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contents FEBRUARY 2014
20 Supply chain reaction: understanding your client’s exposure
Contingent business interruption insurance should be the final step following a suite of risk mitigation measures to deal with unexpected indirect events outside of a company’s control, which negatively impact the ability to operate.
The future: it’s risky business
On a quiet Saturday morning in 2008, the little English town of Whittlesey took cover for nearly four hours as giant shards of ice, some two feet long, crashed from the sky, smashing windows, gouging cars and leaving residents in fear for their lives. And no, this was not another extreme weather incident.
26 / A stitch in time saves nine – municipal insurance 30 / Enjoy your stay… 42 / Managing weather risk: Mauritius leads the way
48 / Medical malpractice: how much cover is enough? 52 / Out of pocket
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56 / Disclosing depression 62 / Business continuity is essential for the self-employed 64 / Thatâ€™s an order
68 | managing risk
68 / Scratch the surface: business interruption risks your clients may neglect 72 / Business Interruption: 10 common mistakes brokers should be mindful of
108 / Breaking down Bitcoin: the digital currency the world is talking about 114 / Island property â€“ no problem 116 / Ride my pony
118 / Business lounges: In the comfort zone
80 / Malicious acts vs negligence 82 / A tale of Twin Peaks 84 / Brokers abroad 90 / Stormy forecast 96 / Nurturing the talent within 100 / News
122 / The RISKSA guide to business travel in Africa (Part I: Kenya)
76 / Bank fraud hits hard
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Dearreader The times they are a-changing. Our industry has been klapped with two significant hail events in 2013. The devastation caused by this natural phenomenon is, well, phenomenal. From crops to cars, hail can wipe out insurance reserves quicker than you can say Bob Dylan. Add to this the flood damage suffered by folk in the Karoo and elsewhere means that insurers have only two choices really; harden premiums (and we all know how well that goes down) or exclude cover for these events entirely. While we’re on the good news bandwagon lets also keep a wary eye on what is happening in emerging markets (including ourselves). At time of writing our currency had just hit a five-year low against the greenback and our unions seem hell-bent on destroying our economy. A poorly performing economy means that personal lines premiums come under pressure and brokers have to contend with missed debit orders and the hassle of finding new business all over again. The weak Rand is problematic for us because our already ridiculously expensive car parts bin is about to get even more expensive – watch
those repair costs escalate which means another reason for insurers to harden (some would say normalise) premiums. Whichever way you look at it, your job just got tougher. We explore these issues in depth in next months magazine. The good news is that my hardworking team here at RISKSA has managed to roll out our Insurance Bootcamp seminars to every corner of the country. Yup, for a small fee you’ll be able to log in live to our Johannesburg Bootcamps and ask and get answers to questions relating to the seminar you’re logged in to. Need more info? Call Angelique on our office number, she’ll help you get connected. It looks like we’re all going to need all the help we can get this year, stay close as we bring you all the tools you need to stay at the top of your game.
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future Sarah Bassett
On a quiet Saturday morning in 2008, the little English town of Whittlesey took cover for nearly four hours as giant shards of ice, some two feet long, crashed from the sky, smashing windows, gouging cars and leaving residents in fear for their lives. And no, this was not another extreme weather incident.
it’s risky business T
he source of the ice javelins was a nearby 80-metre wind turbine. Freezing overnight temperatures had caused the ice to form on the blades of the turbine. No one was injured in the incident, but Whittlesey residents ensured the turbine, erected only a few months before, never turned again. Studies categorise the phenomenon, now termed ‘ice throw’, as a significant safety risk with manufacturers developing temperatureregulating technology to ensure that ice does not form on turbines. But, as with the asbestos industry in decades prior, this was not a risk manufacturers, operators or investors foresaw at the industry’s outset. As technology transforms the world around us with increasing speed, associated risks can be slower to emerge. RISKSA takes a look at which fastmoving technology trends could transform the future of business and commercial risk and leave insurers covering hazards they never contemplated.
“Already, robots perform surgeries, shoot people, fly planes, drive cars, replace astronauts, baby-sit kids, build cars, fold laundry and more.”
Last year, there were 77 robot-related accidents in Britain alone, according to the Health and Safety Executive. Closer to home, in October 2007, a South African Defence Force semiautonomous robotic cannon malfunctioned, killing nine soldiers and wounding 14 others. In 2009, a robot’s arm crushed and killed a worker at a Golden State Foods bakery in California. The case is ongoing, and though the incident was found to be partially due to the worker’s lack of precaution, it seems likely that Golden State Foods will be liable for several major fines.
Robotics: the future is now “We are moving quickly past the robotic vacuum cleaner stage to far more complex machines. Nearly every physical task can conceivably be done by a robot at some point in the future,” says renowned futurist Thomas Frey. Already, robots perform surgeries, shoot people, fly planes, drive cars, replace astronauts, baby-sit kids, build cars, fold laundry and more. They might not always do these tasks well, but they are improving rapidly. “Before long, autonomous machines will be our work colleagues, house cleaners and tour guides; they will keep our cities clean and teach our children; they will carry out surgeries and support and entertain us when we get old,” notes the 2013 Swiss Re SONAR Emerging Risk Insights report. In South Africa, robotic technologies have enabled automanufacturers to compete and produce vehicles for export markets. In September last year, a multimillion-Rand system brought robotic surgery to the Urology Hospital in Pretoria. And for the flailing mining industry, it is hoped that robots will be the answer to squeezed profit margins. Bill Gates suggests that robotics is on the cusp of industry revolution, poised just as the personal computer was in 1980. Indeed, robots of the future will likely revolutionise business efficiencies. This will open new opportunities and avenues for the insurance industry, but could also open up insured companies to new and as yet little understood liability and potential reputation damage.
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Beyond the factory floor, the market for personal or service robotics is likely to expand substantially over the next few years, according to Mike Barker, consulting electrical engineer and founding member of the Robotics Association of South Africa. “The applications for personal or domestic use robots are potentially infinite, starting in areas such as physical or psychological therapy, education, eldercare, exploration, hostage negotiation, rescue, entertainment and home security,” he suggests. In the context of the home and broader public sphere, the risks are likely to amplify, bringing new dimensions and complexity to product liability risk and regulation, and increasing the urgency of the question of ultimate responsibility. As with any technology, particularly those in rapid development, creating a perfect piece of complex software is challenging. While safety is a key development objective, somewhere in the reams of code, errors and vulnerabilities creep in. And because robotic uses are in their relative infancy and models may be upgraded regularly in the future, manufacturers will not have large amounts of data on previous accidents, near accidents, claims and their causes. With consumer software, another area plagued by complexity, developers are allowed to disclaim responsibility. But it’s one thing not to be able to sue Microsoft because Word or Windows crashed and lost a document; it’s quite another not to be able to sue a robotics manufacturer because its product crashed into a person or an object.
The liability question “Liability for harm caused by a personal robot is going to be very difficult to resolve. Robot control runs the gamut from relatively straightforward teleoperation to near complete automation. Robots are made up of frames, sensors, motors and other hardware, of course, but their behaviour is often governed by complex software. Both the hardware and the software can be modified; open source robotic software particularly could have hundreds of authors. It is far from clear how standard tort concepts such as foreseeability, product misuse, design defect, intentionality and proximate cause will play out,” writes Ryan Calo, an assistant professor at the University of Washington School of Law and expert in law and emerging technology. Calo points to the fact that the contexts in which robots are currently in use tend to have built-in immunity. “Military contractors are largely immune from accidents involving the weapons they build and workplace injuries tend to be compensated through state workers’ compensation schemes. No such blanket protections operate in the home or public street.” Litigation in this area is also likely be high profile in the early years, amplifying the reputation risk for companies involved. Product liability and legislation is largely untested and undeveloped with respect to robotics. No doubt these will evolve and develop, but the reality is that it is an untested and unknown realm with serious potential ramifications. In time, businesses
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may face legal, ethical and reputation challenges that simply may not have seemed obvious at the outset. The increasing prevalence of `intelligent’ autonomous machines capable of self-learning has already given rise to concerns about robot abuse and other ethical dilemmas. In a similar vein, lawyers have begun contemplating if and how robots themselves could potentially be held liable for their actions. According to the 2013 Swiss Re SONAR Emerging Risk Insights report, this trend could have significant implications for the insurance industry. Liability cases are already occurring. “Currently, most of these involve car manufacturers and similar industrial producers, but over the long run this will likely decline compared to cases involving robots purchased by consumers. Ultimately, this may even open up a field for a whole new type of liability insurance cover for insuring both the actions and the performance of robots,” suggests the report.
Unmanned vehicles Unmanned air vehicles and driverless cars are potentially the most significant applications of robotic technology in the near future. Driverless cars have attracted attention through the work of researchers at Oxford University and Google, as well as leading vehicle manufacturers including Toyota, Ford and Mercedes-Benz. The industry consensus is that autonomous driving will be available by 2020, but the question of liability remains unresolved. Vehicles able to drive themselves will account for about nine per cent of global auto sales in about two decades, according to a forecast
published last year by auto industry consultant IHS Automotive. According to Stanford Law School Center for Automotive Research fellow, Bryant Walker Smith, technology will advance to the point where driverless cars will be able to handle most, if not all, emergency situations without transferring responsibility to an occupant. Experts suggest that the introduction of driverless cars will see accident rates reduce by as much as 90 per cent, but when things go wrong, the consequences could be severe and who will take the blame? “What will happen is everybody will get sued,” Smith said, speaking at the 2013 Driverless Car Summit. “Some (defendants) will win and some will lose. And those with the deepest pockets will lose the most. Drivers, owners, operators, all the transportation actors, are potential defendants.” Similarly, the benefits of widespread unmanned air vehicles must be balanced against the risks and uncertainties they bring. In the event of such a vehicle crashing into a ground-based structure, who would be liable: would it be the manufacturer who developed the system or the operator who may or may not have been flying the vehicle under proper constraints? How would you prove that an operator was following manufacturer guidelines for use, training and maintenance? The reality is that these questions remain unanswered, but the potential benefits demand that answers be found and that we adapt to new risks and responsibilities. How these are answered will have major implications for those insuring business risk and managing liability.
Nanotechnology, macro risk Nanotechnology is the science of engineering functional systems – materials and devices – that are smaller than a living cell. According to the US Centre for Responsible Nanotechnology, at such scales, the ordinary rules of physics and chemistry no longer apply and materials’ characteristics, such as their colour, strength, conductivity and reactivity, can differ substantially from the macro scale. Carbon nanotubes, as the cylindrical nanoparticles are known, are 100 times stronger than steel and six times lighter. The industry has potential application across almost every sector and is expected to generate roughly $1 trillion in the next two years alone. Using nanotechnology, materials can effectively be made to be stronger, lighter, more durable, more reactive, more sievelike or better electrical conductors, among many other traits. There already exist over 800 everyday commercial products that rely on nanoscale materials and processes. These include materials in the automotive industry, building materials, in fabric to reduce
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wrinkling, cosmetics (also to reduce wrinkling), pharmaceutical products and multiple medical applications, including imaging, treatment and specialist equipment. The technology is hailed with the potential to massively increase manufacturing capacity at significantly reduced costs, improve the efficiency of energy consumption and provide sustainable energy sources. Products of nanotechnology will be smaller, cheaper, lighter yet more functional and require less energy and fewer raw materials to manufacture. South Africa is one of several developing countries to have established governmentfunded programmes and research institutes. The South African Nanotech Initiative (SANi) is involved in current nanotech projects which include the development of better and cheaper solar cells, fuel cell development and nanotube synthesis. The adoption of nanotechnology is encouraged in a national strategy, laid out in 2010, to provide solutions to some of the country’s key development challenges, such as the provision of safe water and the innovative delivery of health services, with nanomaterials manufactured locally on a small scale for research and development purposes. But associated medical and environmental risks abound. In pharmaceutical applications, nanotech particles have been linked to unintended impacts leading to brain, liver and skin cell death in mice and in humans. Carbon nanotubes have been found to cause asbestos-like side effects; and in environmental engineering, nanomaterials are feared to be able to interact with pollutants to produce toxic by-products. In its 2013 Emerging Risks report, Guy Carpenter classifies nanotechnology as a risk with the potential to surprise, saying it should be closely monitored by risk managers,
and insurers. From a risk perspective, the key concern is that nanoparticle toxicity and its long-term effects is simply not yet understood. Nanoparticles disperse easily in water and air, and are difficult to measure due to their small size and their implications on human health are unknown if inhaled, ingested or absorbed through the skin. Moreover, the toxicity levels of nanoparticles are not yet known through each of the stages of their lifecycle.
Insurance and nanotech “Currently, there is significant lack of clarity in applications of insurance to nanotechnology products and firms,” writes Charlie Kingdollar, vice president and emerging issues officer of General Reinsurance Corporation. “Standard policies don’t necessarily exclude nanotech products; but would courts apply policy pollution exclusions to such a claim?” Globally, nanotech products are only lightly regulated. There are few labelling requirements. Two-thirds of firms and universities fail to conduct toxicity tests on nanomaterials, says Kingdollar. At many firms, employers protect themselves with nothing more than paper masks. More than a third don’t require masks at all. Because nanotechnology has been available only since 1984, and due to the cutting-edge
speed at which it is being developed, reliable data describing its effects is often outdated. But already, the technology is everywhere. The unforeseeable nature of this risk has the potential to create significant challenges for the insurance sector, the Guy Carpenter report suggests. Potential exposures may impact various lines of business, including general liability, products liability, products recall, workers compensation, directors’ and officers’ liability and/ environmental impairment liability. “As with the asbestos crisis, insurers recognise the potential for nanotechnology-related claims to accumulate due to potentially long latent periods of health and environmental impact. Some believe that nano tort claims are inevitable. Should such a scenario come to fruition, insurers and reinsurers face a real challenge in attempting to quantify potential nanotechnology-related losses as the technology is broad and the risk is not uniform,” the report notes. The Swiss Re report echoes this concern, stating: “Of key concern are delayed impacts. Similar to the asbestos case, there is potential for large losses under product liability, workers’ compensation and environmental liability policies.”
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Also on the horizon
According to Guy Carpenter’s report, studies are difficult to conduct, since time trend studies are inconsistent due to the still recent proliferation of wireless technology. The WHO has classified extremely low-frequency magnetic fields and radiofrequency electromagnetic fields, such as radiation emitted by cellphones, as potentially carcinogenic to humans (class 2B carcinogen). A recent ruling by an Italian court suggested a link between mobile phone radiation and human health impairment. “Overall, however, proof regarding the possible adverse health effects of EMF remains inconclusive. If a direct link between EMF and human health problems were established, it would open doors for new claims and could ultimately lead to large losses under product liability covers, leading to a likely increase in liability rates,” warns the reinsurance intermediary.
Do-it-yourself galore With the rapid advance of enabling technologies, the western world is witnessing a strong growth of a new do-it-yourself culture.
Electromagnetic fields The unforeseen consequences of electromagnetic fields (EMF), radiation generated by power lines, computers, mobile phones and broadcast towers, raises concerns about potential implications for human health. Over the last decade, the spread of wireless devices has accelerated enormously. The convergence of mobile phones with computer technology has led to the proliferation of new and emerging technologies. This development has increased exposure to electromagnetic fields, the health impacts of which remain unknown.
Biotech Biotechnology is another area of emerging risk where little is really understood of the long-term implications. In its widespread application in the agriculture and food-crop sector, there are key health and environmental concerns. The application of intellectual property rights to plant organisms in the commercial application of this field may also have long-tail ethical and liability complexity in decades to come. Global reinsurance giant Munich Re lists genetically modified organism-related risk at number six on its list top 20 emerging risks (with nanotechnology at number four). These risks are defined as risks with high potential impact that are difficult to quantify or predict.
On the manufacturing side, 3D printing, the process of additive manufacturing of three-dimensional parts by using a computercontrolled printer, is a key technology in this trend. The use of this technique is rapidly spreading across various industries, including automotive, aerospace, construction and prosthetics, and will likely move into eventual home and individual use. “3D printing raises a number of questions regarding liability issues (mainly with regard to product liability and recall, but potentially also affecting other lines such as workers’ compensation) as well as intellectual property rights. Ultimately, even the marine business could be affected due to disruptive impacts on the global logistics value chain,” Swiss Re cautions.
Awareness crucial A common trait for all the risks discussed is a lack of understanding of the threat they pose to businesses and insurers. In particular, Guy Carpenter notes in its 2013 report, that today’s global and interconnected economy adds complexity, giving new risks the potential to change and exacerbate the threat posed by some known risks. “Insurers have a long history of successfully identifying and managing new and emerging risks. Indeed, several carriers
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are already endeavouring to enhance their understanding of and mitigate the diverse and complex risks outlined in this report. Considerable investments are necessary to develop a sufficient understanding of new risks as they emerge. However, only by proactively confronting these challenges can carriers establish adequate reserves, pricing levels and further risk awareness,” the report concludes.
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Supply chain reaction Christy van der Merwe
UNDERSTANDING YOUR CLIENT’S EXPOSURE
Contingent business interruption insurance should be the final step following a suite of risk mitigation measures to deal with unexpected indirect events outside of a company’s control, which negatively impact the ability to operate. What is CBI ? Contingent business interruption insurance covers third party elements of the business chain (third party component supplier, for example) and pays expenses when your supplier cannot operate, which subsequently halts your operations. Your company has not suffered any direct damage but you’re unable to conduct business normally because of your vendor’s problems.
here needs to be substantial upfront analysis of the supply chain risk, says Dave Marais, technical manager for Aon’s corporate and speciality division, and brokers should spend time with their clients, ensuring that they understand the business. “What are the risks to the company and the impacts, and how do we mitigate these? There needs to be business continuity planning and scenario planning – a vital part of the business plan, and not a hit and miss operation,” he adds.
Contingent business interruption (CBI) insurance is offered as an extension of the business interruption cover. “Brokers should ensure that this extension is included as it is an integral part of the business interruption cover,” says Marais. There has not been a tremendous amount of product innovation in the market, as CBI is a well-established offering in South Africa. Some standard aspects that affect the underwriting process for CBI include the location of suppliers; insurer capacity; and bad risk exposure, which could mean higher premiums or imposition of limits. Risks are identified and when rates are negotiated, extensions, exclusions, specified suppliers and limits and sub-limits must be clarified. The ever-changing variables in the equation are the risks that companies will experience throughout the supply chain. Charl Swarts, head of Hollard Broker Markets (formerly Etana Commercial and Industrial),
emphasises that brokers have a vital role to play in advising their clients that having robust business continuity plans (BCP) or disaster recovery plans (DRP) in place is fundamentally important. Often, companies take the approach that buying insurance will protect them. “This is a potentially fatal error. Your clients should have contingency plans in place regarding raw material suppliers; alternative accommodation; they must have outsource arrangements to fulfil existing customer orders; and other vital ‘Plan B’ arrangements. Failure to do this can lead to loss of reputation in the market that no loss of profits claim can buy back,” Swarts says. Swarts emphasises that a well-prepared business will have full BCPs or DRPs in place, in addition to a comprehensive and adequate insurance that will cover the costs of putting these plans into action and maintain turnover should the worst happen. “A potential benefit that brokers can point out is that a detailed BCP or DRP will often attract a discount on the premium charged by insurers in recognition of the risk management the insured has undertaken,” he states.
Increased outsourcing heightens CBI risks
and a lack of alternate suppliers. Recent events have demonstrated that a failure of one party in the supply chain can have significant operational, financial and reputational damage for each party in the supply chain process,â€? explains Tracy Linnell, advisory services general manager at Continuity SA.
â€œGlobal markets and the trend to outsource non-core components of the supply chain have resulted in areas of weakness where the finished goods manufacturer suffers the most, largely due to just-in-time principles
Increased outsourcing means that whatever impacts a companyâ€™s suppliers, be it floods in Thailand, a polar vortex in Chicago, or piracy in Somalia, affects the company in a chain reaction. Linnell also notes that where the finished goods manufacturer has a monopoly, there is
limited chance of the customer cancelling the purchase request. This implies that the customer will suffer the result of the third party interruption, but the manufacturer will be largely unaffected. However, companies operating in highly competitive markets risk their customers finding alternate suppliers with little thought for loyalty to the affected supplier. This creates the reverse effect, where the manufacturer takes the full brunt of the failure and the customer can still source the product elsewhere. For example, in 2011, steelmaking giant ArcelorMittal South Africa had to shut down operations at both its Newcastle and Vanderbijlpark facilities, following fires that necessitated months of repair and maintenance of furnaces.
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The downstream clients would have needed fire or explosion underwritten into their own supplier CBI cover. To continue operations, those companies would have had to make other arrangements to import steel which may have been more costly or, if operations had to be halted, that could be claimed for. In some instances, however, companies that relied on product from ArcelorMittal SA were able to source steel more affordably overseas, and ArcelorMittal SA would have wanted to win back these clients and recover from the reputational damage.
Identify weakness and interdependence Linnell suggests that implementing a business continuity project and, more specifically, a business impact analysis, is an opportunity to create a competitive advantage and proactively mitigate possible high risks. This would position a company one step ahead of its competitors during a crisis and allow them to enjoy higher than expected sales. The business continuity project and business impact analysis will unveil single points of weaknesses as well as interdependencies that may otherwise not have been identified or understood, she adds.
Relying solely on a single supplier of raw materials or other production necessities is a mistake, or bad habit that businesses can fall into. “If alternatives are readily available in a competitive market, this mayC not be an issue; but if suppliers are limitedM and are able to dictate terms, it may Y be worthwhile holding buffer stock and having contractual agreements in place CM with alternative suppliers in the event the regular supplier becomes unable to fulfil MY their commitments,” says Swarts. CY
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Broaden the scope of risk identification Considering the emphasis on preemptive solutions for CBI, and the need to adequately identify risks facing a company, RISKSA turned to Volker von Widdern, managing director at Marsh Risk Consulting, for insight.
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Rather than a list of standard supply chain risks, Von Widdern speaks about a range, or dimensions, of exposures that impact companies. The insurance process includes a riskranking exercise that primarily considers upstream risks, but downstream issues are a large contingent that may be left out. The upstream risks are generally more easily identified, as they relate to production and hazard factors, while downstream risks consider issues such as customer retention or loss, brand image
Besides the business interruption claims at ArcelorMittal SA, a number of the company’s customers logged CBI claims because ArcelorMittal SA is a major supplier to many downstream industries, particularly in the automotive and construction sectors.
“The biggest external factors influencing the supply chain are weather; other natural catastrophes; disease; contagion; regulatory issues; IT or cyber issues; and social unrest.”
and possible financial penalties, which are more difficult to evaluate. A company’s suppliers are a variety of dimensions away, explains Von Widdern, and this means that they will go through a number of steps to get their product to the
company. These include design with elements like intellectual property and regulation; the manufacturing process itself; quality assurance (QA); and logistics. It is the manufacturing process that is largely taken into account by supply chain insurance, because this is where most asset events or hazards and business
interruption triggers tend to occur. However, the broader dimensions should also be considered from a risk perspective. “The QA process, although not a hazard – rather, a dimension – can have an effect. For example, product recalls have highly negative implications and financial impacts. The logistics functions comprise a range of dimensions from the physical logistics to less tangible things like customs and duties. Goods may be en route, but cannot be delivered due to paperwork issues. These are external elements – dimensions – to the supply chain that
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need to be understood.” Then there are the supply chain tiers. Raw materials come from a variety of sources and go through successive primary producers that create the core product elements, following which comes the final assembly and finishing. It’s necessary to understand the tiers embedded in the value chain and how far back to assess those tiers for risk considerations and ask what the critical elements are. “And what are the dimensions of those tiers? What are the critical elements, the dependencies or delay and risk factors of the contingents? A critical part of the product may not be sourced from the largest supplier; how much of an impact will the production of certain parts have on the entire production? Will it create a significant delay or upset the whole process and possibly create a cash-flow issue?” questions Von Widdern.
Know your supply chain The supply chain is also influenced by external factors. The biggest of these is weather, followed by other natural catastrophes, disease, contagion, regulatory issues, information technology or cyber problems, and then social unrest. These broader external drivers lead to contingents too, which cannot be ignored, and must be factored in when identifying risks. Von Widdern emphasises that it is imperative to understand the supply chain network. Insurance applies to hazard events, but we need to understand the processes and contexts. It comes back to the process of supply chain mapping and looking at internal and external factors. Mapping tends to be done from the perspective of the company’s own assets (containers, ships and so on) rather than from an external or qualitative risk perspective. Risk and exposure should be considered on the basis that a key service is not available through external factors. For example, harbour blockage could be caused by the ship in front sinking or key external haulage equipment malfunctioning. How do you insure against a customs official not stamping your customs paperwork? The risks need to be mapped and analysed properly and if there are potential exposures that result in delays or damage, to what extent do they exceed your risk appetite? This is where alternative risk strategies need to be developed and an understanding of where risk transfer is the best option. From a South African perspective, CBIs should be looked at in terms of specific industry inputs and outputs. Certain industries have a higher concentration of supply chain issues. The motor industry, the coal export sector and perhaps the fruit and wine markets face high levels of dependencies within their supply chains, notes Von Widdern. Rigorous risk mapping will highlight these. As ever, knowledge is power, and when it comes to contingencies, prevention is not always possible, but quick response to issues that may arise, will set a company apart from competitors and could turn a catastrophe into prosperity.
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A stitch in time saves nine Anton Pretorius
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Municipalities are, by law, responsible for providing a number of vital public services and simply cannot afford to be caught with their pants down. Failing to maintain valuable infrastructure can leave municipalities and their residents exposed and vulnerable. We find out if their insurance is up to scratch.
RISKSA received a letter from an irate Stellenbosch resident who sustained serious damage to her property due to a lack of maintenance from the local municipality. Since submitting her claim in February this year, Christina Potgieter has received no response from the municipality nor the insurer, despite several letters of grievance to both parties. The constant overflow of a blocked sewerage pipe underneath her house has dampened the ground beneath her porch, causing a 20-millimetre gap to emerge between the porch and the wall, including several cracks in the floor. “After the third overflow in June 2012, the gap between the wall and the porch became more and more visible. The overflow allowed more water to pass through the gap and the porch subsided even further,” says Potgieter. Professor Gerrit Loedolff, a retired lecturer at Stellenbosch University and friend of Potgieter, expressed his concern to the Stellenbosch municipality on her behalf in a letter dated 5 May 2013. He described the municipality and the insurer’s lack of response as “highly unacceptable and unprofessional”. Potgieter did the repairs herself, which amounted to R7 910. This includes the repair
of her porch (R5 900), the removal of the tiles (R300), the provision of the tiles (R1 120) and other unforeseen expenses (R590). “I discussed the situation with a municipal employee in January 2013 and he agreed that the claim was valid. There is no doubt that the constant overflowing of the sewerage pipes is the cause of the cracks, considering that the pouch was fine for 15 years prior,” says Loedolff. "He told me that the municipality can’t repair the porch, but that they could refer it to their insurance and send out their inspectors to investigate,” she adds. It’s been 10 months since their initial contact, yet no response has arrived from either the municipality or the insurer. Upon posting the letter to the municipality, their claims department and spokesperson referred us to the insurer. We’ve approached Lion of Africa (Stellenbosch’s insurer) for comment and to find out whether the claims have been rejected and why. However, Lion of Africa could not respond within the given print deadline. Aon South Africa, which insures more than 70 municipalities nationwide, says that the standard of maintenance varies from municipality to municipality. Regional manager Rian van Dyk says that the reality is that some municipalities are excellent while others have fallen on hard times. “This has a lot to do with skilled resources and budgets available.
Some municipalities are far ahead in terms of upgrading and maintaining their infrastructure, while others face severe constraints and, as a result, maintenance is in dire straits,” he says. According to research by the Council for Scientific and Industrial Research on the state of municipal infrastructure in South Africa, the most common problems experienced with waterborne sanitation reticulation systems are spills, blockages caused by roots of trees, foreign objects, breakages and deterioration of the network. Routine maintenance of sewers is required to minimise these sewage spills. A nationwide sanitation sustainability audit by the Department of Water Affairs and Forestry was conducted in 2005 to ascertain the functionality of sanitation projects. This revealed that 28 per cent of household sanitation facilities have failed or are failing. The study also revealed that just 53 per cent of municipalities have adequate maintenance capacity and only a few smaller municipalities have the skills to conduct effective maintenance of waterborne systems. Fire risks remain a key challenge, especially where buildings are old and do not have the requisite sprinkler systems in place and electrical components are very old. “Lack of skilled engineers is another serious issue,” says Van Dyk. Carte Blanche recently featured the water crisis facing Grahamstown which should have 10 qualified engineers to manage its infrastructure, but currently only one engineer is employed and is stretched beyond his capacity. A municipal employee (who wishes to remain anonymous), told RISKSA that several municipalities in South Africa, especially the smaller ones, are struggling to operate and maintain their services infrastructure in a costeffective and sustainable manner. “The end result is predictable: a speedy deterioration of resources and property, followed by disastrous component failure, and regular and lengthy interruptions in service delivery,” he says.
He comments that municipalities range from those that are facing up to the challenges of maintaining infrastructure in a transformational environment, to those that appear to be unable even to make the attempt because of inadequate resources, or simply lack of will. Guy Jameson, managing director of Marsh South Africa, says that it’s a well-documented fact that several of our municipalities’ infrastructure has fallen behind. “This is slightly disconcerting considering that government has massive infrastructure plans for the near future. The question is whether municipalities will be able to keep up. We’re confident that we’ll be able to respond to any of those requirements that these new infrastructure plans might have.” Daniel Moeti, Marsh’s head of national sales, added that government is looking to spend an estimated R800 billion in the next three years on infrastructure. But how much money will government be able to spend on maintaining infrastructure? “If more income is spent on maintaining infrastructure and development, you’ll find that residents and motorists will have a better experience on the roads, there will be less damage to their vehicles and there’ll be fewer claims against the municipality. Accidents due to a lack of maintenance can result in hefty claims,” says Jameson. Van Dyk says it’s all to do with the stitchin-time philosophy. “When it comes to insurance, you need to consider whether you can really afford to claim for causes that could have been avoided in the first place. All insurance policies require that policyholders maintain their buildings and assets in good condition and secondly that they take reasonable measure to prevent loss.” He adds that insurance is there to cover sudden unforeseen circumstances which result in loss or damage to the property and does not cover damage as a result of negligence or wear and tear. “Spending more on infrastructure could save government millions in potential claims and thereby reduce insurance premiums. Claiming will have an impact on insurance and loss history and comes at a cost to the municipality in the form of excesses and premium increases which can be substantial, especially where a client has repeated and frequent claims.”
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Jameson believes it’s also largely about risk management. “Municipalities have to look at the risk and implement strategies to obviate the exposures on their risk portfolios. Proactive maintenance (health and safety, management of property and fire risk control) allows the municipal manager to better manage their risk and exposure, and keep insurance cover affordable,” he says. In the municipal environment, risk and insurance are often viewed as pure balance sheet items, so they often get delegated to a finance person to manage, which can be the wrong approach. “Unless they are well versed in risk management, this is not an ideal situation and often leaves the municipality at significant risk of not having adequate or the correct cover in place for their specific requirements,” Van Dyk adds.
Liability Liability is another major risk when it comes to liability insurance. Municipalities, like Mossel Bay, which is in close proximity to the Mossgas refinery, need comprehensive disaster management centres on site to manage their risk and exposure.
“In these scenarios, proactive risk management is essential and you will find that where such significant liability risk exists, municipalities will ensure that they have the necessary protection in place. For example, Waterberg and Steve Tshwete municipalities have effective disaster management centres to manage their significant fire and flood risks. Being prepared with qualified people and teams on the ground is the very first line of defence when it comes to this type of liability,” Van Dyk adds. Jameson says that the limit of indemnity is subject to the advice municipalities receive from brokers as well as the continuous exposure they have towards liability. “A municipality may look at the limit a broker gives them and the liability exposure some municipalities have depends on the operations within the area.” Municipalities should buy a limit of indemnity that they can afford. Major industrial operations have their own cover, but municipalities should take into account the areas they cover and what type of liability they may pick up,” he says.
Maintenance is the solution The stark reality is that repairing dysfunctional infrastructure without addressing the factors that impact negatively on operations and maintenance is simply not a sustainable option in the medium to long-term. Without basic maintenance, most of the newly implemented infrastructure could be in a derelict state within five years from now. The existing culture of deferred maintenance in the municipality will need to be abolished in favour of a strategy that ensures that adequate technical and financial resources are made available for operations and maintenance. The primary benefits of changing the status quo will be a drastic reduction in infrastructure life-cycle costs and the ability to deliver a consistent and satisfactory level of service to consumers. “The reality is that municipal budgets are under enormous pressure and there is a real risk of underinsurance in the smaller metros,” Van Dyk concludes.
Enjoy your stay Christy van der Merwe
In a tremendous vote of confidence in the hospitality industry in Africa, Marriott International announced that it has signed a letter of intent to acquire Protea Hospitality Holdings. This well-researched move will make Marriott the largest hotel chain in Africa. This acquisition confirms what underwriters and insurers are saying about the industry locally â€“ that the sector is more upbeat than it has been since the World Cup in 2010.
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ourism has maintained a fairly consistent level of growth and appears to be improving even more in the last few months. “Expectations for a good 2013/2014 summer season are high with many reporting advance bookings from markets which had been quieter during the height of the recession,” says Paul Halley, MD at Ascent Underwriting Managers, which underwrites for Infiniti. Occupancies are up in peak season and key tourist regions, while others are still feeling the effects of local economic pressure on discretionary spend and business expenditure on travel, events and conferences. Seasoned, established operators with experience and a solid value proposition have held their own and should now experience some improvement. By example, even though Cape Town has mostly remained constant across all levels of
operators, the Garden Route is only now showing some improvement after a few years of low occupancies, Halley explains. Denleigh Wilensky, executive director of Hospitality Industrial Commercial Underwriting Managers says that average hotel occupancy rates have continued to rise after a steep fall caused by an oversupply of rooms provided in time for the 2010 World Cup. “We are, however, still finding that some businesses are not surviving the economy and are closing but it certainly has reduced compared to 2010/2011 after the World Cup,” Wilensky says. “The middle market has definitely struggled to attract and retain existing and new clients. In turn, insurance is impacted by clients being more selective in the types of cover required.
In the past, clients may have self-insured certain covers, such as theft, money, business all risks and accidental damage, but we are seeing a greater trend towards insuring these higher risk covers due to the frequency of losses,” says Etana head of hospitality and tourism David Pratt.
Crime increased notably over the last six months of 2013,” explains Halley. “The number of smaller claims has definitely increased; theft, money and business all risks losses. In the past these may have been retained by the client, but of late, have increasingly been passed over to insurers,” reiterates Pratt.
Increase in claims
Wilensky adds, “Motor has taken a dramatic turn for the worst and we don’t see this improving next year as all the factors leading to this deterioration, such as the drop in the Rand, more expensive parts, poor road surfaces and inexperienced drivers will remain next year.”
Halley, Wilensky and Pratt all confirm that insurance claims in the hospitality sector increased in 2013. Over the last two years the hospitality sector was affected by Mpumulanga and Limpopo flood events, various hailstorm events and the St Francis thatch fires, all of which resulted in losses of a catastrophic level. “Both frequency and severity of claims have increased consistently since October 2011, following a relatively benign period. The market suffered from a number of natural catastrophes as well as an increase in the number of medium to large scale fires and smaller extreme yet localised weather-related events. Smaller net line claim frequencies have also increased, many of which are directly or indirectly linked to economic pressures and service-related issues. An increase in crime has been noted in regions outside Johannesburg, including smaller towns and cities and, in particular, KwaZulu-Natal.
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Commenting on the most common claims made over the past year, Halley notes that material damage classes saw storms or water as major operating peril by frequency, with bursting of geysers and pipes a close second. Crime frequency was next, affecting theft of contents, money (fidelity), all risks and computer sections and motor – in no particular order. “Of huge concern was the claims cost inflation at every level, but particularly motor with some cases presenting increases of up to 48 per cent.” Pratt states that the top three most frequent claims over 2013 were business all risks, power surge and theft. In fact, Etana has arranged for policyholders to be provided with power surge arrestors free of charge.
“These are to prevent damage to computers, TVs and all electrical equipment, including electrical catering and cooking equipment. Etana is very proactive in the area of risk management assistance to minimise service interruption and inconvenience to guests as well as administration. The domino effect of damage to computers and electrical equipment is extreme, and Etana decided to do something about that for all business clients,” he says. Pratt notes that the hospitality industry is renowned for the honesty and integrity of its employees, but the industry is seeing huge claims coming from guests, which can be very difficult to verify. ‘Lost’ iPads are replacing the previously common ‘lost’ Raybans, while jewellery loss is replacing that of the leather jacket. Warrick Rencken, hotel manager at the Serowe Hotel in Botswana, admits that hotel guests often take a chance and say that they have had things stolen from hotels when they have actually lost them. These are mostly long-shots and not often entertained. There are a number of strategies used to identify and manage fraudulent claims, although it is not possible to completely eliminate these. Unfortunately, insurance fraud is another level of crime, and so increases as the rates of crime increase in general.
Wilensky concurs that the number of fraudulent claims has increased, and adds that with fraud being identifiable by applying a set base of questions to claimants, one can quickly determine potential dishonesty.
Evolving risks By its very nature risk is dynamic. Hoteliers and all operators in the accommodation segment will experience changes in risk patterns as well as new emerging risks, says Halley. The list of these changing risks is extensive. Commercial crime and fraud perpetrated through the use of technology is significant and affects the accommodation segment particularly. An example would be payments using cloned cards, phishing and even foreigners using online booking portals to secure a reservation required for a tourist entry visa simply to enter South Africa and stay here illegally. Weather patterns have changed with less predictability and an increase in localised intensity. The ever-expanding value and supply chain, continued integration and technological sophistication all contribute to added hidden exposures and counter party risks. Individual crime, and in particular fidelity crimes (theft by or with the involvement of staff), have increased significantly. The use of foreign labour also impacts this issue negatively.
Service-related failures are contributing to losses associated with the utility supply chain; electricity, gas or water. Power surges, electrical fires, power failure following cable theft, theft of fixtures and fittings, burst water pipes and geysers all contribute to the growing frequency of small losses. Lack of expertise and capacity also affects claims ratios. The Consumer Protection Act (CPA) is becoming a very real concern for the industry, due to the dependence upon the purchase of products and the potential time and cost associated with litigation. Continued global focus on consumer rights and commonality of legislative developments in this regard is raising the level of expectation among travellers who can now access pretty much any corner of the globe from wherever they are based. Generally these travellers have the means and therefore the expectation that they, as a global consumer, have guaranteed rights and legal protection no matter where they travel. There is often a mismatch between the expectations of the traveller and the supplier and results in increased liability exposure on hospitality operators. Increased liability exposure to and from international markets will only increase in the future. Pratt maintains that slip-andfall claims, although increasing, are not a deal-breaker as yet. The South African judicial system is still relatively conservative when dealing with these types of losses. Another issue for African hoteliers is that they are increasingly overwhelmed by international perceptions of Africa as a continent. A civil war in the Democratic Republic of Congo or Central African Republic, can make a potential tourist planning to visit South Africa change plans purely because they are geographically ignorant. Many risks occur at a broader macro level such as political risks which cannot be accurately predicted or necessarily managed by individual operators or the sector even in an affected region, adds Halley. Brand protection and goodwill are also critical to the continued success of hospitality operators and risks to brand can directly affect stakeholder value. The correct insurance through a specialised underwriter that understands the bigger risk picture can assist business in remaining sustainable on an economic level.
The impact These evolving risks and increased intervention and control through legislation affect operating risks at every level. â€œLike so many industries, the increased amount of regulations and compliance has resulted in a change of focus. In the past, hotel managers were able to focus their attention on the guestsâ€™ enjoyment.
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Not only are they still expected to ensure this service, but they also need to meet compliance requirements, as well as provide accounting, medical and legal advice,” says Pratt. As for the short-term insurance sector, structural changes to the conventional distribution model brought about by regulatory changes have resulted in the broker distribution model and underwriting manager model having to re-evaluate their respective value propositions, with a view to achieving sustainable value-added distribution, offering personalised, professional insurance advice and underwriting. Activity-based, regulated remuneration and binding regulations have resulted in a significant rationalisation and consolidation through mergers and acquisitions as smaller operators sought to achieve sustainability and leverage capacity and technology to achieve economies of scale which had shifted following the implementation of the regulations.
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Structural issues still remain and more improvements in technology will ensure continued rationalisation and consolidation as the model strives to remain sustainable and profitable. Demonstrating this, in September 2013, the Competition Tribunal approved Hollard’s acquisition of Etana. In October, Zurich Insurance announced its 100 per cent acquisition of specialist bed and breakfast underwriter, BnB Sure. In November, commercial, industrial and hospitality underwriter, Factory & Industrial (F&I), announced that it would be underwriting as a cover holder of Lloyd’s of London with effect from 1 January. The market is likely to remain dynamic for a few years due to continued regulatory changes and the pace and mobility technological advances are bringing to underwriting, servicing and distribution.
The bigger picture The nature of the hospitality business and the importance of guest satisfaction and safety and security requires that every risk be identified and eliminated or well managed. South Africa’s Minister of Tourism Marthinus van Schalkwyk emphasises that the South African tourism sector is well on its way to achieving its goal of becoming one of the top 20 destinations in the world by 2020 as set out in the National Tourism Sector Strategy and the Domestic Tourism Growth Strategy. More and more tourists visiting from emerging economies are making this possible. The statistics paint a positive picture and, to achieve this goal, the hospitality sector plays a vital role and must be supported by reliable and dynamic insurance products and underwriting.
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YOUR CLIENT’S CAR HAS BEEN PERSONALLY CUSTOMISED. WE’D LIKE TO DO THE SAME FOR THEIR INSURANCE.
We are delighted to announce that in 2014, MUA will underwrite on behalf of Auto & General Insurance. If you’d like to hear more please mail our Managing Director, Christelle Fourie, and her team at email@example.com. MUA Insurance Acceptances (Pty) Ltd is an authorised Financial Services Provider (FSP No. 37947) underwriting on behalf of Compass Insurance Company Limited, an authorised Financial Services Provider (FSP No. 12148). Auto & General Insurance Company Limited is an authorised financial service provider (FSP No. 16354)
fundamental to the outcome of the situation. “A quick payment to kidnappers with little or no negotiation structure may result in the victim not being released and the kidnappers demanding higher ransom or the kidnappers coming back in the knowledge that the victim’s family or employers are prepared to pay. Experts in this area have vast experience in dealing with these events and are fully equipped to deal with various types of cases,” he says.
Increased risk lifts demand for insurance Christy van der Merwe
he demand for kidnap and ransom insurance is increasing due to the escalating threat of this crime and growing awareness of product availability, says Andrew Munro, director of underwriting management agency Praesidio Risk Managers. “Awareness of the dangers of kidnapping, hijacking, hostage crises and detentions has increased, and large scale events tend to make front page news. For businesses operating overseas in high risk environments, this cover is seen as good corporate governance. In the wake of events like the Arab Spring and the ongoing conflicts in the Middle East and North Africa, we have seen a marked rise in the number of enquiries from
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corporations and individuals operating in these territories,” explains Munro. The recent case of South African hostage Pierre Korkie being held for ransom of $3 million by Al-Qaeda in Yemen since May 2013 has once again inflamed fears of kidnapping of South Africans. South Africa’s deputy Minister of International Relations and Co-operation, Ebrahim Ebrahim, made a heartfelt plea to the kidnappers to release Korkie. On his return to South Africa, Ebrahim explained that there are currently eight other foreign hostages being held in Yemeni areas not under government control. Munro explains that the negotiation procedure and particularly the first 24 hours of a case are
When a client purchases kidnap and ransom cover, they are provided with an emergency crisis response number to the insurer’s specialist response consultants. In an event, the client can call this line immediately and be provided with immediate advice. A ‘hand holder’ would be deployed to the client to assist the family or company for the first 24 hours. During this time a response consultant will make their way either to the country of incident, the company or home to begin or continue the negotiation procedure. Because of the sensitive nature of kidnappings and to avoid exploitation, response consultants do not communicate directly with kidnapping gangs to avoid suspicions of third party assistance. The negotiations are done by a family member or a trusted member of the company, with the consultant providing advice on what to say and what not to say. The aim is to achieve the safe and timely release of the victim while remaining within the law. These consultants do not launch rescue missions as these often result in the death or injury of individuals involved. The policy is one of reimbursement and ransom funds need to be paid by the family or company initially. Cover could also include a number of additional services beyond ransom reimbursement and consultancy fees, such as post-event care, family liaison and public relations liaison. Yemen is ranked sixth on Red24’s global list of kidnapping hotspots. “Yemen is expected to remain insecure and politically unstable in 2014, allowing non-state armed groups (tribes and Islamist militants) a space within which to co-ordinate abductions of foreign nationals and locals,” adds Red24. The global kidnapping hotspots are Mexico; Nigeria; the Sahel region (Mauritania, Mali, southern Algeria, southern Libya and Niger); Pakistan; Afghanistan; Yemen; Syria; Somalia; Venezuela and the Philippines. Munro notes that Nigeria, which consistently remains in the top three countries for kidnapping worldwide, has a high risk environment, with frequent abductions of oil and gas workers in the Niger Delta region compounded by the presence of Boko Haram in the north. He explains that exact statistics are difficult to gather because many kidnappings simply go unreported. In an attempt to establish some idea of the numbers, Munro explains that in Mexico, which has been the top global kidnap hotspot for years, there are a reported 72 kidnappings a day, and only one in seven kidnappings is reported.
Mandatory insurance will make SA roads safer Anton Pretorius
espite more than 840 road blocks, 3 800 arrests for traffic infringements and several safety campaigns over the festive season, the death toll on South Africa’s roads remains high, with 1 357 people losing their lives between 1 December and 7 January. This is a marginal decrease of 201 people compared to the previous year’s figures. Minister of Transport Dipuo Peters released the figures in a media statement. However, Robin Carlisle, Western Cape provincial Minister of Transport and Public Works, warns that the minister’s statistics should be read with a degree of caution. He says that the Western Cape Department of Transport and Public Works is highly suspicious of the accuracy of the statistics because of police inefficiency in
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accurately reporting road accident deaths. At times, deaths that do not take place immediately on the scene are not recorded in the report. “Police reports are flawed, with all sorts of errors,” he reiterates. The minister’s figures also indicate that over the festive season, 2 399 vehicles were discontinued and 2 449 vehicles impounded. With more than 70 per cent of SA motorists on our roads still uninsured, RISKSA asked Carlisle whether he feels that making insurance a legal requirement for motorists would reduce the risk of accidents and deaths. “I absolutely agree,” he says. “I also feel that the department should work closely with insurance industry and perhaps offer some sort of incentive for people to take insurance.
It is felt that this could help to eliminate the number of unroadworthy vehicles on the road. According to our statistics, the Western Cape government has prevented more than 1 500 major crashes over the festive season which must have saved the insurance industry a fortune in claims. Why isn’t the industry all over us like a rash and asking how we can work together? At the moment, the insurance industry is very passive in this regard. I feel that with a little help from them, we can further reduce the road death and accident rate even more on our roads,” Carlisle says. Carlisle explains that the Western Cape is the only province that has shown a decrease in road fatalities due to a “balanced campaign based on strategy and analysis which has identified the main causes as to why people die on our roads”. Initiatives focused on public transport roadworthiness, fatigued and drunk drivers; and enforcing safety belts in backseats, reducing the pedestrian death rate at townships situated along major highways and conducting road safety education at about 500 schools in the Western Cape have all had an impact on road safety, he adds. Of all the major provinces, the Western Cape recorded the third lowest fatality rate with 114 fatalities, with only the North West (88) and Northern Cape (43) provinces recording lower fatalities. KwaZulu-Natal (284) and the Gauteng province (268) recorded the highest number of fatalities.
MANAGING WEATHER RISK Mauritius leads the way A recent insurance hub and haven for business, the island of Mauritius is one of the fastest-growing economies in sub-Saharan Africa and has been consistently ranked as the easiest country in which to do business in the region by the World Bank. The Mauritian building environment is just as sophisticated as its business environment. Proactive risk management is reflected in strict building codes, which are actively enforced, as well as a highly organised civil response mechanism that ensures the safety of the population. Hanna Barry
auritius ranks 20th out of 189 global economies for ease of doing business, in the World Bank’s Doing Business 2014. Its ranking for starting a business is 19th, while trading across borders and investor protection rank 12th and paying taxes, 13th. The country’s ranking for dealing with construction permits, however, is 123rd – a drop from 112 in 2013. There are 16 procedures that must be followed and it takes approximately 248 days to get a permit, compared to an average of 171 days in the rest of sub-Saharan Africa and 147 days in OECD countries.
Held to the highest standards “Without its acute awareness of the destructive potential to life and property of tropical cyclones, Mauritius could not have survived, given its small size and severe vulnerability. Cyclones are an inherent risk of our latitudes and we have learnt to take them very seriously, respect them and fear them,”
says Ashok Prayag, general manager of Munich Mauritius Reinsurance Company and the former commissioner of insurance for the Mauritian Government. Mauritius experiences an average of three to five tropical cyclones annually and this deep respect and fear is clearly reflected in the high standards to which it holds its construction sector. The lack of insurance claims for collapsed buildings is evidence of this. “Wind loading is taken as an important parameter in the design of all our structures. Based on historical information, Mauritius recorded a maximum wind gust of 280 km/h in 1975, when Cyclone Gervaise passed over the island. Since then, the design wind speed adopted in Mauritius, and specified in construction and design briefs, has been fixed at 300 km/h,” explains Nawaz Joomun, senior consulting engineer at GIBB, an engineering advisory with a network across the continent. “The code used for wind loading is an old
code formerly used in the UK. We have not swapped to the newer codes given that they are for countries that do not have high wind gusts,” notes Joomun. “The coefficient in the new codes is for hourly mean gust. The 1972 code is more appropriate for Mauritius as it is based on a three-second wind gust. This gives a more conservative design as we use the peak wind gust and not the hourly mean gusts, which are much lower in value.” A three-second wind gust is the highest sustained gust over a threesecond period, which measures the force of the wind at its highest impact, rather than using the average gust over a one-hour period. The legislation regulating building codes in Mauritius includes the Planning and Development Act of 2004, which deals with planning policy guidelines. The second is the Building Control Act of 2012, which deals mainly with the appointment of architects, engineers and other professionals involved in the project planning and design. A committee regulates building construction in Mauritius using these two acts and there is a
representative of the Insurers’ Association of Mauritius on the board of this committee. “All engineers have a duty of care under the Council of Engineers Act to ensure that building designs are secure and resilient to wind gust, ” adds Joomun. “The penalty for non-compliance with the Building Act is very severe. The court may declare the building dangerous and could give orders to pull it down.” Unlike the recent Durban High Court decision, which ordered that construction on the Tongaat Mall in KwaZulu-Natal be stopped, court orders in Mauritius are adhered to. In the Tongaat case, Gralio Construction continued to build the mall, a portion of which subsequently collapsed, killing one person and leaving 29 injured.
Proactive risk management In addition, Mauritius has a highly sophisticated civil response mechanism. Formerly coordinated by a number of different bodies, this response mechanism now falls under
the National Disaster Risk Reduction and Management Centre, under the Prime Minister’s office. The centre acts as the main institution for the planning, organising, co-ordinating and monitoring of disaster risk reduction and management activities at all levels. Mauritius Meteorological Services monitors irregular weather patterns closely, providing a weather map and seven-day forecasts, it posts warning bulletins on its website for cyclones, tsunamis, torrential rain, heavy swell and storm surges. “The idea is to give a sufficient number of hours to the population to reach the safety of dwellings or designated government shelters, and stock up on emergency supplies,” explains Prayag. “This has worked well and fatalities are rare. When fatalities do occur, it is almost always due to the negligence, imprudence or foolhardiness of the victims, such as spectators of storm surges.” At the time of writing, the death toll from Super Typhoon Haiyan, one of the strongest tropical cyclones ever recorded, which tore through
six Philippine islands in November 2013, was 5 924, with Impact Forecasting, Aon Benfield’s catastrophe model development centre, estimating total economic losses at $5.8 billion. The typhoon came ashore at Category 5 strength with estimated maximum sustained winds of 315 km/h. The storm also prompted excessive rains and storm surge heights approaching six metres in height. More than 1.2 million homes were damaged or destroyed and the electrical, transportation and agricultural infrastructures were decimated. As the world faces natural catastrophes of this nature, causing untold personal losses to societies and economic losses to the insurance industry, businesses and governments, it must find solutions to build and maintain resilience. Although only one example from one small island state, the excellent risk management implicit in the Mauritian approach to extreme weather – from strict building codes, to the firm enforcement of these codes and the civil
Effective and efficient short-term claims management The claims sector is often referred to as the ‘shop window’ of the insurance industry. For many clients, I believe this is not the case. Service levels generally in South Africa, not only in our industry, are not at the standard that they should be and the attitude of the individual contributes enormously to this.
Henry Ehlers, claims manager at Renasa Insurance Company Limited
s an insurance policy is a legal contract between an insurer and client. This contract must be honoured by insurers and claims must be settled in terms of this contract. Claims, in general, are approximately 65 to 70 per cent of insurers’ costs and if a saving of five per cent is made on claims, this will result in vastly improved underwriting results. These savings must not, however, be made at the expense of the client.
With the high standard of today’s technology, the pressure is on an insurer to reduce administration costs, but how do we manage to reduce costs? This might simply be as easy as managing and controlling a claim from day one. To do this the correct staff members need to be employed and empowered to handle claims from start to finish. The longer it takes to settle a claim, the higher the costs. Control must be implemented from day one – registration must be attended to immediately and the correct estimate entered into the books of the company. A decision to appoint a loss adjuster must be taken and a suitable adjuster appointed, i.e. choose the correct level of adjuster for the claim. The horses-for-courses option must be used. When appointing adjusters, enquire if they are able to attend to a claim immediately as they are representing the insurer and the insurer’s image is in their hands. Don’t be afraid to appoint another adjuster if the matter cannot be attended to in a period with which you are happy.
Control and management of claims is impossible without the use of a diary system. No claims department or any other area can be managed without this vital tool – electronic or manual. This tool is the key to being proactive rather than reactive. It allows you to control the claim and be one step ahead of all interested parties at all times and transmits the message that you are in control. It cuts out enquiries, verbal or written, and the time saved allows you to attend to claims more effectively. Employees do not always take sufficient time to study the claim received and to identify all outstanding information. All the outstanding items should be requested at the same time. Much more use must be made of the telephone. Information required may be obtained via a quick call and costeffectively dealt with in this manner. Recoveries play an important role in the industry. This is fundamentally bottom line profit, or it can be if recoveries are effectively controlled and managed. Various factors influence recovery proceedings and their costs.
Top of the list are the merits surrounding the accident. Staff must be in a position to assess who is at fault, calling for witness statements at a very early stage while the incident is still fresh in their minds, and obtaining more detailed statements and sketches from the insured driver. The norm appears to be that sometimes scant information is obtained from the driver: a letter of demand is sent to the guilty party and a follow up and final notice is sent before handing over to attorneys. The recovery becomes the attorney’s problem and some of these matters tend to run for ages without success and costs increase. Why? We have lost control of the claim. It is imperative that the claim be controlled at all stages as the insurer is paying the cost. The insurer must decide whether to abandon recovery or proceed to trial. Much can be saved by doing thorough investigations in the initial stages into the merits of the claim. The claims handlers and negotiators need to be a unique type of person. They need to be knowledgeable, have communication skills, be able to work without supervision, be decision-makers, know when to call for assistance and be aware of what is
happening in areas that affect them. Why do customers leave organisations? Some believe that the competition is better, others are dissatisfied with the product, but the majority leave because of the behaviour or the attitude of the owner, manager or employees of the business. The loss of business is always a concern and steps must be taken to provide customer service. Claims staff must quickly assess whether a claim is covered and deal with the claim in an effective and efficient manner. Dealing with customer service and maintaining a satisfied client base is of utmost importance, and we need to identify the customer. The view is that this is the person who pays the premium and whom we satisfy in the event of a claim – the insured. There are various reasons why a client insures with a particular insurer or broker: price, cover, stability and brand. The fact that the client has put faith in an insurer or broker by purchasing cover must not be lost. He has purchased peace of mind which will only be put to the test in the event of a claim. This faith and trust must work in both ways. The perception of the industry is not good and when the time comes for insurers to deliver, there are often stumbling blocks. This perception must be changed and only the industry can do so.
The attitude of staff plays an important role and it must be stressed to the staff that their role is to satisfy the client. Where there is no cover or the insured’s claim is adjusted downwards, it is our duty to explain to the insured why this has occurred and to be honest in this regard. While this approach may not be initially easily accepted by the client, I believe that in the long run the respect of the client will be achieved. Don’t just tell the client the bad things; provide a service by suggesting how the problem may be avoided in the future. Clients, and we are all clients, are difficult to deal with. Put yourself in your client’s shoes and ask the question: would I like to be treated the same as some of our clients? We must strive to achieve client satisfaction. There are many ways to improve customer service and it begins with the switchboard and flows through to claims staff, adjusters and managers. With proper controls in place, we will correct the perception of the insurance industry and broaden the base of satisfied customers. A satisfied customer is a walking advertisement that money cannot buy. They are income generators, as word of mouth from personal experience cannot be matched by any other form of advertising.
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Insurers respond to
remote jamming rise Laura Owings
Cunning criminals are increasingly using remote jamming to gain access to locked cars. Despite a rise in incidents, most insurers will not cover losses without proof of forced entry. Some, however, say they can take a hard line on fraud while also educating consumers on their risks and how to protect themselves. 46 8 2
leading security provider says there are between 10 and 15 reported cases of remote jamming each month. However, those figures could be higher, as many people do not bother to report incidents because their insurance policies do not cover the losses.
“If clients have genuine losses, we need to assist,” she says. “We took a stance to cover clients up to a certain limit. Alternatively, insurers could offer additional cover at extra premium or even a higher excess.” Aquarius offers two products that cover theft from vehicles without forcible or violent entry up to R10 000.
According to the South African Insurance Association (SAIA), insurers generally do not cover losses where violent and forcible entry cannot be proved. “Most, if not all, risk policies are subject to a locked boot warranty and the onus is on the insured to prove that entry was gained via such means,” says SAIA spokesperson, Claire-Anne Norman.
Insurance companies, however, must protect themselves against fraudulent claims, particularly those pertaining to intangible crimes like remote jamming. “The key is for clients to request the cover and for insurers to price accordingly,” says Gari Dombo, managing director of Alexander Forbes Insurance. “Insurers should also, in most instances, insist on replacement of the stolen items rather than pay the client out in cash.”
When employing remote jamming, perpetrators block the vehicle remote-locking signal using a device that operates on the same frequency. They are usually in close proximity to where a victim parks their car, enabling them to activate a blocking device at the same time they initiate the remote lock. As the owner walks away, they do not notice that the vehicle is not locked properly. The technique is a simple, seamless way to gain access to vehicles and goods left inside. As the number of incidents increases, the insurance industry will have to respond. Though it is unrealistic to expect insurance policies to adapt to every new crime wave, Drew Schnehage, CEO of Aquarius Underwriting Managers, says there has to be a win-win for the insurer and the client.
If clients want to be 100 per cent covered for certain items, they must pay for the certainty, says Schnehage. “It’s important for insurers to take a hard line on fraud and prosecute with examples to encourage policyholders to protect the industry.” Still, those in the industry are in a position to educate consumers and encourage them to take appropriate precautions. “Clients are experiencing real remote jamming incidents, and they don’t realise that under conventional policies, they don’t have cover,” says Schnehage. “The insurance industry has the responsibility to encourage clients to be more vigilant.”
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After a series of operations that left Keri Mel O’Loughlin brain damaged, the Medical Protection Society (MPS) paid a settlement of R25 million to O’Loughlin and her family in June 2013 on behalf of a Mossel Bay neurosurgeon. This was the highest payout ever made for a medical malpractice claim in South Africa.
how much cover is enough? Hanna Barry
n increase in the number of claims and size of awards for medical malpractice has left insurers running for the hills. Partly fuelled by legislative changes impacting the Road Accident Fund (RAF), which has subsequently led attorneys to look for alternative revenue streams in the medico-legal and personal injury arenas, the increase in the number and cost of claims points to an increasing awareness among patients of their rights and preparedness by attorneys to litigate such cases on a contingency basis. “Our experience is that the cost of claims has been especially high in obstetrics, but less so in the gynaecology part of an obstetrician and gynaecologist’s practice. Neonatology and spinal surgery are also areas where claims costs have been significant,” says Dr Graeme Howarth, head of medical services in Africa for the MPS. The MPS is a mutual, not for profit membership organisation that provides benefits to members, which include access to support with legal and ethical problems that arise from professional practice, as well as financial protection against damages claimed for by patients. The MPS currently has more
than 30 000 healthcare professionals in South Africa and over 280 000 members worldwide.
palsied. The respondent conceded that N’s condition was the result of his negligence.
Paying their bills
A number of local and international experts testified in a trial marathon that lasted over 12 months, where the amount of damages that N should receive was the only concern, since negligence had already been established. The main issue was the extent to which N’s life expectancy had been reduced by the injury, as this determined the period for calculation of his loss of income and future medical expenses. It was eventually decided that his life expectancy was a further 30 years. Claims on damages suffered to children or young people generally elicit higher payments, since compensation takes into account expected longevity, loss of income and the cost of ongoing medical care. Malpractice claims would also take into account, for example, the cost of indemnity in a foreign currency.
A quick glance at the changes in the cost of MPS membership fees between 2008 and 2013 paints a worrying picture. For example, the 2008 subscription rate for obstetrics was R97 100, which jumped to R254 230 in 2013. Since the MPS is not an insurer, all benefits of membership are discretionary and subscription rates are set to ensure provision for the support of members needs now and in the future. Commercial insurance policies elicit similarly high, if not higher, fees. “The risks that are posed for high end medical practitioners mean, for example, an obstetrician should be paying around R500 000 in professional indemnity insurance premiums annually,” says Donald Dinnie, head of dispute resolution and litigation at Norton Rose Fulbright. Dinnie notes that an award on a properly structured liability claim for a baby that contracts cerebral palsy after birth could easily be in the region of R20 million. In the case of N vs. Dr Ashraaf Ebrahim, the Supreme Court of Appeal (SCA) ordered that an award exceeding R12 million be paid to N’s family, after N suffered a massive brain injury during birth at the hands of the respondent, Dr Ebrahim. Seven months after his birth, N’s mother discovered that her very difficult baby was severely cerebral
If a British citizen were injured in a South African hospital while on holiday, the payout would be significantly higher than for a similar individual who was a South African citizen, since damages would be calculated in Pounds. Ultimately, in each instance, a court must decide what amount would indemnify the claimant against losses suffered. It is also true that things go wrong in the context of medical care and this is not always as a result of negligence. “In some cases, no one can be legitimately blamed. But malpractice claims are at times prompted by the deeply
and patient. “All doctors should always regard concern for the best interests or well-being of their patients as their primary professional duty. They can do this by making sure they keep good records, communicate effectively with patients and stick to their areas of competence,” he says.
emotional and personal link between a patient and any perceived negligent medical complication,” says Dinnie. “Negligent medical outcomes causing financial loss do have to be compensated. The nature of medicine is, however, that complications do arise without fault on the part of medical practitioners. Attorneys in this field need to manage the expectations of their clients,” he stresses. Dinnie notes that while there are a handful of excellent plaintiff lawyers who have specialist skills and years of experience doing medicolegal work, many of the newer entrants pursue malpractice claims without fully understanding the merits of each case or carefully considering the appropriate award. This leads to a greater number of speculative medical malpractice cases, where a case is pursued against the incorrect party or an unrealistically high award is demanded. In most of these cases, notes Dinnie, awards are not made to plaintiffs. In fact, he says that actual awards on damages are few and far between in South Africa and there are very few liability judgments made in the medico-legal space. “More often than not, parties negotiate and settle outside of court. While this avoids costly litigation, these amounts are nothing to be sniffed at and remain an area of concern for insurers.
Where has all the capacity gone? The South African insurance market has lost its appetite for medical malpractice risk, particularly in the areas of orthopaedics and obstetrics. This is especially true in the case of major hospital groups that offer a full medical service to patients. “One hospital could quite easily suffer a R30 million loss if it has three
infant cases that are settled at R10 million each. When you consider that a major hospital group might have more than 100 hospitals in it, you come to understand how significant its exposure is,” Dinnie highlights. Formerly a major player in the medical malpractice insurance market, Stalker Hutchison Admiral (SHA), underwritten by Santam, has withdrawn capacity, although not exited completely. Dinnie notes that insurers like ACE, Hollard and Camargue have to some extent filled this gap. He says that General and Professional Liability Acceptances (GPLA) is reintroducing capacity. “There is certainly opportunity for knowledgeable insurers to make money in the local market. It depends on how you go about writing the business and the risk management you provide to clients. For example, if clients respond appropriately at the complaints stage, claims or potential claims could go away, as very often patients just want further understanding of the treatment or procedure and why they responded as they did,” he points out. Similarly, Dr Howarth notes that most claims arise not because of substandard care, but because of a failure in communication between the doctor
Settling claims upfront can be a double-edged sword, particularly when insurers begin to spend money on making claims go away when these claims are not meritorious. “Insurers may elect to pay illegitimate claims due to the commercial realities of litigation. But the danger here is the message it sends to malpractice attorneys, who may then view such an insurer as an easy target,” Dinnie warns. Under Section 46 of the National Health Act, private health establishments are required to maintain “cover sufficient to indemnify a user for damages that he or she might suffer as a consequence of a wrongful act by any member of its staff or by any of its employees”. There are no sanctions in the legislation if a healthcare establishment does not have adequate professional indemnity (PI) cover, but presumably when hospital licences are annually renewed, this is considered. In addition, Dinnie points out that hospital management could be held liable for not ensuring that their institution had adequate PI cover, giving rise to claims on directors and officers and highlighting the need for D&O insurance in this context. As it stands currently, doctors are not required by law to have PI insurance, although the Health Professions Council of South Africa (HPCSA) has promised to issue draft legislation in this regard. “There are a number of doctors who do not have PI insurance, nor are they members of the MPS and are therefore significantly exposed in terms of potential claims. In addition, if there were to be legitimate claims, these doctors would have no money to provide indemnity to their patients.” Brokers must ensure that their clients who are healthcare professionals have proper indemnity in place. Not only is it vitally important for their patients’ protection, but also the protection of their own families, practices and careers, should they find themselves faced with a R10 million malpractice claim.
Increases in MPS member subscription fees since 2008 for certain medical specialties. Specialty
Subscription rate 2008
Subscription rate 2013
Obstetrics R97 100 R254 230 Neurosurgery
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2013/02/07 5:22 PM
pocket The question of whether or not South African consumers are paying more for generic medicine than elsewhere in the world is not as easy to answer as expected. The murky, muddied waters of medicine pricing could do with a dose of clarity and transparency.
Christy van der Merwe
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organisation (NGO) Section 27, argue that South Africa pays artificially inflated prices for medicines, because it hands out patents without examining applications to see if they meet criteria defined in the country’s Patents Act.
There are sometimes up to 30 generic versions of one original medication available in South Africa, which can make prescribing medicine bewildering. “There is definitely a drive to register generic medications as the patents expire,” says Netcare pharmacist Nicky Grey (not her real name).
“This allows pharmaceutical companies to get multiple patents on the same medicine by making small changes, even when such changes have no benefit for patients. This can block more affordable generic competitors from bringing products to market beyond the 20 years required by international trade agreements,” explain the NGOs.
There is no doubt that generic medication is now widely used and accepted in South Africa. Previously, the mistrust of generics may have developed years ago, at a stage when any generic company was allowed into the country with inferior products, however this has changed. “The generic medication quality has definitely improved over the last 10 years,” adds Grey.
As an example, the TAC further explains that Linezolid – a drug manufactured by Pfizer, which can be used to treat drug-resistant tuberculosis – costs R676 per pill in the private sector in South Africa, and must be taken for up to two years. A generic version of the pill is available in India for R25 a pill, however, because of South Africa’s outdated patent laws, the Indian generic cannot be imported, says the TAC.
The South African Government has been urged to consider compulsory licensing, whereby governments can force companies to give up their patent rights to drugs that are deemed essential for public health. This has never been done in South Africa, explains Umunyana Rugege, attorney at Section 27, but has been done in Zambia, Thailand, Brazil and India, and is done in the US often as it lowers the costs of medicines.
he savings offered by generic medication, compared with branded medication can vary from R1 to hundreds of Rand depending on the products, and there seem to be an overwhelming amount of options available.
The exit price of medicines (the price paid by consumers) for the private sector is regulated by the government in South Africa; this is called the Single Exit Price (SEP). There are then different mark-up structures, which are also set by the government, and these markups are for pharmacy administration costs, such as paper, printers and electricity to keep the pharmacy operational. Representatives from both the private and the public sectors feel that medication costs are high, and those in the private sector are of the view that they carry the cost of medication for the public sector in South Africa. This is a claim that the public sector feels is unsubstantiated, because the costs for the public sector, with the exception of antiretroviral drugs, are also high. “Medications costs are very high in South Africa – this is because the private sector carries the cost of medication for the public sector. So, the price that we purchase medication from the companies at is high,” says Grey. Some of the reasoning put forward by the government on why medicines cost more in South Africa is that South Africa’s Medicines Control Council has higher regulatory standards, compared with other developing countries, to ensure only quality products are made available.
Patent laws Another argument for the high cost of medicines in South Africa has to do with patent laws. In a joint submission to the government, the Treatment Action Campaign (TAC), Médecins Sans Frontières (MSF) and non-governmental
“There are provisions in place for compulsory licences to be issued in South Africa, but there is a lack of certainty, the process is cumbersome and does not include a range of public health grounds that would increase access to medicines in certain circumstances,” Rugege adds.
IP policy interventions The draft National Policy on Intellectual Property (NPIP), which deals with these pharmaceutical patents was released for public comment by the Department of Trade and Industry (dti) on 29 August 2013. The submissions were in response to the call for comments on this draft. One of the objectives of the NPIP is to introduce a public health perspective into national IP laws, and adopt a common and united stand among different government agencies on improving access to medicines. Pharmaceutical companies are said to be lobbying their governments (in the US, for example) to be able to hold onto the information they gather from clinical trials and not disclose it. Clinical trials are part of the research that generics companies don’t have to do, and if they did, it would make the drugs just as expensive, and frustrate access to public health. South Africa’s draft NPIP recommends
demanding, by lobbying governments, as this could compromise access to health. The policy further recommends that there should be no general or blanket data protection of information that is at the disposal of the medicines regulatory authority, but unfair trade practices and protection of confidential information relevant for competitiveness should be in place. Entry of generic medicine into South Africa should not be frustrated due to the law of data protection. Essentially there needs to be a balance between trade and health issues in relation to patents and IP protection, and protecting IP should not frustrate and contradict public health policies. Empirical analysis conducted on behalf of the TAC shows that South Africa grants significantly more patents than other developing countries, and even grants about 40 per cent more pharmaceutical patents than the US and the EU on identical applications. Applying for a patent in South Africa is also said to be up to 20 to 30 per cent cheaper than most countries, opening the country up to patent application abuse, and pushing up the costs of medicines. Comments on the Draft NPIP have been submitted to the dti, which will consider the input. The policy envisages reforms to laws and the implementation of regulations, which is welcomed as an important step in realising the right to health in South Africa, explains Rugege.
Calls for clarity Drug companies are not transparent on their pricing and costs. Often it is impossible to know whether we are paying fair prices. The pricing commission should finalise the international benchmarking process, which has been on the drawing board since at least 2006, says Rugege. An international benchmarking process would establish the methodology by which the pricing committee would compare prices with other countries and accordingly set the single exit price for South Africa. It is important that the international benchmarking process is finalised so that the single exit prices are set in terms of a methodology that is appropriate and reasonable and leads to the lowering of the price of medicines in South Arica. “So even though the prices are regulated, they might still be higher than what we should be paying as a middle-income country. Some of the branded companies have the monopoly, and with generics there is no process to interrogate the price at which the drugs are set. There is not a proper understanding of this process or criteria,” she explains.
Medical specialists and medicines are the biggest expenses triggering out of pocket top-ups by medical scheme members, and medical schemes continue to promote the use of generic medicines as they strive to contain ever-increasing healthcare costs.
Of the R103.3 billion spent on healthcare by medical schemes in 2012
R16.3 billion (15.8 per cent) was spent on medicines dispensed. (source CMS annual report)
The cancer drug debacle It is not clear whether improved diagnostic methodologies are leading to earlier diagnoses of cancer, or if there are genuinely more people getting cancer today. Long-term risk product provider Altrisk’s CEO Michael Blain says that 50 per cent of the company’s critical illness claims are now related to cancer. Derick Ferreira, market development manager for Old Mutual’s retail affluent division also states that cancer is the number one cause of illness claims. Furthermore, while death claims still represent highest payout volumes, it is interesting to note that in the last year, cancer now rates as one of the biggest causes of deaths. The cost of cancer medication in South Africa is high, and touted as one of the biggest medication costs for South African medical aid schemes. The Mail & Guardian recently reported that a long-awaited generic version of a drug treating leukaemia and gastrointestinal tumours arrived in South Africa, but the price difference from the branded medication was disappointing. The branded version of the drug is manufactured by Novartis and is called Imatinib. South Africa granted several patents to Novartis on Imatinib and, until recently, it was the only company supplying the product in the country, under the name Gleevec. Patients paid R387 830.75 a year for the drug. The patent expired in April and Cipla has produced a generic version, called Imavec, which is available for R208 944.25 per year. Novartis is also selling a lower cost version of the drug called Vativio, for R214 112.65 a year, reports healthcare journalist Mara Kardas-Nelson. The generic offers a substantial drop in price, but is still not comparable to other countries, for example India, where Médecins Sans Frontières says that a generic version of the same cancer drug is available for R10 694 a year.
There is a lot of work to be done to provide clarity for consumers on the pricing of medicines, and beyond that, more work to be done to lower these prices.
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2013/12/12 8:30 AM
depression Christy van der Merwe
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Disclosure of mental illness is often met with ignorance, unfounded fear, unfair stereotyping and prejudice, which explains why many people who suffer from disorders such as depression try to keep them hidden. However, when it comes to life insurance policies, full disclosure is vital because non-disclosure and misrepresentation lead to rejected claims.
ccording to the South African Journal of Psychiatry (SAJP), psychiatric disorders have overtaken musculoskeletal conditions, particularly lower back pain, as the leading cause of disability. Thus, insuring a client who suffers from depression represents an increased risk to an insurer, particularly with regard to disability benefit claims. Peter Strasheim, attorney and disability specialist at DLM Labour & HR Management Consulting, says that disability insurance is the most complex area of insurance law. The related aspects of underwriting, claims admin, claim assessment, product design and broker education are equally complex. He continues: “The key issues in individual life and mental health are probably disclosure, benefit parity, exclusions, claim assessment conflicts of interest and correctness of the psychiatric guideline. Brokers need to ensure that they are able to explain these things to their clients who may suffer mental health issues.” For brokers, the major issue in 2014 will soon become the Financial Services Board's Treating Customers Fairly (TCF) regime, cautions Strasheim. “Brokers will increasingly be at risk, and must look to the product provider to ensure that the full set of guidelines is given to them to reduce their risk exposure.” According to law, one does not have to disclose a mental illness to an employer; however, there is a legal obligation to disclose complete and accurate information when it comes to a life insurance policy. This is because it affects the risk assessment, the premiums charged and the terms and conditions of the final contract. Disclosure of depression does not mean that the client will not get cover. In fact, there is a very good chance they will be able to get cover,
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but this may be loaded or have an exclusion, explains Grant Hanafay, head of underwriting at Altrisk. “It is vital, as with any other medical condition, to fully disclose this to the insurer and give as much detail as possible. In this way, once the case has been underwritten and accepted by the insurer the client will have total peace of mind that they are fully covered and won’t have to worry when making a claim. The type of psychiatric disorder, the degree of control and type of treatments as well as the dates of first and last symptoms play a major part in the decision the underwriter makes on the risk,” adds Hanafay. The importance of full disclosure is constantly reiterated. While depressed clients may shy away from discussing mental illness because of the stigma, they should be made aware that limited disclosure could mean claims being rejected at a later stage. Equally, brokers and advisers must be aware of the product providers’ specificities. Needs-matched insurer BrightRock explains that if an applicant has been symptom-free and off treatment for more than two years with no history of hospitalisation, it’s unlikely that a loading or exclusion will be applied. If it’s been less than two years, mental health conditions may be excluded from the client’s cover for their income protection needs. Depending on the severity, an application might be declined, but the reports from the doctor will assist in giving the best terms possible. If the client recovers and asks BrightRock to reconsider the exclusion, it will be considered once 12 months have elapsed since the last date of treatment. Jaco Gouws, risk marketing actuary at Old Mutual, notes that based on adequately disclosed information, the company can accurately assess whether there is a need to increase the premium to accommodate the additional health risk. The increase will vary depending on the severity of the condition and few cases may be declined, he adds. It is unlikely that someone applying for cover who is currently suffering from a depressive disorder will be offered standard cover for a lump sum or income disability product. The majority of these cases will be offered cover but with an exclusion for psychiatric conditions. The reason for this is the high expectation of a claim from this group of disorders, explains Gouws. Beyond the concern regarding disability related to depression, in some instances clients who suffer from depression also represent an increased risk on life cover, especially with regard to accidental deaths such as motor vehicle accidents, notes Altrisk.
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Case study 1 Insurers are concerned about the number of fraudulent claims, which is why they will request as much information as possible on previous depression diagnosis because this is vital when underwriting. Altrisk indicates that research and experience shows that people suffering from depression are a far higher risk with regard to suicide and misuse of drugs (both prescription and recreational), alcohol abuse and accidents. Unfortunately this is the underwriting aspect which is not an exact science, and where the risk is difficult to assess. Once again, underwriters can assess a case only from the information presented to them as they do not have first-hand knowledge of the client. Providing accurate and complete information is therefore essential to avoid subsequent difficulties at claims stage. Case studies are a clear way to show the risks of non-disclosure. Old Mutual shared two examples with RISKSA to highlight where claims related to depression might be rejected.
Depression • One in three South Africans will develop or have a mental illness. • The World Health Organisation predicts that depression will be the second leading cause of disability in the world by 2030. • Anxiety disorders, mood disorders and substance use disorders are common among all race groups and across all the provinces in South Africa, while treatment rates are low (about 15.4 per cent) across all disorders. • Cases of bipolar disorder have increased dramatically (228.6 per cent between 2006 and 2011). It is now the sixth most prevalent chronic condition across medical schemes. A possible contributing factor could be changes in scheme funding structures – where bipolar is covered as a prescribed minimum benefit, covering treatment in full – whereas depression is not.
Gender: Female Age: 39 Occupation: Admin supervisor Application: 2009 Applied for life cover, lump sum disability benefit and income disability benefit.
ARNOLD Married with children. Main breadwinner. Loves his job.
Disclosure of medical history: • Smoker. • High blood pressure since 2008 but taking medication daily. • Depression episode in 2005 due to a death in the family. No problems since then • other medical requirements were within the normal limits. Due to the length of time since the indicated recovery from the depression episode, the benefits were issued at standard rates with no exclusions. Claim Submitted November 2012 under the disability benefits. Reason: Client boarded due to bipolar mood disorder type 2. Medical information received with the claim: • Date of diagnosis for bipolar mood disorder type 2 was in 2006. • Client has been on chronic medication for bipolar mood disorder since 2006. • Client attempted suicide in 2008 after stopping medication. She was hospitalised for four weeks to recover. Claim decision The client’s claim was declined and the contract was cancelled due to non-disclosure of the bipolar mood disorder and misrepresentation of the severity of the condition. Questions on the application form clearly give the clients the opportunity to fully disclose the extent and treatment of a condition. The impression given by the client on the initial application was that the diagnosis was depression for a one-off traumatic event that was fully resolved.
Case study 2
Gender: Male Age: 45 Occupation: Franchise manager Application: 2010 Applied for life cover and temporary disability income benefit. Disclosure of medical history: • Non-smoker. • Asthma but uses medication daily. • Fractured spine due to a fall as a teenager but no problems experienced since then.
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• Stress experienced during early 20s at university due to pressure. • All other medical requirements were within the normal limits. The benefits were issued at standard rates with no exclusions. Claim Submitted 2012 under the temporary income disability benefit. Reason: Booked off work for three months due to major depression. Medical information received with the claim: Between 2003 and 2010, the client was treated for depressive episodes with no hospitalisation or suicide attempts. Claim decision The client’s claim was declined because had there been disclosure of the depression on the initial application, a psychiatric exclusion would have been applied to the disability benefit. Material non-disclosure could result in the cancellation of the disability benefits; however, in some instances, the insurance company can make a counter offer to rather review the terms of the benefits and include a psychiatric exclusion. Gouws gives his top tips for brokers, which will assist underwriters to make fair and accurate decisions: 1. Get and give as much detail about the condition as possible, especially when applying for disability cover. Always give full details of the client’s history, diagnosis and all medication being used currently or in the past if it has changed significantly in the recent past. From an underwriting perspective, the diagnosis of depression is much more serious than an adjustment disorder or dysthymia, both of which are often mistakenly referred to as depression. 2. Be specific about the client’s condition as you don’t want to experience problems at claims stage due to nondisclosure. Confirm that the condition is depression and ask the client to get this confirmed by their treating doctor. If in doubt about whether to include certain information, rather give as much information as possible. 3. Stating that the client has depression when in fact they are being treated for another mental illness could lead to problems at claim stage due to non-disclosure. Depression can be part of many psychiatric illnesses, or something that happens independently of other conditions. 4. The better the client’s condition is controlled, the better the underwriting outcome is likely to be.
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Understanding the differences Altrisk outlines that the depressive mood disorders most often encountered in insurance are: • Reactive depression/adjustment disorder: a temporary situational depression caused by a specific event, such as having a baby (post-natal depression) or bereavement. • Major mood disorder (MDD): a psychiatric disorder characterised by a depressed mood or loss of energy and interest in activities, fatigue, difficulty concentrating, agitation, appetite changes and sleep disturbances. Also referred to as major depression, depression, dysthymia (a chronic state of depression), dysthymia or affective disorder. • Bipolar affective disorder/manic depression: the presence of depressive moods or episodes, alternating with elevated, euphoric or irritable moods classified as hypomania or mania.
...THE TERMINATED No one expected the wave of retrenchments.
Further assisting your clients In addition to ensuring that a client gets the best cover possible, there are also other ways that brokers an help clients who may be battling depression. Cassey Chambers, operations director the South African Depression and Anxiety Group (SADAG), suggests that if a client with depression is not well and is struggling to cope, advisers are welcome to refer them to SADAG for further support and help.
Suicide in South Africa • There are 23 completed suicides in SA every day. • There are 230 attempted suicides every 24 hours in SA. • Males are five times more likely to commit suicide than women, mainly because they use more aggressive methods of taking their lives. • A standard suicide exclusion of two years applies to all life cover products across the industry in South Africa. Source: Professor Schlebusch, University of KwaZulu-Natal
“Ideally, we would recommend that if a patient discloses that they have depression, the broker sends them an information pack with our details and a wealth of useful advice and knowledge. Keeping a patient well with therapy, medication and support is the best treatment model for anyone living with a mental illness.” This could also help to reduce the risks of compounded effects of depression. SADAG has 15 helplines for different disorders, and takes over 400 calls a day. The 100 volunteer counsellors ensure that the helplines are open 365 days a year, and the phones are manned from 08h00 to 20h00.
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is essential for the self-employed Ryan Chegwidden, actuarial head, Altrisk
Insurance cover for key personnel in a business is a vital ingredient in the continuity planning mix, and one that your selfemployed clients in particular need to sit up and take serious notice of.
What is key man cover? Key man cover refers to an insurance policy taken out by an employer on the life of an employee whose death or incapacity would significantly reduce the profitability, stability or management of the company. It compensates with a fixed monetary sum as specified on the insurance policy, which can then be used by the policy owner to stabilise the business. This could include covering the cost of recruiting a suitable replacement, the immediate loss of turnover that the sudden absence of the key person may cause, or the cost of training a replacement to be as productive as their predecessor. It was just such an experience that Braam would face as the owner of a successful panel beating shop. His wife was actively involved in the day-to-day administration of the business, while Braam was the go-to guy in terms of new business, technical expertise, quality control and taking care of the crucial relationships with vehicle insurers. Without Braam’s abilities, the business would stall. It was a winter morning when Braam’s life changed in a matter of seconds. He was involved in a devastating car accident when an overloaded, speeding truck lost control and collided with his vehicle. Braam had to be cut out of the wreckage and his injuries were severe. While Braam survived the spinal injuries he sustained in the accident, he was left permanently disabled with months of intensive rehabilitation ahead of him. At 53, Braam’s life would never be the same and the fact that his livelihood and family’s financial security depended on him being at work weighed heavily on him. Fortunately, Braam’s financial planning was sound and he never made a move without consulting his financial adviser. Besides his disability policies which compensated for his lost income and rehabilitation costs, the key man cover that the business had taken out on Braam proved to be the saving grace of his life’s work. He had the peace of mind knowing that the key man cover provided the immediate funding needed to employ an experienced manager and his wife would have the support she needed to oversee the running of the business while he was booked off.
Why should a key person be covered? Effective, skilled and highly qualified people are difficult to find. These employees contribute specialist skills and knowledge that are vital to the success of the business, and are not easily replaced. In Braam’s case, his departure from the business would: • Directly impact the profitability of the company • Lead to difficulty in raising finance
• Result in costly recruitment and training of a replacement • Unsettle creditors who may want immediate settlement due to the uncertainty • Threaten key client relationships.
How much key man cover is needed? Understanding your client’s business dynamics is essential in this equation. You need to consider how much their turnover would be impacted without the key member of the team. What would be the cost of recruitment or headhunting? Remember that the more specialised and entrenched the person is in the business, the more difficult it will be to find a suitable replacement. To successfully calculate key man cover, discuss the following important points with your client: • Calculate the actual costs involved in replacing the employee, i.e. executive recruitment fees, training, and the cost of a consultant until a replacement is in place. • Calculate the approximate number of years it would take for the replacement to equal the key person in terms of profitability and knowledge. • Consider a multiple of the annual salary of the key employee as a benchmark of what it would cost to replace them with someone of the same calibre.
Estate duty implications As the proceeds of a key man policy are paid to the employer or business partner, it is often assumed by the insured individual that there will be no estate duty implications for them. While this is often true, there can be exceptions depending on the structure of the arrangement. It is essential to ensure that any estate duty implications are carefully considered and that you manage your client’s expectations in this regard. Key man insurance provides an effective safety net in the event of the unexpected becoming your client’s business reality.
“Understanding your client’s business dynamics is essential in this equation. You need to consider how much their turnover would be impacted without the key member of the team.”
Arnold was prepared. He had Altrisk’s new Retrenchment beneﬁt that pays a lumpsum of up to ﬁve times his monthly salary in case of retrenchment. Which gave him the ﬁnancial security he needed while he was unemployed. Tell those like Arnold about Altrisk’s Retrenchment beneﬁt. Because everyone needs a chance to make a comeback. For more information speak to your Altrisk broker consultant or go to www.altrisk.co.za
We’re your type of risk insurer.
Altrisk is a division of Hollard Life Assurance, an authorised ﬁnancial services provider (FSP 17697).
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Divorce is emotionally and financially taxing. So when it comes to laying claim to a client’s share in the pension interest of their ex-spouse, the last thing they want is an unenforceable divorce order. RISKSA finds out what a divorce order must contain in order to comply with pension fund legislation and looks at the failings of two cases where divorce orders were dismissed. of the Pension Funds Act, the Income Tax Act and the Maintenance Act.” This general rule is, however, subject to certain exceptions set out in section 37D of the Pension Funds Act. One of these exceptions relates to divorce. “Section 37D(1)(d)(i) states that a registered fund may deduct any amount assigned to a non-member spouse in terms of a divorce order granted in terms of section 7(8)(a) of the Divorce Act,” De la Harpe continues.
“When parties divorce, the court dissolving the marriage may make an order directing the applicable fund to make an endorsement in its records about the non-member spouse’s entitlement to a portion of a pension interest, as well as directing the fund to pay such portion to the non-member spouse in accordance with their choice. All of this must be specifically claimed for in the summons and accompanying settlement agreement, if applicable,” she adds.
Mind the Ts and Cs
hile the Pension Funds Act offers extensive protection against creditors to member pension benefits, these benefits are nonetheless accessible to nonmember spouses through divorce orders. But if the divorce order fails to strictly comply with the requirements set out in the Pension Funds Act, read together with the Divorce Act, it is unenforceable against the pension fund. “The aim of section 37A of the Pension Funds Act is to protect a member’s pension benefits from their creditors. It expressly limits a fund’s ability to deduct amounts from a member’s pension interest,” explains Lize de la Harpe, legal adviser at Glacier by Sanlam. “As a general rule, a fund may make a deduction from a member’s benefit only if such a deduction is allowed in terms
In order for the fund concerned to give effect to a non-member spouse’s claim on the pension interest, the divorce order must comply with certain requirements in the Divorce Act and Pension Funds Act. These can be laid out as follows: • The order must specifically provide for the non-member spouse’s entitlement to a pension interest as defined in the Divorce Act. • The order must set out a percentage of the member’s pension interest or a specific amount. • The relevant fund that has to deduct the pension interest must be named or identifiable, e.g. the South African Retirement Annuity Fund. • The fund must be expressly ordered to endorse its records and make payment of the pension interest so that it is under a legal obligation to award the spouse accordingly.
“If the divorce order does not strictly meet these conditions, it will not be in compliance with the Divorce Act read together with the Pension Funds Act, and will therefore not be enforceable against the fund,” De La Harpe stresses. “This is strictly bound by the Pension Funds Act and the fund in question has no discretion in this regard. Recent Pension Fund Adjudicator decisions have highlighted the importance of compliance.” De la Harpe lists an example from earlier this year where the adjudicator had to consider whether a divorce order met the above requirements. This was the matter of Areias vs Momentum Retirement Annuity Fund and another. “In this case, the complainant wanted to rely on a divorce order that entitled her to 50 per cent of her former husband’s pension interest. However, the order did not name the fund and it didn’t refer to pension interest as defined in the Divorce Act. The settlement agreement simply referred to “policies that shall continue to be paid by the member until maturity date when the policies will be paid out in equal shares”, De la Harpe explains. “The adjudicator held that a court order is binding on a particular pension fund only if it mentions the fund by name, makes reference to pension interest and otherwise complies with the relevant sections of the Pension Funds Act and Divorce Act. The complaint was therefore dismissed.” In the matter of Bowyer vs Personal Portfolio Preservation Fund, the adjudicator stated that the fund in question should not have complied with the divorce order because the order did not comply with the requirements as set out above. “This matter clearly shows the adjudicator’s tendency to insist on strict compliance with the requirements of the said legislation before giving effect to a divorce order in terms of which pension interest or part thereof is allocated to a non-member spouse,” De la Harpe notes. “These
decisions make it very clear that funds and administrators must act with extreme caution when receiving a request for payment in terms of a divorce order and must ensure that payments are always made in terms of a valid court order.”
Adds De la Harpe, “Even if an ex-spouse confirms that they have no problem with the deduction of the pension interest awarded to the non-member spouse, it won’t affect the unenforceability of the order against the fund.”
If a client’s divorce order is found to be unenforceable against the fund in question, it does not mean that they lose their claim for the pension interest. To remedy the situation, they would have to claim against their ex-spouse or amend the divorce order.
Legal adviser specialist at Old Mutual, Tristan Naidoo, agrees that from past determinations, it is very clear that the pension funds adjudicator takes a very narrow view of the circumstances where pension interest is payable to a nonmember spouse. He says that up until recently a great deal of divorce orders did not comply with the acts, but funds would make payment anyway, after verifying that one of the spouses was a member. “Section 37A of the Pension Funds Act severely limits the instances in which a fund may reduce a member’s benefit. This is why divorce orders must strictly comply with the Divorce Act and Pension Funds Act before the fund can reduce the member’s benefit accordingly,” says Naidoo. “Failing this, the payment by the fund will be in contravention of section 37A of the Pension Funds Act and could lead to the trustees of the fund being held personally liable.” He says that the best and cheapest way for clients to deal with this issue is to ask their attorney to send a draft copy of the order to their financial adviser before it is made an order of the court. “The financial adviser could then arrange for the draft order to be looked at by the necessary legal department of the financial services provider (FSP), who could then provide feedback on whether they would accept the order or not. This ensures the order will be accepted once presented to the FSP and avoids the unnecessary cost of having to amend the court order,” Naidoo explains.
“The client would either have to go back to court to sue their ex-spouse for the value of the pension interest they are entitled to and
hope the ex-spouse has the funds to make good their claim, or they would have to approach the court that issued the divorce order and request an amendment in order to bring it in line with the provisions of the Divorce Act and the Pension Funds Act,” says De la Harpe. Unfortunately, both options involve further legal costs, but De la Harpe says that Glacier advises its clients to go back to court to amend the order. Importantly, she highlights that matters relating to pension interest on divorce cannot be covered by means of a pre-nuptial agreement. The divorce order itself has to comply.
“If a client’s divorce order is found to be unenforceable against the fund in question, it does not mean that they lose their claim for the pension interest. To remedy the situation, they would have to claim against their ex-spouse or amend the divorce order.”
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MR MANAGING RISKS
Business interruption Risks your clients may neglect Christy van der Merwe
Business interruption insurance is often considered one of the most misunderstood and poorly-advised forms of cover, yet the risk is placed top of the list of concerns for companies. Thorough engagement with your clients can make them alert to the underlying, often neglected risks that they should be considering in this arena.
survey of over 400 corporate insurance experts from over 30 countries has, for the second consecutive year, ranked business interruption (BI) as the top global risk occupying the attention of companies at the start of 2014. The survey, conducted by Allianz Global Corporate and Speciality (AGCS), estimates that BI and supply chainrelated losses typically account for 50 per cent to 70 per cent of insured property catastrophe losses â€“ as much as $26 billion a year.
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Dave Marais, technical manager for Aonâ€™s corporate and speciality division, affirms that often BI is a clientâ€™s greatest exposure, more so than physical material losses. This is because supply chains have become more complex, with much more outsourcing taking place, which makes a company increasingly reliant on something outside of their control. Other growing perils, such as IT, telecoms or electricity outages, transportation network disruptions, strikes
and protests are placing strain on supply chain risks. BI insurance covers losses that could potentially put a company out of business, by protecting more than just physical assets, and protecting the income stream that covers continuing costs and delivers profit. It can be almost impossible for a business to survive a catastrophic loss when the business ceases to trade, but the overheads and expenses remain.
Underinsurance At the RISKSA Insurance Bootcamp focused on BI, Justin Naylor, current Insurance Institute of Gauteng president, noted that while most clients have BI insurance, many are underinsured by as much as 30 per cent. This leads to disputes and negative perceptions at the claims stage and can at times have serious consequences for the business. Global insurer Zurich explains that BI underinsurance can arise for a number of reasons: a firm could incorrectly calculate its gross profit or revenue; it may not select the appropriate expenses to insure; or they may choose an inadequate indemnity period.
head of Commercial Broker Property. It is worth spending time with clients to ensure against inaccurate BI calculations. Brokers should make sure that the indemnity periods for this cover are not too short and that they thoroughly understand the definition of gross profit. Projecting the future turnover to cater for the indemnity period and a loss at the end of the insured period, is also important, as is remembering to add value-added tax to the sum insured.
Interconnected risks The Allianz Business Risk Barometer for 2014 highlights the rise of interconnected risks, and the devastating impacts that these could have on a business. “Identifying the impact of interconnectivity between different risks is a top priority for risk managers. Today’s business
continuity plans must prepare for an increasing range of risk scenarios which need to reflect the sometimes hidden knock-on effects. For example, a natural catastrophe can result in BI, systems failure, power blackouts and a host of other perils,” says Axel Theis, CEO of AGCS. AGCS notes that manufacturers are increasingly being caught out by the closure of critical suppliers, a trend which has both insurers and businesses concerned. Business continuity planning should be an integral part of any company’s procurement and selection process, advises Paul Carter, global head of risk consulting at AGCS. However, he cautions that identification of critical suppliers is not always an obvious exercise. It is possible to make wrong assumptions and subsequently incorrect business decisions. “Without adequate data it is not possible to identify hotspots within a supply chain. Therefore data transparency between clients and insurers will become an increasingly important part of any supply chain analysis.”
According to the Chartered Institute of Loss Adjusters, as much as 40 per cent of business interruption policies are underinsured, with the average shortfall running to 45 per cent. This highlights just how far off the mark some companies are when calculating the level of insurance they need. “Underinsurance is a perennial problem and it is difficult to understand why the issue seems to have such a low profile at executive board level, when it poses such a threat to business survival and ongoing success following a major loss,” reiterates Adrian McGuire, Zurich
There needs to be substantial upfront risk mitigation, reiterates Marais, and brokers should spend time with their clients, ensuring that they understand the business and have conducted thorough risk mapping.
Neglected issues Of course, every individual company will have risks specific to it, just as certain countries and regions have risks endemic to them. Fortunately, South Africa does not suffer devastating earthquakes, blizzards or hurricanes, the likes of which have recently caused havoc in the Philippines and the US. But South African companies do have to contend with riots and protests, border control issues and the occasional cargo ship that snaps in half, blocking the Richards Bay Coal Terminal.
PERILOUS POLAR VORTEX In January 2014, a polar vortex (cold Arctic air patterns from the north) was drawn into the US, bringing ice storms and snow. Pipes and sprinkler systems were frozen, interrupting chemical manufacturing and disrupting transportation systems. Temperatures were so cold that a polar bear at Chicago’s Lincoln Park Zoo was moved indoors. Preliminary estimates indicate that the polar vortex will cost the US economy about $5 billion. As with any natural disaster, impacts vary by industry sector and location. About 20 000 flights were cancelled and major airlines expect to lose a combined $100 million. Thousands of businesses in the US were shut down due to roads being blocked by snow and other issues. BI and especially CBI claims are likely to be the most highly contested insurance claims. An important factor in the presentation of any BI claim involving this freeze will be whether the insured has put the right team of specialists in place, including forensic accountants, coverage attorneys and other consultants who specialise in assessing, quantifying and maximising the extent of coverage. These professionals interact with management to help document the loss, including financial and physical damages. Source: Pillsbury Winthrop Shaw Pittman
RISKSA asked Tracy Linnell, advisory services general manager at Continuity SA, what risks South African companies commonly neglect when writing up BI insurance and establishing business continuity plans. Here are Linnell’s top 10:
Suffering BI as a result of a neighbouring building or company
Clients are often so concerned with what could potentially go wrong on their own premises, that the thought of an event on a neighbouring property impacting their business might seem insignificant.
Contingent business interruption (CBI) insurance
This covers third party elements of the business chain (such as third party component suppliers). It pays expenses when the supplier cannot operate and causes a shutdown of the client’s company. There is no direct damage to the company but it is unable to conduct business because of a vendor’s problems. CBI should always be offered as an extension of BI.
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Denial of access Prevention or restriction of access to a business could happen for any number of reasons and it could have serious implications for a company.
Contagious disease extensions While this may seem obvious for food and beverage or livestock sectors, communicable diseases could attack a company’s workforce, upset logistics or severely impact suppliers and customers.
Telecoms coverage For a business reliant on telecommunications, this is top of mind; however, communications
are vital for most businesses today. Theft of copper cables, a common problem in South Africa, could drastically affect a company’s ability to operate.
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Research and development costs This is another operating expense that is often neglected if it is not the core competency of a company.
Fines and penalties Increasing regulation and compliance has made running a business ever more complex. Failure to adhere can have expensive consequences, as witnessed by construction firms on the receiving end of the Competition Commission’s recent enquiry into the sector.
Restoration of electronic data If IT is not the core focus of a company, it can be a complicated grudge purchase. It is useful to ensure that a policy pays for the restoration of data critical to a company’s functioning.
Operations performed at an outsourcing facility Often CBI cover will require very specific details of which suppliers are included in the cover and what events it will insure against. Thorough upfront risk assessment is integral.
Co-ordinate adequately The co-ordination of business continuity planning and insurance purchasing results in an optimal expenditure of the risk management budget; and ensures the best contingency plans and cover exist.
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Risk credibility Capital credibility
Face any challenge with a partner who knows the way around. Word on the street is we know risks. In complex times, it is important to partner with a reliable expert who has all risks in view. As a global reinsurer, we work together with you to create solutions that fit your needs. Helping you master any challenge. Find out how at www.munichre.com
NOT IF, BUT HOW
BUSINESS INTERRUPTION The complexity and attention to technical detail required when issuing business interruption cover is wellrenowned. Horror stories abound of claims that take years to finalise and examples of underinsurance leaving clients frustrated and disgruntled can leave brokers in a cold sweat. RISKSA presents the top 10 mistakes made when issuing these policies in the hope that they can be avoided. Christy van der Merwe
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10 common mistakes
brokers should be mindful of
term and even fatal to a business following an interruption in business. “There is often too little focus and expertise directed at business interruption when considering risk. There is no point having shiny new machinery in a new building when you have lost your customer base,” says Swarts. “The most important points for brokers to remember in commercial insurance are that all businesses want, and need, to continue satisfying customers – is to maintain trading and to protect their position in their market. Having an insurance claim paid is not why they are in business. Being in business is their reason for being. There have been cases where companies have gone out of business solely due to lack of BI cover and cases of huge loss of equity for shareholders due to crippling loss of market share,” he adds.
ecause business interruption (BI) comes in many forms, it can be tricky to pin down. Charl Swarts, head of Hollard Broker Markets (formerly Etana Commercial and Industrial) explains that differences in perception between a client’s accountants, and brokers often leads to incorrect and inadequate financial protection, which can be crippling in the long
Swarts emphasises that brokers have a vital role to play in advising their clients that they should have robust business continuity plans (BCP) or disaster recovery plans (DRP) in place. Companies often take the approach that buying insurance will protect them and neglect to do the upfront risk identification and response planning that is required. Having adequate response measures in place can lower the extent of the claim in the event of business interruptions. That said, getting the BI policy right is vital and every business is distinct – requiring specialised time and attention. With so much scope for error, Swarts highlights the following common mistakes, which can complicate matters.
Incorrect sums Incorrect calculation of the sum insured is a basic problem. The broker often speaks to the accountant at the business and for this reason it is crucial to clarify perceptions between accounting gross profit which is sales less cost of sales; and insurable gross profit (IGP) which is turnover less variable costs. There are two methods of calculating IGP: the additions and difference basis. The least complicated and risky is the difference basis. Brokers often make the mistake of overcomplicating the calculations. It is almost impossible to accurately determine to what extent cost will vary in relation to turnover because interruptions vary. The simplest method of calculating IGP is to use the difference method with purchases and bad debts as uninsured costs.
Revenue vs production Of course, not all businesses are production or sales oriented. Brokers often ignore the fact that insuring on a revenue basis is often more appropriate; for instance, in the case of professionals. Other examples where gross income or revenue would apply are manufacturers’ agents who don’t have premises or stock, but who would suffer a loss if damage occurs at the factory. The policy would need to refer to the premises of the factory.
The VAT value Not taking trends and value added tax (VAT) into account is also a mistake. If a loss occurs towards the end of the period of insurance, the sum insured needs to be adequate to cater for the turnovers at that time projected for trends in the business. Another very common error is to omit VAT from the calculations.
Deposit premium Incorrectly using the deposit premium. Brokers tend to see the deposit premium clause as a hidden discount, instead of a mechanism to optimistically state the sum insured at the beginning of the period. They do this to avoid underinsurance without risking overpaying premium once actual figures are known. Rather be optimistic about the sum insured than risk average in the event of a claim.
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Indemnity issues Incorrectly selecting indemnity periods is one of the most significant errors made by brokers and their clients. When determining the indemnity period, brokers need to allow time for investigations to be completed. Authorities may have control of a site for some time especially if injuries or deaths are involved and where forensic investigations may take significant time. It could possibly be two to three months in extreme cases before any reinstatement may proceed. The next requirement is site clearance and disposal of salvage. This could be more complicated if hazardous materials are present, including asbestos in older buildings. Following that is the reinstatement of the building. Even simple steel framed industrial structures take up to 12 months to fully commission, assuming no local authority complications. During this time, order replacement machinery which may have long lead times as well as shipping and commissioning delays. Finally, once full production is possible, time is needed to regain market share. It is rare nowadays that any manufacturing concern could get away with less than a 12-month indemnity period.
Inadequate limits Another often ignored issue is selecting an adequate additional increased cost of working (AICOW) limit. This is arbitrarily selected at a few million Rand with no proper understanding of the consequences of the BCP/DRP. Once the economic limit is applied, the increased cost of the working component of the gross profit claim ceases to operate and the AICOW extension kicks in. If this is inadequate, the insured will begin participating in the loss unnecessarily.
“The most important points for brokers to remember in commercial insurance are that all businesses want, and need, to continue satisfying customers.”
Split placement Brokers occasionally split the placement of buildings from contents and profit. While there is nothing wrong with this in principle, it could lead to complications where the building insurer and profits insurer do not have their interests aligned. Delays in reinstating the building could imperil the resumption of regular trade. It is probably better to have a single insurer carry the trigger covers as well as the BI.
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It is important to ensure that appropriate extensions of cover are purchased. With almost total reliance on electricity and heavy dependence on data networks, most businesses could suffer significant losses and stoppages due to cable theft and other causes.
Surroundings Brokers need to scrutinise each customer’s circumstances to identify individual risks. How reliant are they on passing trade generated by an anchor tenant in a shopping centre? If that anchor tenant had a fire, would the insured suffer a reduction in turnover?
Pre-emptive strikes A mistake many buyers of insurance make is not working with the risk improvement resources available from their insurer. There is often valuable advice available in terms of mitigating interruption exposures and these should be investigated. As with all insurance matters, potential clients are advised to engage the services of skilled and professional brokers, experienced in their particular type of business or industry, who are savvy enough to avoid the pitfalls of this complicated type of cover.
GENERAL LIABILITY INSURANCE AGRICHEM LIABILITY BROADFORM LIABILITY COMMERCIAL LIABILITY TOP-UP EVENTS LIABILITY EXCESS LAYERS AND UMBRELLA COVERS GENERAL PUBLIC LIABILITY MOTOR FLEET THIRD PARTY LIABILITY PERSONAL LIABILITY TOP-UP (XOL AND UMBRELLA) PRODUCTS LIABILITY WAREHOUSEMEN’S AND CARRIERS’ LIABILITY PROFESSIONAL INDEMNITY ARCHITECTS ATTORNEYS BUILT ENVIRONMENT PROFESSIONALS CHARTERED ACCOUNTANTS COMPUTER INDUSTRY DESIGN & CONSTRUCT ESTATE AGENTS FREIGHT FORWARDERS INSURANCE BROKERS LAND SURVEYORS PROJECT MANAGERS QUANTITY SURVEYORS UNDERWRITING MANAGERS
Telephone: +27 11 459 1640 Professional Indemnity Stuart Sinclair firstname.lastname@example.org
Facsimile: +27 11 268 5887 General Liability Insurance Caroline MacNair email@example.com
www.leppard.co.za Chartered Accountants Sherelle Horsfield firstname.lastname@example.org
Underwritten on behalf of Lombard Insurance Company Limited (FSP no. 1596)
FSP No is 274
Bank fraud hits hard Towards the end of last year, bank customers were placed on high alert when the Payments Association of South Africa (PASA) made an official announcement regarding a security breach related to bank cards used at restaurant chains and franchises. Neesa Moodley-Isaacs
alter Volker, the chief executive of PASA, says card details across all major banks were accessed by an unauthorised international organisation through customwritten virus software. “The industry has taken immediate and proactive steps to identify the extent of the potential exposure, clean up confirmed sites with effective custom anti-malware software and carefully monitor transactions on the cards involved in order to detect possible unusual activity,” he says. Volker points out that all the issuing and acquiring banks in South Africa have well-developed and sophisticated fraud and risk management systems in place and that monitoring of any heightened levels of potential fraud which might result from this would be a normal activity with no need for additional systems. Rene de Villiers, head of risk at Nedbank Card, confirmed that the number of incidents reported was limited and that where fraud losses were reported, Nedbank Card clients were refunded and issued with new cards. Ross Linstrom, spokesman for Standard Bank confirmed that some Standard Bank debit, credit and cheque card customers had been affected. “All Standard Bank cards that may have been impacted have already been placed under a heightened level of monitoring to detect possible unusual or fraudulent activity. Should fraudulent transactions occur on any of
these cards, cardholders will not be exposed to any losses and Standard Bank will replace the cards of affected customers.” Jonas Thulin, security consultant at Fortinet says unfortunately there are no public statistics available on the extent of online fraud in South Africa. “Very few incidents actually make it to the press in detail,” he says. According to Susan Potgieter, general manager at the commercial crime office of the South African Banking Risk Information Centre (SABRIC), the number of reported incidents was under 100 in 2011, but has jumped to more than 1 000 in 2012. While this is still probably a minute number compared with all the fraud cases actually perpetrated in a year, the growth rate of 900 per cent remains alarming. “From the banking industry’s perspective, we are worried because we know that these SIM swaps are for the purpose of fraud,” Potgieter said, although she was unable to provide a figure for the money lost in fraud cases where SIM swaps were involved. A SIM swap refers to an incident where criminals (using fraudulent identification) cancel the SIM card you are using and obtain a replacement SIM from your network provider. This ensures that they directly receive any onetime pins or other identification sent to you by your bank during an online banking session. Adrian Vermooten, head of digital banking at Absa, says that more than 90 per cent of
these fraud cases were due to the customer inadvertently disclosing login details for online banking – most likely through a phishing e-mail. This means only a few cases were actually a result of login details being stolen by the fraudsters using spyware or key loggers. One of the most widely publicised cases of bank fraud in South Africa occurred early last year when Media24’s chief executive, Esmaré Weideman fell victim to a SIM swap syndicate and lost R360 000 over one weekend. Between a Saturday and Monday morning, without her knowledge, an amount of R1.5 million was transferred from Weideman’s home loan to her cheque account. Before Absa could freeze her account, smaller amounts amounting to R360 000 were transferred to an account in the name of Badiba Madiba. Weideman told press at the time that her SIM card would not work on the Sunday. On the Monday, she contacted MTN and was told that there was no problem. However, later that afternoon, she was contacted by someone at Absa’s Internet fraud unit, who told her that her Internet service had been stopped and that money had been withdrawn from her account. On reporting the case at the Rondebosch police station, Weideman met a couple who had lost R5 000 in the same way.Omnit volorum dolore vitiatectus
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Tips for online shopping • Before shopping online, make sure all the current updates of your operating system have been installed on your computer. This includes the web browser, anti-virus and antimalware software. • Secure the web browser by adjusting the settings to block pop-up ads and prevent cookies. When it’s time to log out, clear the cache on the web browser. • If you are shopping online via a smartphone, it is vital to have security software installed. Smartphones are increasingly being targeted by malicious software and scammers. Also, use a password, pin or swipe pattern to unlock the device. This will protect private information in case the phone is lost. • Stick to well-known and trusted merchants. Go directly to a merchant’s website to make an online purchase. If a website’s URL looks strange, such as Amazon.net instead of Amazon.com, or is misspelt, it may be a scammer’s website. • When setting up an account or making a purchase on a website, be sure to look for the ‘s’ in ‘https:’ at the beginning of the site’s URL. That means the website is secured with encryption. If the https: isn’t there, it’s not a secure website. • Click on the padlock icon near the URL in the Web browser’s address bar or in the grey status bar at the bottom of the page. Clicking on the padlock icon allows access to the website’s security certificate information. Keep an eye out for statements that the site is secure and the certificate has been verified by a trusted certificate authority, such as Symantec, VeriSign, Geotrust, Thawte, Comodo, GoDaddy or Global Sign. • Look for the seal of approval from companies such as Verisign, McAfee, Comodo or Trustwave that indicate the website has passed security and privacy tests. Also be on the lookout for endorsements from credit card companies. • Read the merchant’s return policy to ensure they provide a physical address and phone number, instead of a post office box and e-mail address, in case there is a problem or the item needs to be returned. Print or take a screen shot of the order as a record of the purchase.
How to protect your bank card • Register with your bank for real-time notifications of any transactions occurring on your account so that you can immediately identify fraudulent activity. • If you use a credit or debit card to shop online, only provide your card information to reputable companies and for single purchases. • Do not let your card out of your sight for any point-of-sale or other card-based purchase. • Review your account statements regularly and immediately query any disputed transactions with your bank. • Ensure that you get your own card back after every purchase. • Never write down your PIN or disclose it to anyone. • Report lost and stolen cards immediately. • Destroy your credit card receipts before discarding them. • Do not send e-mails that quote your card number and expiry date. • Upgrade your cards to EMV (chip)-enabled cards as most POS devices in South Africa are EMV-enabled, which will help protect you from card skimming. • Sign the back of your card on receipt from the bank. • Never assume an ATM or self-service terminal has retained your card. Always contact your bank to confirm and request the card be blocked immediately. Do not wait until you get home or back to the office – a skimmed card can be replicated in minutes and used immediately. • Do not believe hoaxes, for example, that entering your PIN backwards at an ATM will notify the police that you need assistance. These scams are designed to get you to divulge your PIN. • Avoid using ATMs in secluded areas. • If you feel unsafe at an ATM, return later or use another machine. • Only enter your PIN when the ATM screen instructs you to. • Stand close to the ATM and block the view with your hand. • Never write the PIN on the card. • Always check that you get your card back from the machine. • Don’t count your cash at the ATM.
What to expect at retailers At shops or restaurants where you opt to pay using your card, the person who is handling your transaction should: • Hold the card where you can see it until the transaction is completed. • Ensure that the card security features are present. • Compare your signature on the card to that on the sales voucher. • Phone for authorisation if requested to do so by the point-of-sale device. • Only make an imprint of the card in the case of a manual transaction.
Important numbers If you suspect fraudulent activity on your bank card, you should immediately contact your bank:
011 710 4710
Nedbank: Fraud desk
0860 555 111 Contact centre
0860 557 557 Absa: Fraud hotline
087 575 1188
First National Bank: Credit card fraud
087 575 9444 Debit card fraud
087 575 9406
FNB card cancellations (lost and stolen) call centre
0861 201 000
Success does not come from eliminating risk.
SUCCESS COMES FROM
MANAGING RISK FOR GROWTH.
We help you balance your strengths against the risks that come with growth.
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MARSH AFRICA www.marsh-africa.com | +27 11 060 7100 An authorised financial services provider | FSB/FSP: 8414
Malicious acts vs negligence Neesa Moodley-Isaacs
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According to the ruling, the Compass Group felt that De Kock’s actions of dishonestly concealing the loss prevented the company from taking action to improve profitability and prevent further losses. They further held that this dishonest concealment constituted misconduct in terms of the Pension Funds Act. Lukhaimane was also told that the Compass Group had instituted a civil claim in the North Gauteng High Court and laid a criminal charge against De Kock, at the Secunda police station, to recover these losses. The company had then requested that the Compass Group Southern Africa Pension Fund withhold De Kock’s withdrawal benefit pending the finalisation of the civil claim as well as the criminal case. In his response, De Kock said that some of the duties attributed to him by the Compass Group actually rested with other staff members such as the store manager, the storeman and the bookkeeper. He submitted that as most of these people reported to the general manager, the general manager should have been aware of any losses and it would also have been impossible to conceal the losses as claimed by the company.
n employer that has withheld an employee’s pension payout on the grounds that his mismanagement of stocks had caused losses of more than R2.7 million was recently ordered by the Pension Funds Adjudicator to pay the withdrawal benefit.
A company pension fund has the right to deduct funds from a member’s savings in the event that a malicious or unlawful act by an employee results in damage or loss to their employer. However, this does not extend to contractual disputes.
The employee, PF de Kock, lodged a complaint with the office of the Pension Funds Adjudicator, Muvango Lukhaimane, denying that his actions as a project manager for the Compass Group were negligent and the direct cause of the losses. De Kock was employed by the Compass Group from 1 October 2008 until 13 February 2013 when his services were terminated. During this time, he was a member of the Compass Group Southern Africa Pension Fund, which was administered by NMG Consultants and Actuaries. The Compass Group, the pension fund and the actuaries submitted that De Kock’s duties as a project manager included procuring, managing, securing and proper utilisation of the stock. They told Lukhaimane that in the execution of his duties, De Kock had failed or neglected to properly manage, record or accurately account for the stock and, as a result, the Compass Group suffered a loss of cash and stock. An investigation showed that De Kock had been grossly negligent and had concealed the loss of R2 726 794.
He submitted that his employment record showed that he had been an honest employee and the Compass Group had acknowledged this several times during the course of his employment. He further told Lukhaimane that he was not aware of any civil claim against him and summons had never been served on him. In her determination, the Pension Funds Adjudicator, Lukhaimane said the act provided that a registered fund may deduct any amount due by a member to his employer “in respect of any damage caused to the employer by reason of any theft, dishonesty, fraud or misconduct by the member”. In her analysis, the loss occurred because the employee had failed to meet certain managerial standards. She says: “A simple interpretation of the Pension Funds Act does not lend itself to the interpretation that was used to withhold this member’s benefit. On a simple reading, the malicious or unlawful act must result in the damage or loss to the employer. In terms of the submissions, the loss resulted from an employer-employee contractual agreement, in which De Kock failed to meet the required managerial standards. According to the Compass Group, it was only after the damage was done, that De Kock tried to fraudulently conceal the loss.” Lukhaimane goes on to say she is not convinced that the Pension Funds Act was intended to extend to contractual disputes and ordered the pension fund to pay De Kock his withdrawal benefit.
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A tale of Twin Peaks Further clarity on the National Treasury’s Twin Peaks system of financial regulation was finally forthcoming in December, when the draft Financial Sector Regulation Bill was released. Hanna Barry
hile South Africa follows Australia and the Netherlands in its adoption of a Twin Peaks approach, in a recent interview with RISKSA, Professor Karel van Hulle, former head of pensions and insurance for the European Union Commission, warned that centralising the regulation of banks and insurers ignores the fundamental differences in the two sectors. “Banks are specialists in the asset side, while insurers are specialists in liability. The sectors face fundamentally different risks
and require separate regulation,” he told RISKSA’s Sarah Bassett in an interview at the International Conference on Financial Services, hosted by Unisa in Durban in October 2013. Known to many as the godfather of Solvency II, Professor van Hulle warned, “Market conduct decisions impact solvency. For example, you can make life insurance products so safe for the customer that they are unprofitable for insurers. These two arms need to work in synergy.” Van Hulle disagreed with the views of Lesetja Kganyago, deputy governor of the South
African Reserve Bank (SARB), who suggested that because of the interconnection between the banking and insurance sectors in South Africa, the prudential regulation of both sectors should be centralised. “The interaction between banks and insurers in South Africa is considerable. Out of the top four banks, three are also insurance companies and in the case of one, the bank is owned by the insurance company,” he explained.
Ombuds strengthened, TCF legislated According to a report released by the Group
markets and promoting effective financial consumer education. According to an article published in Business Day in December, the market conduct authority will no longer have a system of registrars, instead having three or four commissioners. FSB CEO, Dube Tshidi, told the national daily that when the bill becomes law, his position and those of other executive committee members would cease to exist, but they would become eligible for the positions of commissioners or deputy commissioners.
Further objectives of the bill In addition to creating the two regulators and strengthening financial stability, the bill provides a legal framework to enhance co-ordination and co-operation between regulators. In particular, a Memorandum of Understanding (MoU) is provided between the prudential and market conduct authorities to ensure alignment. A Financial Stability Oversight Committee (FSOC), chaired by the governor of the Reserve Bank, gives the Reserve Bank primary responsibility to oversee financial stability.
of Thirty (G30), a number of other jurisdictions are engaged in debates over adopting this type of approach. These include France, Italy, Spain and the United States. South Africa’s draft Financial Sector Regulation Bill, released last year and for which the public comment window came to a close on 7 February, is the first in a series of bills that give effect to Cabinet’s decision to implement a Twin Peaks model of financial regulation in South Africa. It follows two policy papers that respond to lessons learnt in the 2008 global financial crisis: A Safer Financial Sector to serve South Africa Better, released with the 2011 Budget; and a Roadmap for Implementing Twin Peaks Reforms, released on 1 February 2013. The draft bill notes that ombuds will be strengthened under Twin Peaks, while the Financial Services Board’s (FSB) Treating Customers Fairly (TCF) initiative will be legislated as part of the rollout of the new regulatory regime. In a statement, Treasury notes that the ombud system is a powerful redress mechanism in the hands of consumers. Through changes to the Financial Services Ombud Schemes (FSOS) Act, the bill seeks to strengthen the ombud system by putting measures in place to enhance public awareness of the system and require that all financial institutions be members of
an ombud scheme. It also broadens the mandate and role of the FSOS Council to, among others, approve the appointment or removal of an ombud. In the second phase of Twin Peaks reforms, which is envisaged as a multi-year process, existing sectoral legislation will be gradually amended or replaced with laws that more appropriately align with the Twin Peaks framework. For example, a comprehensive market conduct framework will be legislated, which will give legal effect to TCF and will ensure a consistent approach to governing the conduct of financial institutions across the financial sector. The draft bill covers the first phase of the implementation of Twin Peaks, which involves the establishment of two new regulatory authorities, namely, a new prudential authority within the Reserve Bank and a new market conduct authority. The prudential authority will be responsible for overseeing the safety and financial soundness of banks, insurers and financial conglomerates. The role of the market conduct authority will be to protect customers of financial services firms and improve the way financial service providers conduct their business. This authority will also be responsible for ensuring the integrity and efficiency of financial
The FSOC will ensure a co-ordinated and immediate response to risks to the stability of the financial system, while a Council of Financial Regulators (CFR) will co-ordinate all regulators, standard-setters and other agencies with a mandate over financial institutions on issues like financial stability, market conduct, competition, legislation and enforcement. The CFR will include regulators that don’t report to the Minister of Finance, such as the National Credit Regulator, Council for Medical Schemes, Competition Commission and National Consumer Commission. A financial services tribunal, described as a “shared enforcement mechanism”, is aimed at encouraging compliance with all aspects of the new regulatory regime. The bill enhances existing regulatory and enforcement action powers of the regulators, such as suspension or withdrawal of licences and approvals, orders to take or cease particular actions and debarments, as well as providing for a robust appeal mechanism. A crisis management and resolution framework provides authorities with the appropriate tools and powers to limit the kind of financial contagion illustrated by the global financial crisis. The bill provides for resolution powers and identifies the Reserve Bank as the resolution authority in South Africa. Where taxpayers’ money is at risk, the Minister of Finance could take crisis management decisions. Treasury hopes to enact the legislation by 2014, expecting it to become fully functional by 2015.
Danny Gumm is an insurance broker in Queensland, Australia, with over 35 years' experience. In 2013, he won the prestigious Broker of the Year award from the National Insurance Broker Association (NIBA). Founder and director of Parmia Insurance since 2002, he specialises in providing insurance solutions to professional associations and their members. Sarah Bassett
What does it take to be Broker of the Year in Australia? Why do you think you were selected? The criteria for Broker of the Year in Australia are quite extensive. These include a nomination from a third party who believes you are deserving of the award (my staff nominated me); a submission addressing key aspects of professionalism as a broker and as a leader both within the industry, as well as the community in general; and then an interview with key insurance industry personnel (three NIBA representatives and two Zurich representatives as sponsors of this award). I believe I was chosen due to my 35 years in the industry; endorsements from key clients, insurers, and my peers; also for the role Parmia has played in using real risk management to offer insurance solutions for whole industry groups which were previously unable to obtain cover, or where the cost of cover was prohibitive. Examples include the high-end beauty industry, such as laser treatments and cosmetic tattooing. Parmia introduced risk management in conjunction with a key beauty therapist solution
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to offer coverage to operators previously unable to get cover. The same approach has been applied to industries including tattoo artists, mercantile agents and work experience for colleges and training students. What qualifications are required to be a broker in Australia; and are there requirements for ongoing training and development? The insurance industry is monitored through the Australian Investment Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) with all advisers required to meet strict educational and financial requirements in order to offer insurance advice and service. A minimum number of continuous professional development (CPD) points are required each year from all staff (24 hours) and ongoing training of staff is seen as more essential than optional these days. Most insurance brokers are members of NIBA or the Insurance Institute, which all have their own code of ethics and requirements which brokers must maintain. Is there a negative perception of financial
services in Australia, with people tending to view insurance as a grudge purchase? I think that insurance itself is certainly still a grudge purchase, but I do not see this passing on through to the insurance broking industry. More than 80 per cent of all commercial business is currently placed through insurance brokers, and yet a recent speech by the Australian Financial Services Ombudsman revealed that the minority of complaints were made against insurance brokers. The majority pertained to the direct insurance market, where there was misunderstanding relating to the coverage purchased, or the terms and conditions that applied in assessing a claim. Is fee-based remuneration for brokers used in Australia? Is this something which gets debated? Fee-based remuneration is certainly used, but the most common means of remuneration remains commission through insurers. Due to the increased regulation and standards required, most brokers now not only receive commission from the insurers, but also charge
an administration or service fee to assist with meeting these costs. How competitive is the insurance market in Australia? The insurance market in Australia is extremely competitive in most areas of general insurance, with large insurers such as Allianz, CGU, QBE, Vero and Zurich battling for the majority of general commercial business, with niche underwriting agencies emerging from such companies and Lloydâ€™s of London providing the bulk of coverage. For domestic insurance, the vast majority of business is now being transferred away from the broking market to direct insurers, although a number of brokers in regional areas still run profitable domestic insurance portfolios, where personalised attention is still valued. How long does it take to earn good money in a career as a broker? The insurance industry offers an extremely rewarding career from day one, offering a diversity of roles for everyone. I have been fortunate enough to work with major international insurance brokerage firms such as
Marsh, Willis and Sedgwicks, as well as starting my own business, and both roles have been extremely rewarding. I think the biggest endorsement I could give to insurance is that it is currently a role that many people accidentally fall into but not too many people try to get out of it once they are in the industry. What support or benefits do you receive from the insurers you work with? As a niche insurance broker working in some of the more difficult and diverse areas of insurance exposure, we predominantly use Lloydâ€™s of London, and currently work with three separate syndicates in offering specialised insurance products. Lloydâ€™s has offered us tremendous support in enabling us the flexibility to offer unusual solutions to niche industries to solve insurance problems. How much can brokers earn in Australia? In operating my own viable business now for in excess of 10 years, and with additional opportunities still available on a weekly basis,
the opportunities for our business are still extremely exciting. Therefore our revenues and worth of business continue to escalate. As an employee, I would estimate that an account executive in Australia could earn anywhere upwards from $60 000 (R652 000) plus additional benefits, with top-end senior appointments earning more than $200 000 (R2.17 million) per year. However, I have been out of general employment roles for some 10 years, so these figures should be considered a generalisation. Have there been significant changes in regulation and qualifications required to work in the industry in Australia? The most significant changes were introduced in 1984 with the Insurance Contracts Act, and this remains the backbone of the insurance broking industry. Other changes such as the Financial Services Reform Act have played a major role in ensuring that brokers communicate adequately and accurately to our clientele in a timely manner, and general legislation such as the Privacy Act have also played a role in how insurance broking business is transacted.
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Fiduciary duties Elana Honiball, Head of compliance at Masthead
of financial advisers
Fiduciary duties and the associated principles have developed from common law and are being entrenched in most legislation and governance principles, as well as the FAIS legislation.
ection 2 of the General Code of Conduct for Authorised Financial Services Providers and Representatives (the Code) states: “A provider must at all times render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.” This section encompasses the fiduciary duty intrinsically imposed on financial advisers. Fiduciary comes from the Latin word fiducia, meaning ‘trust’. A fiduciary is an individual in whom another has placed the utmost trust and confidence to manage and protect property or money. A fiduciary relationship occurs where one person has an obligation to act for another's benefit and, at all times, to act in good faith with a high standard of honesty and full disclosure with regard to the client. The fiduciary must not obtain a personal benefit at the expense of a client. An adviser, as a trustworthy fiduciary, has five major responsibilities when it comes to clients. They must put clients’ interests first, act with utmost good faith, provide full and fair disclosure of all material facts, expose all conflicts of interest to clients and not mislead clients. These responsibilities overlap in many ways and are intertwined with the Code and the Treating Customers Fairly (TCF) outcomes. If an adviser puts clients’ interests first, then the adviser is not misleading clients. If
the adviser is not misleading clients, then they are providing full and fair disclosure, including disclosure of any conflicts of interest. Advisers have greater knowledge and expertise on financial services and products. There are currently two standards: the fiduciary standard and the suitability rule. The fiduciary standard means the adviser must act in the best interests of a client and put the client’s interests ahead of their own. This coincides directly with the main purpose of the TCF initiative, which is to “pay due regard to the interests of customers and treat them fairly”. Section 3 of the Code further states that an adviser must “disclose to the client the existence of any personal interest in the relevant service, of any circumstance that gives rise to an actual or potential conflict of interest and take reasonable steps to ensure fair treatment of the client”. A fiduciary would, for example, be prohibited from making recommendations that produce higher commission for themselves in the role of financial adviser. The suitability rule means that the adviser must reasonably believe that a recommendation is suitable, given a client’s circumstances, needs and objectives. Section 8 of the Code supports this duty in that the adviser must identify the financial product that will be appropriate to a client’s risk profile and financial needs.
If, for example, a client tells an adviser that under no circumstances must the principal value of an investment decline, the adviser would violate the fiduciary and suitability standards if they recommended equity investments, which can depreciate in value. But an adviser would adhere to both standards by recommending guaranteed investments. The suitability standard states that an adviser has to reasonably believe that any recommendations made are suitable for clients, in terms of the client’s financial needs, objectives and unique circumstances. How do the responsibilities of a fiduciary translate into an adviser’s obligations to clients each and every day? Probably no statute or set of rules could contemplate the variety of factual situations and decisions that an adviser faces. Just imagine the number of rules and releases and regulations this would require. Fiduciary duty is far beyond sheer compliance. Fiduciary duty involves transparency and a level of accountability over and above the normal compliance and commercially accepted standards expected of advisers. However, the solution is fairly basic. If an adviser incorporates the qualities of a fiduciary as above and puts clients’ interests first, the adviser will indeed be someone that clients can trust.
GPS Log Book Anton Pretorius
Brokers often find themselves spending more time on the road than in the office. But claiming travel expenses for tax returns and keeping detailed log books can be the source of many headaches. However, it is possible to save money (and paper) if you do it properly. The GPS Log Book makes it easy to claim from your company, or as a taxdeductible expense for the self-employed. 88 8 2
outh Africaâ€™s tax laws make provision for you to claim for the use of your private vehicle to fulfil work tasks, but doing so is no longer as straightforward as it used to be. To claim travel expenses, you must receive a travel allowance or you must earn most of your income in the form of commission. It was simpler in the old days: you could use your odometer readings at the start and close of the tax year and SARS would deduct private use from your calculation of your travel expenses for the tax year. This has changed though as many have succeeded in cheating the system. SARS requires
comments, resulting in a quick, detailed and SARS-compliant tax logbook that is available online at any time. The device is a tiny GPS. There are no screens or buttons, just a single multi-coloured LED status indicator. You plug it in, the light goes from red to green once it’s found satellites (takes no longer than 30 seconds) and starts recording your trips. Want to charge your phone, but you’ve only got one power socket in your car? A USB output on the GPS Log Book allows you to charge most smartphones, along with many other USB-powered gadgets. Upload data from your in-car device to the cloud service, using downloadable software for PC or Mac. The software swiftly sends the data to the web and updates your device with the latest GPS-assist data which shortens the satelliteacquisition time when you start up the car. Once your trip data has been uploaded, you log into the GPS Log Book website and classify your trips. This means assigning ‘zones’ on a map (Google Maps, for familiarity) to the start and end points of your journeys. Zones represent a single place, such as ‘work’, ‘home’ or ‘client A’, but can be assigned a larger radius or outline – say, the streets you commonly park in outside your workplace. A zone can be marked as either ‘business’ or ‘personal’, which allows the GPS Log Book to make assumptions about your trips. For example, a trip from business to business is automatically called a ‘business’ trip, whereas from personalto-personal, or personal-to-business are considered ‘personal’ trips. You can change the type of trip with a single click, regardless of the end zones. Once you’ve defined a zone, you don’t have to do so again – so after the first few times, all your regular destinations will be automatically identified by the GPS Log Book and you’ll only create zones for totally new destinations (e.g. a new client, or a restaurant you haven’t visited before).
a detailed logbook specifying each business trip. Even commuting to work cannot be claimed as a business expense anymore and is considered private travel. There are a couple of ways to calculate your claim. You can use the SARS cost tables to link the cost of your travel to the value of your vehicle, which works if you haven’t been too good at keeping invoices. Receiving travel allowances works in most cases. You can also use the actual costs to calculate your claim. If commission is your primary
source of income, this is the only way you can claim travelling expenses. This records how much you spent on petrol, repairs and maintenance and insurance. It’s essential that you have proof of all expense in the form of invoices and account statements. The GPS Log Book is a small, wireless device that plugs into the vehicle’s cigarette lighter and records details of every trip, using GPS technology, intelligent logging software and a substantial memory. After a few trips, plug it into your computer and the trips can be viewed using Google Maps, categorised and annotated with
From the website, you can export reports for workplace expense claims, and SARS logbooks for tax-exemption claims, or even raw data files for your own analysis or accounting system. The whole process is effortless, the website well designed, the cost low and the time investment minimal.
Subscribe & Win 1 of 10 GPS Log Books worth R899 each. (see pg.3)
In the first weeks of 2014, news of extraordinary weather conditions across the United States dominated headlines as a circulating pattern of cold air originating in the Arctic north, the now-infamous polar vortex, was drawn south, bringing with it extreme cold, ice storms and snow. Sarah Bassett
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ll 50 states, even Hawaii, experienced freezing weather. Temperatures were so extreme that a polar bear kept at Chicago’s Lincoln Park Zoo was moved inside, and a New York prison escapee turned himself over to police. The biggest weather-related economic disruption since superstorm Sandy, the conditions caused extensive property damage, transport and business interruption triggering economic losses estimated at $5 billion. Insurers anticipate significant claims, though cost estimates were yet to be released at the time of publishing. Approximately 20 000 flights were cancelled. At JFK Airport in New York, a plane slid off a runway, causing the airport to close for almost two hours. Temperatures were reportedly cold enough in some places to render jet fuel unusable. Major airlines are expected to suffer approximately $50 million to $100 million each in lost revenue. Malls, retailers and businesses closed shop. And once the worst cold was over, the thaw unleashed torrents of water, causing flooding and cracked pipes across the country.
The shape of the future Such fast-changing, extreme weather patterns will only become more commonplace, according to the New York-based Insurance Information Institute. “There’s no question, while there’s variability and volatility from year to year, the number and the cost of catastrophic weather events is on the rise on a global scale,” Robert Hartwig, president of the insurance institute, told Bloomberg Press. “It’s all but certain that the size, magnitude and frequency of disaster losses in the future is going to be larger than today.” As if to prove the point, while the US froze, record-breaking temperatures in Melbourne halted tennis matches at the Australian Open. Bats dropped out of the sky and kangaroos collapsed in the Outback.
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losses in Canada, with payouts reaching a record-breaking $3.2 billion for the year. According to Aon Benfieldâ€™s recently released Global Climate and Catastrophe Report, the floods in central Europe were the costliest single event of the year, causing an estimated $5.3 billion insured loss and approximately $22 billion in economic losses. Most of the flood losses were in Germany, which also experienced record-level insured hail losses during multiple summer convective thunderstorm events.
Environmental risks dominate the rankings of the World Economic Forumâ€™s (WEF) Global Risks 2014 report. After income disparity, extreme weather events are listed as the risk most likely to cause systemic shock on a global scale.
And the recent past In 2013, the number of weather events and earthquakes resulting in insured losses climbed to 880, an increase on the 10-year average of 790 a year. This is according to statistics
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released by global reinsurance giant, Munich Re. In a reversal from 2012, the largest global catastrophe events of 2013 were heavily concentrated in Europe and Asia, rather than in the United States. Floods and hailstorms in central Europe caused double-digit billiondollar losses, while one of the strongest cyclones in history, super typhoon Haiyan in the Philippines resulted in over 6 000 fatalities. Ice, floods and thunderstorms made 2013 the worst year ever for severe weather insurance
Even so, globally, 2013 was a relatively moderate year for insurance losses, according to Munich Re figures. Direct overall losses of around $125 billion and insured losses of around $31 billion remain below the average figures of the past 10 years ($184 billion and $56 billion). Despite just 16 per cent of all economic losses occurring in the US, the country accounted for 45 per cent of all insured losses globally due to its greater insurance penetration. At 20 000 lives lost, the death toll was higher than in 2012, but was also significantly below the average of the past 10 years (106 000).
Water, water everywhere
The power of prevention
Flood events accounted for 35 per cent of all global economic losses during 2013, with major flooding in Indonesia, the Philippines, China and Australia, in addition to central Europe. Flood waters in Passau, Germany, in May and June reached the highest level since 1501, while December in Jerusalem marked the worst blizzard since 1953. December was also Norway’s wettest month in history, according to weather service YR. Rainfall in the US was seven per cent higher than the 20th century average, according to the National Oceanic and Atmospheric Administration. In December 2013, a series of three winter storms (Christian, Dirk and Erich) cut power to hundreds of thousands of homes across the UK and France and flooded an estimated 1 200 homes in the UK.
The message is clear: extreme weather and natural catastrophe events are on the increase, from less than 400 in 1980 to more than 800 in 2013. Economic losses from disasters have similarly been increasing, from roughly $50 billion a year in the 1980s to an average just under $200 billion a year throughout the last decade, according to a recent World Bank study. This is partly a factor of economic growth; the global economy has more than doubled since 1980, creating more to lose economically to a hurricane, drought or flood.
Meanwhile, severe drought conditions contributed to billion Dollar losses in Brazil, China, New Zealand and the US.
Authorities declared a drought in 2013 across the entire North Island of New Zealand, as some areas reached their driest in 70 years. In 2012, Spain had its driest winter and second-driest summer since 1947, cutting olive oil and wine volumes to the lowest in a decade.
In 2010, China shivered through its coldest winter in 50 years. Three years later, Shanghai sweltered in its hottest summer in 140 years, reports the city’s weather bureau.
Aon Benfield reveals that preliminary data indicates 2013 was the fourth warmest year recorded since global land and ocean temperature records began in 1880.
Drying to a frazzle
In the same period, prevention measures have seen death tolls decrease and damage minimised in many cases. “Several of the events of 2013 illustrated how warnings and loss minimisation measures can restrict the impact of natural catastrophes. In the most recent winter storms in Europe, for example, the losses remained comparatively low,” noted Torsten Jeworrek, Munich Re board member responsible for global reinsurance business. “At the same time, events like those in the Philippines show the urgent need for more to be done in developing and emerging countries to better protect people. This includes stabler buildings and protection facilities, and insurance programmes to provide those affected with financial assistance after a disaster.”
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Leaders create an
environment for others to flourish L
eaders who are attuned to their followers can use this as a springboard to provide leadership into an uncertain future. “The leader cannot stand alone, he or she must stand with their followers, interpret for them, strive to fulfill their hopes and be their champion in the struggles of life. Leadership is achieved, not given,” adds Khoza. “The recession of 2008/9, from which we are trying to emerge, was caused by the self-serving, selfish kind of thinking that focuses on ‘me, myself and I’. True leaders think beyond themselves. Particularly in the 21st century, we need leaders who are astute, knowledgeable and insightful; we need leaders who are able to deal with complexity.”
Dr Reuel Khoza
The world needs leaders who are intellectually smart as well as emotionally intelligent, insightful, compassionate, values-based and guided by an ethic of service, says Dr Reuel Khoza, chairman of the Nedbank group. 94 8 2
In addition to his role as chairman of the Nedbank Group, Khoza is also the chairman of Aka Capital. He is the president and member of the Institute of Directors, deputy chairman of the King Committee on Corporate Governance, the Chancellor of the University of Limpopo, a director of several large corporations and visiting professor of Rhodes University, among others. He also served on former president Thabo Mbeki’s Economic Advisory Panel. In his 40-year career he has achieved remarkable successes in the South African business world and believes in leading by example. Khoza is an advocate of the idea of inclusivity and Afrocentricity, as well as the principles of ubuntu in his academic work and in
practice. He defines ubuntu as ‘I am because you are, you are because we are’, which is diametrically opposed to a more Western-style thinking centred on Descartes’s ‘I think therefore I am’. In Khoza’s ubuntu model, a person’s life has meaning – not in terms of his thoughts but because of his social ties, common values and empathy with others.
“The leader cannot stand alone, he or she must stand with their followers, interpret for them, strive to fulfill their hopes and be their champion in the struggles of life.”
Khoza admits that he is sometimes criticised for his idealism but he says a more caring, valuesbased leadership translates into business success and profits as well. As an example, he mentions the oil spill in the US, in which a focus on gain at the expense of the common good saw BP lose a substantial chunk of its company value. He also mentions Nike’s huge losses attributed to negative public reaction to its exploitation of child labour in the manufacturing business.
May 2006, the share price was R131.01; and in November 2013, it was R210.75. “Many people leave the bank but 18 months later say they want to come back. When I ask them why, they say it is the culture, because of the values. This is the essence of what I am advocating. People will produce optimally if they are in an environment that is conducive to them producing optimally. My job is not about managing risk but ensuring that the work environment is conducive for them to flourish,” Khosa says.
president Thabo Mbeki, a man he describes as “exceptionally brilliant” but who was not willing to take advice and, as a result, lost touch with his followers. On the other hand, former president Nelson Mandela focused on the common good throughout his political career, putting his leadership skills at the service of his followers, the key to his success as a leader.
At Nedbank, he accredits the bank’s current financial strength not only to its business principles, but to a change in corporate culture. He says when he joined the group it was on the cusp of collapse, needing financial bail-outs from the Reserve Bank as well as from Old Mutual.
“Leaders who lead us successfully are coordinators rather than controllers, their moral stature arises from dedication to our cause, we admire them not because they are powerful, they are powerful because we made them so and they are admirable when they provide clear vision and positive direction,” he continues.
Khoza said he is not against competition and innovation, or pursuing ambition, but that it must not be at the cost of followers. “Leadership can only succeed over the long term by sharing the values and aspirations of their followers and this means being able to distinguish between what is expedient and populist versus what is serviceable and honest. It takes insight, empathy and discipline to achieve resonance with followers. This is what ubuntu promotes.”
To illustrate this further, he points out that when he was appointed as chairman designate in November 2005, the Nedbank share price was R91.47. When he was appointed chairman in
Khoza says leaders are not just born to the role, but are born and then made, sometimes by their own actions, sometimes they are shaped by events. He quotes the example of former
Khoza was speaking at the University of Cape Town Graduate School of Business, where his talk centred on the key elements of his book, Attuned Leadership.
THE TALENT Andy Mark
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I’ve always been a little nervous about headhunting management staff. For starters, if a new candidate is prepared to forgo her (or his) current position for a few bucks more to come join my team, it isn’t really saying a whole lot about their integrity that they can be bought so easily.
And therein lies the rub. There will always be another firm with a bigger chequebook. We counter that by having more fun. Much more fun. And by giving our people the recognition they deserve. And nurturing and growing the talent within.
omewhere at the back of my mind will always be the thought that the next competitor, perhaps with a slightly bigger chequebook, is ready to do me the same favour. And what about the clients and contacts they’ll be bringing with them? Well now, I’m not too excited about that either, because the next time the merry-go-round grinds to a halt and the music stops playing, they’ll climb off the horse with my client list.
Sometimes our folk do move on. We work incredibly hard here. Admittedly we play hard too, but the hours are long and the deadline pressure unrelenting. Publishing, as they say, is not for sissies. You don’t get to be Business Magazine of the Year for three years running by sitting on your arse. And so this is not a job for everyone.
There are those candidates who, for one reason or another, find themselves hemmed in by a glass ceiling or caught up working in a family owned enterprise with little opportunity to prise the corner office keys away from a long line of nepotistic cousins and uncles, who may legitimately be looking to boost their career, but if someone’s only motivator is a few Dollars more, I’m a little reticent to go a-poaching. Of course, the niche we all serve and love in our corner of financial services is fraught with churn – especially among folk with up-to-date RE and KI credentials. It is far
easier, and a lot more cost-effective, to hire folk that someone else has spent the money on training than it is on developing your own people. Or is it? Whenever we can, we develop our leaders internally here at COSA. Not that we have a massive top-down structure, our hierarchy is remarkably flat – but each buck does stop with a team leader tasked with the success of a particular product or service, and so we need entrepreneurially minded folk who can manage both people and tasks, all without dropping too many balls.
A few years ago, the Wall Street Journal ran a piece focused on a study by Matthew Bidwell who investigated the costs of hiring employees from outside vs that of promoting internally. The results were pretty conclusive. The study itself was quite robust, taking as its sample a 30 year trend of serial jobhoppers. Bidwell found that not only was the cost-to-company higher for the externals, but that they performed significantly below par for their first two years on the job. In fact, the externals were 61 per cent more likely to be fired from their new positions than those folk promoted from within. Why someone would pay more for a poorly performing manager is beyond me. Nurturing key talent and promoting from within an organisation is not always easy, but certainly worthwhile. I remember receiving an irate call from a RISKSA reader who was incensed that we had dared run an advert that was placed by a large brokerage looking for talent. The caller owned a smaller brokerage and had taken umbrage of the fact that we were complicit in trying to steal his staff. He proudly told me he had banned his entire workforce from reading RISKSA because of the ad.
We have a simple credo written into our ops manual here at COSA; if you decide it is time to move on, for whatever reason, come and talk to me. I will help you write your CV. I will give you time off to go to interviews. You needn’t take a sickie or a day’s leave, just be upfront about the fact that this is not what you thought you were signing up for, or a bigger opportunity has fallen into your lap and you’re ready to move on. Providing you are going to a bigger and better opportunity I won’t even give you a lecture (I might if your career choice means you’re going backwards). But if you are making the move for the right reasons, I will ask only one thing in return, and that is to help me find your replacement. Our people are empowered, they do get to choose which magazines they read, they are encouraged to make decisions and are supported when they fail. We nurture our talent by encouraging personal growth, study and mentorship. It is not easy to get a job with us, you will need to prove that you have the maturity to get on in this sometimes-mad environment, and that you in turn have the ability to mentor and grow those folk under you as well as a passion for the brand you’re working on. If you can do these things, then you have what it takes to make it into management on our floor. If you’re doing these things well, why on earth would we hire externally? Nurture the talent within I say.
How to e-mail like you mean business
E-mail has become the primary mode of business communication with both co-workers and clients. Simple, immediate and borderless, it is a powerful business tool, but its simplicity can be deceptive. With few employees explicitly trained in company e-mail etiquette and security practices, organisations are left wide open to unintended security breaches and reputation damage. 98 8 2
he problem with e-mail is that it is an extension of office communication. Everyone has access but not everyone understands how to communicate effectively, notes Ulrike Hill, an English and communication lecturer and plain language consultant. â€œMany employed South Africans are English second-language speakers, so that creates further problems for written communication,â€? she adds.
Bad e-mail is bad business Professionalism: Poor e-mail etiquette breaks down the trust relationships we work so hard to build, eroding our professionalism in the eyes of clients or prospects, says Taschy Fourie, managing director of Learnfast Training Solutions. “You can throw as much money as you like at corporate identity or a slick website, but it will be pointless if the people at the wheel cannot communicate professionally and timeously,” she cautions.
revealing or incriminating their employers unknowingly. “Danger areas include forwarding e-mails that contain libelous, defamatory, offensive, racist or obscene remarks,” notes Hill. “Problematic external communication can be the result of internal miscommunication or human error.
Efficiency: Poor e-mail habits erode efficiency. “A long, rambling e-mail wastes the recipient’s time. It also indicates a lack of understanding. Many people write long copy to hide a lack of knowledge,” Hill warns.
For example: a client speaks to a salesperson by phone. A colleague e-mails a quote to the client without checking the e-mail and pricing calculations. In terms of the Consumer Protection Act, the company has to honour that quote. If a proposal involves millions and there is an error, this can affect a company’s bottom line.”
Liability: E-mail can open companies to considerable liability, unaware employees can expose their firms to risk by over-promising,
Reputation: It is easy for an e-mail to go viral and cause considerable and lasting damage.
The common blunders
This includes inappropriate greetings, absence of greetings or treating a client as a friend, Hill explains. For example: using greetings such as ‘hi’ or addressing the client as ‘Mr’ instead of ‘Mrs’. When in doubt, and this includes spelling, phone the company to check the recipient’s details. e
“The use of emoticons should be reserved for the well-established, more relaxed relationships that have been cemented over time and only in response to someone who you know will respond well to that level of communication,” adds Fourie. Similarly, SMS language should not be used. n “Smaller businesses using a domain e-mail address that does not match the company name or product will put their e-mail at the bottom of the pile if they are competing for a sale,” Fourie warns. “Trust is paramount with prospective ai
clients and having these basics in place is key to creating a professional impression.”
When sending out a mass mailer, blind carbon copy (BCC) the recipients. “For many clients, it is irritating and frustrating to have their personal e-mail addresses shared without their consent. And then there are the hours of continued conversation when other recipients continue to reply to all,” Fourie explains.
Poor and careless spelling is a prime cause of reputation damage, says Fourie. “Most professional service seekers will not touch a company or individual’s proposal if the initial e-mail or its attachments contain fundamental spelling mistakes.”
se If you cannot respond immediately, send a well-written one liner s Re acknowledging an e-mail and promising a response. Then make sure you do so. It reflects very poorly when clients have to remind a company that they need a response to an e-mail the client took the time to write. n po
“The standard fonts such as Calibri, Verdana and Ariel are perfect for e-mail (font size 10 or 12). White backgrounds are professional,” says Hill. at
Ensure that the body of the e-mail fits ng to screen size. People do not have o time to read long e-mails. Get to To the point.
E-mail disclaimers: do they work? A combined confidentiality instruction and disclaimer of liability are commonly added as a standard insertion at the end of company e-mails, but are these effective? “Whether a disclaimer is effective depends on the circumstances of the case, but more often than not they offer no protection,” explains Nerushka Deosaran, an associate in the technology practice at Norton Rose Fulbright South Africa. “Confidentiality notices are not an agreement and an inadvertent recipient does not have an obligation of confidentiality after receipt of the e-mail, nor to follow the usual instruction to delete the e-mail and notify the sender.” “Liability for losses arising from reliance on the contents of the e-mail and for the transmission of viruses are often disclaimed,” she continues. “If used, the disclaimer should be conspicuously displayed. A disclaimer not apparent to a reasonable person would never be effective.” “It is more important to educate employees on the appropriate use and etiquette of e-mail rather than inserting an e-mail disclaimer that is seldom read. Similarly worded automatic disclaimers at the end of every e-mail are commonly used in imitation and because they cause no harm, not because they are necessarily enforceable,” Deosaran concludes. “Many companies do not have e-mail policies in place, or employees do not have access to these policies. Induction programmes are essential for new employees and should include e-mail etiquette and policy,” notes Hill. “Companies should also implement plain language and business writing training for communicators who are not proficient.”
Top tips • Always respond as soon as possible, even if just to acknowledge an e-mail. • Remember that tone, enhanced by grammar, punctuation and sentence structure, can come across in e-mails. • End every e-mail with a welldesigned, professional signature with at least your name, surname and contact number. • Keep e-mails short and simple and always, always use a spell checker. • Personalise your e-mail and ensure that the recipient’s name is spelt correctly. • Include a subject so that a busy recipient can see what your e-mail is about.
Momentum launches free online financial wellness solution Momentum has announced the launch of a new financial wellness solution, consisting of online tools designed to help individuals manage their financial status. The solution comprises a self-assessment tool, a comprehensive real-time budget application, a document storage solution and calculators that assist with the number crunching. “People are bemused when it comes to crafting an organised approach to financial wellness. With this in mind, Momentum wanted to design and deliver a truly practical suite of solutions to help simplify people’s financial lives. These solutions are available to all South Africans free of charge, whether they are Momentum clients or not,” explains Lee-Ann du Toit, head of financial wellness at Momentum. Du Toit believes that these solutions could significantly enhance clients’ control and knowledge of their finances. “The solutions are fully secure and follow bank-like security protocols to ensure that consumers’ information is not compromised. We do not cut any corners when it comes to ensuring that consumers are confident that we treat their information with the strictest confidentiality,” Du Toit adds. Lee-Ann du Toit, Head: Financial Wellness at Momentum
Hollard’s Etana acquisition approved
Nic Kohler, CEO of the Hollard Group
The Financial Services Board (FSB) has approved Hollard’s acquisition of Etana Insurance. The 60 per cent acquisition gives Hollard sole ownership, positioning the merged entity as the second-largest short-term insurance group in South Africa by revenue. “The combined entity draws together two substantial skill sets in a skills-constrained market, creates an expanded product range and raises underwriting capacity – all of which position us very well in this difficult market,” says Nic Kohler, CEO of the Hollard Group.
The acquisition received approval from South Africa’s Competition Tribunal in September 2013. Full operational integration of the Hollard and Etana teams is expected by the end of March 2014. Etana staff will form part of a new business unit within Hollard, along with a similar number of Hollard staff. The new business unit, Hollard Broker Markets, will be focused on brokers and their clients’ corporate, commercial and personal insurance needs. The unit will be headed by former Etana chairman Paolo Cavalieri.
Cartrack introduces e-toll report Fleet management and vehicle tracking company, Cartrack, has made a new e-toll report service available to its clients. The tool allows individuals and corporates to accurately calculate their transactions with SANRAL’s new e-toll system in Gauteng. In addition to generating accurate e-toll cost reports for managing operating costs, the service should assist in reducing criminal activity. The company points out that licence plate cloning is an ongoing problem for fleet managers. “Cartrack’s e-toll report provides an invaluable tool to detect such fraudulent activity relating to cloned plates. It also gives the clients concrete means to challenge any false charges to their account with SANRAL. Fleet managers need an accurate and real-time system that allows them to monitor, detect and resolve any anomalies immediately,” John Edmeston, CEO of Cartrack says.
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REAM introduces new app REAM Insurance Brokers has launched a new app for its policyholders. The REAM insurance brokers app gives the company’s Tuffstuff, TopMarque and Business policyholders instant access to a number of essential services. The app features a panic button with access to 24-hour emergency services, an Assist Call Centre, real-time traffic reports and emergency services listings to find nearby hospitals, clinics and police stations. The app also gives clients access to details regarding their policy status, including sum insured, premium, claims history and the ability to update their personal information. Real-time claim lodging and processing, as well as quote requests are also possible.
Old Mutual’s credit rating upgraded Ratings agency Fitch has upgraded Old Mutual’s national long-term rating to AAA and its subordinated debt to AA as well as affirming its national insurer financial strength (IFS) rating at AAA. Old Mutual’s main South African operation, and its main non-South African operation, Skandia, are core to the group under Fitch’s insurance group rating methodology and are therefore rated based on the credit quality of the group as a whole. Old Mutual derives about 75 per cent of its operating earnings from South Africa. “The group’s IFS rating is one notch higher than the South African local currency in recognition of Old Mutual’s geographic diversification, with about one-quarter of earnings generated in the UK and Europe. The additional notch also reflects the group’s ability to share with policyholders potential investment losses on its investments in the South African financial markets and the financial flexibility from being listed on the London Stock Exchange,” says the agency.
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Healthcare inquiry proceeds despite interdict The Competition Commission’s market inquiry into the South African private healthcare sector is proceeding despite an interdict application from the Netcare Group. The inquiry will probe the private healthcare sector holistically to determine the factors that restrict, prevent or distort competition and underlie increases in private healthcare prices and expenditure in South Africa. The Netcare Group launched its interdict application on the grounds that KPMG’s involvement in the probe represents a conflict of interest. Netcare is seeking clarity from the South Gauteng High Court regarding the extent of information exchanged between the team that worked for Netcare and the team working for the Commission. It has also made an application for an interim interdict to prevent KPMG’s involvement in the inquiry until the matter is resolved.
Downturn in South African motor trade A recent report by Statistics South Africa indicates a 0.7 per cent sales increase in South Africa’s motor trade over the 12 months to the end of November 2013. Within that total, major contributors were fuel sales, up 5.4 per cent, and sales of new vehicles, up by a more modest 0.2 per cent. The National Association of Automobile
Manufacturers of South Africa (NAAMSA) points out that 2013’s domestic sales figures are well below the original growth expectations. NAAMSA’s original vehicle output and export projections were revised sharply downwards during 2013, largely as a result of the seven-week industry strike in August and October of last year. The strike is estimated to have cost the motor industry about R20 billion. Despite the lower export numbers, however, NAAMSA says it expects new vehicle exports to show a 20 per cent increase from 2013.
newappointments Altrisk Anton Hartman has been appointed head of distribution at long-term risk product provider, Altrisk. Hartman joins Altrisk from Absa and brings many years of Anton Hartman distribution and sales experience in the life industry.
Collective Dynamics Administration Collective Dynamics Administration CDA has appointed Lucy Kalify as a director. “Kalify has contributed significantly to the growth and
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success of the business during her four years at CDA in the role of marketing manager. With her vast experience and expertise in direct marketing, call centres and insurance, I am confident she will continue to be Lucy Kalify instrumental to the success and growth of our business,” says Shani Plantema, managing director at CDA. Kalify will continue to be the interface between the company and its clients and will be responsible for new business, marketing and client development to drive new business growth and market share.
Compli-Serve SA Regulatory compliance management services provider, Compli-Serve SA, has promoted James George James George to compliance manager.He is responsible for managing the team of compliance officers and chairing Compli-Serve SA’s bimonthly compliance officer forum. In addition, he will ensure procedures and processes are adhered to by the Compli-Serve SA compliance officer team and that the team is up to date with financial services legislation.
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news international United Kingdom
Insurance Brokers Standards Council launched
The Insurance Brokers Standards Council (IBSC) has launched in the United Kingdom with the purpose of establishing a code of conduct for the profession. According to the new body, its efforts will benefit clients and support insurance brokers by giving them access to a body of opinion from their peers on a range of issues. The council highlighted that its cornerstone was that the standards of a profession – complementary to legal and regulatory standards – should be defined by the individual practitioners themselves. Members will be invited to participate in debate on an ongoing basis to develop up-to-date and relevant opinions for the profession. Membership will be on an individual basis but insurance broking firms can become associate members if they are prepared to endorse the code of conduct created by the council.
Kenya launches electronic regulatory system
Maritime piracy hits six-year low
The Kenyan Insurance Regulatory Authority (IRA) has launched an online system designed to enhance its service delivery. The new electronic regulatory system (ERS) portal will manage all formal communication between insurers and the regulator, enabling insurers to complete and submit required forms electronically. The platform will also enable insurers to monitor and update their company profile on the regulator’s files. “The new system will reduce time taken to prepare data outputs and analysis which has been a major challenge to the authority,” commented IRA commissioner of insurance, Sammy Makove. Makove added that the system will enable the authority to achieve a model of supervision in line with international standards. The system will further enable the country’s transition from compliance-based supervision to risk-based supervision, the IRA said.
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Global maritime piracy incident rates reached a six-year low in 2013, showing a 40 per cent drop from its 2011 peak, according to the International Maritime Bureau (IMB). The reduction is primarily attributed to a focused drive to combat pirate activity off the coast of Somalia. The bureau states that Somali pirates have been deterred by a combination of factors, including intervention from international navies, the hardening of vessels, the use of private armed security teams, and the stabilising influence of Somalia’s central government. IMB’s annual global piracy report shows that in 2013, a total of 12 vessels were hijacked, 202 were boarded, 22 were fired upon and a further 28 reported attempted attacks.
Insurance for Olympic medals
Financial services investor backs Russian insurance software company
US-based Liberty Mutual Insurance recently announced that it would be working with the US Olympic Committee to insure each of the medals won by US Olympic and Paralympic athletes competing in the Sochi 2014 Olympic and Paralympic Winter Games and the Rio 2016 Olympic and Paralympic Games.
Iran EU lifts ban on Iranian oil tanker insurance
The European Union has amended a key part of its Iranian sanctions package imposed in July 2012, by lifting its ban on the provision of insurance for tankers carrying crude oil from Iran. EU foreign ministers meeting in Brussels agreed to suspend the sanctions for six months. Iran currently sells crude oil to only six countries: China, India, Japan, South Korea, Turkey and Taiwan. The EU has also suspended its ban on the import, purchase or transport of Iranian petrochemical products and related services. The lifting of the sanctions was timed to coincide with the entry into force of the deal on Iran’s nuclear programme, agreed upon in Geneva last November. EU foreign affairs chief, Catherine Ashton, states that negotiations on a comprehensive solution would commence in February. Japanese buyers of Iranian crude can now start using international protection and indemnity insurance (P&I) clubs for the provision of insurance for tankers carrying Iranian crude. P&I clubs can offer insurance of up to $7.7 billion (R 84 billion) per VLCC, but they halted cover for tankers carrying Iranian oil after the EU imposed sanctions against Tehran in June 2012.
At present, the process of replacing a lost or stolen Olympic or Paralympic medal requires the athlete to file a request through the US Olympic Committee. Through the new insurance policy with the US Olympic Committee, Liberty Mutual Insurance will ensure that 2014 and 2016 US Olympic and Paralympic athletes are not held financially responsible for the loss of these prizes.
Africa M&A value in sub-Saharan Africa increases
The value of merger and acquisition (M&A) deals targeting sub-Saharan African firms increased by 20.8 per cent in 2013, reaching a total value of $26.7 billion according to specialist intelligence service, Mergemarket.
London-based financial services investor, EMF Capital Partners has invested in Russian insurance software company, Virtu Systems. This marks the first deal from the EMF New Europe Insurance Fund (NEIF), which targets investments in the insurance and related sectors of non-EU Eastern Europe. With this, NEIF becomes Virtu’s largest shareholder. Virtu is one of the most popular and widely used front-office systems in the Russian insurance market, used by insurers including domestic and international companies. The investment will allow the company to respond to increasing demand and create a new product range, with the aim of eventually entering international markets. The company is focused on providing online communications and data exchanges between insurers and their distribution channels. The majority of insurance products in Russia are still sold in paper form and communication between agents and insurance companies is slow and inefficient. “Automating the insurance sales process is a significant cost saving and efficiency opportunity for the industry as a whole,” said Peter Lovas, CEO of EMF Capital Partners.
“With investors realising the opportunity to capitalise on Africa’s growth and emerging middle class, opportunities are being swept up at a faster pace each year,” the company reports in its latest sub-Saharan Africa M&A trend report. A total of 215 deals were completed in 2013, with the most targeted M&A country by value being Mozambique. Driven by its energy and gas sector, it took a 35.8 per cent market share from only seven deals, valued at $9.6 billion. South Africa recorded 124 deals valued at $8.5 billion taking a 57.7 per cent share by volume. Nigeria, Tanzania and Angola were the next most active M&A countries for the region. Despite concerns around the United States’ planned monetary tapering, global ratings agency Fitch announced that it expects Africa’s growth to rise above five per cent in 2014.
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Bitcoin The digital currency the world is talking about Laura Owings
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Bitcoin has met with cautious acceptance and scepticism by regulators across the globe. But, a closer look at the virtual currency reveals investment is a risky, long-term option and its use in payment and exchange is where it has real potential.
n late November, US Federal authorities met with senate committees to examine digital financial networks such as Bitcoin, addressing their strengths and weaknesses and criminal allure. While officials questioned whether virtual currencies could actually be considered currencies, or as commodities or securities, they concluded Bitcoin offered a real benefit to the financial system. According to a letter from Federal Reserve Chairman, Ben Bernanke, to a committee, Bitcoin and other such currencies “may hold long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system”. The acknowledgement sent Bitcoin soaring to a
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record value of more than R16 000 on BitX, South Africa’s largest Bitcoin exchange. One of about a hundred exchanges worldwide, the most active of which is based in China.
regulatory approaches that may become necessary within South African jurisdiction,” says Hlengai Mathebula, head of Group Strategy and Communications at SARB.”
According to BitX founder Timothy Stranex, the US announcement was a positive development. “There were worries that the US would outlaw Bitcoin, which would make it much less valuable. But they seem more positive about it and want to see how it evolves and regulate from there.” Bitcoin has no legal status or regulatory framework in South Africa.
Other countries have addressed Bitcoin. China and France have issued regulatory guidelines and warnings, with the Chinese Government banning financial institutions from using the currency. In Canada, Australia and parts of the European Union, Bitcoin is validated as a taxable currency.
“The South African Reserve Bank (SARB) is actively monitoring the developments around virtual currencies to inform any future
The divergent views have sent Bitcoin into a meteoric seesaw attracting the attention of investors large and small who are weighing whether they should invest in the virtual currency, or if it’s merely a speculative bubble.
Bitcoin is a digital currency created in 2009 by Satoshi Nakamoto, a pseudonym. It allows users to send payments within a decentralised, peer-to-peer network without a central clearing house or financial institution confirming transactions. The smallest unit of Bitcoin is the Satoshi, 100 million of which make up one Bitcoin. The total supply of Bitcoins is designed to never exceed 21 million Bitcoins, a cap expected to be reached in 2140. Currently, there are 12 million Bitcoins available.
regulate the money supply, the difficulty of tasks become more complicated over time. Once held, a Bitcoin is kept in a virtual wallet on a computer which generates a one-time-use Bitcoin address. You disclose your addresses to merchants or trade partners in order to convert Bitcoin to real world fiat currencies. Confirmed transactions take about 10 minutes to complete.
A public history of all Bitcoin transactions is continuously updated and verified by ‘miners’ who gather batches of transactions into blocks that are attached to the ends of the blockchain. This forms a public ledger where every single Satoshi is tracked. Such a history works as a guarantee that buyers actually own the Bitcoins they will spend and to prevent fraud.
goal of Bitcoin is to be a self-stabilising currency, carefully restricted and independent of banks and governments. Thus, it is attractive to those worried about inflation or sceptical of the world’s central banks. This has driven market hype from speculators bidding up the price on Internet exchanges, betting that the currency will be more widely used in the future.
While verifying transactions is fairly easy, for a block to be attached to the blockchain, a miner must complete a computational task. The miner who succeeds is rewarded with a predetermined amount of Bitcoins. As a measure to
There are significant questions about whether the digital money is a worthwhile investment. A Bitcoin assessment published by Bank of America Merrill Lynch in early December suggests prices are at risk of running ahead of fundamentals.
Some economic experts have called it a speculative bubble about to burst, akin to Dutch tulip mania. But the soaring value of Bitcoin doesn’t necessarily mean it’s a bubble beyond its fair value, says Raoul Pal, a former hedge-fund manager and founder of Global Macro Investor, a macroeconomic research service. “All assets have bubbles, but that doesn’t mean the underlying asset is worthless. With the tulip, it was because the tulip can be destroyed. But with the Bitcoin, you cannot destroy it,” he says. Pal suggests Bitcoin has an assigned value, like gold for example. According to his research, if investors tied Bitcoin’s value to that of the precious metal, one Bitcoin would be worth one million USD. Acknowledging the amount sounds wildly optimistic, he says, “The point is, whatever the fair value of Bitcoin, it is trading far below it.” As Bitcoin broadens and becomes more common as a form of payment and savings, it will become much less volatile, Pal predicts. His advice to investors is to buy Bitcoin, but treat it as an option. “You want to buy a small amount and hold it. The upside is so huge, it’s better to start small and wait and see.”
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Beyond the hype
October 2008: A person, or entity named Satoshi Nakamoto, publishes a paper outlining a peer-to-peer electronic cash system.
Bitcoin experts do not support such speculative activities. “It would be a mistake to buy Bitcoin to attempt to get rich. It’s an extremely risky idea,” says Stranex.
January 2009: Nakamoto publishes first Bitcoin transaction, with quote pulled from UK Times newspaper: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” February 2010: Bitcoin Market, first Bitcoin exchange, opens. May 2010: Man claims to use Bitcoin to purchase pizza. Price: 10 000 Bitcoins. March 2011: Bitcoin exchange rate reaches a six-week low point at almost $0.70. July 2011: Hungarian woman accepts Bitcoin order at her pet supply shop. “The first order I had was for 42 BTC, which was worth about $40 at the time, but now those coins would be worth around $680,” she tells The New York Times. July 2011: Bitcoins Mobile, the first Bitcoin application for iPad released. July 2012: Bitcoin use grows, shows links to black market and illegal goods sales. February 2013: BitX, South Africa’s first Bitcoin exchange, launches. April 2013: Collective value of all Bitcoins passes US$1 billion. July 2013: Wiklevosses brothers, of Facebook fame, apply for regulators to allow trade of Bitcoin-like stocks. September 2013: Bitcoin Investment Trust begins accepting donations; this will provide a reliable and easy way to bet on the future price of Bitcoin. October 2013: Bitcoin transaction giant Silk Road is shut down and founder arrested on charges of selling illegal items. November 2013: US Senate committee announces digital currency networks offer real benefits for the financial system. November 2013: Bitcoin value exceeds US$700. November 2013: Man buys Tesla Model S for 91.4 Bitcoins, or $103 000. November 2013: South African student pays 1 Bitcoin towards tuition at The University of Nicosia, Cyprus. November 2013: Richard Branson announces Virgin Galactic space flight seats can be bought with Bitcoins.
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Marcus Swanepoel, director of Switchless, a South Africa-based Bitcoin software firm and BitX parent company, says the market hype is taking attention away from the value of Bitcoin technology and its role as a payment platform. “If you’re talking about it as an investment tool, then you’re walking in the wrong direction. Its potential extends way beyond just a currency.” The Bank of America Merrill Lynch assessment reported: “Bitcoin could become a major means of payment for ecommerce and may emerge as a serious competitor to traditional moneytransfer providers.” US merchant processer for virtual currencies, BitPay, exemplifies this with over 14 000 Bitcoin-accepting merchants in the States and 75 000 in Canada. It processed over 55 000 Bitcoin transactions in November alone, according to a statement from the company. “BitPay’s order volume is the most accurate indicator of the real Bitcoin economy, and today that economy is soaring higher as merchants are seeing tremendous value in accepting Bitcoin payments,” said Tony Gallippi, BitPay co-founder and CEO. It is this application that should be Bitcoin’s appeal, says Swanepoel, particularly for banks looking to modernise and compete with emerging digital financial services. “Because Bitcoin protocol is open and people can transfer quickly with virtually no fees, banks can embrace this in a clever way and compete with other payment platforms,” he says. “And it can be done without a capital outlay of say, 100 million Dollars, because the system has already been built and can be shared.”
Growing Pains Bitcoin’s online nature and perceived anonymity pose challenges to its general acceptance, as it is vulnerable to hackers and alluring to criminal enterprises. A solution may come from Swanepoel’s Switchless, which builds secure vaults for financial institutions to store Bitcoins in cold storage, or in an offline computer inaccessible without physical access. “It is highly secure; this is important if you’re a financial institution as you want to give your clients absolute security,” says Swanepoel. When online marketplace Silk Road, where Bitcoin was the primary form of payment, was shut down by US authorities in October and its founder arrested on charges of using the site to sell drugs, weapons and pornography,
Bitcoin took the brunt for facilitating the illegal activities. In fact, Bitcoin is an inherently transparent system where every transaction is public record, allowing investigators to track the movement of money. “On the surface, it looks anonymous. The transactions are between account numbers, so you don’t see the person behind the account. But transactions are completely public on the ledger,” says Stranex. “It’s actually more transparent than the traditional banking system, where all transactions are private.” Money laundering opportunities are also being expunged. Anyone who registers with BitX in South Africa, for example, must comply with FICA guidelines. Similar acts apply internationally. Perhaps the biggest challenge to Bitcoin is the knowledge gap. The less people are exposed to Bitcoin, the more it is interpreted as an investment rather than payment tool. This is particularly true in South Africa, where about 20 merchants accept virtual currency payments, compared to the thousands in the US and Canada. As international attention grows, and governments continue to respond, South Africa will inevitably follow suit. “There are
more merchants setting up to accept Bitcoins in South Africa, so in the next few months you’ll see it happening. That will help people realise you’re meant to spend it, not to hoard it.” While Pal does not support Bitcoin’s role as a solely transactional currency, he does want to see it adopted in more payment platforms. “If it ends up as both a transactional and stored value, it will be around for a long time.”
Lloyd's of London backs Bitcoin insurance A first of its kind storage service insured against Bitcoin loss and theft launched in London in January. The Elliptic Vault uses deep cold storage to protect private Bitcoin accounts. The service allows users to keep track of their Bitcoins, withdraw funds and opt for any level of insurance protection. The company is backed by Lloyd’s of London, with payouts calculated using the Bitcoin to US Dollar exchange at the time of claim.
Island property no problem erty ian prop it r u a M â€˘
Forget Australia, the tiny tropical island of Mauritius has become the destination of choice for South Africans keen to escape South Africa while also enjoying solid financial benefits. Neesa Moodley-Isaacs
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ccording to statistics by the Mauritian Board of Investments, 30 per cent of foreigners who have bought property in the Integrated Resort Schemes (IRS) on the island are from South Africa, while 37 per cent are from France and 20 per cent from the United Kingdom. The IRS is an initiative of the Mauritian Government in collaboration with the Mauritian Board of Investments and is designed to facilitate the acquisition of resort and residential property by non-citizens on the island.
Foreign ownership of property In 2002, the Mauritian Government took the decision to open the market to foreign buyers on a restricted basis, which permits the construction and sale of luxury villas to foreigners in particular locations and subject to certain conditions. More recently, the IRS has grown to include the sale of serviced plots of land, so that foreigners can build their own homes. To date, seven projects have been completed: Tamarina, Anahita, Villa Valriche, ClubMed Albion, Belle Riviere, Azuri and La Balise Marina, while Matala remains under construction. Foreign investors automatically qualify for permanent residence for themselves and their immediate family under the age of 24 if they invest a minimum of US$500 000 (R4.5 million) or more in the IRS. However, Rory Kirk, a South African expat and businessman, now based in Mauritius, cautions that while the purchase of an IRS property gives the owner the right to live in Mauritius, it does not give the owner the right to work in Mauritius. “A work permit requires a separate application, although these are given favourable consideration in light of the IRS purchase,” he says. Property development firm, the Indian Ocean Real Estate Company, says of the 132 units available under the IRS dispensation at its luxury resort scheme Azuri, which it is currently developing, 80 per cent have already been sold.
Attractive investment proposition Murray Adair, the CEO of the Indian Ocean Real Estate Company, says a combination of factors makes Mauritius an attractive investment proposition for foreigners right now. It is among the top 20 countries in the world according to the World Bank Index for ease of doing business. Based on the latest statistics Mauritius forecast, the island’s economy is expected to expand by 3.7 per cent this year after growing by 3.2 per cent last year. Mauritius offers foreign investors a favourable and competitive investment environment.
Some of the financial advantages include: • A flat 15 per cent tax rate. • No inheritance or capital gains tax. • Hundred per cent foreign ownership. • Free repatriation of profits, dividends and capital. “This, coupled with a temperate climate, a stable democracy, a sophisticated financial services industry and the leisurely lifestyle makes Mauritius an ideal investment proposition for people from all over the world,” says Adair. According to him, the IRS have become important stimuli for the building, construction and property sector in Mauritius. The island provides an ideal platform for holding and structuring investments in many of the world’s fastestgrowing economies resulting in numerous onshore and offshore private and corporate investment opportunities. Anahita Mauritius, the leading IRS development in Mauritius, offers investors a reliable development partner, Ciel Properties Limited, which has solid business experience in the local and international arenas.
SA is single largest investor Kirk points out that South Africa’s foreign direct investment into Mauritius over the past six years has grown to just more than three billion Rupees (just more than R1 million), making South Africa the single largest investor in Mauritius. “This level of investment is clearly apparent when you look at the number of new shopping centres, retail stores, fast food brands, banks and many other South African companies that have sprung up all over the island, not to mention hotels and other property developments,” he says. Kirk says numerous South Africans also employ a significant number of skilled and lesser skilled Mauritians in just about all areas of the economy.
SA-Mauritius double tax treaty A new revised double tax agreement (DTA) was concluded between South Africa and Mauritius in May last year and is expected to take effect from January 2015. This could have implications for both Mauritian companies investing into South Africa as well as for South African companies dealing offshore via a Mauritian entity. The new DTA still has to be approved by Parliament and be published in the Government Gazette in terms of the Income Tax Act No 58 of 1962. Similarly, the DTA must be ratified by the Mauritian Government. The main changes to the DTA relate to withholding taxes, dual residence for persons other than individuals and capital gains taxes.
Life’s a beach Former South African Springbok player, Cabous van der Westhuizen, is a familiar sight on the island, having relocated there some years ago. He owns the Beach House, a popular drinking spot that offers spectacular views and live music and is often frequented by South African expats as well as the more casual Selfish restaurant. In terms of schooling, there are several international schools. If you want to live in the north of Mauritius, as do most South Africans, then brace yourself for a long waiting list and ridiculously high school fees. The two most popular schools in the north are Lighthouse Primary and International Preparatory School. However, in the last year, a local bilingual pre-school has expanded to become a primary school as well, called Martin’Ecol’ette.
Who can buy Mauritian property? The following persons may acquire residential property from an IRS developer: • A non-citizen of Mauritius. • A citizen of Mauritius. • A company registered as a foreign company in Mauritius under the Companies Act 2001. • A company incorporated in Mauritius under the Companies Act 2001.
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Ride my pony Andy Mark
ord Motor Company has built some crap Mustangs in its time. The 80s Mustangs were throw-up-in-the-backof-your-mouth ugly. Their ugliness was surpassed only by their lack of mechanical integrity. The cool Mustangs of yesteryear fell victim to then Ford president Lee Lacocca’s vision of ‘cut costs everywhere’. He cut costs all right, and nearly destroyed an American icon in the process. The Mustangs which Steve McQueen made famous, with their retro cool styling and thundering V8 engines were all gone, replaced with cheaply built hunks of metal fitted with terribly underpowered engines. Ford has since thankfully seen the error of its ways, even producing a special edition of the Mustang in 2008 to commemorate the 40th anniversary of McQueen’s mad car chase from the cult movie Bullitt – called, not surprisingly, The Bullitt. Later batches of Pony Cars have drawn heavily on styling cues from the 60s-era Mustangs and look great, but lacked European niceties (like brakes and handling) that had become the domain of AMG and BMW performance vehicles. All this is about to change in August this year. For in August Ford begins production of the most beautiful car on the planet. Not only does the 2015 version of the iconic Mustang
come with innovative engines, but it also comes with brakes that work and independent rear suspension across the range. Ford has at last thrown out the old school solid rear axle and built something that corners as good as it looks. Ford South Africa has not yet let slip which of the models we are likely to see on our shores. There are both hard and ragtop versions being produced overseas though. The power plant options range from a potent little 2.3 litre, four-cylinder (you read that right) delivering a staggering 227 kW and 406 N.m of torque, a mid-range 3.7 litre V6 with around 223 kW and 365 N.m and, of course, a V8, making 313 kW and 528 N.m. How much commission does a hard-working broker need to make to park this baby in the garage? No one is saying at this point. Ford SA spokesperson Ensly Dooms says the pricing will only be made available later in the year. If you want to get your name onto a waiting list, you need to be patient. Pre-orders will only be taken in the second quarter of 2014. Let’s hope our devalued Rand sees some strengthening before then. In the meantime, keep your eye on the Ford SA website for further announcements. And look for the editor of SA’s favourite insurance title standing in the queue.
In the comfort zone Anton Pretorius
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For the business traveller, airports can be miserable places. While most airport terminals have a few desks, an electric outlet and some wireless access, getting any work done is nearly impossible amid the roar of screaming children and the drone of a PA system. Luckily, the solution to such terminal travel woes can be found in airport lounges. RISKSA looks at what’s on offer.
or a long time, airport lounges have had a reputation – all business, a bit snobbish and shamefully expensive – and the average traveller simply couldn’t afford the privilege to sip wine pre-flight or take a shower after a red-eye. These areas, provided by the airlines and some third-parties, offer comfortable chairs, food and drinks (including an open bar or alcoholic beverages), free newspapers, magazines, Wi-Fi, and most importantly, a quiet area to wait for your flight – whether you want to take a quick nap or get some work done. As many of the travellers who frequent them are top-tier executives, lounges are now doing more to provide business-friendly services and amenities for their guests. They strive to encompass all the extras that can help you stay productive en route, whether that means a high-tech work station, conference rooms, a personal assistant to fax your documents, a whisky lounge or private bathtub for relaxing before your big presentation. There is an alternative: a pay-as-you-enter lounge, open to the masses. Yes, they will still cost you, but the benefits may be worth the price. We rate some of the main business lounges so you can find the best way to escape crowded terminals. Carel Nolte, former head of brand and people at Etana, and now insurance entrepreneur, has probably spent more time in the air than on the ground and has made business lounges his local hangout. He gives us his expert opinion on each lounge.
Living life in the SLOW lounge… The award-winning SLOW lounges have set a global standard for domestic airport lounges in South Africa. Its tranquil environment was conceived by local designers. The concept was started by the current head of marketing at Hollard, Heidi Brauer while she was working at Kulula. SLOW allows you to work productively, enjoy a snack or simply put your feet up.
Access Reserved exclusively for British Airways executive club holders, British Airways club (business class) passengers, First National Bank private clients, FNB premier banking (FNB customers with platinum credit, debit or cheque card), RMB Private Bank clients with valid debit, credit or cheque cards and Comair Limited members.
Features and facilities Features include a selection of canapés and snacks freshly prepared by the on-site chef, freshly brewed coffee prepared by a barista, a bar serving the finest South Africa wines, a library of the latest books from Exclusive Books, a Nintendo games room, private meeting spaces and marble bathrooms, latest Apple iMacs and OKI printing facilities, free Wi-Fi and power throughout lounge, business facilities and an on-site spa offering massages and wellness treatments.
Located OR Tambo International Airport JHB (international and domestic); Cape Town International Airport CPT (domestic); King Shaka International Airport DBN (domestic)
Pay-as-you-enter fee for nonmembers If you are not on a reward level, the fee per entry is R250 for the domestic lounges and R500 for the international lounges.
Review Carel Nolte: “The SLOW lounge is my preferred choice when travelling locally. The lounges in Durban, Cape Town and Johannesburg and the one in Sandton opposite the Gautrain station are firm favourites. The bathrooms offer great showering facilities and some even have an awesome view; even from the toilets. They have a great selection of local wines and the menu is consistent and good. For breakfast, I always have the boiled eggs in tomato sauce; and for lunch, it’s the beef wrap with blue cheese. They have an excellent selection of reading material and free Wi-Fi. A big plus is the availability of Macs, great when I don’t want to use my iPad. The international SLOW lounge at OR Tambo is spacious and there is a chef on hand to cook your meal to order. It has superb salads and an excellent selection of sparkling wine.” RATING:
Emirates Business Lounge As a first class or business class traveller, you can unwind in the world-class Emirates lounges at selected destinations across the globe. The Emirates lounge maintains a high standard of relaxation and comfort; the lounge in Dubai is considered one of the best in the world.
Access The Emirates lounge is available to first class or business class travellers and for Emirates Skywards platinum or gold members. Members travelling on flights operated by other carriers (including Emirates codeshare flights) are not eligible to access the Emirates lounges.
Features and facilities Emirates lounges offer a selection of food and beverages, a full bar service and large buffet, featuring a selection of healthy, wholesome food produced with fresh seasonal ingredients. Early birds can enjoy breakfast; while later in the day, guests can select from Arabic, far eastern, western or vegetarian cuisine. There are spacious and luxurious seating areas, large plasma screen TVs, international newspapers and magazines, showers, independent work stations and complimentary broadband and wireless LAN access.
Located Emirates lounges are located at the following airports: Auckland, Bangkok, Beijing, Birmingham, Brisbane, Colombo, Delhi, Hamburg, Hong Kong, Istanbul, Johannesburg, Kuala Lampur, London Gatwick, Mumbai, Munich, New York, Paris, Perth, San Francisco, London Heathrow, Shanghai, Dubai, Manchester, Singapore, Dusseldorf, Melbourne, Sydney, Frankfurt, Milan and Zurich.
Bidvest premier lounge Whatever airline you fly and whatever class of ticket you hold, Bidvest lounges are considered by some as an oasis of comfort, relaxation and pleasure. Their international and domestic departure lounges are situated in all major South African airports, including Johannesburg, Cape Town, Durban, Port Elizabeth, George and East London.
Domestic fee is R159 (valid for 90 minutes). International fee is R269 (valid for 180 minutes).
Bidvest has long-standing relationships with various airlines and corporate clients, including Diners Club, Absa Private Bank and Investec Private Bank, Priority Pass, which allows cardholders access based on the terms and conditions set by the respective corporate client.
Features and facilities Facilities include air-conditioning, conference facilities, disabled access, fax, flight information monitor, Internet and data port, newspapers or magazines, refreshments (alcoholics and soft drinks), shower facilities, telephone, television and Wi-Fi.
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Cape Town International (domestic and international departures), East London (domestic), George (domestic), Johannesburg (international and domestic VIP), King Shaka (domestic), Port Elizabeth (domestic).
Pay-as-you-enter fee for nonmembers
Expert opinion Carel Nolte: “I’ve used the Bidvest premier lounge on the odd occasion with my Diners Club card. I felt it was pretty arbitrary and I used it when nothing else was available. For instance, the Bidvest premier lounge at George airport has minimal food, a poor selection of alcohol and limited Wi-Fi that requires a complicated code for access (yet, it’s better than nothing).” RATING:
Pay-as-you-enter fee for nonmembers: None Expert opinion Carel Nolte: “Emirates business class lounges are some of the best I’ve ever visited. I insist on spending at least three hours there between flights. They serve Moët & Chandon champagne and a fresh, varied and diverse selection of foods, free Wi-Fi, loads of reading material, good bathrooms (not as good as SLOW though) and it’s really spacious. It deserves top marks for the fact that you can board from the lounge onto the plane. They also offer very good spa services.” RATING:
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RISKSA's guide TO
With its complexities and idiosyncrasies, there is no doubt that Africa can be a challenging experience for any business traveller. Language and cultural differences abound, safety and security concerns remain dominant, and disease and health risks are exacerbated by poor infrastructure. In the first of several instalments, RISKSA offers business travellers a guide to seven key markets in Africa.
Sarah Bassett & Nick Krige
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he good news is that business travel services and high-end hotels are sprouting up across the continent, from Nigeria and Kenya to Libya and Gabon, buoyed by business travellers flocking to the rich stores of natural resources, including minerals, oil and gas. According to Sandra Carvao, spokesperson for the United Nations World Tourism Organisation, international arrivals to Africa are expected to more than double for both business and leisure travel, from 50 million in 2011 to 134 million in 2030. Here’s everything you need to know when travelling for business into Kenya.
Kenya Kenya is widely considered the Eastern and Central Africa’s financial, communication and transportation hub. The city of Nairobi, Kenya’s capital, is the largest metropolis in East Africa and is home to the Nairobi Stock Exchange (NSE). The 2012 GDP growth rate for the country was 4.3 per cent. While agriculture remains the backbone of the economy, Kenya is the most industrialised country in East and Central Africa. The manufacturing industry has seen significant growth with a move towards increased processing of raw product before export. Kenya does not have a well-established oil industry, but recent discoveries of oil in the north may change that. It is the first time that Kenya has made such a discovery but the commercial viability of the findings remains unconfirmed.
WHERE TO STAY Wally Gaynor, managing director at Club Travel, recommends the following hotels in Nairobi. The Sarova Stanley Nairobi A stay at the Sarova Stanley places you in the heart of the city centre and offers a business centre, small meeting rooms, audiovisual equipment and a technology helpdesk. A shuttle from the airport to the hotel is provided for a surcharge on request. Ole Sereni Ole Sereni offers guests a game park experience in a city hotel, with wildlife views from the guest rooms. Business amenities include a 24-hour business centre, technology support staff and audiovisual equipment. Conference rooms, small meeting rooms and banquet facilities are all available for use. Trish Maritz, general manager at Sure Giltedge Travel, recommends: The Nairobi Serena Hotel The hotel is located in central Nairobi overlooking Central Park and five minutes’ walk from the central business district. It is located 18 kilometres from Jomo Kenyatta International Airport, nine kilometres from Wilson Airport and Nairobi’s main private internal airport, and 12 kilometres from Nairobi National Park.
TELECOMS Kenya has a good network for telephone, cellular and satellite connections. Work is underway to expand this network and introduce fibre optic cables. Most hotels and lodges offer international telephone and fax services. In larger towns, private telecommunication centres also offer international services. If you have a mobile phone with a roaming connection, you can make use of Kenya’s excellent cellular networks, which cover larger towns and tourist areas,” Maritz explains. The major mobile phone service providers in Kenya are Safaricom, Airtel, Yu and Orange. Safaricom and Airtel are the recommended options for cost and coverage.
INTERNET CONNECTIVIY Internet access is available in all major hotels, lodges and post offices in Kenya. Business centres and Internet cybercafés are popular in most cities throughout the country. “For broadband, you’ll need to acquire a data modem. Depending on your needs, you can either choose pre-paid or post-paid plans. You can purchase a modem cheaply from the electronic stores and phone provider’s retail shops across the country. Kenya is ranked second in terms of Internet speeds and accessibility in Africa,” Gaynor explains.
On-the-ground insight In general, people are extremely friendly in Kenya and you will be humbled by their hospitality. “You will probably attract your fair share of souvenir hawkers and beggars, but try and take the time to meet ordinary people going about their daily business, too. The experience will be worth it,” says Gaynor.
Currency & cash
Currency is the Kenyan Shilling. Most major currencies are accepted at big establishments. Local currency comes in handy when purchasing from smaller shops or tipping taxi drivers.
Kenya uses type G (British threepin rectangular blade plug, also known as the 13-amp plug) electrical outlets.
GMT + three
Kenya’s Jomo Kenyatta International Airport is fully functional again after a fire caused significant damage in August 2013.
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GETTING AROUND Taxis are a good way to travel while doing business in Nairobi; they are both inexpensive and reliable. Renting a car and driving is also an option when travelling to Nairobi. International driving licences are accepted by local authorities. Club Travel would recommend a four-wheel-drive vehicle, as they are ideal for long distance road travel for business meetings and can manoeuvre through any conditions. Many roads are in poor condition or are undergoing construction. “It is advisable to hire a car with a driver as they will be able to get you to meetings faster. Road signage is poor and it is easy to waste time getting lost. Avoid driving at night, take a taxi instead,” advises Gaynor.
SAFETY The recent, tragic Westgate Mall terrorist attack in Nairobi has highlighted the violence risk in Kenya, with global risk managers and governments releasing travel warnings and notices of further violent incidents. Travel managers stress that these risks do not apply to all parts of the country and that it is important to check the latest updates for where you plan to travel. Large parts of the country remain safe. In Nairobi, aside from the risk of terrorism, dayto-day crime levels are high, particularly on the poorer outskirts of the city. Muggings and robbery are common and travellers should take appropriate precautions.
Citizens of many countries in Africa are not required to obtain a visa for entry into Kenya. Find a full list of these countries at www. immigration.go.ke.
A yellow fever vaccination is recommended, but not required for entry. Hepatitis A, B and typhoid vaccinations are also recommended. Malaria prophylaxis is recommended for all areas except Nairobi and the highlands.
The official languages are Swahili and English, though there are many local dialects spoken. English is the language used for business and business travellers should not have a problem communicating.
To obtain a visa in advance you will need: • A complete visa application form is available on the web, at any Kenyan embassy or at any entry point into Kenya. • A valid passport (at least six months before expiration). There must be at least two facing blank visa pages available, one for the Kenyan visa sticker and one facing for the stamps. • Two recent passport-sized photographs. • A visa fee of $50. Club Travel recommends that visa applications are made as soon as travel dates are finalised to avoid delay. Tourist visas are valid for 30 days. You can apply for and get a Kenyan visa from your nearest Kenyan embassy or consulate.
Make sure you catch part II in the March 2014 issue, where we’ll feature all the necessary travel information required for Nigeria.
Carel Nolte, Principal, carelnolte.com shares his insights and the inside skinny from his years working in various companies in our industry.
ith January behind us, the insurance industry has settled in for the year. Some, of course, like Simon Coleman (consumer protection expert at RBS Katz Breskal and MC of the RISKSA annual regatta) and Christelle Fourie (MD of MUA which has an exciting year ahead with its Auto & General deal) may be experiencing permanent holiday fun now that they are engaged. Huge congratulations to the couple. As someone lucky enough to witness the engagement, Simon’s proposal, which had been in the planning for a year, was so brilliant that RISKSA’s Blake Dyason, a guest at the dinner, nearly said yes before Christelle did. Simon and Christelle are, however, not the only couple in our industry. While not the oldest profession in the world (that honour goes to something far more dubious and way more expensive in the long run), insurance has been full of family and lovers. A few of these have built empires, ensuring that insurance would always be part of their nomenclatures. Obvious examples include AIG and the USA Greenbergs, as well as Hollard and the SA Enthovens. But there are other, well-hidden, intricate connections; Chinese financial giant Ping An and the family of former Premier Wen Jiaboa. Ping An’s family shareholdings involved so many mother-in-laws and unlikely candidates that it may have served as inspiration for a few of our more interesting local BEE deals.
Moving away from dynasties, our current landscape is liberally peppered with families who earn a living from insurance activities. Well-known examples include Cavalieri; currently Giorgio and Andrea at Sela and Paolo at Hollard. Giorgio and Paolo’s dad was a well-known insurer and Paolo’s wife Julia worked in reinsurance for many years in Paris. Justin Naylor, current IIG president, may have been nurtured on insurance (his mother worked at Munich Re for over 40 years). Greg Scott is making a name for himself in the corporate market and is giving his father Guy, current CEO of Econorisk, a run for his money in who makes the biggest impact in our market or who will go bald first. Spouses manage to navigate the same industry with great skill and humour. Examples include Africa Re’s Michael Dash and his wife Sylvia; Kim Gallus from Genasys Technologies and her broker husband (superb dancer and flashy dresser to boot) Manfred; as well as our very own COSA Media’s power duo, Andy and Nicky Mark. Talking about insurance publications, Rianet at FANews took over from her father, a well-known publishing legend; Tony at Cover works with his son and niece and runs his business like a family concern, and he originally bought the publication from David and Ann Alston. Insurance has moved away from being known as a grudge purchase. Not only are we the bedrock of all economic activity in the world, but we are an industry that offers careers and
opportunities to make a difference while having fun. An amazing privilege and perhaps a good reason why it’s more fun than working in the other oldest profession. I cannot wait to see what the current crop of insurance babies will be doing in 18 years. To get you thinking about your favourite familial conenctions, here are a few more industry characters to consider: Andy, Simon and Lauren Dougall; Simon’s girlfriend, Josie Holley works at Hollard, and her uncle had a life business which now forms part of one of the best known and largest brokerages currently owned by Brian van Flymen; John and Margaret Nienaber; Lance Japhet, his son Miles, and granddaughter Sarah; the Omars (listing all these connections would be like writing another Koran); and David Harpur, current CEO of the IISA has a son Frank, who is with Zurich and also a fellow cyclist. And then there is Omera Naiker, associate director of insurance at KPMG whose brother Zuriel is with Hollard. Their father was in the life industry when they were kids. I am sure if we put our heads together we could come up with at least a dozen more names. If I have missed someone you know, do drop me a line. If you have interesting anecdotes and stories about legends from our past, send an e-mail to email@example.com. If you have more examples of family connections in our industry, go to the RISKSA Facebook page, hit the Like button, and keep us posted. You will stand a chance to win one of three bottles of Louis Roederer champagne.
Please stay in touch via firstname.lastname@example.org, and look out for March’s column where we will be chatting about our biggest, funniest, scariest and wildest claims.
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