilometers a second in order to break away from Earth’s gravity and insert into orbit. Launch insurance covers this phase. Munich Re’s launch insurance also covers the satellite’s first year of operation. If the satellite is only partially operational, or if the service life is shortened as a result of the launch, it will be considered a partial loss.

In-orbit insurance: In-orbit insurance protects against the satellite’s complete or partial failure during its operational lifespan in orbit. According to Munich Re, the sum agreed upon at the start of the satellites life covers the total cost of manufacturing and launching a replacement satellite into orbit. However, Munich Re recently launched a new satellite cover they refer to as end-of-life insurance that begins with the launch and ends with end of the satellite’s service life, or after 15 years. What makes this cover different is that even if the satellite’s technical condition changes there will be no adjustments made to the conditions of insurance. Conversely, in-orbit insurance is typically renewed annually after the satellite’s technical condition is reassessed, and subsequent adjustments to the extent of the cover and price are made. As technology makes the mysteries of our solar system ever-more accessible, the sky is clearly not the limit for the scope and innovation possible for insurance offerings. According to Munich Re, it is critical for product providers to evolve with these new-world risks to ensure continued relevance and maximised opportunity into a far-changing future.

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

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

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

Working for a large aviation management company in Switzerland for four years, Sean Raath saw an opportunity when he noticed that many African insurance providers lacked the specialist knowledge required to place aviation cover.

Better is better Sarah Bassett

n 2010, SRM Aerospace was born, a specialist aviation insurance brokerage which facilitates the placement of aviation cover for general insurance brokers across the continent. “The opportunity was in providing the ability for general brokers and insurers to place aviation insurance, where previously they might not have had the expertise. We facilitate the placement for them.” Starting the company as a consultancy (SRM International) in Switzerland on his own, Raath returned to South Africa and launched SRM Aerospace. The business has gone from strength to strength since then, with a network of partners extending across the continent and significant premium growth, reaching over half the size of their biggest competitor on premium income in just four years. “We’ve been very lucky. Last year alone we grew 70 per cent on what was a fairly reasonable base.” The team now consists of six based in the Johannesburg office and three based overseas. “Roughly 75 per cent of our business is from outside of South Africa. We do a lot of business in Botswana, Kenya, Namibia and Tanzania and are now seeing good growth in North and West Africa,” Raath explains.

Crazy things to make it work Raath foresees opportunity in developing trust in wholesale broking on the continent – the heart of the SRM model. “There’s huge opportunity in that because we can deal with a few brokers and have access to many more clients than we would by going directly to clients. This model enables us to remain small and efficient but have access to a huge amount of premium income,” he explains. “The local broker often has a better relationship and knowledge of the client than we would be able to create in a few meetings. We can’t take a Tanzanian client out to dinner and lunch every single week, whereas they can.” Nonetheless, there’s no running the business from a desk in Johannesburg for this team. “We are in planes a lot. I travel every week – I’ll go to 3 different countries in a month, and things can change quickly day to day. I’ve started a day at 8am thinking I wasn’t travelling, and by 11am ended up in Windhoek. On one occasion, I waited for three days in Uganda to get to see one client for 20 minutes.” “If you’re going to take a big risk and start a business like this, you have to pull out all the stops and do some crazy things to make it work.” It seems this aspect of the business is unlikely to change anytime soon. As a specialist broker, Raath says it is unlikely that SRM will ever need local offices in countries. “As a business, a big challenge for us is just the sheer size and diversity of the African continent – each country has a different outlook and way of doing things, I cannot see how, as a niche provider we can better our network or manage the sheer diversity. South Africans for instance don’t always have a good name in some

countries. In other instances some markets are very brand conscious and like to deal with London brokers directly due to past history or culture. Trust levels vary, so each one is different and balancing this is key to success on the continent. The difficulty going forward will be maintaining the growth but still keeping the service levels and the interaction with our clients the same. That would be my biggest issue at the moment, to try and maintain the relationships and grow the business. African brokers and insurers don’t want to deal with five different people, particularly in aviation. They want to be able to give you something and you must ‘sort it out’. They don’t want to go to five different specialists. They want a solution to all their aviation problems and that’s what we have to provide if we want to maintain the relationship.”

A Swiss experience Raath began his career in South Africa in a long-term insurance brokerage, focusing on pilot-specific life insurance. He later bought out the brokerage with a vision to offer clients aircraft insurance, as well as life cover – enabling more regular client engagement and a fuller service offering. He later sold the business and moved to work in Switzerland in 2006. During his four years in Switzerland, Raath worked for a large aircraft fleet management company. Gaining invaluable experience and wide global connections, he then spent a couple of years consulting to major banks, handling repossessions and insurance of aircraft. He then returned to broking and it was here that he noticed the regular requests for aviation placement from other brokers – particularly African brokers and brokers from other high risk areas of the world. 

His time in the Swiss market enabled valuable exposure to the professionalism and formalised approach of the Swiss and other developed European markets as well as the chance to develop global relationships and networks. This coupled with his African market ability to think more creatively and make a plan to match whatever is required or whatever goes wrong makes for a powerful combination.

Clients, risks and placements In the majority, SRM’s clients are charter companies and general aviation operators doing regional flights with aircraft generally

ranging from five-seaters up to 30. There are some airline clients, with aircraft up to around 150 - 250 passengers kind of size, but this, says Raath, is currently not the business’s bread and butter – although they have seen robust growth in this area. From an insurance providers perspective, due to the size and diversity of the African continent, one of the greatest risks is that a small incident leads to a big loss, notes Raath. “You might have an aircraft in Equatorial Guinea with a damaged nose gear, which itself is not a huge loss, but the costs of retrieving it and getting it back to a place where it can be repaired is huge. This is probably an insurers biggest

“It’s got to be about the people. When it comes to delivery, bigger is not better – better is better.”

exposure – it’s very difficult to manage the cost. We’ve had aircraft written off for relatively small damage, simply because there is an inability to access maintenance facilities and repairers in that area.” Placements in the aviation market are diverse too, with only two or three reputable South African insurers accepting aviation business from the rest of the continent, so most of SRM’s business is placed in the London market. “A lot will go to the Lloyd’s market, but we’ve placed business as far as China and Russia. We’ve also placed business into the US, Middle East and Europe.

Possibilities for growth The aviation industry is under pressure, with low rates and excess capacity driving competition while clients battling for growth, even across Africa, in the South African market particularly, there is opportunity for consolidation – with the same few players having been in it for long periods of time, with a few new entrants in recent years, and one or two others having reached growth maturity, says Raath. “The bigger multinationals are buying up smaller brokerages and for me that just creates an opportunity – because the more they pursue that strategy, the more opportunity there is to differentiate. I think the industry is going to change substantially in the next five years – we know the consolidation will come – and if we just keep doing what we’re doing, doing things differently and bringing new ideas, we are well positioned for growth.” Raath remains open to the possibility that such growth could be helped along through consolidation for SRM too. “I always think that one and one is three – I’ve seen it at SRM already – I was doing it all on my own for a while and then brought one quality person on board and business grew exponentially. Every broker has something to offer otherwise SRM would have 100 per cent market share and vice versa. So you put the right two together and there’s no question that more opportunities are created – we’ve always been open to partnerships.”

A message to the risk manager Ultimately, says Raath, your broker partner is important. “It’s got to be about the people. When it comes to delivery, bigger is not better – better is better. Our clients can call at any time of the day or night – Saturdays, Sundays, it doesn’t matter – people often only notice the value of that personlised service when they don’t have it. We encourage our clients to talk to each other and share information because there is simply nothing to hide and if someone has bad feedback on us we take it on the chin and work to put it right.”

YOUR CLIENT’S CAR HAS BEEN PERSONALLY CUSTOMISED. WE’D LIKE TO DO THE SAME FOR THEIR INSURANCE.

We are delighted to announce that MUA will start underwriting on behalf of Auto & General Insurance from 1 April 2014. For more information on this exciting partnership, please contact Christelle Fourie at cfourie@mua.co.za. MUA Insurance Acceptances (Pty) Ltd is an authorised Financial Services Provider (FSP No. 37947) underwriting on behalf of Auto & General Insurance Company Limited, an authorised financial service provider (FSP No. 16354)

Big fish

in a shrinking pond Dominic Uys

There is no doubt that South Africa’s construction sector is not yielding many opportunities for industry players. But while growth has slowed, the industry is far from stagnant, and some areas may yet sustain the industry players and their insurers until the slump is over. 32

outh Africa’s construction sector has endured hard times for several years now. The global economic collapse in 2008 was a death knell for scores of international companies that had up to that point relied on opportunities in the first-world. Spain, Portugal, France, and even Germany saw an almost complete halt in industry growth. By rights, South Africa’s world-class construction industry players should have been threatened by the same dead stop in profitable work. Construction’s only saving grace at that point were the projects for the 2010 World Cup Soccer. This buffer, however, did not last long, and by 2010 the veterans like Stefanutti Stocks and Basil Read were forced to venture outside of South Africa to sustain themselves. The news wasn’t all bad, as one Botswanabased project manager notes, “We have so many new infrastructure projects in the country

at the moment, but until 2010 a lot of them just couldn’t get past tender phase. We would open a dam project or a road to tender, but none of the large South African contractors would be available. Now we usually have more applications than we bargained for.” It is hardly surprising since South Africa’s construction sector growth has become one of the lowest on the continent. Africa’s average sector growth at this stage is six per cent, while South Africa now dwindles at around one per cent. Still, Gauteng province has seen some sizeable developments of late, with the construction of the mixed-use residential and commercial hub, Steyn City in Johannesburg, and the establishment of the new Menlyn Maine Precinct in Pretoria to name but two. Urban renewal has also been a buzzword of late, with projects like Johannesburg’s inner city

renewal project and the ongoing Johannesburg General Hospital project grabbing a lot of media attention.

Opportunities to underwrite Right off the bat, Juan-Pierre Holmes, Africa head of engineering risk at Zurich dispels the notion that the well-publicised urban renewal schemes offer up too much in the way of opportunities. “We are involved in one or two urban renewal projects, but on a segregated basis. So we only insure some of the contractors who pick up a portion of the work. Our larger clients do participate in these kinds of projects, but it is mostly smaller types of work. We cover these clients through an annual construction portfolio. Under that we will pick up any contract up to R500 million. If,

on occasion the project is over R500 million, the contractor can get project-specific cover, which he declares separately. We do pick up some of that, but we haven’t seen as much opportunity to underwrite major participants in urban development projects,” he starts. As such, greenfield developments still offer up significant opportunities, and residential developments such as Waterfall Estate in the north of Johannesburg, or the aforementioned Steyn City have offered the country’s massive contractors chance to monopolise as much of the construction work on a single project as possible. One of the major risks with such projects relates to investment, according to Douw Steyn, developer of Steyn City. He contends that selling empty plots and unbuilt houses puts the contractor at risk of running out of steam as capital for the project trickles in.

Steyn opted to completely fund his project and then sell off the houses upon completion of the entire project, eliminating at least some of the project delivery risks. That said, not all developers have R50 billion to put down before the start of each construction phase.

New projects and new techniques Over the last five years there has been a major drive in the construction sector in South Africa to move towards more sustainable practices and construction materials. A case in point is the green star rated Nedbank Phase 2 in Sandton. Power- and water-saving technology installed in the building, for example, were estimated to be able to save up to 30 per cent on electricity costs and around 60 per cent on water. 

33 29

“One important thing, is that insurers are on the forefront of technology development, to ensure that if the engineering fraternity pushes the development frontier, the insurance industry is ready to quickly position itself and determine what is insurable and what isn’t. That is the beauty of having engineers in your insurance company,” Hansa says.

The Chinese connection Finally, a trend that has been the norm all throughout Africa has in recent years also become part of the South African construction scene. Over recent years, Chinese contractors have gained an increased foothold in the country, with a number of key projects already having been awarded.

That was not all, since the construction techniques on this building were also very different from the usual. Materials such as reinforcing steel needed to be sourced locally and be composed of a high percentage of recycled steel. Bricks and rubble were either recycled off-site or used in other applications on-site. And fly-ash was added to the concrete used on the project, in order to attain a 30 per cent reduction in cement use. However, all of these measures came at a price, as well as some increased risk to project delivery. Concrete containing higher levels of fly-ash can take up to 50 per cent longer to cure, and locally sourcing some materials sometimes, and counter-intuitively, tended to take longer. Difficulties notwithstanding, the Menlyn Maine precinct currently underway is also seeing many of its projects being constructed with these sustainable best practices. For one, contractors on-site are expected to incorporate the rubble from the houses that were demolished on the property, into the new buildings. The drive towards greener building may be noble, but one wonders whether the industry is opening itself up to unforeseen risks due to untested materials. Cas Hansa, MD of Continental Re’s Construction, Property, Engineering and Risk Services (CPERS) does not seem to think so. “The South African construction sector has produced quite a few world-class contractors and consultants, so the possibility of the sector adopting new practices or materials before all the risks are fully understood, are relatively slim,” he says.

34 8 4

“Certainly we have all been made aware of some building collapses here and there over the past few years, due to bad construction or lowgrade materials, but these are completely in the minority and construction in this country carries very low risk relative to most other areas,” Hansa continues. Krush Moodley, East and West Africa engineering risk manager for Munich Re notes that some of the most significant risks in South Africa, from an insurance perspective, are still contractor related. “There are instances where the client appoints a contractor that we wouldn’t necessarily advise. These are contractors who either have a poor track record where project delivery is concerned, or contractors that don’t have experience in the type of project or new construction technique that is being implemented. Where green building is concerned, especially, we would look at whether the contractor has the specialised skills to work with new materials within his company,” he says. “In those cases we tend to take contractor risk into our underwriting and we may make recommendations to the client. As a major participant in many of the large projects, our recommendations usually carry a lot of weight with the project financiers,” Moodley adds. “If the question is whether there are any major challenges that the construction sector and construction insurance companies face at the moment, I would say that once a project in South Africa makes it past feasibility phase, there is very little stopping a successful project from completion,” Hansa says.

Among these is Maboneng City in Gauteng, which follows the trademark method of a Chinese project in Africa. The financing for the development is being put forward by a Chinese bank, Chinese contractors are completing the project and steel and raw materials for the build has been sourced from China. Having gained a dubious reputation for poor work, Chinese contractors have experienced a lot of animosity from the rest of the sector. Moodley notes, however, that again, the risk varies from contractor to contractor. “We actually haven’t seen contractor risk go up or down based on the region that they are from. It is still very much up to the client to vet the individual contractor,” he says. Holmes points to a different risk for the insurer. “We had been called in to underwrite and consult on one of the Chinese run project taking place a while ago. As soon as our own consulting and underwriting process was completed, we found ourselves replaced by a Chinese insurance company, who went on to provide the cover for the project,” he says. As it stands, South Africa’s construction sector is still not expected to break the 1 per cent growth mark over the coming year. With international players now also encroaching on a severely truncated market, competition is heating up even more for contractors and insurers alike. Hansa reiterates that the insurance community’s priority is to stay ahead of the curve as far as knowledge and skills are concerned, and lastly, to wait. “When the insurance companies have developed themselves and their balance sheets, they will have the ability to meet the demands of the sector as the economy inevitably recovers over the coming years.

What do you mean by

â&#x20AC;&#x153;fullyâ&#x20AC;??

The amendments to the National Road Traffic Regulations for goods-in-transit, signed into law in January of this year, have had some mixed reactions from the industry. Recently Gerhard Diedericks, head of Santam Agriculture also weighed in, noting that the wording will have far-reaching consequences for the transport industry.

Dominic Uys

36 8 4

ne of the amendments that may cause more confusion than good is the requirement that goods-in-transit be fully insured. The regulations further stipulate that transport operators need to provide written evidence that both vehicles and goods to be transported on a public road are insured for all damages that can occur as the result of an incident. The insurance must be taken out either by the

consignor (the person dispatching the goods) or the consignee (the person receiving the goods). “If a transport operator cannot produce the required evidence of insurance, the consignor and consignee are obliged not to transport or accept goods respectively. However, it is not very clear what ‘fully insured’ means, since there are different risks involved with the transportation of goods,” Diedericks starts.

Unclear wording brings risk “For example, a road accident can cause damage to the carrying vehicle, the goods, road infrastructure, vehicles driven by other road users and pedestrians. An accident can give rise to indirect damages such as economic loss caused by the delay of the delivery of the cargo. The list is endless and not every possible loss can be insured,” Diedericks continues. “It is advisable to check with insurance providers what their standard policies cover, for instance, Santam’s Transport policy provides standard environmental impairment liability cover for goods-in-transit. This includes costs incurred by the policyholder for the cleanup and remedial procedures to remove or repair the effects of spillage or leakage of any substance carried on or by the insured vehicle, in the custody and control of the insured.” The largest insurance claim processed by Santam’s heavy commercial division in 2014 was for a hefty sum of over R1 million for goods only. Santam paid out a total of 1504 goodsin-transit related claims to the value of more than R54 million from January to December 2014. The type of goods that are typically insured by Santam in this category include any commodity type goods including household stock, perishables, livestock, hazardous goods, agricultural goods and equipment, vehicles, earth moving equipment, information technology products and industrial machinery. Peter Lamb, associate at Norton Rose Fulbright agrees that the wording of the regulations may cause problems. “It is probably too vague to be enforceable,” he starts. Lamb reiterates that an accident can give rise to an endless list of indirect damages, and not

every possible loss can be insured. “Carriers and consignors should procure the cover reasonably required of a carrier in the circumstances.” He advises that cargo owners have goods-in-transit (GIT) insurance in respect of their goods, and the carriers have carrier’s liability insurance and motor vehicle insurance. That said, the regulation does not distinguish which insurances the consignee or consignor are obliged to take in order to ‘fully cover’ the shipment in question.

Assigning responsibility for overloading Furthermore, the regulations now prohibit a consignee or consignor from concluding a contract with an operator if the vehicle is overloaded in terms of the National Roads Traffic Act. The consignor is obliged to keep a record of the mass of every load transported from his or her premises, which must be made available to a traffic officer if requested. A consignor is also obliged to keep a record of the mass of every load transported from his premises, which must be made available to any traffic officer upon demand. “These additional obligations that the Regulations impose on a consignor are breathtaking when one considers what facilities a consignor would need to have access to in order to comply with these obligations, for example, weighbridges and other mass measuring apparatuses,” Lamb comments. “Once again, it is not clear how a consignee would know whether the vehicle is loaded in accordance with the Act, or what additional steps the consignee would need to take to ensure compliance, presumably on the part of the operator, with the Act,” he continues. “The Regulations create a further anomaly and assume that the time of entering into the contract to transport the goods occurs at the same time the goods are loaded. In practice, these contracts may be entered into well before the goods are loaded onto the transporting vehicle.” Therefore, if the operator breaches contract by subsequently overloading the vehicle, the consignee may, according to the wording of the regulations, have no right of recourse against the operator. “Complying with all these new amendments may be challenging to road hauliers and consignors, especially when it is not clear who is responsible for what. Current agreements and policies may need to be revised to take into account their effects, and we recommend consulting a professional adviser to ensure that the appropriate cover is in place and to ensure compliance,” Diedericks concludes.

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SA: all the potential still there

The mood in South Africa is sombre. But this is the result of isolated, local conditions, and not the countryâ&#x20AC;&#x2122;s regional or global positions, which are both, in fact, favourable. This is according to Goldman Sachs International MD, Colin Coleman, giving the keynote address at the recent Frontier and Emerging Markets Forum, held by Frontier Advisory in Johannesburg.

Colin Coleman, Goldman Sachs International MD

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Sarah Bassett

ultiple geo-political and economic challenges mean that globally, this is a rough period for many emerging markets – leaving South Africa in a comparatively strong position on this macro scale. “India is really the only emerging market economy where expectations of growth are improving. China’s economy has decelerated; Latin America is at 0.5 per cent growth, and Brazil is receding by 6 per cent this year and is predicted to grow at 1.4 per cent next year. These economies make South Africa look quite healthy.” Goldman Sachs predicts better growth for the country than the Treasury’s 2 per cent projection if certain of the local constraints can be lifted. “South Africa should be growing at at least 3.5 per cent given its basic capacity, and if we just got the basics right we should be at 5 per cent. If we really excel and produce a perfect performance we would have capacity above that – more like 10 per cent, in my view,” said Coleman.

The global case for SA In the world of emerging market funds, Turkey is difficult right now because of local politics and its proximity to the Middle East. Russia is almost untouchable to investors due to the combination of sanctions and the political makeup and the impact that is having on investment. Brazil and Latin America are unattractive destinations for institutional investors in the short term. So, for global emerging market fund managers where do you look? “Well, the fact is, South Africa,” says Coleman. “Our local problems notwithstanding, South Africa has the deepest capital market in the region, and excellent market capital to GDP ratio, reflecting the liquidity and sophistication of the market – making our stock exchange a hugely useful and attractive instrument to investors.” He noted that part of the attraction was in the ability to access shares which provide a proxy to African growth – MTN, Shoprite, Standard Bank and the like – and that the strength of South Africa’s positioning rested on two phenomena:the scarcity of real growth available and the plentiful availability of well-managed and governed stocks. “When we look at South Africa right now, we actually occupy an interesting place in the world (and in a world that’s not actually in too bad a position) it’s not in a great position. The Eurozone is still struggling and the US too, although it is doing better. China is struggling but is doing well, and then there are places where the wheels have come off and the engines aren’t firing.” For South Africa, this is not the case says Coleman – but the country is slowed and stumped by ‘self-inflicted wounds’. He noted the strength and resilience of the well-run South African corporate sector as another area of favour in South Africa's global

Africa (NUMSA) members, 70 per cent of the COSATU members left are public sector workers, making the largest constituency of COSATU membership today effectively having the ANC as their employer – making for interesting wage negotiations in the coming seasons.” The unemployed population, at eight million, is critical to accommodate, noted Coleman. Seventy per cent are under the age of 35, and 50 per cent don’t have matric. The reality, he said, has been that on the historic 20-year view, unionised workers have received average increases at 3 per cent real return while non-unionised workers increases were flat. “Unions have done their job well and negotiated well for their members, but at the expense of employment – leading to a dramatic imbalance in the labour environment. Ultimately, South African business no longer has a reliable business union partner and that balance needs to be restored in order for us to have a better linkage between productivity and wages.” He suggests that a system offering a base salary and bonuses based on performance could be a solution to use to rectify this imbalance. positioning and investor appeal – along with the broader sub-Saharan Africa story, which is also critically important for the country. He noted Nigeria's recent success in their peaceful elections as a major win for the entire region, and not just Nigeria, as it served to reinforce the Africa Rising story. "The successful Nigerian elections are one of the most important events for South Africa recently."

Self-inflicted wounds On the topic of South Africa’s self-inflicted wounds, which slow and threaten the potential of the country tremendously, Coleman notes skewed labour balance, poorly run and underperforming state-owned enterprises and social unrest and conflict as the three critical culprits in urgent need of remedy.

Labour “The current labour situation and balance is skewed in a number of ways. At the macro view, the country has eight million people who are unemployed and 15 million people employed. Three million of the 15 are unionised – 2.2 of the three million are Congress of South African Trade Unions (COSATU) members, now facing major internal conflict and split, likely to leave the federation with around 1.6 to 1.7, with the possibility of further splits and losses. Without the National Union of Metalworkers of South

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State-owned enterprises The clear elephant in the room in this area is Eskom, of course. “The situation is now an unacceptable state of affairs for what was one of the best run electricity facilities around the world. The impact on finance, productivity, small business and so on is well-established.” He suggested that South Africa could learn a great deal from the strategies employed within the Chinese economy to create and maintain strong and efficient state-owned enterprises – noting that the Chinese Communist Party has been hugely successful in building a developmental state that has been nimble and flexible enough to incorporate capital markets, list state-owned enterprises and enable a distance between the political machinery and the boards and management of the state-owned enterprises and the balance of their ownership.

While the system is not perfect in all ways, he noted that it was a highly productive state – and that while businesses may not prefer a developmental state model, but the country can afford to have a developmental state that is functional, but cannot afford to have a developmental state that is corrupt and unproductive with infrastructure crumbling. That combination is lethal.

Social unease South Africa faces what seems to be growing social issues and unease – playing out in violence and xenophobia within the communities and showing through in a despondency and lack of faith in the country’s leadership. All of this serves to tarnish our internal confidence and external brand, but, says Coleman, these are self-inflicted wounds, and with this comes the possibility for change and internal transformation. “If we fix these problems, then we are in a good position – we need to get back to work and develop a ‘Team SA’ approach. I think we’ve become fixated on the need to change one person, the sense that we can’t do anything unless we change the one person who is running the country. But the fact is that this is not about one person, and these are not one person problems; this is about the people running Eskom, people running schools, hospitals and government administration. It’s about all sides getting their act together and getting back to work to put things right.”

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Bluespec Holdings and Auto Magic

join forces

RISKSA speaks to Hein Scheffer, CEO of Auto Magic, about how its new joint venture with Bluespec Holdings will expand both their national footprint and their service offering, with the purpose of facilitating quality-driven repairs for the insurance industry.

uto Magic, South Africa’s leading national auto-body repair franchise group with 34 franchise outlets and over 30 approved associate repairers, has joined forces with Bluespec Holdings, a supplier of comprehensive insurance procurement solutions. In existence since 2001, Bluespec Holdings’ expertise lies in auto-body repairs, vehicle accident management, salvage solutions, fleet logistics, integrated assistance services as well as motor dealerships.

where 2 500 vehicles are currently repaired each month. Renew-it group is the repair division for Bluespec Holdings. The partnership delivers considerable synergies between the groups including, but not limited to: procurement initiatives, technological advancements, service innovations, integrated insurance platforms and intellectual property, which once harvested, will place a new blueprint on the auto-body repair landscape in South Africa, according to Scheffer.

“With the joint venture, we are aiming at a total solution for the insurance company; assisting from the occurrence of the accident, to the towing and salvage yard, and finally to the panel shop and auction, even extending to car rentals. In other words, this partnership will enable us to offer the insurance industry a much more comprehensive solution,” says Hein Scheffer, CEO of Auto Magic.

“There is currently a global trend for insurers to outsource procurement platforms, with considerable cost benefits and efficiencies, and we are favourably positioned, from a group perspective, to provide such ‘pipeline services’ to insurers following these international trends and benchmarks,” he adds.

Auto Magic employs over 700 people and repairs in excess of 4 000 non-warranty vehicles every month. This partnership will complement their specialised offering with Renew-it group’s state-of-the-art manufacturer appointed facilities,

He elaborates further on the thinking behind the partnership. “We know that there are in the region of about 900 000 accidents per annum. When we started about 15 years ago, our mission in the market at the time was to repair drivable vehicles in

less than 10 days and we have exceeded this target through a franchise network, forming a national footprint. Of those 900 000 accident-damaged vehicles, 30 per cent are insured, offering a market potential of 270 000 vehicles per year – yet our current repair figures rest at 60 000 vehicles a year, offering us massive market potential,” he says. “Interestingly, the ratio of drivable to non-drivable vehicles was 50 per cent when we began operations. The belief at the time was that this was going to increase with improved roads, which indeed it has. In fact, it was been confirmed by various insurance companies that the drivable vehicle ratio is now about 70 per cent of all vehicles involved in an accident. Repairing drivable vehicles is really our target niche, and, therefore, this market potential keeps increasing for us as roads and vehicles become safer places for drivers”. “At the same time, there are still that 30 per cent of non-drivable vehicles after road accidents, and we do not want to exclude this portion of the market from our business model. Therefore, our partnership with Bluespec Holdings, which employs over 3 000 people across Gauteng and KwaZuluNatal, enables us to offer a full repair solution. The total group solution covers both structural and nonstructural and warranty and non-warranty repairs. With the advent of an aging car park, the potential for non-warranty vehicles with specific repair techniques and costing structures perfectly aligns our overall offering with market trends”. He adds that their franchise owner-managed store model allows them to easily grow their national footprint with the partnership. Additionally, their advanced IT systems allow them to monitor and track the progress of all car repairs thereby keeping a tight reign on quality control. Coupled with their large service-focused call centre, they are able to commit to a turnaround time of between five and 10 days for repairs. Both Auto Magic and Bluespect Holdings share a common vision to grow the respective groups exponentially, with the ultimate purpose of listing on the Johannesburg Stock Exchange.

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Self-driving vehicles and the effect on self-driving profit Sven Hugo

The mere thought of never having to drive again brings up so many imagined possibilities: having breakfast on the way to work, the end of drunken driving, or just switching off and sitting back while the computerised driver deals with traffic and other technical drivers. If Google’s progress with fully computerised and self-driving vehicles continues at the current pace, this might become a reality sooner rather than later.

he positive spin-offs of autonomous cars are too numerous to mention. Fewer cars on the road mean a greener environment and fewer accidents. Fewer cars in your driveway could mean fewer breakins and so on, but a decrease in risk means a significant decrease in insurance premiums and a resulting loss in profits. RISKSA looks at what the future of tech spells for the insurance industry.

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social and economic interests promoting the technological status quo.” The grandmaster of investment, Warren Buffet, says the undeniable reality of self-driving cars is a huge plus for society but not so much for the insurance industry. When recently asked how the introduction of these vehicles might affect Geico, the auto insurance company of which he is a subsidiary, his humorous response brought to light what may be a dark future for the auto insurance industry: “We would not be holding a party at our insurance company.”

It’s a given that with the advancement of technology comes great possibility, but from a tech evolutionary view, the old must make way for the new. Imagine what importers of ice to warmer climates had to go through with the advent of the freezer… Academics Carl Frey and Michael Osborne from Oxford recently published a paper,

The future of employment: how susceptible are jobs to computerisation?, in which they put it more eloquently: “Throughout history, the process of creative destruction, following technological inventions, has created enormous wealth, but also undesired disruptions. As stressed by Schumpeter, it was not the lack of inventive ideas that set the boundaries for economic development, but rather powerful

In an article by Mckinsey, A roadmap to the future for the auto industry, the management consulting firm contributes 90 per cent of all road accidents to human error and that self-driving vehicles controlled by a computer eliminates this danger, however, not completely. Regulators and technological issues will hamper the introduction of these autonomous vehicles and there will be many difficulties in the transition period where human and computerised drivers have to co-exist. “The technology, though, is no longer science-fiction.” Mckinsey says that auto insurance will still be necessary for catastrophe, theft and vandalism, but claims for highway accidents may completely disappear.

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A new M&A wave in insurance

A study by Swiss Re has indicated a recent rise in merger and acquisition (M&A) activity in the insurance industry. Melissa Wentzel

fter a sharp decline in 2009 following the global financial crisis, M&A activity in insurance has picked up in recent months fueling reports of an upswing. This is according to the Swiss Re sigma study, M&A in insurance: start of a new wave? Over the past quarter century there have been only two periods of heightened M&A activity in insurance; the first occurring in the late 1990s and the second in the mid-tolate 2000s subsequent to the 2008 financial crisis and the ensuing global economic downturn. This swinging between high and low levels of activity is referred to in the merger space as ‘waves’.

investor actions, and shifts in the business environment. The latter are structural and cyclical catalysts that gradually impact competitive conditions and, therefore, profitability as well, prompting firms to reallocate assets and improve efficiency. These include: • • • •

Changes in macroeconomic conditions, Changes in regulation, The emergence of new technology, The emergence of new distribution channels and substitute products, • Shifts in customer preferences, and • Changes in the cost and availability of capital.

The recent number of completed deals is pointing to a new wave in M&A activity. In 2014, there were 489 completed deals globally, compared to 674 in 2007.

The upswing has seen a concentrated increase in M&A activity in certain sectors such as specialty reinsurers and insurance intermediaries; as well as a focused intensity in emerging markets like Asia Pacific and Latin America.

Waves in M&A activity have been attributed to two broad origins: management and

Sub-Saharan Africa has become particularly attractive due to attractive market sizes

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(Nigeria and Kenya) as well as regulatory changes, the upgrading of solvency regimes, and high market fragmentation which provides ample scope for consolidation. New reporting systems in the region will likely further promulgate consolidation especially among small insurers. Success will be challenging as is evident with the mixed track record of M&A success in insurance, like other industries. “Those deals that seem to most consistently create value are ones where companies are from the same country and those that combine firms on different parts of the insurance value chain,” says Darren Pain, who co-authored the study. The managers of insurance companies have been put to task in mitigating the risks of achieving M&A success with reinsurance painted as the underutilised solution to help strengthen or relieve financial pressure on insurers both prior to and after a transaction.

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Government takes on

cyber crime

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The South African government is proposing a multilayered approach to tackling the mounting threat from cybercrime and other online threats. State Security Minister, David Mahlobo, said that cybersecurity is a top priority for the agency in 2015.

ccording to Candice Sutherland, who spoke to RISKSA’s sister publication RISKAFRICA, 84 per cent of African adults were victims of cybercrime in 2014 in one way or another. Globally, South Africa is rated third in terms of computer virus and malware crime capitals of the world. Speaking at the State Security Ministry’s Budget Vote for the 2015/16 financial year, Mahlobo said that laws and regulations concerning cybersecurity need to be evaluated for their influence on how people use or misuse electronic information. “To achieve integrity, securing our cyberspace must be accompanied by methods of monitoring and quickly detecting any security compromises; the ability to detect malicious activity and disable attempted intrusions automatically. Part of that process should be new forensics for finding and catching criminals who commit cybercrime or cyberterrorism,” said Mahlobo. The ministry proposed to tackle cyberthreats on multiple fronts. It plans to enhance the institutional cybersecurity capacity, finalise the national cybersecurity policy and legislation, present the cybersecurity Bill before Cabinet this year, prioritise the establishment of the Cyber Security Centre, and reposition the current Electronic Communications Security Computer Security Incident Response Team (ECSCSIRT) to become a government CSIRT. Mahlobo also said that the Ministry will strengthen cooperation in the space with its SADC, AU, and BRICS partners. The proposed Cyber Security Bill would define offences and impose penalties on the various types of cybercrime, and all additional online criminal activity. If the bill is enacted, it will relate the powers to investigate, search, access or seize equipment, documents and other items. This means that the bill will repeal or amend parts of the Electronic Communications and Transactions Act.

The response team would be chaired by the director-general of state security and be responsible for implementing the government’s newly established policy on cybersecurity by defining and prioritising problematic areas that need to be addressed, before coordinating and overseeing the other government structures named in the proposed bill. The ministry’s proposed Cyber Security Centre would be the central hub in charge of establishing measures to deal with cyber security threats on national security and coordinating cybersecurity incident responses. The centre would have to provide services such as timely alerts to breaches, as well as vulnerability and software, malware and intruder analysis. These services are essential, the ministry said, to help identify future vulnerabilities. “Working with universities and other research institutes like the CSIR to build the cybersecurity pipeline through competitive scholarships, fellowships, and internship programmes must be our preoccupation to attract top talent and develop systems that put command and control in our hands; national sovereignty,” said Mahlobo. Mahlobo added that South Africans must recognise that the cybersecurity system’s success depends on understanding the safety of the whole system, not merely protecting its individual parts: “Consequently cybercrime and cyberterrorism must be fought on the personal, social, and political fronts as well as the electronic front.”

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Health care hustle a tempting target for thieves Anton Pretorius

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In March, sister publication RISKAFRICA Magazine, reported that healthcare data is up to 20 times more valuable on the black market than credit card data. Comprising of bigticket patient information, which can ultimately be used for identity theft and fraud, cybercrime among ‘unprotected’ healthcare devices are crippling the system.

onas Thulin, security consultant and major accounts manager at Fortinet Africa, says around 80 per cent of online risks in South Africa are driven by cybercrime. “If I ask the question: what are you most worried about when using the Internet? Most people will say that sharing credit card and banking details online is the biggest concern.” After investigating the scope of online banking fraud in South Africa, Thulin was hard-pressed to find any accurate statistics. “The banks don’t publish it,” he says. “When fraud is committed, banks usually cover the losses quickly to keep the public from running to the press,” he adds. Thulin refers to the South African Banking Risk Information Centre (SABRIC)’s national overview of card fraud report (2006 – 2014), which showed that online banking fraud increased from R178.7 million in 2013 to R191.7 million in 2014. But Thulin says that is only the tip of the iceberg. This 42 per cent increase in 2014 is classified as CNP (card not present). “This could include card skimming or fraudulent transactions conducted over the telephone. So this isn’t a true or accurate indication of the current scope of online fraud in South Africa,” says Thulin. According to SABRIC, the gross fraud losses due to fraud perpetrated with South African issued credit cards increased by 23 per cent in 2014 (R453.9 million). “So the size of online banking fraud and cyber crime in South Africa could still even be higher,” Thulin adds. “However, if I was in the business of cybercrime, I’ll be looking at healthcare,” says Thulin. According to statistics shared at the Board of Healthcare Funders conference on fraud, international data suggests that losses to healthcare fraud and abuse may account for between three and 15 per cent of claims paid. In 2012, the Centres of Medicare and Medicaid Services (CMS) in the US estimated that fraud added as much as $98 billion, or roughly 10 per cent, to annual Medicare and Medicaid spending – and up to $272 billion across the entire health system. Thulin says that globally, there’s an increased activity in organised cybercrime. “Like any company, these cybercrime organisations recruit people that work up to 40 hours a week. “They’ve got offices, they do the research and they’ve got budgets and targets to meet. Some specialise

in finding vulnerabilities in security systems or monetising credit cards and they’re constantly looking for new markets,” Thulin adds. He stresses that most security systems in the healthcare industry are totally unprotected. “Cybercriminals need a real person’s personal details to commit fraud. And that’s why your personal details now becomes a valuable commodity – whether cybercriminals want to steal it, convert it into currency and sell it to another party or to become part of a bigger scheme or fraud syndicate,” he says. “It has become too easy. Doctors hardly ever ask for identification. When I call up my doctor to ask for my medical information, he’ll give it to me without asking any security questions. Banks perform massive security checks, but this is not the norm in the healthcare industry,” Thulin explains.

You snooze, you lose Perry Hutton, regional director at Fortinet Africa, says that it takes far longer for patients to realise that their information has been accessed. “It can take up to a year or more for someone to realise their patient data has been compromised. Comprehensive patient information is then used for identity theft and fraud,” he says. “Unlike stolen credit cards, where algorithms in the financial industry detect unusual activity very quickly and systems often automatically provide protection, “these same protections simply don’t exist in healthcare,” Hutton adds. Advancing technology results in the networking of essential health devices, everything from heart monitors to infusion pumps can have connectivity now. “While this is a good thing from the perspectives of patient care and operational efficiency, this poses a serious risk to security as connectivity provides a target surface,” he explains. According to Thulin, most of these devices, including MRI machines, CT scanners and countless other diagnostic machines were never designed with security in mind. “Many diagnostic systems use off-the-shelf operating systems like Microsoft Windows while other devices use purpose-built software designed to collect data – not keep it safe.” He continues, “Too many of these devices are eminently hackable and, once compromised, can provide hackers with unfettered access to the clinical data systems within which they interface.” 

“ However, if I was in the business of cybercrime, I’ll be looking at healthcare. ”

Ryno Ellis, from Stata Healthcare’s internal audit and forensic management team, says that this kind of cybercrime activity is not exclusive to wearable health technology only. “Cybercriminals target all clinical and other data of patients, regardless of how the data is generated or where it is stored. Wearable health technology is just one of many areas where information about a patient can be obtained. I don’t think wearable technology data on its own will be of much value to cybercriminals.” Ellis agrees that healthcare data is a valuable commodity for cybercriminals. “Medical schemes pay thousands of rands to patients and medical practitioners or hospitals, and cybercriminals want access to these payments, or they want to make false representations to medical schemes about being a patient or a medical practitioner in order to gain unlawful payments in the future.”

Medical aid’s responsibility Medical machines like MRI scanners and X-ray machines are becoming more and more connected. Thulin believes that from a security point of view, medical aids and providers need to follow industry best practices, implement firewalls, intrusion protection and better security policies. “Many providers still use outdated operating systems and cyber criminals often target these weaker systems,” Thulin says. “As a fully-fledged enterprise, Discovery Health has a high level security system in place. But I feel that companies like Discovery Health should have a bigger responsibility as to how IT

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and security systems are implemented with their providers. I feel that it will also provide a better incentive for potential policyholders to join medical aids,” he says. He says healthcare cybercrime holds a shopping list of risks for patients and medical aids. “For the individual, the biggest concern is identity theft. Before you know it, you’re defrauded, and you could see your daughter married to a Nigerian or all your medical savings exhausted,” Thulin says. But it’s not just patient data that’s vulnerable through connected devices. “Cyberterrorists could potentially manipulate machines to intentionally harm patients or shut down critical systems in hospitals. As early as 2011, one researcher demonstrated how an insulin pump could be hacked to deliver a lethal dose of insulin,” Hutton explains. He warns that the threat to healthcare data is not only faced by hospitals and clinics, but personal health devices such as wearables and mobile devices are also prime targets, as these devices collect and transmit patient information all the time, and usually fail to adequately protect it. Additionally, they often interface directly with other devices, clinical data systems and electronic health records. “As these devices are designed for convenience and functionality rather than security, and since anything from mobile phone app to a home glucose monitor can be a target, it shows how badly exposed healthcare institutions are,” says Hutton.

“The healthcare security should not be addressed when medical records are breached. The time is now. The healthcare industry as a whole needs to be proactive. The stakes are simply too high to wait,” Thulin comments. He indicates that malware, fitting schemes, trojans and ransomware are all traditional types of attacks that happen to all institutions, but adds that the healthcare industry is particularly vulnerable because it lacks the built-in protections and security awareness of other industries. “These attacks aren’t terribly new, but their sophistication is and the ability to expose patient data is of real concern cybercriminals have developed entire malware platforms that can be customised to attack healthcare organisations,” says Hutton. “Nothing today tells me that the healthcare industry is well-protected. As healthcare cybercrime increases, the more providers are squeezed. From a legal point of view, it would seem that providers are the ones who’ll be left with the monkey,” Thulin says. Ellis says that fraud leads to financial losses for medical schemes, which in turn require increases in monthly subscription fees for members or a reduction in their benefits. “Information technology protection measures such as firewalls and access control procedures are in place to prevent theft of data from our computer systems. At Strata, we follow strict processes when it comes to paying benefits to members or medical practitioners.”

The

supported

birth renaissance

Frances Bailey

Doula is originally a Greek word, now interpreted to mean a â&#x20AC;&#x2DC;woman who helps womenâ&#x20AC;&#x2122;. Also known locally as childbirth companions, these women are non-medical professionals who offer ongoing support, shown to facilitate the likelihood of enabling natural birth and reducing complications. Two medical aids in South Africa currently offer some cover for this service, and Women Offering Mothers Birth Support (WOMBS) are campaigning for Discovery Health to get on board too, and thereby encourage more medical aids to follow. 54 2 8

A woman’s right to choose “Today, in most hospitals, although family members are welcome during labour and birth, ‘support’ of laboring mothers is usually left to the nurses. Due to the high incidence of short staffing, endless amount of charting, and continuous monitoring required by the nurses, little time is left for tending to the mother’s emotional, spiritual, and physical needs. This, combined with many mothers’ concern over the high rate of interventions (delivery via forceps, vacuum extraction or C-section), has resulted in some women choosing to give birth with the assistance of a professional support person or doula,” according to American registered labour nurse Karla Papagni and nursing associate professor, Ellen Buckner, in their qualitative research paper on the complementary roles of doulas and nurses. Irene Bourquin, South African perinatal educator and author of a popular pregnancy, birth and early parenting book, explains that this is a very professional industry, particularly for WOMBStrained doulas: “A doula provides non-medical, continuous, uninterrupted emotional and physical support to the woman and her partner for the duration of labour and birth. This care takes the form of comfort, reassurance, information, natural pain relief methods and gentle touch and can be available before, during and after birth.” In South Africa, support during labour and birth also falls largely on the shoulders of the medical fraternity. Yet, especially in public hospitals, these medical resources are thinly stretched. “Women should never be on their own in labour and this is where the doula plays a valuable role,” says Bourquin. However, while staff are reportedly open to the idea, hospital protocols and practicalities do not always allow for the presence of a doula. “Staff at maternity hospitals and units in the public sector are generally very pleased to have volunteer doulas supporting patients in labour and giving birth. However, in most cases, only one birth companion is allowed with a patient and this is understandable to a certain extent because often there simply isn’t enough space,” says Judy Tobler, a WOMBS-certified doula birth companion.

ISKSA refers to a number of authorities within the doula community, the medical fraternity and the medical aid industry to help medical aids and brokers decide for themselves whether covering the services of a doula will be beneficial, particularly in light of South Africa’s high rate of costly caesarean sections (C-sections).

When we asked Dr Ameera Adam at Mediclinic Constantiaberg to confirm if the private sector faces the same challenge in this regard, she said this is not the case in their hospital because they are very fortunate with their facilities: “In fact, we encourage the presence of doulas in our labour ward – we have the perfect setting for doulas to provide excellent support with lovely spacious labour rooms and large baths.” However, she explains why the same is not true in their operating theatres. “Unfortunately, due to the sterility of the environment in the theatre, we

can only allow in one birth supporter, be it the husband or doula,” says Dr Adam. Bourquin believes that the number of companions at birth should not be limited because according to government’s Better Births Initiative, pregnant women have the right to choose whomever they would like to have as a birth companion, and this may involve having a number of family members and birth companions present. “One person in the labour ward is very old hospital protocol, and has no proper research to support it. We simply want hospitals to allow women to have the people present whom they would choose to help them at the birth. Doulas take up very little space,” she says. Bourquin agrees, however, that WOMBS doulas mostly finds the medical fraternity to be open to their presence, where it is still up to the mother to make the necessary arrangements. “This is where the mother’s role is very important in asserting her right to choose the support she wants on the day she labours and births, and this should not be at the discretion of doctors or caregivers,” asserts Bourquin. Judy Tobler explains further that in the private sector, it is crucial for pregnant woman who would like to hire a doula to communicate this wish and her birth plan to her obstetrician early on in her pregnancy. “This is very important, given the high rate of caesarean births in the South African private health sector, as the presence of a doula can make a natural birth more likely. And the caesarean birth rate is certainly a serious cause for concern, with a prevalence of 74 per cent, compared to the World Health Organisation’s benchmark of 15 per cent,” she adds. (Some experts believe that owing to HIV, 20 per cent is a better local benchmark). Dr Adam explains that from her viewpoint C-sections are often a necessity and not unnecessary surgery inflicted on the patient against her will. “Just remember it is not just mothers who are pro-natural delivery; we are all pro-natural delivery. No-one performs a C-section for fun, but extreme circumstances necessitate it and you need to look at the positives as well as the negatives. Yes, South Africa may have high rates of C-sections in the private sector, but the critics should also be aware that our stillbirth rates are also extremely low, and declining further.”

Scope of practice RISKSA approached private obstetricians and perinatal support nurses in the private sector to comment specifically on their personal experience with doulas and the findings were largely positive when the doula fully understood the purpose of her role. 

experienced the emotional intensity and physical exhaustion of giving birth. And as doulas, we are able to support mothers in any and all birth-related situations as far as we are able to,” concludes Bourquin. Fortunately, according to the World Health Organisation’s Care in Normal Birth’s Guide, emergency situations in labour are the exception, and vary according to the risk assessment criteria used in a region. Specifically, “studies on ‘alternative birthing care’ in developed countries show an average referral rate during labour of 20 per cent, while an equal number of women have been referred during pregnancy. Generally, between 70 and 80 per cent of all pregnant women may be considered as low-risk at the start of labour”. Interestingly, due to the low percentage of highrisk pregnancies, in Scandinavia and the UK it is largely down to midwives to be present during pregnancy and births, with obstetricians existing on the periphery of this situation; ready to step in at the first sign of an emergency. This serves to keep the C-section rates low in these countries, and presents a more liberal environment for women in which to exercise their rights to choose, not only regarding who attends the birth, but also where the birth takes place, be it at home or in a hospital.

With rights come responsibility

“We think a doula is a fabulous idea – I spoke to our head matron at Mediclinic Constantiaberg and she affirms that the nurses have seen that the presence of a doula decreases the patient’s anxiety and by association the chance of having a C-section,” says Dr Adam. “However, they need to know their role as a doula, which is purely a supportive role: they don’t have the extensive medical knowledge necessary to make obstetric decisions, and each should be allowed to fulfill their responsibilities. “Sometimes problems also arise when a midwife trained as a doula is present at a birth because she is not a registered midwife at that particular hospital. Yet because she possesses medical knowledge, she may try to intervene beyond her scope of practice which in that instance is to act as a doula rather than a midwife”.

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She reassures the reader, however, that when doulas work within their scope of practice, they are a wonderful adjunct in the labour ward. “In fact, a few of my patients would even prefer having a doula’s support without their husband present because they feel it will be too emotionally draining for their husband to support them through the birth”. WOMBS-trained doulas affirm that they are strong advocates of working within their scope of practice to provide non-medical support where required, and this may be in the setting of a private hospital, public hospital or in the comfort of a patient’s home. In fact, they can even be present at a patient’s emergency C-section, termination or as additional bereavement support. “Women need support in these situations too because even in the tragic situation where they have lost a baby, they have just

However, the latter situation also presents a particularly significant challenge, namely how quickly a patient is provided with essential medical intervention if things go wrong. A good example of this is the setting of the home birth, which is a contentious practice that is gaining some momentum in South Africa. It is important to note in these situations that WOMBS-trained doulas are only present for the emotional and physical support of the parents. Whereas, the midwife present will be fully trained on what to do in an emergency and will also ensure that the home birth takes place near a hospital and with the backing of a hospital and qualified obstetrician. A popular summary of an opinion opposed to home births was stated in a Lancet editorial: “Women have the right to choose how and where to give birth, but they do not have the right to put their baby (or indeed themselves) at risk.” In fact, in a study appearing in the American Congress of Obstetricians and Gynecologists, by Wax, Lucas and Lamond, there is a two- to three-fold increase in the risk of neonatal death with a planned home birth versus a hospital birth. An article published in the American Journal of Obstetrics and Gynecology also outlines how necessity for maternal and fetal transport during labour is often impossible to predict. “For unpredictable, extremely

sudden complications, even rapid transport may not prevent the fetus or pregnant woman from death or severe harm,” reads the journal article. Dr Adam supports this view. “Personally, I wouldn’t support home births. The reason I don’t support them is because I firmly believe that women need to deliver babies in a safe environment, and if things do go wrong, a baby or mother could die in a matter of minutes. “At the end of the day –– all you want is a healthy mother and baby and where a doula supports a positive outcome, we welcome their addition.”

The benefits of a doula We can, therefore, surmise that if a doula is properly trained, her presence should only serve to pave the way for superior and timely medical care, rather than act as a stumbling block. In fact there are numerous studies to support this argument, and too many to cite in one review. “The most frequently quoted study was conducted in 2002 by Klaus and Kennell and concludes that the presence of a doula has the following effects: 25 per cent shorter labour; 50 per cent fewer caesarean births; 30 per cent reduction of pain medication use; 60 per cent less epidural requests; and 40 percent less forceps deliveries,” says Tobler. In fact, the respected UK-based medical resource, Cochrane Review, published a study by Hodnett, Gates, Hofmeyr and Sakala, which concludes that “all women should have continuous support during labour”. Although the study is not focused on doulas per se, it does support the findings that women who received continuous labour support were more likely to give birth ‘spontaneously’ (without the intervention of caesarean, vacuum or forceps delivery). In addition, women were less likely to use pain medications, were more likely to be satisfied, and had slightly shorter labours. Their babies were also less likely to have low fiveminute Apgar scores. Lastly, no adverse effects were identified in this review of studies, which included 22 trials from 16 countries, involving more than 15 000 women, in a wide range of settings and circumstances.

The medical aid perspective Two medical aids in South Africa currently offer some cover for doulas, namely, Fedhealth and Momentum Health. Irene Bourquin is personally campaigning to get Discovery Health on board as well. RISKSA got in touch with Fedhealth and Momentum on their offerings, with Discovery Health mentioning that the cover is still under review. Bourquin mentioned specifically that Discovery Health needs a medical code, which will be easier to obtain once the WOMBS course is accredited by the South African Qualifications Authority (SAQA). They have now registered as a non-profit organisation in order to start raising funds for the accreditation process. However, Dr Patel cautions that becoming accredited by SAQA may not necessarily help WOMBS’ cause, explaining that it really depends on the medical aids’ funding philosophy. “From a policy and principle perspective, yes there is a representative body of doulas in South Africa, but in reality if you look at the type of service they offer, you see that it is social supportive care; you wouldn’t define it as medical care (in fact doulas themselves describe it as non-medical). The debate is then whether a specific medical aid only covers medical treatment or whether they additionally cover natural therapies, social workers, etc. According to medical aids that only cover ‘medical’ treatment; doulas are not overseen or regulated by any of the professional medical councils in South Africa and, therefore, may not be entitled to cover,” he says. “In fact, the Medical Schemes Act is very ‘allopathically’ and evidence-based-inclined.

In other words, cover is often only advocated for evidence-based care provided by registered professionals or health facilities.” “However, BHF understands Fedhealth and Momentum’s stance, which I believe stems from the idea that as long as the savings benefit can be made available to members for other alternative or traditional therapies, why discriminate against a particular service like doulas? It is worth noting that medical aids already pay for many medical therapies out of the savings benefit that may not be considered to be ‘good medicine’, such as cough mixtures.” “The other consideration is, of course, the high C-section rate in South Africa. With C-sections occurring so frequently, it is almost serving to redefine what we understand by ‘natural birth’. Just remember that for a C-section, the hospital cost alone is about R10 – R12 thousand more than for a natural birth, so that is the marginal effect funders can use when making a decision. The question is then whether anything that could reduce C-section rates should be encouraged and then I would say, yes, it is worth seeing if there is merit to using doulas by looking at the published evidence (as above),” says Patel. Fedhealth and Momentum affirm that it is indeed the high rate of C-sections, which led them to offer the option of doula support under their cover. Peter Jordan, principal officer of Fedhealth, explains that while their doula benefit has a small uptake, the potential benefits are substantial. “We asked ourselves: is there anything else we can do to assist or encourage more women to have natural births? And that is when we decided to support women’s decision to have doulas present at their births.” Momentum’s risk team came to a similar realisation independently. According to Varsha

Dr Rajesh Patel, head of benefit and risk at the Board of Healthcare Funders (BHF), suggests, however, that the studies involving doulas as support providers need to be assessed carefully to determine if they conform to the principles of pure scientific research. “I have seen some of the published studies and the methodology isn’t entirely clear to allow us to determine whether they adhere to good scientific research principles,” he tells RISKSA. On the other side, Bourquin appeals to medical aids to run pilot studies for themselves because WOMBS-supporters believe that the numerous benefits will quickly become evident.

we also cover up to two visits from a midwife. Other perinatal services, which we would love to cover in future, include antenatal courses and lactation consultants. From personal experience, both of these services offer remarkable results for new and expecting parents.” “In other words, it should really be up to the mother to make the decision and despite the industry being under enormous cost pressures, we will always try to cover at least a portion of the patient’s costs – as long as the professional ticks a number of boxes including being trained, accredited, professional and hygienic in all areas of his or her practice.” Momentum Heath confirms that it takes a similar viewpoint. “The members should have the right to exercise their choice after being well-informed and educated on all options available to them,” says Vala.

A positive birth experience Vala, head of health risk management Momentum Health, the high C-section rates in South Africa led them to consult with a recognised birthing expert in order to gain a member’s perspective on what could be contributing to this situation. “Several of the women felt that they did not have enough information to make a decision in the absence of being fully educated and supported. We feel that doulas perform the role of emotional support to the mother and can aid in information sharing to help in the decision-making process. The doula fulfills a vital role, as she makes the woman feel safe during the birthing process, with the result being that the women’s body responds better to the birth hormones, and her uterus is able to function more efficiently. This has a big impact on her emotional wellbeing as well as her physical wellbeing and furthermore provides the labouring mother with confidence and reassurance resulting in the increased possibility of venturing the thought of a natural birth,” she tells RISKSA. Jordan adds that this idea to cover more traditional birthing practices “harks back to a more community-based era, where women always supported women in labour and birth.” Yet now this support is often lacking in women’s lives. “A doula is the modern solution (with the underlying infrastructure of contemporary health care),” he adds. “She offers a calmer neutral presence which often can’t always be provided by the husband because he is taking strain as well during his wife’s pregnancy and labour.” In fact according to the International Childbirth Education Association, which ‘recognises the vital role that birth doulas play as a member of the maternity health care team’, a doula also ‘supports the father and others who are present, helping them to participate in the birth experience to the extent that they are comfortable.’

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“With this in mind, Fedhealth linked up our baby programme provider to manage the doula benefit. The patient is simply required to pay a specific fixed amount for each doula usage, allowing the mother to decide whether or not she would like to use the doula benefit. They would then need to supply details of the doula visits, some paperwork (the doula needs to be trained by WOMBS for example) and details of the service she received and we will pay a portion of the fees.” While Fedhealth offers somewhat limited cover in this respect, it has the advantage that it is taken from ‘Risk’ as opposed to member savings. Momentum, on the other hand, offers a full benefit to cover doulas on all of their Momentum Health options, but this is fully accessed via medical savings. “The member will just need to use a Momentum Associated Specialist, aligned to WOMBS or DOSA (Doulas of Southern Africa), and would need to be planning a natural birth. The use of a Momentum Associated Specialist provides the member with protection against ‘out of pocket’ expenses, and we cover R2800 of the total doula cost, which in most instances equates to the full cost.” Jordan points out that another reason why Fedhealth offers the doula benefit is because they firmly believe that the future for medical aids lies in providing choice with their cover. “The cost of private medical care in South Africa is only going to increase, so harking back to days when there were other safe measures available is quite revolutionary.” “You only need to drive down the road and you will see a number of shops offering alternative treatments. And with this drive towards more healthcare options, we see that women are starting to do their own research. They may, for example, want a midwife-supported water birth, and thus

Lastly, a positive birth experience is essential to both the mother’s confidence and her bond with her baby (as is clear from a study published by the US National Library of Medicine and a recent survey of UK mothers). The first study, by Simkin, explored and analysed the long-term impact of the birth experience on a group of 20 women. Asked to recall their experience 15 years later, the women reported that their ‘memories were vivid and deeply felt’. Those with the highest long-term satisfaction ratings thought that they ‘accomplished something important’, that ‘they were in control’, and that the ‘birth experience contributed to their self-confidence and self-esteem’. These positive associations were not reported among women with lower satisfaction ratings. Similarly in the more informal Mumsnet survey, which reviewed the experiences of over 1 000 new mothers, almost 100 per cent of the women surveyed said their birth experience had affected how they felt about themselves (either positive or negative) and almost 50 per cent believed it significantly affected their bond with their baby in the long-term. Whether these studies are based on the principles of pure science or whether they simply give an overview of how a group of mothers feel when they are encouraged and supported during labour, the question remains – what else is being done to reduce the disproportionately high rate of C-sections in South Africa, while still adhering to lifesaving medical protocols? Dr Patel quite clearly mentions that doulas are a social service rather than a medical service. But with more research, the benefits of augmented social support, such as a doula service, may indeed prove to have intrinsic medicinal value. As a consequence, professionally-trained doulas may become eligible for industry-wide support.

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Undercover

pilots Luka Vracar

Contrary to the negative news headlines plaguing the global aviation industry over the past 15 months, International Air Transport Association (IATA) reports that the same period was actually the safest on record in terms of number of incidents. If this is true, life cover for pilots should be simple, right?

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he truth is that pilots struggle to get life cover that is comprehensive enough, especially with disability and loss of licence cover included. Underinsurance is rife, and often there may be severe loadings that could have been avoided. Franz Smit, founder of PilotInsure, says that aviation is always complicated, but it is possible to get the right cover, it just takes time and a lot of effort. Smit distinguishes between commercial pilots and pilots that fly privately for recreation. Both enjoy unique benefits and drawbacks and the underwriting process differs. However, Smit says that pilots need not be automatically considered

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higher risk profile. The risk profile of a pilot depends on various factors: experience, type of aircraft, route and destination of flying, and type of flying done. “We know exactly what a lawyer does, and we know exactly what an architect does, but for a pilot, there could be hundreds of things that you could be doing, and there are hundreds of aircraft variations for different purposes. Are you transporting people? Are you transporting cargo? Are you lifting things around? Is it military work? And then we are not even talking about the type of aircraft, and if the aircraft is actually suited for the work being done,” he says.

Smit warns of trying to group pilots with the same risk profile, giving the example of a case where he could not match or better a potential client’s insurance premiums. On reviewing the client’s policy, he discovered that the insurer was under the impression that the client was a local airline pilot, when in fact the client was a sling helicopter pilot (transporting heavy goods suspended beneath the craft) in the DRC. The client was completely underinsured. Grant Hanafay, head of underwriting at Hollard, warns of underinsurance for commercial pilots as well: “Most of your big airlines, like SAA, Kulula, and Mango, will

have a type of group life cover, but it is not as extensive or as comprehensive. The pilot will have to supplement that with his own private cover, as one would with any other industry.” This supplementation is incredibly important says Smit, because even though airline pilots enjoy brilliant rates, usually pilots do not stick to one type of flying and many airline pilots still participate in private or general aviation.

the experience who might panic if they hit turbulence or something unusual,” he explains. “For example, one can look at the John F Kennedy Jr accident. That accident probably happened due to inexperience, and a more experienced pilot would have understood instinctively what to do to save the craft,” says Hanafay.

“Most of the local airlines, especially the bigger groups, take good care of their pilots when it comes to insurance and loss of licence. The challenge there lies in any ‘different’ type of flying the pilots may do being underinsured. An example of different flying would be a full-time airline pilot who flies aerobatics for fun. The question is, does the company policy cover him for his aerobatics or other recreational flying?” Smit explains.

John F Kennedy Jr, his wife, and his sister-inlaw were killed when the light aircraft he was piloting crashed into the Atlantic Ocean off the coast of Massachusetts one July evening in 1999. The incident is widely regarded as an example of pilot error. Kennedy did not have an instrument rating, conditions were hazy, and he had very few night hours recorded. Investigators ruled that the cause of the accident was spatial disorientation (lack of visual horison) brought on by the lack of light and haze.

Experience

Risky behaviour

A pilot’s experience significantly impacts risk rating. The insurer will look at the number of flying hours the pilot has, as well as the number expected in the next 12 months. The insurer will also look at what ratings a pilot has such as a night rating or an instrument rating which allows the pilot to fly when the outside visual reference is not safe. A pilot with these ratings has more experience flying in challenging situations.

As a rule, premiums are loaded where extra risks are involved. Smit emphasises that this is often what gets overlooked. Aerobatics flying, fire fighting, and helicopter sling loading would be a few examples of extremely risky flying.

There is a catch: pilots with experience fly more often, and so they expose themselves to risk more frequently. So the significance of a particular pilot’s experience will be assessed by different underwriters in different ways – some insurers will load premiums above a certain number of flying hours, while others will load premiums below a certain number. “We will look at your past to see if you have been accident-free, your flight medicals, and experience. Experience is a fine balance – if you fly many hours your experience goes up but your risk increases due to exposure. What will weigh heavier is this risk caused by exposure, because experience increases incrementally, whereas exposure is constant,” says Schalk Malan, executive director of product development and actuarial at BrightRock. Malan explains that typically, increased risk (in this case for policyholders who fly fixedwing aircraft) is considered flying hours above 400-600 hours per year. While recreational or occasional fixed-wing pilots are likely to receive standard rates, regular to full-time fixed-wing pilots face increased risk, which is covered by premium loadings. “But also the more you fly, the more you have a knee-jerk reaction should something go wrong, and that is really what we are looking at,” argues Hanafay. “So a pilot who hits turbulence and immediately does the right thing, as opposed to a pilot who has not got

We insure the adventurers, the mad ones, the fearless ...

“If a client does the President’s Trophy Air Race, which is once a year and is a very risky race that has had a number of accidents, the client can take a loading for it. But then they will be paying the loading for the entire year, for just that one event. Some pilots prefer to just have that one event excluded, which we can do,” says Hanafay. Malan says that loading for extreme flying, such as low-flying crop sprayers, could be three to four times the standard life cover. Where a pilot flies is another significant consideration. “You get chartered pilots, and they are not governed by the Civil Aviation Authority, that might fly corporates up into Africa. They will get cover as well, and that will also be a loading of between 50 and 100 per cent, depending the route they fly,” says Malan. “If I had to choose one thing that I’d like to do when assessing a pilot, it is to be able to assess his attitude to risk. You can’t always find that coming through in a questionnaire. You can have a pilot who, unless the weather is 100 per cent clear, is not going to fly, and he won’t have a single sip of wine or beer before flying. That is a pilot who is risk averse and who is going to be lower risk. If you look at most accidents, they are caused either by weather or pilot error. It is not often that it is caused by aircraft failure,” says Hanafay.

Type of aircraft Aircraft failure may not be a common cause of accidents, but the type of aircraft flown does have an effect on a pilot’s risk profile. Smit says it depends on the type of stress the aircraft is exposed to. It all comes down to the accident

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statistics versus the amount of flying hours per category. One also needs to look at the gliding ratios of the aircraft, number of engines, and if it can maintain altitude if one engine fails. “It also comes down to the strength and design of the aircraft on impact. Much like a car, the better it can deal with impact in the event of a forced landing, the safer the aircraft should be,” says Smit. One of the clearest distinctions is that newer aircrafts will have better safety features than older models. Insurers will look at additional factors including whether the pilot is flying a plane that has one engine or many, and whether these are jet engines or propeller engines.

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Hanafay adds that in some instances if the insurer knows where the craft is repaired or serviced it can also make a difference as certain service providers give better service, which means that the aircraft is safer to fly. While airlines have maintenance teams that ensure everything is in perfect working condition before every flight, Smit says that for recreational pilots the onus is on them. “The responsibility lies with the individual to look for faults in a pre-flight inspection and to report faults and call out an engineer when he/she suspects something is not as it should be. This, of course, comes at a price tag, and in some instances (very few) individuals would rather risk flying than

spending money on the seemingly small fault,” says Smit. For helicopters, Hanafay says there is considerable debate around their relative safety against that of planes. “If you have an open space, an aeroplane is far safer because you can generally glide down to a surface where you can land the plane, whereas a helicopter just drops. But one of the big things that influence risk rates is the number of pilots in the sky versus the number of accidents that happen, and because there are not as many helicopter pilots they do generally attract a higher loading.” “For helicopter pilots, an increase in risk is

Disability and loss of licence It is important to distinguish between disability and loss of licence as there is a lot of confusion and ambiguity for clients. Smit says that in its true form, loss of licence is not a general income disability product such as a doctor or a lawyer might get. “It is specialised and focused on the medical of the pilot. If the pilot loses his medical or his medical is suspended for a period of time, then he cannot fly. This is often not caused by the actual disease, but by the medication used to treat the disease,” says Smit. Hanafay explains that Hollard will apply a loss of licence clause, which means that if the client loses his aviation licence he is not covered. However, he said that the insurer is currently looking at reviewing the clause. The loss of licence clause also applies if the pilot does something that is against aviation law. For example, if the pilot is flying a plane outside of his licence, or if he is flying under the influence of alcohol. Insurers would not want to cover a pilot making a conscious choice to do something he should not. “Educating clients is our biggest challenge – the number of clients we come across who have impairment when they are under the impression they have loss of licence insurance is shocking,” notes Smit.

Brokers

covered through loadings and exclusions regardless of flying hours,” says Malan.

“The questionnaire will have their specific questions, but at the bottom it will always say “Are there any extra risks associated?” A pilot might not really understand what they want because they are not looking at it from an insurance point of view,” says Smit.

Still, insurers will look at the exact aircraft being used – some of these helicopters costing millions of rands (or dollars) because they have better safety features and better handling, and these positives will influence the risk rates too.

Brokers should also prepare their client for the potential loadings, exclusions, and decisions that can come out of underwriting based on the client’s personal risk exposure and profile.

“There are also many kit planes that one can purchase and build themselves, and can be logically and easily compared to factory built aircraft that are assembled by aircraft engineers. The risk for home-builds could exist with, for example, incorrect welding jobs, or improper installation of nuts and bolts that could lead to in-air failures,” adds Smit.

“The underwriter can only assess what someone can put in front of them, and quite often it is on paper, so it’s one-dimensional. Giving a little bit more insight into the pilot, and what the pilot does, and the risks the pilot is exposed to, allows the underwriter to do a better assessment of that risk and of that pilot,” Hanafay concludes.

And those with their feet firmly on the ground

12336/HOLLARD/D4/E

Full disclosure is essential, and this is why PilotInsure does not even make use of the insurer’s questionnaire during the underwriting process, opting to use its own comprehensive one. Smit says that many insurance companies often don’t ask all the relevant questions at application stage, and the most important information is often overlooked.

home • car • business •

life • investments

www.hollard.co.za

Hollard Life Assurance Company Limited ( Reg.No. 1993/001405/06 ) is a registered Long Term Insurer and an authorised Financial Services Provider

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Surviving cancer

packs a real punch During the month of June cancer survivors across the globe celebrate International Cancer Survivors’ Day. Although the feeling of relief associated with a clear scan is definitely worth celebrating, a large group of cancer survivors have mixed emotions on this day. For most it serves as a reminder of their darkest moments and biggest scare and the worry about staying “clean” remains a constant mental battle. A very recent example of this endless concern is that of Angelina Jolie who not only underwent a double mastectomy two years ago, in an effort to reduce her cancer risk but also had her ovaries and fallopian tubes removed in March this year. By undergoing a double mastectomy Angelina reduced her risk of developing breast cancer from 87 to 5 per cent. Angelina lost her mother, aunt and grandmother to cancer and decided to undergo, what she referred to, as preventative surgery. Dr Adela Osman, Momentum’s Chief Medical Officer remarks that “While the most recent surgery was not as complex as the mastectomy, its effects are more severe and pushed her body into early menopause. In all likelihood she will thus require hormonal supplements.”

The harsh reality Cancer-gene testing gives women and men control over their future health but is also presents them with difficult decisions. Angelina Jolie has the BRCA1 gene which gave her a 50 per cent chance of developing ovarian cancer during her life. According to the World Health Organisation (WHO) cancer is among the leading causes of global morbidity and mortality with approximately 14 million new cases and 8.2 million cancer related deaths in 2012. Breast cancer remains the leading cancer killer for women aged 20 to 59 world-wide causing about 1.38 million new cases and claiming some 458 000 lives every year.

According to the National Cancer Registry (2003) the lifetime risk of all females developing breast cancer is 1 in 31. Interestingly though is the fact that one third of cancer deaths are due to the five leading behavioural and dietary risks which include high body mass index, low fruit and vegetable intake, lack of physical activity, tobacco and alcohol use. In fact tobacco use is responsible for about 20 per cent of global cancer deaths and around 70 per cent of global lung cancer deaths. Another fundamental factor that contributes to the development of cancer is age. The incidents of cancer rises dramatically with age, most likely due to a build-up of risks and this risk accumulation is combined with the tendency for cellular repair mechanisms that are less effective as we grow older. For example the likelihood of someone suffering from cancer before 65 is one in 10 and these odds increase dramatically to one in two before the age of 85. Dr Osman states that “With all the mentioned facts in mind one cannot help but wonder how cancer originates. The sad reality is that cancer starts from a single cell. The transformation from a normal cell into a tumour cell is a multistage process and this typically involves a progression from a pre-cancerous lesion to malignant tumours. This is as a result of the interaction between a person’s genetic factors and three external categories which includes: •

Physical substances that refers to ultraviolet and ionizing radiation;

•

Chemical substances that include components of tobacco smoke, aflatoxin (a food contaminant) and arsenic (a drinking water contaminant); and

•

Biological substances that refer to infections from various viruses, bacteria and parasites.”

life insurance A lot to be celebrated She continues by saying that “Although cancer is a leading cause of deaths across the world there is a lot of evidence and testimonials that tell stories of hope and living long and happy lives as a result of cancer awareness, positive lifestyle choices and early detection.” Thanks to advances in the medical field with regards to early cancer detection and treatment, along with responsible lifestyle choices, two out of three Americans with invasive cancer survive at least five years or more after diagnosis. This is according to the U.S. Centre for Disease Control and Prevention. Also, the American Cancer Society states that since 1991 there has been a decrease in cancer death rates of 21 per cent for men and 12 per cent for women; and the trend is continuing. In the United Kingdom the pattern is the same where for instance just over half (54 per cent) of people diagnosed with colon cancer, which is a very aggressive type of cancer, have survived between 2005 and 2009. Also, 81 per cent of people in the UK diagnosed with breast cancer between the same mentioned time-frame, survived. Actually, according to Cancer research UK, between 1991 and 1993, 146 people out of every 100 000 had an expectation to die from one of the cancers but by 2010 to 2012 these statistics declined to 102 deaths out of every 100 000 people. For breast cancer, they estimate that the death rate in the UK has decreased by 38 per cent in recent years. This is as a result of acute awareness of the illness and its impact, the advances in detection technology as well as a preventative approach that includes regular breast examinations. According to the Cancer Association of South Africa, the survival rate for cancer currently stands at six out of 10. However, most cancers are related to diet and lifestyle and about 80 per cent of cancer cases can be prevented by making responsible lifestyle choices.

Empowerment is a choice Part of empowerment involves the ability to have access to resources when a life-changing event happens, for example being diagnosed with cancer. With the major advances in the medical field over the last couple of

decades there are some phenomenal technological and experimental treatments available for numerous diseases including cancer. Dr Adela highlights that “A lot of these are not covered by a medical aid and sadly many people live with a false sense of security that their medical aid will provide for all their health related expenses. Medical aids generally cover in-hospital costs while day-to-day expenses often come out of a member’s savings account. Many members will identify with the situation of the savings account being depleted halfway through the year and advanced medical treatments could thus easily cause financial ruin. This is where critical illness cover comes into play because the real problem occurs with on-going, longer term expenses that are associated with diseases like cancer and these could include chronic medication, home nursing and even rehabilitation.”

Choose wisely She adds that “Momentum Myriad provides the most comprehensive critical illness cover in the market. We follow an event-based approach ensuring that claim pay-outs are made early in the disease process. We evaluate our cover on a regular basis by taking medical technology and advances into account to ensure that our cover remains relevant. We are confident that our products provide market leading cover against illnesses that could result in a financial loss to clients. To ensure total peace of mind, by linking our unique Longevity Protector to one of Myriad’s critical illness benefits, clients secure cover that will simply never run out, no matter how long they live. Our Longevity Protector, which is a one-of-a-kind in the market, transfers the risk of clients outliving their capital, whether they are critically ill, disabled, or simply living a long life. This brilliantly designed product really does remove a substantial portion of the risk associated with longevity. This product has been a great success and more than 45 percent of our policies are sold with this option selected. This will give clients access to medical advances which they otherwise would not have had access to by only relying on a medical aid. With this kind of support from a trusted risk partner, there is a lot to celebrate.”

Terms and conditions apply. Momentum, a division of the MMI Group Limited, is an authorised financial services and credit provider. Reg.No. 1904/002186/06.

A unified attitude towards

retirement

risk

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Melissa Wentzel

Regardless of age or income, our attitudes to retirement fund risks are surprisingly similar, but out of sync with our desired returns.

ore than 1 000 South Africans were surveyed using the Old Mutual Smoothed Bonus Customer Monitor and the results included in a new study by Old Mutual Corporate on the attitudes to retirement risk funds, released in March this year. Each person surveyed was above 18 years old, and contributing to a pension, provident or preservation fund. The survey sought to understand the participant’s risk attitudes and underlying motivation toward their retirement income preferences.

of respondents revealed a great concern towards a 5 per cent loss in their savings in a year, a comparatively small loss, revealing that the majority of members are in fact loss-averse. The attitudes towards risk, by age and income groups, were both quite evenly split, with 79 per cent of the group earning below R20 000 either concerned or very concerned about the small loss in asset value. Eighty-three per cent of the R20 000 to R40 000 group, and 76 per cent of the group earning in excess of R40 000, show the same concern.

According to Craig Aitchison, general manager of corporate customer solutions at Old Mutual Corporate, the survey revealed no notable bias towards risk aversion by age or income levels found in the survey responses. Their concern towards loss aversion seemed to be a unifying thread.

It seems, though, that members’ attitude towards risk is out of sync with their general preferences for returns above that achieved by low-risk (safe) options. Members are risk averse but their desire for higher returns reveal a need for greater growth exposure.

The survey measured levels of concern toward a 5 per cent loss of asset value as indicated by age and then income as: ‘not at all concerned,’ to ‘concerned,’ and finally, ‘very concerned’. Eighty per cent

According to Aitchison, 63 per cent of respondents revealed their risk/return preference for a medium level of investment risk coupled with a medium investment return, while 17 per cent opted for a high-

risk/high-return option. The preferences for the medium-risk/medium-return option was, like the attitudes towards risk results, indicated regardless of age or income. The results of this survey signify a pointed need for financial education as the great majority of respondents admit to not being very knowledgable in the area of retirement fund savings. While Aitchison suggests that some financial education will support member’s appreciation of how these funds work, and how that impacts their retirement savings, he also reports that the results pertaining to risk and return preferences matches the value proposition of a smoothed bonus fund and an absolute return portfolio. Fifty per cent of respondents, after being presented with a demonstrative example of the smoothed bonus fund, would invest in the smoothed bonus fund if given the opportunity with 27 per cent of them reporting it had a high growth potential, 20 per cent viewed it as a safe option, and 13 per cent felt it met their needs.

Attitudes towards risk according to age

Attitudes towards risk according to income

Risk and return preferences by age

Risk and return preferences by income

• More than 80 per cent of respondents between 18 and 30 years, as well as the 31 to 40 year-olds, were either concerned or very concerned with a near even split between the two responses • 75 per cent of respondents aged 41 to 59 expressed concern at the loss • 78 per cent of the group aged above 60 expressed concern (the majority in this group were ‘very concerned’)

• 37 per cent of those earning above R20 000 are very concerned about a five per cent loss in asset value; 42 per cent are concerned, and 21 per cent are not at all concerned • 44 per cent of members earning between R20 000 and R40 000 are very concerned, 39 per cent are concerned, and 17 per cent are not at all concerned • In the category earning above R40 000, 35 per cent are very concerned, 41 per cent are concerned, and 24 per cent are not at all concerned

• 15 per cent of 18 to 30 yearolds prefer high-risk/high-return, 23 per cent prefer low-risk/lowreturn, and 62 per cent opted for medium-risk/medium-return • 20 per cent of 31 to 40 yearolds prefer high-risk/high-return, 21 per cent prefer low-risk/lowreturn, and 59 per cent chose medium-risk/medium-return • 19 per cent of 41 to 59 year-olds opted for high-risk/ high-return, 14 per cent chose low-risk/low-return, and 67 per cent prefer medium-risk/ medium-return • 7 per cent of above 60 age group chose high-risk/highreturn, 17 per cent prefer low-risk/low-return, and 76 per cent opted for medium-risk/ medium-return

• 18 per cent of members earning below R20 000 want high-risk/high-return, 22 per cent want low-risk/lowreturn, and 60 per cent chose medium-risk/medium-return • 15 per cent of members earning between R20 000 and R40 000 chose highrisk/high-return, 21 per cent want low-risk/low-return, and 64 per cent opted for medium-risk/medium-return

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There is no benefit in

non-disclosure ASISA recently released claims statistics from life insurers in 2014 and non-disclosure is still the leading cause of declined claims. Melissa Wentzel

n April, the Association for Savings and Investment South Africa (ASISA) released the third annual consolidated death benefit claims against fully underwritten life policies. According to the association, in 2014 beneficiaries received more than R10.3 billion from claims honoured by life insurers – representing 98.9 per cent of all claims in 2014. The remaining 1.1 per cent of claims – a total of 389 – were declined due to non-disclosure by policyholders.

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On the positive side, it’s clear that life insurers are consistently honouring the majority of death benefit claims. But why is non-disclosure, the deliberate failure of policyholders to disclose medical or lifestyle information, still prevalent when the consequences are well-known, leaving the policyholder’s beneficiaries empty-handed? Henk Meintjes, head of risk product innovation at Liberty, reports that their claim statistics reveal that in 2014, 0.7 per cent of all risk claims

submitted to Liberty were declined because the policyholder did not disclose important information at application stage. “We cannot say whether the omissions of this information was deliberate; it is possible that the policyholder either forgot about the ailment while completing the application or did not believe it is relevant to the application,” says Meintjes. Liberty has published claims statistics since 2006, with the intention to highlight risks faced by South Africans so that they can appreciate the significance of appropriate cover, as well as to be transparent and raise awareness of the consequences of non-disclosure. Fully underwritten life policies are subject to the policyholder undergoing a full underwriting process, which may involve a comprehensive assessment of the life insured’s medical history. The statistics released by ASISA for 2014 submitted by 14 long-term insurance companies reveal that 36 421 death benefit claims were honoured in 2014; an increase from the 36 199 honoured claims in 2013. Deputy CEO of ASISA, Peter Dempsey, emphasises the importance of policyholders and their beneficiaries being able to trust that their claims will be honoured when a life-changing event occurs. “It is, therefore, important for the long-term insurance industry as well as its policyholders that there is consistency in honouring claims,” says Dempsey. When underwritten claims statistics were collated for the first time in 2012, 99 per cent of all claims to a value of R6.8 billion were paid out; and in 2013 it was 98.9 per cent of all claims to the value of R8.4 billion. There was no increase in the percentage of claims paid out in 2014 from 2013 but the value of claims honoured increased by nearly R2 billion. “Through continued education and engagement, we hope to raise awareness of these risks and encourage customers to rather disclose more than what they may believe relevant and thereby ensure that their policy will be valid should they ever claim,” says Meintjes, who encourages financial advisers to reinforce the importance of full disclosure at application stage. 

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Declined death benefit claims

According to Dempsey, fully underwritten life policies will honour claims provided that: • the claim was not fraudulent • the policyholder did not commit suicide within the first two years of taking out the policy • the policyholder did not die as a result of an excluded condition • the policyholder did not withhold important information from the insurer when applying for the policy. He reports that the number one reason provided by life insurers for declining claims continues to be non-disclosure which accounts for 75.8 per cent of claims declined in 2014 and 61.9 per cent in 2013. Dempsey describes the practice of nondisclosure as incredibly short-sighted due to the very real risk that the hidden information will surface at claims stage which may result in beneficiaries being left financially destitute.

Suicide

The number of claims declined due to suicide during the standard two-year exclusion period dropped from 24.1 per cent in 2013 to 13.3 per cent in 2014 – a significant decline. The suicide exclusion period is instituted to prevent someone from taking out life cover with the intention of committing suicide shortly afterwards. No death benefit will be payable to the beneficiaries if the life-insured takes his own life during this period.

Underwriting exclusions

Of all claims declined in 2014, 8.1 per cent was due to the death of the policyholder being caused by a condition specifically excluded by the policy. For example, if an otherwise healthy policyholder suffers from diabetes, the life insurer may exclude this condition from the life cover. This means that if the policyholder dies of a cause unrelated to diabetes, the life policy will pay but the claim will be declined if the death is related to the excluded condition. Exclusions like these allow insurers to provide life cover to people at affordable rates.

Fraud

Criminal intent, by either the policyholder or the beneficiary, was another cause of death benefit claims being declined last year and it accounted for 2.9 per cent of declines compared to 4.6 per cent in 2013. Claims fraud can involve submitting fraudulent documentation and/or syndicate activity aimed at getting the life company to pay a claim to someone not entitled to the benefit.

Guidelines to ensure full disclosure from clients: • Complete the questionnaires on your client’s medical history and lifestyle and emphasise the importance of complete honesty in their answers • Request detailed information on the state of their health and medical history as well as that of their immediate family • Ensure they are honest about their smoking and drinking habits • Disclose dangerous recreational activities such as skydiving and deep sea diving; and occupations that involve risky activities Dempsey highlights the continuous evolution of underwriting processes and the accompanying improvements benefitting policyholders and contributing to the average cost of life cover that has decreased over the years. “Advances in the medical treatment of chronic conditions have also resulted in revised underwriting practices, resulting in fewer exclusions and a decrease in the cost of life cover,” he says.

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If you could choose the colour of your unborn childâ&#x20AC;&#x2122;s eyes, would you? It is in the pioneerâ&#x20AC;&#x2122;s nature to question everything; to critically assess the situation and cast off the bowlines in search of meaningful questions. With questioning at the core of our nature, backed by our expertise and proven track record, not only do we find new investment opportunities, we create them. If you value questions as much as their answers, join us as we pioneer The Spirit of Pursuit.

info@emperor.co.za. +27 (0)87 940 6121. www.emperor.co.za EMPEROR ASSET MANAGEMENT is an Authorised Financial Services Provider, FSP 44978.

Spy vs Spy: South Africaâ&#x20AC;&#x2122;s secret satellite

On 25 February, the spy cables information released by a collaboration between the Al Jazeera news network and the UKâ&#x20AC;&#x2122;s Guardian, confirmed what many have assumed for almost a decade: South Africa has a new, Russian-made spy satellite. Luka Vracar

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arly January 2014, the Sunday Times reported that in 2006, the country’s Ministry of Defence awarded a contract to a Russian company, NPO Mashinostroyenia (NPO Mash), to develop a spy satellite. The project was dubbed ‘Flute’ and would see NPO Mash build, launch, and operate a satellite that could provide all-weather, day-and-night radar imagery for the South African military. However, at that stage the report could not confirm whether the satellite existed.

Spy Satellite 40798902

Then, in October 2014, Secretary of Defence Dr Sam Gulube made the first public confirmation of the project’s existence, telling the parliamentary defence committee, on which DA MP and shadow Minister of Defence, David Maynier, serves, that the contract to develop a military satellite had been reinstated and was on track. Maynier, who has been the most ardent critic of the satellite’s secrecy and investigated missing funds that may have been attributed to the project, called the confirmation a breakthrough. “The public, who may have sunk up to R1.4 billion into the defence intelligence’s bungled Russian Kondor-E spy satellite project, have a right to know,” Maynier told the media shortly after. “It is highly likely that given the large amount of fruitless and wasteful expenditure, which ranges between R110 414 000 and R2 314 000 a year, that the contract for the military had been reinstated at a higher contract price,” Maynier said. Now, for the first time in the public domain, the spy cables have revealed a classified South African State Security Agency (SSA) report, dated 28 August 2012, which the extensive cooperation between Russia and the South African military regarding the development and operation of the secret satellite surveillance system. The leaked report confirms that Russia and South Africa were cooperating on a secret satellite surveillance programme called Project Condor, and that the satellite launched by the Russians was to be used for strategic military purposes. Additionally, the collaboration’s aim was to eventually integrate the Russian and South African satellite surveillance programmes to provide wider coverage. “The reference to the launch of a satellite almost certainly refers to Defence Intelligence’s R1.4 billion Kondor-E Synthetic Aperture Radar satellite, which was launched on or about 19 December 2014, under the

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codename Project Flute,” Maynier said in a statement after the spy cables leak. “Bizarrely, the state Security Agency appears to have been collecting intelligence about a satellite surveillance programme being implemented by Defence Intelligence,” says Maynier.

Control risks While the clandestine nature of the satellites objectives and operations means that the South African government remains tightlipped, citing national security concerns, it has released annual financial statements that show expenditure from 2010 to 2014. The DA and various news outlets report that in 2007 the South African government put a hold on the project when it realised that it does not have the capabilities for full control of the satellite. The risks associated with this fact meant that the data the satellite collected would be relayed to South Africa by its Russian operators and South Africa would depend entirely on NPO Mash for operation. This means that there would be a delay in regular operation, as well as the transfer of data, reducing the value of the satellites

imaging for the military which needs up-tothe-minute updates – not to mention whether the information would be complete. NPO Mash subsequently threatened legal action and, in order to address the problem, an agreement was made that the NPO was to develop a ground station in South Africa that could take control of all operations. NPO would also train South African personnel. However, there has been no evidence in the public domain to suggest that such a ground station has been or is being constructed.

Need to know “We need to know the purpose of the Kondor-e satellite and whether it actually works. We also need to know if the satellite will be replaced and at what cost at the end of its five-year lifespan,” said Maynier. However, Maynier maintains that the questions regarding the spy satellite are not about its operations, but rather procurement irregularities. While Maynier’s investigations have revealed much about the history and financial expenditure of the spy satellite,

Spy Satellite 40798902 76 8 6

he has not been able to get any answers regarding accountability for the more than R200 million in expenditure for the satellite over the past five years. “We are reading the tea leaves and we have to ask why was it necessary to procure the satellite when satellite images are available commercially. Even if it was justified, should it be a priority? Because the Defence Force is spending more than a billion rand when the deployed soldiers in the DRC, for example, do not even have the boots to complete the mission,” Maynier said. Russian media reports that earlier this year Kondor-E successfully delivered its first images. Sources claim that despite initial difficulties, the images were returned much quicker than had been expected. The reports claim that initial technical difficulties were traced to programming errors and quickly resolved. While there are also claims by Russian media that the South African government is considering ordering two more satellites, even with objections from the United States, the secret nature of the project means that few things can be confirmed.

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Not if, but how

Putting investors at

greater risk When a little knowledge really is a dangerous thing

Michael Field product development manager, FedGroup

ith the advent of financial tools such as credit, debt, insurance and the diversity of investment vehicles available, in addition to the complex nature of the global economy, with influencing factors such as inflation, foreign exchange rates and more, the average consumer now needs a basic knowledge of finance and economics to simply navigate daily life. However, while quality personal financial education is essential to give individuals the tools needed to manage money, budget appropriately, repay debt, and use credit responsibility, the idea that greater financial literacy education can equip the majority of consumers to navigate the complex world of insurance, investments and retirement planning is flawed.

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As these products have become more complex, the inability of consumers to understand them has become increasingly apparent, and the consequences of this inability more dire. In response, policymakers around the world have embraced financial literacy education as a necessary corollary to the disclosure model of regulation. This education is widely believed to turn consumers into ‘responsible’ and ‘empowered’ market players that are motivated and competent to make financial decisions that increase their own welfare. The vision is one of educated consumers handling their own matters by confidently navigating the unrestricted financial marketplace. Unfortunately, the effectiveness of financial literacy education lacks empirical support, particularly given the dynamism of the financial marketplace. The truth is that there is a gaping chasm between the skills and knowledge among us, and the proficiency required to understand, and take advantage of, today’s complex financial products and markets. The shortcomings of basic financial education have been highlighted in a growing body of research, most notably that of Professor Lauren E Willis, in her paper titled Against Financial Literacy Education. Prof. Willis was quoted as saying: “Financial education appears to increase confidence without improving ability, leading to worse decisions.”

These sentiments are echoed by Helaine Olen, in her recent book, Pound Foolish, which also highlights the fact that available data indicates that fostering financial literacy simply doesn’t work; that financial literacy is ineffective in today’s complex, modern financial markets. Given the prevalence of this trend in developed nations such as the US, where financial-literacy programmes are a mandatory part of basic scholastic education, it is understandable then that the gap between financial prosperity and financial literacy is even greater in developing nations. Whether due to the heavy influence of sentiment, or the lack of awareness of various financial instruments available, or the financial markets in general, there is a disturbing trend locally of underperformance in funds where members are provided with the option to make their own investment choices, commonly termed ‘member choice’. Yet, financial education is still advocated over other methods of regulation, even though research shows that unless it’s your professional focus, average investors underperform when managing their own funds. And when it comes to investments such as retirement funds and insurance, this underperformance can be catastrophic. Underperformance is generally attributed to the fact that these decisions are often heavily influenced by sentiment, because making financial decisions that impact on the future wellbeing and financial security of an investor, their family and dependents, are influenced more by bias, emotions and the fear of uncertainty, rather than sound financial reasoning. For many of these reasons, Prof. Willis states that when “left to their own devices, many consumers choose not to choose”. The intermediary market has and should continue to play a central role in guiding long-term financial and investment decisions. While the debate around the upfront cost implications and fees associated persist, the fact remains that poor financial decisions, in spite of a perceived degree of adequate financial literacy, cost more in terms of lost earning potential and underperformance. In an age when defined-benefit pension plans are no longer the norm, replaced by definedcontribution plans that require individuals to decide how much to save, and how to invest, the need for guidance, consultation and qualified advice has never been greater. Financial product providers can play a role in helping to mitigate the deleterious effects of member choice, by keeping products as simple as possible. Whether individual or group risk business, structuring products that help manage risk and still deliver value, with minimal investor input, removes the opportunity for bias, sentiment and a lack of adequate knowledge to erode investment returns.

Success does not come from eliminating risk.

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MANAGING RISK FOR GROWTH.

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New risks

in a changing industry The African construction sector has offered many opportunities for international players still reeling from the economic downturn. The continent has, however, only recently begun to see tighter controls on an industry that has struggled to shed its Wild West image, and some new challenges have arisen along with the old.

Dominic Uys

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he global construction industry is set to grow to $10.3 trillion dollars by 2020, up almost $3 trillion from 2010, according to the Construction Intelligence Center’s latest global report. The industry has regained growth momentum, with the pace of expansion accelerating from an annual average of 2.7 per cent in 2011 to 2013, and to 3.1 per cent in 2014. It is forecasted to rise 3.8 per cent in 2015, and then an average annual increase of 3.9 per cent between 2016 and 2020.

In that same period, the construction industries in emerging markets will record an annual expansion of 5.3 per cent according to the report. Other estimates have put construction growth on the African continent at around 6 per cent, which certainly bodes well for players in this market. With the boom in growth, however, there is also a significant number of new risks emerging for contractors. Among these is the steady rise of legislation in many countries, to cut out fraud and corruption,

and keep as much of the money spent on the project inside the country’s borders. One prime example is the announcement made by the Rwanda Public Procurement Authority earlier this year, that all Rwandan construction firms, both local and international, will now be recategorised. Firms will fall into one of six grades, depending on their financial, logistical and human resource capacity, before they can tender for public bids. Rwanda is not the only African country to put more control measures in place. From booming Mozambique to Angola and Nigeria, construction standards and the financial framework behind vital projects have started to mature and become better regulated. While it cannot be argued that increased regulation is a bad thing, it does make the contractor and project owner’s job more onerous, and in spite of the maturing of the industry, some of the uniquely African challenges and risks remain.

The risks to manage Krush Moodley, East and West Africa engineering risk manager for Munich Re notes that the maturing regulations in many of the countries on the continent have to a large extent mitigated some of the risks associated with corruption.

Dominic Uys

Industry-wide there has also been a drive from the international construction sector to oppose corruption and many international contractors and project managers have taken a vow to refuse to pay the so-called ‘facilitation fees’ that were standard throughout the continent for so many years. That said, Africa still poses some Africansized risks for international contractors and project managers. “In most countries our biggest risks are weather-related. The projects in Mozambique, where there is a massive construction boom at the moment, are at high risk of flooding. Angola, Nigeria, Kenya, and Congo are all places that are seeing major construction in areas with floodplains,” he says. Contractor-related risks are also high for many insurers and reinsurers. Moodley points out that there are cases where the contractor appointed to construct the project, has little experience in the particular build, or simply does not have a good track record for project delivery. “Of course this affects the risks on our side and it is likely to have an effect on premiums. Jean-Pierre Holmes, Africa engineering and property risk manager for Zurich Insurance, adds to this that fixing a previous contractor’s mistakes also increases project costs and risk. “There have been quite a few cases, the

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construction of Gaborone Airport in Botswana to name but one, where the contractor had been fired, and a new contractor needed to take over. Not only does this add significantly to the cost of the project, but there are also risks that the project will go well past deadline, and that the previous contractor’s work could lead to structural issues down the line,” he says. “Existing infrastructure, or more accurately the lack thereof, is also a major factor to take into account. Especially in Southern Africa we’ve seen a lot of infrastructure projects to support mining developments. Roads, railways, power, all of that need to be put in place to support the mine, and more often than not, the first contractors to start in an area have very little in the way of the most basic infrastructure.” “We have a lot of contractors that often ask us for a risk assessment around evacuating people, and often one of the key considerations is how long it takes them to get from site to the nearest port/rail facility that can bring your team to a city for hospital treatment. And even in areas where there are major opportunities for industry or mining I know that the majority of developers/contractors would look at what kind of accessibility the site has before taking a risk on construction,” Holmes continues. “We saw one case study where a power utility was incredibly interested in setting up operations in Mozambique’s Tete region, where major mining companies like Vale and Rio Tinto is currently operating. The biggest stumbling block, however, was the $2 billion that was needed to set up the required infrastructure in the region. They were only able to source about 30 per cent of that in the end. It goes to show that the world economy does not have soft cash to invest in a lot of these projects, no matter how promising. Interestingly, Moodley and Holmes agree that the operating risk that many would suspect to be a major threat, crime and kidnapping, features surprisingly low on the scale of danger to projects and crew.

Too many cooks One of the new challenges is the insuring and managing of risk, which is also expected to change. Cas Hansa, MD of Continental Re’s Construction, Property, Engineering and Risk Services (CPERS) explains that the majority of African countries have instituted regulations on the insurance industry that stipulate the insurers allowed on any given project. “Insurance makes up a significant part of the capital on a project and it is in any African country’s best interests to keep as much of that premium in the country. So most countries now stipulate that a set percentage of a project’s cover must be placed with insurers that are either

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Construction news that is changing the risk landscape in South Africa

Disgruntled workers disrupt Medupi construction

Eskom workers who were fired for destroying property at the Medupi power plant, returned to site in April and blocked employees from entering the construction site. “There is minimal work going on at the site as some dismissed union members were intimidating and stopping others from entering the site,” Eskom spokesman Khulu Phasiwe said. Of the 21 000 workers supposed to be operating on site, only 3 000 were working at the time. Basil Read’s tough year Construction group Basil Read’s last financial year has been touted as “extremely challenging", with the group reporting a net loss of R820,9-million for the 12 months ended December 2014. This was due to the firm losing R603,46million related to the collusion scandal , impairment of goodwill and write-down of development land. It saw loss-making contracts across all its construction operations which, coupled with a "struggling" engineering division, overshadowed "stable performances" by the mining and building developments divisions. Rebar may see a price hike Steel maker, ArcelorMittal South Africa, said that it would raise its prices if the government implements new carbon tax laws in 2016. At the same time the company is under pressure from the government to reduce its steel prices. Skills shortage South African construction sector’s key concern The 2015/16 National Budget Speech in February announced that Government

would spend R813 billion on infrastructure over the next three years, presenting huge growth opportunities across some of the country’s key sectors. However, PwC’s SA Construction 2014 report highlights the fact that over two-thirds of CEOs in the construction sector were most anxious about access to key skills.

Cement manufacturer eyes lower costs

CEO of cement producer PPC, Darryll Castle reports that action plans have been put in place to more aggressively win back market share within South Africa. The company plans to introduce more efficient strategies that could see significant price decreases in cement over the coming years.

Gauteng’s priority projects receive cash injection

About R94-billion will be spent on social and economic infrastructure projects over the next three years in Gauteng, according to Finance MEC Barbara Creecy. “By investing in social and economic infrastructure, including quality public transport, reengineering the province’s spatial framework in new human settlements, mainstreaming township economies and providing quality healthcare and education, we intend to put our global city region on a new trajectory of integrated development and social and economic inclusion,” she said, South African builders regain confidence Building confidence is at a more than sixyear high in the fourth quarter of this year. This is according to the FNB/BER building confidence index. The confidence index jumped to 60 points, after increasing to 45 points in the third quarter, its highest level since the beginning of 2008.

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based in that country or that have a physical presence within that country,” he starts. Major international insurers, like Zurich, have many mature disciplines in-house that can take a project from concept to completion, and Holmes points out that the company prefers to be involved in every aspect of a project for the sake of coordination and simplicity. “Unfortunately many times the insurance relationship is driven by the financiers who may dictate certain terms and bring in different insurer’s packages. But having too many insurers taking part in too many aspects of your project tends to deplete your claims control ability.” “Granted, many projects are simply too big for one insurer to carry and the project needs to be handled by a network of insurers and

reinsurers. In that case, the sooner you establish those relationships, claims control is much easier to manage. But if you try to do that later on, or in phases, you not only stand the risk to not be insured for actual risk on the ground, but also risk creating huge gaps in your cover,” Holmes says. There are many cases where cover for certain aspects of a project is placed with local insurers, as part of a contract. “We have had cases where Zurich was appointed as the main insurer for a project, but certain parts of the project had to be placed with local insurers that didn’t necessarily have the capacity or skills to fully underwrite the risks. We have, on these occasions, stepped in and provided those skills from our side,” says Holmes. Hansa contends however that this is not a productive model in an industry that needs to evolve and become more sophisticated.

Skills to grow the industry “We realised that there is still a true opportunity for growth in the sector, which is not being met, so Continental Re established the Continental Property and Engineering Risk Services (CPERS). Granted, it is a fairly lengthy name for a company, but we opted for something that exactly described what we do. Our focus is specifically on the engineering insurance side in particular. We have seen that there is still a great need for underwriting skills in the projects that are funded on the continent – especially since the funders in most cases, stipulate that there should be a significant local component to the participation on the project. And because these are fairly sophisticated builds, one needs experienced individuals from the engineering fraternity that know how policies should be structured,” Hansa explains. “Facilitating with underwriting is really the core reasoning of securing a development with CPERS. Then in order to make sure that the local market is fairly and adequately able to deal with these kinds of sophisticated classes of projects, we try to retain those skills on the continent, so the training component is very important as well,” he continues. Hansa notes that not many of the local insurers on the continent have the required stability rating to participate in major projects, however. “There is that dynamic where local legislation and regulators are trying to stem the tide of premium exiting the country, because they have to be able to grow the capital to pay for the loan from the World Bank, or whichever entity granted the loan for the project. On the other hand, the funders need to have some sense of safety and that they have their capital insured with stable insurers. Which means that the vast majority of these projects still end up with the large multinational insurers and premiums still leave the country,” Hansa says. “The truth is that if we continue not to do anything but talk about it – as is the case now – we will still be sitting with the same situation in twenty years’ time. This is why we are now working towards setting up the mechanisms to develop the know-how, and integrate them with the established insurance institutions,” Hansa says. The other key areas that CPERS focuses on are risk and advisory services, and claims handling services. The opportunities from the continent with one of the fastest growing economies on the planet are far from over. While the many real risks associated with trying to complete a project, can and do stall major builds almost every day, new sites are constantly being readied for construction. It is just a matter of picking the project with the best chances of success.

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CR CAREER

Lessons from the

PSG Conference Sarah Bassett

The 17th annual PSG Conference held from 13 to 15 May at Sun City, drew top PSG Konsult advisers from across the country to hear international and local speakers and panelists focused around the conference theme for the year: ‘Grow with the Flow’.

ay one kicked off in style, with an afternoon of packed and fascinating sessions. PSG Konsult CEO, Francois Gouws, opened the conference with an overview of PSG’s growth and performance over the last year. He commended the company’s advisers, who he said continued to impress investors with their above market performance, with the advisory having achieved 34 per cent compound growth over its 17 years. He touched on a number of potential and rising threats and challenges facing the industry, including the rise of robo-advisers,

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Scan here for all the best of the RISKSA TV PSG Conference interviews.

underestimate us because we are not the biggest, but we are a capable organisation and can compete with the very best.” He spoke also of the organisation’s support of the principles behind the proposed Retail Distribution Review changes, saying that PSG had done its homework and was well-prepared for the changes. He reviewed PSG’s commitment to South Africa and its focus on equity employment, noting that 54 per cent of its core services now come from equity employees, but that further work was required on the advice side in particular, not only in the interests of achieving equity, but also in order to reach so far untapped opportunity in fast changing previously disadvantaged communities.

and the tendency for customers to increasingly rely on call centres and algorithms without seeing the valuing of face-to-face input from a skilled adviser, and an increasing preference for exchange traded funds and index funds, away from an active management approach. He noted also the ongoing mounting pressure from increased regulation and a rise in ombudsman complaints as well as price pressure brought on from direct players, who market on price over service. But, he assured advisers that the organisation had what it takes to counter these concerns and continue to succeed, saying: “Many perhaps

PSG Wealth investment economist, Dawie Klopper, shared insights into the global and local macroeconomic environment, suggesting that the current bull market could continue its run for some time to come yet. “Bull markets don’t stop just like that. I would expect one indicator to be that the public would start to participate in the market in a speculative way, and we’re not seeing that yet. There is a lot of worry about the market now because of its long run, but everyone is expecting a fall in the market and for that reason the market tends to climb this wall of worry. Another characteristic of the end of a bull market is a lot of new listings, and we’re not seeing that yet. In the past, we’ve seen a few a week, even one a day and we’re not seeing that yet and that would signal the end of the bull market. I’m a bit concerned about the pricing at the moment, but then again in the 60s (which is a comparable period to now) also a very long bull market, the market started it’s final blow off

phase at a fairly high price-earnings (PE) level, so on the back of that one could expect a further increase in the market,” he said, suggesting that the market could go up beyond 64 000 basis points, noting that with such a consensus suggesting a fall, it is likely the consensus will once again be proven wrong. Suggesting that our worries about specific challenges within South Africa, though serious, are blinding us to the pockets of excellence still present within the country. He warned that investors should not expect another rise in the commodities cycle, and that investors should be wary of commoditieslinked equities due to the slowing growth and long-term change in the Chinese economy which is moving away from an investmentled economy towards a consumer-led economy and will wait to accumulate returns on the infrastructure expenditure of recent before investing further, meaning that their demand for commodities will continue to slow and, therefore, we should expect only a normalisation not a rise in the super cycle, noting that the speculation that now is a good time to invest in commodities due to their low pricing could, in fact, be a value trap. He suggested also that counter to the current trajectory suggested by the South African Reserve Bank, South Africa should be looking at reducing interest rates further rather than increasing them. He noted that the upward trend is out of sync with the current global trend, and said that the threat of increasing rates was causing companies to delay infrastructure investment, with business hoarding cash due to concerns regarding economic growth.

Chief executive of Distribution, Dan Hugo, offered in-depth insights from the strategies employed in the businesses of PSG’s most successful advisers, noting that successful brokers are growing their businesses at 17 per cent a year with successful advisers reaching 34 per cent annual growth.

combined forces with others and added partners to build scale – with those who had done so able to grow their business faster than the market. Another opportunity for servicing additional clients was to bring in junior partners and learners to expand their business and ensure excellent service to all clients.

For successful advisers, said Hugo, time management was critical, with maximising time spent interacting with clients most critical. Perhaps counter-intuitively, looking at the division of time, top advisers spend 85 per cent of the time with existing and 15 per cent with new clients – thus ensuring retention and growth for all clients they attract.

Acknowledging that with the stagnant economy and long run of the JSE cause for concern, ongoing and clear communication with clients was critical to managing client expectations and reducing panic and concern.

Those most successful tended to create clear focus by limiting the number of products offered, as well as the number of clients. To service excess clients, successful advisers

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International speaker and consultant, Michael Falk, shared insights into what drives human behavior and the complex dynamics that drive clients’ financial decision-making processes. For skilled advisers who understand and respond to these dynamics, Falk says that the rise of ‘robo-advice’ and passive investing

models need not be a threat. If anything, in fact, this is an opportunity, according to Falk. “Ultimately, the challenge with passive management is beating their benchmarks net of fees, but active advice is where the adviser can still really make a difference. Let’s be honest; when we talk about human behavior and what motivates the decisions that anyone makes, it’s not really about what is good for us and what makes logical sense for good decision-making, it’s about what feels good. And that doesn’t mean that we’re flawed in how we make decisions, it’s just that we’re human. So when the stock market is falling, our feeling is that we want to get out of it as fast as possible, but in fact it is precisely the worst time to sell out, perhaps it is even the time to put more in, so the counsel given to that person at that time is about coaching them through the process and enabling them to extend trust and stay in the market.”

“Ultimately, clients need to meet goals, not beat benchmarks. If you can get this right and help your clients achieve what they need to, they will love you, and other routes or models simply won’t present a threat.” He added that trust in the financial services and advice industry has been badly damaged the world over, directly feeding into the move away from active management and the increasing fee compression. But, said Falk, “We need active management, and it’s up to us to validate its value in the marketplace.” He suggested that legacy managers and advisers who refuse to change will see their business erode over time, but that if we’re going to get people back into the industry and rebuild that trust, it’s going to be by helping people reach their goals.

20 years, 20 lessons Founder and chairman of PSG Group, Jannie Mouton, had the audience in stitches in signature humorous style as he shared 20 lessons he has gathered in the 20 years since he was fired from by his partners at SMK in 1995. His key lessons included the importance of reading and learning – particularly from the stories of people who have risked and won before you. Another was the importance of analysing and honestly appraising both yourself and the environment around you – then look for opportunities. “In many areas I hear people complaining the most about, for example, education, South African bank pricing – we have seen huge opportunities in organisations such as Curro and Capitec,” he explains, adding that now the energy crisis opens the door for opportunity too. He noted that it is critical to form a clear plan and then work tirelessly and with focus to enact it, noting the value of believing in yourself and your plan completely. “100 per cent of my wealth is in PSG, and I have never sold a single share.” He noted that the only real way to measure progress over time is in what a business is able to return to its shareholders, adding that PSG has grown at 50 per cent annual compound growth over its 20 years. In looking to the future, Mouton suggested that it may be hard to continue growth at this rate, but 20 per cent a year would be achievable. He said that his dream for the next 10 years was that South African would be okay, despite the many challenges of the current period. “There will be challenges, but there will also be opportunities. My dream is that PSG finds the next big thing – possibly in energy, but it is early days yet and that we can continue to grow the share price at 20 per cent annually.

The RDR elephant Throughout the panel discussion of day two, focused on the three divisions of the PSG Konsult business – PSG Insure, PSG Wealth, PSG Asset Management – was the looming impact of the proposed RDR changes. Barry Taylor of the FIA emphasised the need for all advisers and brokers to inform themselves thoroughly of the regulation and read the document in full. “The better informed we are, the better able we are to do our jobs.” The FIA’s role, he said, was to work to influence the outcomes for the intermediated space. Fundamentally, the association agrees with the principles behind the document, both its protection of clients and consumers, and its protection of the integrity of the market. It would also assist in ridding the intermediary space of any lingering improper practices. Nonetheless, there are concerns, said Taylor. He suggested there was need for a thorough economic study of cost versus benefits on the specific changes proposed. “Our concern is that there will be increased costs, reduced revenues and losses in human capital. We are also concerned about the likely reduction of innovation as a consequence of the changes. Without this – our business is dead.”

The panel noted also that in the United Kingdom, the only other market with similar regulation, the regulation does not apply to the short-term industry there, only long term. The challenge, said Taylor, would be to persuade the regulator of the nuances within the different lines and disciplines – commercial versus personal lines for instance – within the context of RDR. He added that in Australia, market conduct is heavily regulated but that remuneration is unregulated and that in that market, that balance works well for them. Ultimately, because South Africa is a member of the G20, regulation is here to stay and whatever happens within that broader community will come here. “Ultimately, we need to prepare for that,” noted Taylor. CEO of PSG Insure Distribution, Bertus Visser, noted that a further evolution that would be interesting to watch was the trend for direct players to come after the commercial space, which has until recently still been largely the domain of the intermediary. Nonetheless, he said that in a challenging market struggling with regulatory change, commercial remained the more profitable and stickier part of the business to focus on.

DIGITAL FOCUS:

inter-connected benefits A strong digital strategy that extends well beyond upgraded internal systems and taking full advantage of what the Internet has to offer can give a broker the competitive edge. Leon Swart, CEO of Origin Financial, talks about taking the business online. Dominic Uys

What is Origin’s main line of business and what do you need in terms of a digital strategy? Origin is a complete financial advisory practice but our main line of business is short-term insurance. This includes personal insurance, general commercial insurance, restaurants, guesthouses, engineering, filling stations, transporters and others. The wide variety of product providers and a growing advisory compliment created the need for us to streamline both our administration processes and systems. The short-term insurance industry has changed a lot since I first entered; cover is now available at the click of a button. As a brokerage, we knew that we needed to expand and develop on the fundamental values and skills that our brokerage offered by being able to offer advice and products using the latest technologies.

s one of the more established brokerages in the country, one might think that Origin Financial would be reluctant to make radical changes to the way that it has been operating to date. Swart, however, explains that the company has reaped some major benefits from taking as much of their business online as possible. And Origin is far from done.

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Going digital was quite a daunting task for some of the advisers joining us but is now a move that they have all embraced. We looked at various aspects and the most important was obviously the way we administer our client’s policies. We have put outsourcing and binder agreements in place, which means that we issue policies on behalf of specific insurers and 90 per cent of our business is done this way. With

personal lines, we connect to the insurers’ black box rating engines, which generate rates based on the underwriting we have captured. We then issue the policy and can do the amendments going forward. Issuing a new policy from start to finish can be done in just a few minutes from the time we have all the information. Commercial lines take a bit longer as we do not have an integrated rating engine. Instead we have dedicated underwriters/consultants at the insurers who we negotiate with directly and apply those rates to the system. We are in the final stages of integrating our system with specific insurers’ claims systems so that we can manage the claims process in-house, resulting in better turn-around times and enhancing our client’s overall experience. Obviously with major changes you experience teething problems, but we have close relationships with all of our strategic partners and have direct lines to decision-makers to ensure that these problems are fixed sooner rather than later. And are you doing anything differently to interact with clients? We have partnered with Global Choices as our assist and emergency services provider. They have created a smartphone application

that connects to our system and shows clients their live policy information. The app works on both Android and Apple devices and also allows the client to upload and update personal details, request amendments and register claims, amongst other things. We still have a few things left to do and the next step is upgrading our website so that our web interface becomes tablet and smartphone friendly. Then we are also going to go the social media route, integrating our web interface into Facebook and Twitter. Of course, we will need to employ someone to manage that full time, because the fallout can be great if you do not manage the feedback on those platforms. We already have a blog, which we update regularly as a way of just creating some brand awareness with our customers. So is the web presence only about brand awareness or do you sell products through it as well? Currently it is about brand awareness and we are currently fine-tuning our website as step one. In step two we are going to market some of our products, which do not require advice directly. Step three is the one we are most excited about but we will keep that to ourselves whilst it is under development.

And I understand you have taken your internal systems online as well? Yes, our administration system is hosted at a data centre with military grade security and failover redundancy to protect us against hardware failure. We make use of a separate hosted CRM system that handles all of our e-mails, tasks and client information. Business continuity and client service is important to us, so we chose a system that allows our users to access the client’s history, e-mails, tasks and activities. This way if someone is sick or on leave, the clients’ requests can still be fulfilled. By moving our servers to the data centres where the servers are virtualised we have reduced our energy footprint at our office. We have also moved all of our staff onto notebooks, which has reduced our energy consumption even more. This combined with the latest in inverter technology has kept us one step ahead of loadshedding. It is useful to have batteries when the power goes out, and it is also a move towards the whole mobile office concept.

proxy security filters to protect client machines from web-based attacks whether the machines are in our office or at remote locations. Our password protection is also important, none of those ‘Password’ or obvious passwords used; our IT guys get highly creative when they think these up and we change them on a regular basis to remain protected. We have our IT consultants on a monthly retainer and they are constantly advising us of new threats and ways to protect against them. I should add that although we are making great strides forward with our digital strategy, I think it is an area that needs ongoing revision and analysis. As the digital age continues to develop and grow, we will need to change with it. It is an exciting time ahead and we look forward to the advancements that are coming.

Brought to you by:

How do you close up all the possible security loopholes in a system like that? In terms of security, all of the traffic between our various systems is encrypted. All our connections are firewalled and we use web

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A French decree. Or three.

The South African insurance industry may be able to bear the recently increased legislative burden with ease, now that we can compare compliance systems with what is unfolding in France.

ompanies in South Africa may be complaining of the heavy burden of compliance requirements and the onslaught of change they face in this area, but ours is nothing compared to the bills and decrees being rolled out by the French government. In a previous article, RISKSA highlighted the French socialist government’s support of a bill that could put the onus on large French corporations to be accountable for labour and environmental conditions throughout their supply chains. It seems they’re adding even more weight to companies deemed vital to France’s national security.

The French government published three decrees on 27 March that regulate the national cyber security of the aforementioned companies. The rule makes it mandatory to report cyber attacks to the agency that manages France’s national cyber security strategy, ANSSI, and it will impact 218 key operators in the energy, transportation, finances, and sanitation sectors. The requirement only affected telecom operators prior to the new law. On top of having to comply with direct orders from the French prime minister,

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these companies will have to install intrusion detection systems that will be directly audited by ANSSI (or other certified contractors such as Thales), and self-fund the implementation of any further cyber security measures demanded by the cyber security firm. Some of the affected companies may not have secure systems already in place to report

attacks to ANSSI, the adoption of which will also have to come out of their own pockets. Patrick Chambet, board member of IT security association, Cesin, told newspapers that these measures could cost up to several hundred thousand euros a year for large companies and others have warned that companies should be vigilant so that these arduous requirements are not extended to more firms.

Some of the privately-owned companies, which make up about half of the companies affected, have complained that the French government (which they’ve referred to as ‘cash-strapped’) is transferring the costs of these security measures that they believe should be the responsibility of the state. The decrees stipulate annual audits for each of the 218 companies which, again, will be selffunded by the companies.

While further details and specific measures are yet to be defined by the 18 sectoral committees composed of representatives from ANSSI and the companies affected, one of the decrees stipulates that ANSSI will approve the providers of certain products and services used by important services as secure against cyber breaches or attacks.

Santoni reported that some companies believe that the state, which is obligated to guarantee national security, is making investments via the operators of vital importance (OVI). “Companies have security concerns that are related to their businesses, and they are often convergent with the interests of the state. But sometimes they are not,” he said.

Jean-Laurent Santoni, who heads an insurance brokerage specialising in cyber risk, Clever Courtage, says that companies are apprehensive about the certification of providers believing that it will be to the detriment of their own internal systems, into which they’ve invested significant amounts of time and money.

The concerns raised by experts involve an imbalance in the new process. For instance, some feel that the decrees lean too much on French companies, sparing other foreign operators of vital services like the French arm of Google, SWIFT.

Also, the obligation regarding the sharing of information with ANSSI has been viewed as one-sided as there is no obligation established in the decrees for the agency to share information it gathers with affected companies. Access to that sort of data could help firms in their own efforts to increase cyber security. There is also confusion as to what has to be reported. Santoni reports that large companies experience hundreds of breaches daily, and he questions whether ANSSI will want to be informed of all of them. He believes it will be logical to report attacks that threaten the provision of key services or physical infrastructure, but he is hesitant to disclose those related to private information of clients, pointing out that this is important to determine because companies will be liable to pay fines if ANSSi finds they have withheld reports on potential threats to the national security of France.

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solemnly swear...

The administering of the oath to a witness prior to their giving evidence in court proceedings, is often regarded by laypersons as something of a comical event and a relic of bygone age, without appreciating the significance of this requirement. Brian Martin executive director, legal and compliance, Renasa Insurance Company Limited

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he consequences of a failure to properly administer an oath to a witness prior to their giving evidence in legal proceedings can be far reaching and has been the subject matter of a plethora of cases in the High Court and the Supreme Court of Appeal, in recent times. Section 162 of the Criminal Procedure Act no. 51 of 1997, which is followed in similar terms in relation to civil proceedings, provides that: â&#x20AC;&#x153;no person shall be examined as a witness in criminal proceedings unless he is under oath, which shall be administered by the presiding judicial officer, or in the case of a Superior Court, by the presiding judge or the Registrar of the Court and which shall be in the following form: â&#x20AC;&#x153;I swear that the evidence that I shall give, shall be the truth, the whole truth and nothing but the truth, so help me Godâ&#x20AC;?.

The importance of this requirement being complied with was emphasised in the case of The State vs Matshivha [2013] ZASCA 124, where the court found that it was pre-emptory for all witnesses in criminal trials to be examined under oath. The court stated that the testimony of a witness, who has not been placed under oath properly, has not made a proper affirmation or has not been properly admonished to speak the truth as provided for in Act, lacks the status and character of evidence and is hence inadmissible. The preemptive wording of Section 162 means that it is an absolute requirement that the presiding judge or the Registrar of the Court (in the case of a Superior Court) must administer the oath and this cannot be dispensed with. The seriousness of the consequences attaching to this requirement is illustrated by a recent decision of the Western Cape High Court in a review application (The State v Dillon) case no. SHF 27/14. In this case, a presiding magistrate had decided to call a witness in terms of Section 186 of the Criminal Procedure Act, but then failed or omitted to administer the Oath in terms of Section 162. On review, the court found that the provisions of Section 162 were ‘simply mandatory’. The requirement was in fact of such importance that when proceedings in a court are interrupted by an adjournment, it remains obligatory for the presiding officer to remind the witness that he or she is still under oath. The provisions of the Act must be strictly followed and the duty to swear in a witness cannot be delegated to anyone else. Not even the prosecutor is competent to administer the prescribed oath and the administration of the oath to witnesses, whether in a criminal or civil case, is essential for the admissibility of the evidence given by that witness. The court pointed out that it is the function of the judge to act as the administrator of justice, not merely to feature as a figurehead. There had to be a perception of an even-handed trial, so the court said. The court found that the magistrate’s failure to have acted in terms of Section 162 was a ‘fatal mistake’ and one which meant that as the evidence of the witness was unsworn, and had to be regarded as though it never existed. The court considered the error made by the trial magistrate to have been of such severity and magnitude and so material that it qualified to vitiate the entire proceedings. It was not only a part of the proceedings that was affected, but the proceedings as a whole. The court considered that “the whole case was poisoned by this material error”. The net result was that the conviction of the accused was set aside, and the matter was remitted back to be tried de novo before a new magistrate, if the director of public prosecutions so directed. These cases illustrate that the omission of the oath in court proceedings is no laughing matter but is, in fact, a vital requirement essential to the admissibility of evidence.

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Boardroom struggles

reveal risks of concentration of power The spate of boardroom battles witnessed at each of SAA, HCI and PPC in the closing months of 2014 has thrown the spotlight on the preparedness of South African corporates in the event of loss of a key executive for whatever reason.

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olker von Widdern, MD of Marsh Risk Consulting, says these corporate spats highlight a strategic risk that, from his experience in consulting, few South African companies are prepared for or even aware of – the risk of too much concentration of dependence upon a single individual within an organisation. We are not talking here of key man Insurance, explains Von Widdern, which is typically useful mostly in smaller businesses, but a situation where, for example, a major merger and acquisition (M&A) deal or business expansion strategy may rest on the shoulders of a single individual. “It may just as easily be a company’s research and development (R&D) pipeline or intellectual property (IP) – we argue that where any activity is worth more than 10 per cent of a company’s value, then that company urgently needs to look at potential over-reliance on a single executive by spreading the risk in that process.” All firms, sooner or later, are faced with the challenge of plugging significant gaps when

key personnel leave the firm – a risk that can be aggravated by the individual taking R&D, IP or key customer accounts with him or her. Particularly among listed companies, this is something that investors are increasingly looking at – whether it be a star trader leaving an asset management company or a CEO like Steve Jobs responsible for virtually the entire success of the world’s leading corporate. “This cannot simply be insured against – there has to be a process of mitigating the risk through succession planning or a team-based approach if a company wishes to maintain investor confidence,” explains Von Widdern. In a 2010 study conducted by Integral Advisors, LLC and Board Advisor, LLC suggests that analysts, rating agencies and investment banks increasingly downgrade companies that fail to give succession planning their full attention at both board and management levels. The study’s finding was based on indepth interviews with key investment analysts, pension advisers, investment banks, private

equity investors and rating agencies conducted between December 2009 and January 2010. When asked what they judge to be the main board responsibilities, interviewees ranked succession planning among their top three concerns, along with monitoring oversight and strategic business planning. “Strategically, company executives often fail to identify exactly what are their key intangible or qualitative competitive advantages critical to the business’ success. Typically, this may be quite different to a company’s products, service ethic, price or value proposition – it often lies in the effective execution of all those things, and analysis may reveal an overconcentration of dependence on a single person in the smooth execution within that value chain.” “The loss of that individual or team can have a highly disruptive effect on the strategy of the business, but can also ripple through the organisation as other people leave once they see the soul of the business disappear. Most of the boardroom struggles in corporate South Africa have resulted from clashing agendas within management instead of alignment to the corporate strategy, something which can result in complete paralysis for the company,” says Von Widdern. “I would recommend any corporate to undertake an ‘exposure and dependency analysis’ framed to identify over-concentrations of influence. From the identification of these risks will emerge the answers to enable a process of risk mitigation re-establishing an alignment to company strategy. This is done by means of an evaluation of the full implications or risk of dependencies, wherein the loss of an individual might seriously increase the risk to the company as a whole and efficient execution of strategy. This should not only be done at a corporate level, but also in the event of an important deal – one that otherwise might be delayed or not happen at all in the absence of a key individual. “CEOs might argue this process is too mechanistic and throttles initiative or entrepreneurism, but it has to be done to reduce the risk to the organisation. For instance, in the event of an important multibillion corporate acquisition one will generally find only the CEO and CFO intimately involved – all other involved parties are consultants who do not have skin in the deal,” says Von Widdern. Key man insurance may reimburse the costs of the deal, “but the real cost is that of the foregone deal,” he adds.

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Feel the fear,

and laugh

anyway 98 8 2

RISKSA spoke to Nicola Jackman, actress, voice artist, and self-proclaimed joy catalyst, about joy and laughter therapy and why your company needs to get giggling. Melissa Wentzel

e live in a world that operates in a predominantly left-brained mentality – rigid, analytical, and completely inside the box. In the corporate world we often function on the very definition of insanity: repeating the same processes and expecting different results (or a larger bottom line).

beginning that joy and laughter therapy would be something adults would benefit from too.

“We can see our old business strategies are not reaping the same bottom lines anymore so it’s clear we’ve got to transform that and that’s a simple process of looking at something, letting go of the old processes and choosing new ones,” says Jackman.

The best medicine

Jackman, an award-winning actress who played Elise Butler in the hit SA show Isidingo, initiated the Upliftment Programme (UP) in 2003 – which aims to help children in need of emotional care through care clowning (volunteer-based, laughter-filled visits to children’s hospitals and homes) after a season of personal introspection. “I wanted to make a bigger difference in the world than ‘here’s some soapie entertainment’,” she says of starting UP, adding that her acting work still continues but it is now with an applied theatre mentality in her joy talks, corporate facilitation, and the overall joy movement reaching schools, prisons, hospitals, and communities. Although UP was established for children, many of them terminally ill, Jackman knew from the

“When I launched UP, I’d spent six months researching humour therapy and although I chose initially to focus on children, I always knew that workshops for adults were going to be a part of it,” she says.

Jackman’s care clowning initiative has facilitated the training of hundreds of care clowns and seen many lives transformed through the healing and empowering effects of joy. The programme uses games, laughter, and quiet time to encourage joy and healing. Adult sessions follow a similar construct. After 12 years of play, she realised that joy sessions can essentially be broken down into a combination of laughter and play sessions based on a simple truth: If you know that the brain can’t tell the difference between fake laughter and real laughter, you have immediate access to the greatest natural free remedy to stress – laughter. Jackman explains that the science of that basic truth can be found inside the brain with a closer look at endorphins and seratonin – the ‘happy’ chemicals released inside the brain in response to positive stimuli. If you make the sound of laughter, whether you are actually laughing or not, your laughter releases those chemicals. 

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“Once you've had a laugh, your mood has completely shifted, and you’ve activated the part of the brain that is solution-orientated,” she says. “After a full session, which is anything from 15 to 90 minutes, you’re going to have an activation that’s distinct from what it was before and you can go straight into a problem-solving session.” Jackman lists a number of incredible benefits of laughter and joy for corporate groups and organisations, including: • • • • •

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increased teamwork boost of morale solution orientation conflict resolution boost of confidence, time and turnover

She notes that the most powerful thing laughter does is bring the team out of the hierarchical structure, and the religious, racial, and language differences, putting everybody into a common thread and sense of unity. “When a team can experience that, even if it’s just once, they get to experience who we are in our core which I always say to people is human ‘kind’, we’re not human ‘mean’ – our nature is kindness.” All the games that her sessions facilitate are non-competitive, and interactive. “Everybody gets to participate and there is no winner or loser,” says Jackman, who reports that one of the big hashtags they use is #WinWinWin which revolves around finding a way where it’s not just ‘your win and my win,’ but a third and infinite win that reaches everybody.

A fear-fed workforce According to Jackman, most people are being motivated and driven by fear and they don’t even realise it. She explains that fear is a social construct, and not in our nature. “Human beings are not born in fear, a baby doesn’t know fear; a baby knows love. It’s our training that teaches us: ‘You’ve got to fight to survive! It doesn’t matter what’s going on, you’ve got to push yourself! Stand on anybody just get there to the top!’ And then you get there and it’s actually not as satisfying as you thought it was going to be.” She explains that her workshops are about motivating people with love and not fear. And she’s not the only one reminding people that our human nature is love. She mentions a number of activists, authors, and motivational

You can’t ‘do’ happy UP’s laughter and joy work, like most of the laughter facilitators in South Africa, is based on the standardised training of Dr Madan Kataria, the Indian physician and laughter guru who popularised laughter yoga (or Hasyayoga) in his 2002 book, Laugh For No Reason. Jackman, who played an integral role in bringing Dr Kataria to South Africa in 2005, reports that most facilitators are either following Dr Kataria’s method rigidly, or they’ve adapted it. “In our case we’ve definitely adapted it because we’ve been doing this kind of work with children for the past 12 years and we’ve integrated everything we’ve learned to make it an holistic experience – moving from the laughter into actually sustaining that joy in the workplace and home.”

An exercise The sounds of laughter are, ‘Ha, ho, he,’ and when you combine those you end up with a laughter rhythm like, ‘hahaha, hohoho, hehehe’. Most people, particularly left-brained individuals, think this is silly – the analytical side of the brain is rather cynical. Let that side of the brain have its moment but still make the sounds, and actually use your stomach so that it is the sound coming from the diaphragm. Try it.

speakers including Dr Wayne Dyer, Dr John Demartini, and Marianne Williamson. Fear has become so ingrained that most of us understand the fight/flight/freeze response and accept it as a way of life. “When you let go of the fear construct and step into the love construct, you end up in a space where you can naturally come up with solutions because you’re active and not reactive,” says Jackman. This process allows the right side of the brain – the creative, solution-oriented side of the brain and not the analytical let-me-try-thesame processes-over-and-over-again side – to take over. Like Catelyn Stark mused on the popular television series, Game of Thrones, “Laughter is poison to fear.”

Jackman’s adaptation works on six basic themes: 1. LLC – Look, let go, choose 2. Fear vs. love 3. Grrrrrattitude 4. Laughter 5. Play 6. Be, have, do vs. do, have, be

She reports that when people are engaged in left-brained thinking, everything is constantly filtered, and they’re not entirely with you in the present. Through the joy session, she gets to witness that turn-off and a powerful, creative right brain come into play. “You can see the sparkle return to their eyes.” Jackman explains that there are two ways to incorporate joy into your team. In a laughter session you’ll get laughter exercises and an encouragement to laugh more, “In the joy session you’ll get the tools for how to let go of fear, choose love, and laugh,” she says. She explains that people have been practising old patterns for a long time, so new patterns need to be incorporated. “In some cases the corporates actually put one of their HR staff onto our joy training and then they bring that back to the teams themselves.” Jackman can either put all six themes in one session which she calls a ‘vitamin b jab’, or she can facilitate a system to support your team and transform it completely.

The themes all involve transforming pre-existing brain patterns. Theme six for instance: “In a nutshell we’ve been taught, ‘You need to do your work, and then you’re going to have success, and then you’re going to be happy. That structure is ludicrous. If we are always focusing on the ‘doing’ we will never be happy because it’s not the ‘doing’ that’s the power; the being is what’s powerful.” “If I choose to be happy with life exactly the way it is and exactly the way it isn’t, what I will end up doing will be distinct because I’m coming from the space of already being happy.” Jackman says that this speaks directly to how most teams are run. “If we constantly preach that, ‘You guys need to do this! And the bottom line is not working with this!’ you are missing out on the human connection that we all have,” she says. “We are both left- and right-brained and we have to make sure that we’re putting that activation into both sides all the time and laughter does that in one go. One small session covers it.”

A lasting impression The responses to Jackman’s work are positive and inspirational, proving that her methods have certainly transformed some organisations for the better.

Nicola Jackman

#WinWinWin Jackman makes her money from her work with corporates while most of her time goes into her voluntary work. “At the beginning of this year we trained up 71 care clowns in Johannesburg and KwaZulu-Natal so that we can have more upliftment happening in the hospitals.” A CEO once told her, “The most powerful thing you can do is make your business so successful that you support your charity,” so that’s what she’s doing.

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news

SATIB launches longterm health and wealth division SATIB has answered a need within the tourism and hospitality industries by applying their 25 years of specialist, short-term insurance broking in these fields to providing a wider range of tailored financial service offerings that include long-term insurance. The managing director of SATIB Health and Wealth division (formerly SATIB Life and Investments), Madeleen van den Berg, reports that the new division will provide businesses and employees in the tourism and hospitality industries with a holistic, financial services offering. This offering will range from short-term insurance for tourism operators to now include employee benefits as well without the requirement of a minimum number of employees at a participating company.

RBS acquires AC Chrysanthou & Associates Independent insurance and risk specialist, Risk Benefit Solutions (RBS), has acquired Johannesburg-based AC Chrysanthou & Associates, an established and respected risk management business. RBS had previously acquired a 40 per cent share of AC Chrysanthou & Associates in September 2013 before acquiring the remaining balance of 60 per cent in March this year. The acquisition has been made in an effort to increase their distribution network and add value to clients by consolidating the group’s business and optimising efficiencies and systems. Founded in 1988 as a small proprietorship, RBS today has a staff complement of 130 and is regarded as one of the largest fully-fledged financial services advisory firms in Southern Africa after growing its market position through a combination of targeted strategic acquisitions and a focus on driving organic growth. AC Chrysanthou & Associates, which was founded 25 years ago by Tony Chrysanthou, will form a division of RBS; marketing and distributing RBS specialist products to existing clients. It will also allow for RBS to work more closely with brokers in the broader Johannesburg area in alignment with the national broker network model RBS is currently rolling out. RBS will look at further acquisitions in 2015 that will form part of their aggressive five-year growth strategy as they continue to develop and expand their various specialist divisions including corporate, construction and engineering, marine, and litigation. “We anticipate that the insurance industry will consolidate further in 2015, and we aim to innovate our offerings in order to better service our client base,” said Michael Petersen, CEO of RBS.

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Services offered by SATIB’s health and wealth division include retirement funds, long-term insurance, individual financial planning, occupational care (private healthcare), as well as free will preparation for all clients.

New disclosure requirements for unit trusts Unit trust companies and life assurers have been aligning their efforts in reaching a common measure of investment costs they may now be required to disclose as new disclosure requirements that will enhance transparency in the unit trust industry became legally effective last month. The Association for Savings & Investment SA (Asisa) is overseeing the alignment of the two industries in reaching the effective annual cost (EAC) which is a standardised measure of investment costs. If the EAC becomes a mandatory disclosure, it will allow for a cost comparison across the board of collective investments and life assurance portfolios. The EAC will likely be enforced at the introduction of the new legislation that will regulate the conduct of financial services providers under the new market conduct authority which will be created after the Financial Sector Regulation Bill is enacted. Collective investment scheme companies will now also have to publish minimum disclosure documents and update their fund fact sheets to meet the new requirements as per the board notice issued by the Financial Services Board (FSB) last August which became effective this month. The board notice was issued with regard to the Collective Investment Schemes Control Act (Cisca) Unit trust companies within Asisa have previously followed a voluntary code for advertising collective investment schemes without legal requirements for information provided on their fund fact sheets. The FSB, who regulates the sector, has undertaken to furnish new advertising and disclosure requirements for collective schemes after the International Monetary Fund and World Bankâ&#x20AC;&#x2122;s Financial Sector Assessment Programme found the voluntary code problematic due to Asisa not being a proper self-regulatory industry body. Schemes are now obliged under the new Cisca board notice to submit all marketing and advertising material to the FSB for approval.

Survey indicates wearable tech adoption by insurers

executives believe the insurance industry will broadly adopt wearable technologies within the next two years. Almost one-third of the respondents indicated they are already using the devices to engage employees, clients, and partners.

A 2014 survey by research advisory, Strategy Meets Action (SMA), reported that 3 per cent of insurers have already begun to use wearable tech â&#x20AC;&#x201C; which refers to any miniature technological devices worn attached to the body. The survey also revealed another 3 per cent are experimenting with the devices and 22 per cent are developing strategies for utilising the new technology.

Tony Benton, vice president of research and consulting in insurance at Novarica, outlined key potential uses for wearable technology in insurance in a 2014 brief: Wearable Technologies and Insurance, which focused on the data-capturing advantage for claims procedures. Other areas where wearables could prove useful included marketing, underwriting, risk management, personal injury claims management, as well as new product development.

Accenture conducted another recent survey which looked at insurer executives in nine countries which found that 63 per cent of these

Benton mentioned Google Glass which can capture video footage, pictures, and audio to take statements from witnesses and

document damages. A hot topic in insurance is the feedback accumulated by the wearer about the wearer which has already proved useful in documenting a users activity after a personal injury claim in a Canadian court. As it stands, there is a faster adoption rate of wearables outside of the insurance industry and that is where the opportunities lie for insurers and underwriters.

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psg launches tax-free investment product

Outsurance ad pulled by animal activists The Advertising Standards Authority (ASA) ordered Outsurance to withdraw an advertising campaign in April that presented sheep on the back of a bakkie in response to a complaint by the National Council of the Society for the prevention of Cruelty to Animals (NSPCA).

PSG has announced that it has launched a new, tax free investment product. The PSG Wealth Tax Free Investment Plan gives investors tax free investment growth, flexibility and a wide choice of underlying investments. Rupert Giessing, head of product development at PSG Wealth, said the company believes that every investor who can, should take advantage of this opportunity. This type of tax free product has been available in the UK and the USA for some time, and Giessing said that PSG was delighted that it has come to South Africa as it is a milestone in the financial services industry seeing that there hasn’t been a new class of investment product available to investors for some time. In line with Treasury’s restrictions, investors can invest R30 000 per year tax free in the PSG Wealth Tax Free Investment Plan, up to a lifetime ceiling of R500 000. PSG has also lowered its minimum lump sum investment from R20 000 to R6 000 for this product. The minimum monthly debit order is R500 and investors may combine debit order and ad hoc lump sum investments as they choose. “Investors in the PSG Wealth Tax Free Investment Plan can choose from a range of some 50 unit trusts available on the PSG investment platform as their underlying investments. They may invest in any single manager unit trust that does not charge performance fees and offers ‘clean’ pricing (i.e. does not have a rebate fee structure),” concludes Giessing.

The advert depicted a farmer dancing alongside his bakkie with sheep in the back while a border collie paces around the vehicle. According to the NSPCA, the advertisement did not meet the standards for the safe transportation of livestock as the sheep were not properly contained with guard rails. Outsurance pointed out that no animals were harmed and that an inspector from the Animal Anti-Cruelty League (AACL) was present during filming without complaint. The sheep were also never actually on the bakkie but rather filmed against a green screen and later digitally superimposed onto the bakkie. The insurer argued that the scene was innocent and could not understand how it could be interpreted as condoning irresponsible behaviour; to which the ASA responded that the production details were not something viewers were privy to and would believe that this is how the farmer depicted transports his livestock. Outsurance marketing head Peter Cronje said they respect and shall abide by the ASA’s ruling but disagree with the finding. The campaign has since been removed from all platforms.

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Visit us at www.profida.co.za or phone (021) 975 0215 8 4 CR 104

STRIDE CERTIFIED

new appointments IISA

The IISA has welcomed Daryl De Vos, managing director of Africa Re SA Limited (ARCSA) as a member of the board of the IISA. De Vos, who has established himself as a key player in the South African insurance industry, spent two decades in various insurance and reinsurance roles before being head-hunted in 2003 to join the pioneer management team that transformed the representative office of the Corporation into a wholly owned subsidiary licensed to underwrite reinsurance business in South Africa. Daryl De Vos

“Among a host of great candidates, Terence stood out in terms of strong leadership, directly applicable experience, and a strong track record of delivery within the business. He has a deep technical understanding of the broking market and proven insights into the business dynamics,” said Robert Brown, CEO of Aon EMEA, who also expressed confidence in and support for Williams’ ability to lead the organisation in the dynamic South African business environment. Roux was at the helm of Aon South Africa for 10 years and will remain with the company as chairman of Aon Sub-Sahara Africa.

Allan Gray With the unfortunate and untimely passing of Simon Marais, Allan Gray has appointed Ian Liddle as his replacement as chairman of the board.

De Vos has progressed within the Corporations from general manager of underwriting and marketing, to deputy managing director in 2007, and then managing director at ARCSA in 2011. He is a committed industry professional who has and continues to serve on a number of industry associations including SAIA, the Insurance Institute of the Cape of Good Hope, and as an executive member of the IISA. De Vos continues to support the growth of the Corporation’s business in Southern Africa. “There is no doubt his industry knowledge and experience will add value to the deliberations of the board in the future,” said David Harpur, CEO of IISA.

Aon South Africa

Terence Williams

Aon South Africa announced the appointment of Terence Williams as CEO, replacing former CEO Anton Roux, with immediate effect on 8 May 2015.

Williams joined Aon in June 2001 as a broking director in the UK, and in August 2011 he was appointed head of casualty Aon Global before coming to South Africa in March 2013 where he held the position of chief broking officer. The company’s commitment to unmatched talent and developing outstanding leaders from within its ranks was reaffirmed with Williams’ appointment as CEO.

Ian Liddle

This new appointment has also promulgated the appointment of Andrew Lapping, former fund manager, to deputy chief investment officer.

“Simon left an indelible mark on our company as both an executive Andrew Lapping and latterly as chairman. We are intensely focused on living up to his high standards, and helping our clients to achieve good investment returns over the long term,” said Liddle. Liddle joined Allan Gray in 2001 as an equity analyst after several years as a management consultant and has held the role of chief investment officer (CIO) since early 2008. Rob Dower, chief operating officer of Allan Gray, has expressed his full confidence in both Liddle and Lapping’s future in their new roles. Lapping is expected to succeed Liddle as CIO in March 2016. He is currently a fund manager of the Allan Gray Equity, Balanced, Bond and Money Market Funds and oversees the African equity portfolios. “For me personally it is a great opportunity to build and develop the strong team Ian has put together over the past eight years and to continue to serve Allan Gray’s clients in a new role,” said Lapping.

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YOUNG TALENT

SHOWCASE Since launching this feature in October 2014, weâ&#x20AC;&#x2122;ve featured a host of young movers and shakers in the industry, and this particular feature will be no different. In this issue, we shine the spotlight on Christelle Fourie, managing director at MUA Insurance Acceptances, who at the tender (yet ripe) age of 25, impressively held the position of MD. Christelle has been in the industry a total of 24 years so far, and she shared some valuable insight with us for all those young people who are looking to break new ground in their careers. 106 8 4

Fuelled by

When thrown in the deep end – sink or swim When I started my job as the founding MD of Thatch Risk Acceptances at the age of 25, I did not even understand what an underwriting agency was. It was without a doubt the most difficult and intimidating thing I have ever done in my entire life. Not only did I not know anything about managing a business or people, I had no degree and I was about to launch a business that dealt with a risk that had very little appetite in the South African market. However, I had an idea and a burning desire to make a success of something. When the board asked for a strategic plan or a staff performance management plan, I went to business school, learnt the basics, and did it. I just simply made it my business to find out how to achieve success every step of the way.

Never underestimate the power of support, advice and mentorship It is so important to learn from those who have gone before you and to not repeat unnecessary mistakes. I had a great man, then MD of Hollandia Reinsurance, Steve Murphy, who believed in my vision and I had incredible support from my shareholders and risk carriers.

Christelle Fourie

Young talent brings about much-needed innovation and energy to the industry Ever since I joined the industry in the early 90s, there has been a lack of young people driving companies and holding positions in senior management – which is a problem. I think perhaps our industry places an inordinate measure of trust in experience. The problem with this approach is that you lose out on the innovation often brought to the table by younger talent. In order to gain fresh perspective and innovative solutions to industry challenges, it is important to challenge the current norms and work with individuals who are able to provide these – which often comes from young individuals.

build a network of contacts. It is very easy to do this – especially with the various social media sites and networking opportunities available to professionals within the industry. It is also imperative that young professionals build a solid reputation of going above and beyond – not only will this broaden an individual’s experience, but others will start seeing the hard work being put in.

I believe that while it is vital to tap into the experience and wisdom of the pioneers and older generations within our industry, it is equally important to capitalise on the fresh approach, innovative thinking and insights that younger CEOs can provide. Young CEOs like Facebook’s Mark Zuckerberg and Google’s Larry Page are becoming great examples of progressive thinking, new ways of running companies and ultimately shaking up industries. Young CEOs are generally more in touch with emerging trends, especially within the technological space. This allows them to develop new product services to cater for the growing demands of brokers and clients alike.

At the end of the day

For those young fire starters who have their sights set on achieving greatness in the industry Getting a good education will make entering the profession so much easier to do. In addition to this, it is equally important to

Keep reading, learning and trying to grow within the industry – any knowledge gained is never wasted. Finally, don’t underestimate the importance of personal brand building through social media. The relationships and personal brand created on these platforms will follow you throughout your career and prove to be invaluable in years to come.

It is all about commitment, drive and passion. My grandfather always said: “Decide what you want in life and go for it,” – it is as simple as that. Connect with Christelle on Twitter @christellefouri and @mua_insurance Don’t miss out on our fourth and final Young Talent Feature in the October issue of RISKSA, where we will share all the details about our finale networking and social event that we mentioned in our first feature. Be sure to connect with us on Facebook https://www.facebook.com/thefulcrumgroupsa and Twitter @Fulcrumeer for the latest Young Talent updates.

Vaughan Jones, CEO at Fulcrum Fulcrum’s very own CEO, Vaughan Jones, has some pearls of wisdom to share with ambitious young people in the industry who have their sights set on building up businesses: “Do something you love and you are genuinely passionate about. Building a business is a tough and lonely job, and ultimately, it’s the fire in your belly and the belief in yourself that gets you through the hard times when others may doubt you. This and, of course, make sure that you always stay on the right side of the cash flows!”

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events

IIG Annual Charity Auction The Insurance Institute of Gauteng’s (IIG) Annual Charity Auction, which included Hollard as one of the main sponsors, took place at the 1 on Fox in Johannesburg on 7 May and raised a record R740 000.

SAUMA 2015 The Ebony Auditorium in Bryanston, Johannesburg, hosted this year’s SAUMA Conference 2015 on 8 May. Delegates were privy to an insightful line up of topics from all corners of the industry and speakers included Norton Rose’s Christine Rodriguez, the IISA’s David Harpur, Glassfit’s Barry Miller, Global Choices’ Nicky Evans, as well as Carel Nolte, Emma Sadleir, and JP Landman. Tersia Daveys welcomed a full house at the conference and Rodriguez commenced with RDR-based forecasts of brokers potentially becoming niche underwriters in future; Harpur addressed the FSB’s plans with CPD hours this year and Miller covered a change in the industry regarding claims costs. There was also coverage of the SAUMA Smart Assistance app developed by Global Choices to streamline the registering and capturing CPD hours before Nolte shared his HR and marketing tips for ‘people who don’t have time for crap’. Sadleir rounded off the event with insights into how social media impacts the industry.

Insurance Telematics Conference 2015 Trade Conferences International (TCI) hosted the Insurance Telematics Conference on 6 and 7 May 2015 at the Indaba Hotel in Fourways, Johannesburg. Professionals from sectors that included motor insurance, telematics technology, software and mobile operations, tracking and fleet management and insurance consultancies attended the two-day event. The inaugural conference aimed to provide valuable information essential to developing the innovative telematics technology. The event had a special networking focus where attendees were encouraged to form new business alliances and increase networking between the industry experts. The issue of insurance telematics data was the highlight of the event and according to attendees the topics that raised the most interest were telematically determining driver risk profile, and pushing UBI forward with the right telematics data.

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The event attracted hundreds of insurance industry names who were entertained, wined, and dined while parting with their money for good causes. Fulcrum’s Carel Nolte along with MC Rick Alan broke the ice with colourful outfits and comedic observations of popular culture. This year’s theme was FAWC (Food Art Wine Charity), and the evening’s hosts were very tongue-in-cheek in their playful use of the acronym. There were 15 items to be auctioned for the evening and the evening’s hosts cajoled guests to outdo one another in their bidding – all in good humour – and the item that fetched the most at R52 000 was a portrait of Nelson Mandela, painted onstage in just eight minutes. Alan playfully promised the audience to have the auction done in under three hours and true to his word it was over in under two.

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news international Asia

Singapore hosts 42nd Geneva Assembly

International insurance think tank, Geneva Assembly, held their 42nd General Assembly in Singapore in May where global leaders in the insurance industry convened. This is the second time the four-day event was hosted in Asia and the first for Singapore. The Geneva Assembly, formed in 1973, is the world’s foremost gathering for international insurance industry leaders. More than 50 key decision-makers in insurance gather annually at the event to deliberate on the economic and strategic challenges facing the industry, which is followed by an analysis of practical solutions which insurers can provide. The event was held in collaboration with the Monetary Authority of Singapore (MAS) as well as with the fund manager, ACR Capital Holdings. Delegates were hosted by Singapore’s Prime Minister, Lee Hsien Loong, at the Istana and the keynote address was delivered by Deputy Prime Minister Tharman Shanmugaratnam.

Hannes Wilken, to expand into the rest of Africa with the launch of a direct insurance business. “We think that they are very experienced across the industry and people we know well who understand the Old Mutual business and our value systems,” said Ralph Mupita, CEO of OMEM. Telesure had yet to fill the vacant executive positions including that of Telesure Investment Holdings CEO, Leon Vermaak who stepped down at the end of February. Stephen Klinkert, who is deputy chairman and CEO of BHL Holdings, is acting CEO of Telesure in the meanwhile.

Africa Old Mutual poaches Telesure execs – eyes rest of Africa Old Mutual Emerging Markets (OMEM), has hired three (former) executive directors at Telesure, Anton de Souza, Connie Kruger and

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CEO of Telesure’s short-term insurance business, Tom Creamer, said that Telesure is an obvious choice where targeting talent in a highly competitive market is concerned and wished the executives well in their future endeavours. Creamer also reported the CEOs of Telesure’s various group companies remained fully committed to driving the group forward and expressed confidence and excitement about what lies ahead. The new

executives were predominantly working in the rest of Africa, according to Mupita, and were restricted from operating in South Africa until January 2016 under a restraint of trade. “Anton and team are focused as we speak with our UAP acquisition in Kenya,” said Mupita. Old Mutual acquired a majority stake in UAP in the first quarter of 2015, and now ranks in the top three insurers in East Africa. Mupita said OMEM is looking to Namibia as a market to build a direct insurance business and exploring two others with technological, customer preference, and cost structure advantages for a direct business.

North America Willis Re Launches $400M Reinsurance Facility

Europe Insurance Europe raises base erosion and profit sharing concerns Insurance Europe recently raised concerns regarding the public discussion draft on base erosion and profit shifting (BEPS) by the Organisation for Economic Cooperation and Development’s (OECD) regarding strengthening controlled foreign company (CFC) rules. Insurance Europe emphasised that an insurance income in a different territory to the risk insured does not equate to BEPS activity taking place but rather this occurrence is a byproduct of the globalisation of insurers managing risks, including through reinsurance. They also stated that a clearly articulated policy objective is missing from the discussion draft which attempts to satisfy multiple competing objectives creating a set of complicated – and sometimes conflicting – proposals. Concerns were also highlighted about how the CFC proposals could potentially undermine the detailed work already done under other BEPS actions. Insurance Europe has suggested the development of the CFC to deal solely with BEPS issues, and nothing further.

The reinsurance division of Willis Group Holdings plc, Willis Re, have launched their syndicated reinsurance facility in May that provides the broadest available protection for insurers against the catastrophic and systemic loss accumulations that arise from liability portfolios. The facility, called PRIMO, is designed to respond across all casualty and professional lines, and it was initially supported by 20 of the leading global reinsurers. This new international facility is an industry-first for casualty cover in that it provides over USD 400 million in reinsurance capacity globally (based on preagreed contract wording). “PRIMO builds on over 25 years of continuous research and development since its precursor was developed in the late 1980s. Willis Re can now offer our diverse and global clients a tried and tested reinsurance solution protecting against events that impact multiple accident years, create quarter-on-quarter earnings pressure and represent a significant unknown in terms of quantum from the time the event is discovered until it becomes a paid loss,” said John Cavanagh, global CEO of Willis Re. Andrew Newman, head of global casualty at Willis Re, reported that, compared to first-party risks from natural and man-made ‘perils’, third-party casualty risks have up to this point been considerably underserved by property catastrophe reinsurance markets. “While conventional clash reinsurance products can respond well to certain threat scenarios such as industrial accidents or earthquake threat to workers compensation, they are not designed to and do not offer broad systemic protection. Now, for the first time, meaningful catastrophic reinsurance protection is available, and affordable, for writers of casualty business, including all financial and injury-based lines,” said Newman.

New global insurance rules face scrutiny from Republicans The Financial Stability Board (FSB), composed of regulators and central bankers and set up by the Group of 20 leading economies in 2009 to fortify the global financial system, faced criticism from the Republicans at a hearing in May. Heading up the attack is Richard Shelby, chairman of the Senate banking committee, who expressed a range of concerns about the FSB’s influence at the hearing. “An international regulatory regime should not dictate how US regulators supervise American or US-based companies,” he said. AIG, Prudential Financial, and MetLife have been deemed so critically important to the financial system that the FSB decided the three US insurers must be subject to tighter global regulation and potentially higher capital requirements. Shelby, whose sentiments are apparently in line with a longstanding (Republican) scepticism toward international forums, bemoaned the decisions made by the FSB, based in Basel, Switzerland, suggesting it has been adopted ‘with what appears to be little independent evaluation’ by the Financial Stability Oversight Council (the US’s umbrella group of regulators) despite them being of the same opinion calling the three insurers ‘systematically important’. Shelby, who accused the FSB of being an ‘unaccountable international body,’ said the FSB should not dictate how US regulators supervise American or US-based companies. The FSB relies on the soft diplomacy of its members to ensure proposals are implemented by each country and they have no power to enforce recommendations.

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