RISKAFRICA - Issue 14 by COSA Media

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CONTENTS

04 Structuring insurance for the move to Africa

08 Engaging the continent 12 Powerful partnerships - Finding the right partner in the race to insure the uninsured in Africa

Dear Reader

EAST AFRICA 18 Healthy outlook 20 Consolidation in the East African insurance market

24 Global insights, local experts

SOUTHERN AFRICA 28 Constructing the continent 32 Empowering the market 34 Medical mayhem

WEST AFRICA 38 Jet-setting business travel boosts Nigerian aircraft market

44 International news

This issue, we examine what it takes to tailor and safeguard businesses and product offerings for the reality of an enormously diverse continent. Looking at the news, never has this need seemed clearer. While political terror takes greater hold in the eastern and western power economies of Kenya and Nigeria, South Africa moves forward with a dramatically reshuffled cabinet following a remarkably undramatic election. Malawi, on the other hand, as I write, is in a state of internal turmoil as standing President Joyce Banda has called into question the validity of election results, in turn raising questions around her own integrity. Against this backdrop, we unpack the intricacies of correctly structured insurance programmes for multinational companies operating across multiple markets. We also examine the fascinating ambiguities and contrasts of market trends in key African markets, and how forward-thinking financial services companies are innovating around this to create countryspecific, highly effective marketing, branding and product development campaigns. As we reflect on these current realities, we send our deepest sympathies to those impacted by terror activity on the continent. I hope soon to be writing of a united African leadership response to these threats, of a demonstration of regional and continental strength and support in stamping out these atrocities. Let this be the call to arms the African Union needs to galvanise real action.

46 Diary of a travelling insurance salesman

Publisher Andy Mark Editor Sarah Bassett Production Nicky Mark Proofreader Margy Beves-Gibson Feature writers Christy van der Merwe; Dominic Uys; Laura Owings Design and layout Dave Androliakos; Herman Dorfling; Mariska le Roux

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Structuring insurance

for the move to Africa By Laura Owings

Multinationals face many challenges to doing business in Africa, not the least of which is adequately structuring insurance programmes to meet the needs and regulations of local markets.

ccording to the 2014 Ease of Doing Business report from the World Bank, which analysed the regulatory environment for businesses in 189 countries, only two African countries ranked in the top 50. No less than seven African countries are placed at the very bottom of the league table. According to Michael Duncan, executive leader for the Marsh Africa Region, it is therefore, not surprising that the changing insurance market regulations are also creating some challenges for multinationals wishing to invest on the continent. “The theory behind these new regulations is laudable, namely to restrict the export of premiums, thereby protecting the local insurance industry, safeguarding jobs and encouraging knowledge transfer, and to provide protection to policyholders from unscrupulous providers,” he says.

“Unfortunately, theory and practice differ, often resulting in the creation of inefficiencies, additional costs and other deterrents for foreign investors.” Duncan says insurance regulations generally prohibit non-admitted coverage, or policies which have been issued by non-registered insurers. “Regulators generally require risks to first be offered to insurers which are locally registered and only once local appetite has been exhausted, will the multinational be permitted to place the balance of their risks externally,” he says. Most multinationals have master programmes covering their key risks, he says, such as material damage and business interruption, liabilities and commercial crime. “These programmes have been negotiated centrally and provide the multinational with very sophisticated and broad cover at very competitive cost,” he says.

Invariably, these programmes are placed with international insurers or the multinational’s own captive insurance company, which understand the risks they are underwriting and are financially secure, says Duncan.

Changing trend Duncan says it is becoming increasingly difficult for subsidiaries of multinationals to access these master programmes or captives, resulting in an increase in local premiums. “The days when one could source a friendly local insurer to ‘front’ 100 per cent of the risk on behalf of the master programme or captive are fast coming to an end,” he says. “Today, local insurers require an acceptable premium for the risks they are writing, regardless of what the master programme or captive premium allocation might be, and who can blame them, bearing in mind that they are merely being asked to insure the

NATURAL CATASTROPHES

specific country risk, not the global risks of the multinational.” According to Johan Henning, partner in financial regulatory practice at Webber Wentzel, local insurers are increasingly willing to carry part of the risk of some projects, and negotiate reinsurance of the remaining portion offshore. Such a trend shows an eager response from the local market to capitalise on multinational businesses success, for example in renewable energy, where the trend is most often seen. “As such projects become more common, we are seeing more and more that local insurers will carry part of the risk and reinsure a portion offshore,” Henning says. Duncan is wary of this trend growing too significantly. “As a risk adviser, I worry whether local insurers fully understand the risks they are writing, particularly considering such programmes are invariably broad and complex in their design,” he says. Indeed, Henning says the extent of risk expertise needed to cover these projects is still too high for the local market, creating more of a justification in certain instances for offshore risk applications to get the approval. “We are seeing that quite often in renewable energy products in South Africa, where there is simply not currently the local expertise to insure the type of risks that are associated,” he says. This is also common in the mining industry.

The local guidance advantage The value of local guidance cannot be overlooked, particularly considering the regulatory framework in African countries can vary significantly. “It is imperative to have a good local representative who has a good understanding of both the regulations as well as the insurance market in the particular country,” says Jan Drahota, Executive Director at Indwe Risk Services. “In this way, there can be some certainty with regards to the insurers that the risk is placed with.” In addition to the global risks, there will

be specific local requirements which need to be complied with, says Duncan. “For example, local regulations will always stipulate mandatory local insurance covers such as motor third party and workmen’s compensation. In some cases, the regulator will want to vet non-standard policy wordings, impose minimum rates or require ‘no premium, no cover’ to counter the notoriously bad credit risk in Africa,” he says. Multinationals that structure insurance policies in contravention of local laws could be prosecuted or incur penalties or fines. In extreme cases, directors and managers of these companies could be held personally liable. Although regulatory rules apply to all industries, higher profile companies and projects are often monitored more closely, according to Drahota. “It is also easier for local regulators to monitor foreign investments into a country to ensure compliance,” he says. Duncan warns that intermediaries can face the consequences of illegal placements. “If the intermediary does not follow the directives, the regulator may then take steps against that intermediary and may refer that intermediary to an enforcement committee where it may be penalised,” he says. How penalties would affect errant multinational companies themselves is, however, unclear, says Duncan. “In my experience, multinationals want to be seen as good corporate citizens in whichever country they are invested, and this includes complying with the insurance regulations,” he says. “If cover is placed with a local insurer or insurers, albeit with external reinsurance, claims will then be paid locally. However, if cover has been arranged on a nonadmitted basis, without the appropriate local approval, then claims will be paid outside of the country and the proceeds may well be taxed both in the country in

which the proceeds were initially paid and in the country where the proceeds are subsequently transferred,” he says. Inadequately structured insurance can also have commercial risks. “If the covers that are placed are defective, then the client could suffer a significant financial loss in the event that they have to claim and the local insurers are unwilling or unable to pay the claim,” says Drahota. Claim payouts are another consideration, as cover for a risk must be arranged for the country of origin of that risk or claims will be paid in the country where the policy was arranged, says Alvin Dye, divisional executive of Marsh’s construction division. “For example, if insurance is bought in South Africa for a risk in Nigeria, the claim will be paid to the client in South

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As a number of powerful multinational players have ‘paid their school fees’ in Africa, Dye says there is good understanding of the implication of loss and insuring correctly. “But the need for better education to stop big mistakes from being made by other companies as they start to trade more extensively in Africa, is vital,” he says. That’s not to say multinationals have not made mistakes in Africa. In the Democratic Republic of the Congo, one multinational failed to abide by a regulation that requires a fire insurance certificate, issued by the state-owned insurer SONAS be displayed in every building. As a result, the company’s offices were impounded for several weeks. A multinational operating in Ghana relied on its local management to arrange local cover, which resulted in the company relying on its non-admitted difference in conditions cover for an uninsured loss. The claim will be paid in South Africa, and the multinational now has to manage the transfer of the proceeds to Ghana for which the financial implications are still unclear. That case, and one in Nigeria, where a multinational delegated insurance placement to local management, which inadequately arranged cover causing a

sizeable uninsured loss, emphasises theM need for centralised control of insurance Y arrangements. CM

There are approaches that could achieve this, such as the Inter-African MY Conference on Insurance Markets CY (CIMA) Code, adopted by a number CMY of francophone countries to regulate, inter alia, the percentage of risk K which needs to be offered to the local market. But the nature of the insurance market as it currently operates in Africa makes efforts to streamline the industry difficult. “African markets do not adopt a consistent approach to insurance regulations. This makes it difficult for the multinational to adopt a consistent approach to the way they manage their risks across this region,” says Duncan. Thus, experts like Duncan and Drahota agree that the best asset is local advisers affiliated with an accredited and trusted network, and those with corresponding offices, such as the Marsh Africa and Allied Africa Broker Networks.

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Drahota also suggests multinationals consider joining policies with their existing insurance providers. “Where possible, clients should try and dovetail their existing insurance arrangements with those of the particular country they seek to operate in, by using the same insurers in that country as they do in their main policies,” he says. “At the very least, they should structure their insurance portfolio in such a way that it can pick up any deficiencies that might emerge in local country covers.”

2361 TheCheeseHasMoved

African Rands. This can cause all sorts of complications around taxation, forex and accounting balance sheets, as well as be in direct contravention of local legislation,” he says.

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Engaging the

continent By Sarah Bassett

With African markets increasingly considered the land of opportunity, business expansion is moving in from every corner. The message on the lips of every adviser is that, as many have learnt the hard way, Africa is not one homogenous country, and businesses ignore the dynamics of individual markets at their peril. RISKAFRICA takes a closer look at market trends and where the branding and marketing opportunities lie. “People are not statistics,” emphasises Joseph Kamiri, head of marketing and distribution at UAP Insurance, Kenya, suggesting that many of the large South African and global players moving into East Africa are missing certain dynamics of the region’s markets. “Within five years, we will see these companies either restructure or exit the market entirely.” A recent example was that of an advertising campaign in Africa from Indian mobile phone company, Bharti Airtel, which fell flat. Though the business is active in 17 African countries, the advert used images of the savanna, actors from South Africa and coins, when many Africans use only paper money, limiting the advert’s appeal in many parts of the continent. “This is where multinational companies go wrong. They have their global brand positioning and they want to cut and paste,” says Bharat Thakrar, head of Nairobi-based African marketing services agency Scangroup. “They think everybody looks the same; but merely having black models is no longer enough. It’s like putting a Thai, a Chinese and an Indian in the same Asian ad. People recognise themselves,” he adds. According to Terry Behan, CEO of experience branding consultants VWV’s

EMEA division, and author of Connect with the Continent, the gap between how the African market is represented in the global press and the realities on the ground is vast. “The level of misinformation and hype touted at conferences, and both local and global news is considerable. The result is that your average investor, entrepreneur and brand builder are left somewhat confused when trying to comprehend the opportunities and challenges presented across the key markets on the continent.”

Middle class mania The World Bank, along with some of the most respected global consulting firms, has estimated Africa’s middle class to be in the region of 300 million people. This is a substantial figure considering that the USA has a total population of 311 million, notes Behan, suggesting the statistic is misleading. “When estimating the size of the middle class in sub-Saharan Africa, economists have used the lowest possible relative measure; a $2-a-day criteria. By comparison, in France or Germany if you earn less than $40 a day, you are beneath the poverty line.” However, says Behan, the rise of the middle class across the continent is significant and should not be

undervalued. “More sober commentators put middle class numbers at 120 million, based on an income of between $15 and $20 a day.”

Take advantage of the trends “In the developed world, we tend to create vanilla brands that skim across market segments and groupings. Africa is different. Broadly generic campaigns have been shown to be less effective than tailor-made ones. Businesses need to understand the different market segments, appreciate the differences and create regional campaigns in context, using local language and models. When you consider, for example, that Nigeria has 510 living languages and 250 distinct ethnic groups, the enormity of the task is clear, but experience shows that the result is always worth the effort,” says Sean McCoy, director of strategic branding consultancy Harwood Kirsten Leigh McCoy (HKLM). “It is an environment that favours the bold; an environment that requires a pioneering approach and a willingness to do things differently. It is a territory that requires some  new brand thinking,” he continues.

According to the CIA World Factbook, in Nigeria and Angola, 44 per cent of the population are under the age of 15; in Ghana, 39 per cent. Similar statistics play out across all the significant consumer markets on the continent. new financial reporting guidelines recommend that corporations value and report on their intangible assets, meaning that you can expect branded social causes to start appearing as line items on balance sheets the world over.”

Edutainment, category development and product education The Nollywood powerhouse that is Nigeria’s booming film industry represents a powerful opportunity for branding and communication across the continent. Broadcasting to over a dozen African countries in 2013, Nollywood produced over 1 000 movies, double that of Hollywood. The largest Nollywood markets are Ghana, South Africa, DRC, Zambia, Kenya and Nigeria.

Brand a social cause There are no shortage of problems to be solved in key African markets, presenting opportunities for proactive brands to step in to provide basic services, gaining widespread visibility and a positive brand association. In South Africa, Outsurance already provides pointsmen and women to direct traffic at busy intersections. In Nigeria, Sterling Bank hires street sweepers to keep high-traffic intersections neat and tidy. “Branded social causes may be a very legitimate way for brands to formally partner with local, regional and national government to address social challenges and, in some cases, make the daily lives of citizens that much easier. It can also have a positive commercial impact on the brands themselves,” says Behan. “The impact of these ventures on brand equity and shareholder value is considerable and

“One of the challenges faced by many growing industry categories across the continent is that the consumer is unaware they exist, or simply doesn’t understand the value of the services and products on offer,” notes Behan. “For the short- and long-term insurance sector, now expanding into the middle income and mass market sectors, the problem is that many families don’t understand the importance of protecting their assets, livelihoods and future earning potential and therefore don’t insure. Having the industry body fund consumer education using Nollywood, could go a long way to growing market awareness and driving new business,” he suggests.

African countries also make up 45 of the 50 countries with the highest birth rates. Not only does this mean that African consumer markets will continue to swell significantly in the coming decades, but that the current youth market holds significant power. In 2011, Access Bank in Nigeria entered into a strategic partnership with Nickelodeon, a global family entertainment brand, in the launch of a new retail banking product, the Early Savers Account, targeted at children in Nigeria. The partnership leverages Nickelodeon’s world-famous animated pre-school heroine and cartoon character, Dora the Explorer, to encourage financial responsibility from an early age. “The campaign, the first financial literacy campaign in Nigeria, has been enormously successful, growing the market as well as the Access Bank brand. The show is broadcast to 2.8 million households across the continent.” explains Behan. “The case study serves as a lesson to others in the importance and relevance of edutainment for younger audiences, buying Access Bank valuable real estate in the hearts and minds of millions of young Nigerian customers.” While not geared for children specifically, Santam Namibia is also tapping into the power of television to grow its market, last year launching a 32-week series presented by Santam Namibia CEO, Franco Feris, teaching the basic concepts of insurance.

The age of opportunity

Christianity as commodity

The power of edutainment is a valuable tool in accessing the youth market. Populations in Africa fit largely into the sub-20 age bracket.

Both McCoy and Behan confirm that the biggest brands on the continent are not always listed companies. Perhaps the most powerful

brands of all are the preachers behind the continent’s Christian congregations. “Preachers on the continent have a stronger and more passionate following than even the biggest European football teams,” says Behan. “They promote peace and love and preach financial prosperity and commute in private jets, commanding the respect of millions in Africa, Europe and North America.”Most powerful is Pastor Chris Oyakhilome, founder of Christ Embassy, with operations in Nigeria, South Africa, United States, United Kingdom and Canada. With 1.2 million followers on Twitter, Pastor Chris runs television stations, hotels, fast-food chains and a publishing company. Just one of its magazines sells two million copies a month. Behan suggests that it would make sense for financial houses to target congregations through the larger churches, with a percentage of the profit going back to the church to be invested into grassroots development.“In the same way that football clubs like Manchester United and Liverpool build their brands and balance sheets through the endorsement of products, services and related activities, it makes sense that the most powerful and charismatic brands on the continent do the same,” he suggests.

Home-grown power Taking the time to delve into the market nuances and design innovative branding strategies in response is key to the success of businesses across the continent and, notes McCoy, no companies are better placed to do this than home-grown, African brands. “In the telecommunications industry, for example, countries are developing their own brands that are leaving their international competitors behind, such as Nigerian Glo, which was also awarded a licence in Ghana. They may not have huge budgets but they are much more tactical in their branding activities and that’s paying dividends.” Airtel learnt this lesson, and not long after its disappointing campaign, put out a series of more tailor-made television adverts: one about a pidgin-speaking hustler in Nigeria to reflect the country’s love of all things slapstick; another about a Congolese mechanic whose poignant francophone tale was set to captivating local rhythms; and

others showcasing graduation ceremonies to capture East Africa’s more conservative culture. While large companies are beginning to tailor their marketing messages, increasingly choosing local models, languages, music and food to reach target audiences, some are also beginning to adapt their products to the tastes of local African markets. Manufacturers of soft drinks and confectionery typically sweeten products aimed at African markets, while South Korea’s Samsung recently brought out extra-loud stereos to appeal to Nigerian consumers and fridges that can withstand power loss and fluctuations, to cope in African markets where electricity regularly cuts and surges. “There was a habit in Africa of pumping out universal products,” says Thakrar, adding that companies had not bothered to do market research. “But that is changing now with the arrival of competition – particularly from home-grown African companies.”

Powerful

partnerships Finding the right partner in the race to insure the uninsured in Africa

By Christy van der Merwe

frica has long been touted as the rising star of the emerging markets, and Swiss Re’s Sigma study showed that while Asia’s rise in global insurance markets over the past 20 years is set to continue for at least another decade, it is Africa that will become an increasingly important part of the global insurance markets over the next 50 years. Demographic patterns suggest that by 2062, Asia’s share in the world population will decrease from 60 per cent to 53 per cent, mainly due to developments in China, where the working age population will start to contract from 2018. At the same time, Africa’s population share is projected to

increase from 15 per cent currently to about 27 per cent. This positions Africa well, from a demographic point of view. This, and the comparatively low insurance penetration rates in Africa, makes the continent an attractive market for established global insurance brands. However, insurers would be misguided if they envision that they will simply be able to set up shop, and apply traditional business models to the varying and dynamic regional markets within Africa.

“Insurers expanding into Africa need to appreciate cultural differences and understand that predetermined one-size-fitsall solutions may not work. Partnering with players who have expertise and understand the local markets may be essential for successful expansion,” says global consultancy PricewaterhouseCoopers (PwC) in its 2014 ‘Insurance industry analysis’ report. PwC adds that starting small and growing organically can be slow and time consuming. Some insurers are buying into existing local insurance companies, and then scaling up operations. Others are collaborating with banks to sell insurance through existing banking

channels. These bancassurance arrangements offer quicker access to existing bank customers, without replicating expensive infrastructure and systems. As well as outsiders buying into these African markets, which are perceived as lucrative and rich with potential for growth, there is also great potential for consolidation within existing African markets, with capital injections coming not only from more established developed markets, but from the rapidly developing local markets. After the recent announcement that Nigeria, Africa’s most populous country, is now

also the largest economy on the continent following the country’s gross domestic product (GDP) rebasing, the country is a prime example of where this is expected to take place. In a recent report entitled ‘Nigerian Insurance Market: Industry ready for further consolidation’ Fitch Ratings purports that the Nigerian insurance market is ripe for consolidation as insurers seek to increase scale, and investor interest develops. Although there has already been some consolidation, the market still consists of a significant number of insurance companies, making it highly fragmented and competitive. 

Further consolidation will likely be driven by both domestic and foreign capital, says Fitch, which believes that the insurance industry could benefit from the continued significant economic growth and favourable demographic factors in Nigeria. Scale challenges could be overcome through consolidation, and domestic players with local knowledge and reliable distribution footprints could gain a significant advantage. Insurance coverage is currently low, with a weak insurance culture among consumers. Market growth could be stimulated by improved consumer awareness and the enforcement of minimum compulsory insurance cover, as required by law.

increasing its agent force to 600 in 2013. Old Mutual’s other acquisitions included Oceanic Life Business in Nigeria; Oceanic General Insurance Nigeria (part of Ecobank Transnational); Provident Life Assurance Company in Ghana; and Faulu Kenya DTM, a microfinance company.

Sean McPhee, partner at Deloitte Corporate Finance, tells RISKAFRICA that when it comes to finding the right business partners, the main consideration is to choose a partner that you can work with and who will add financial support, expertise and add value to the business.

Sanlam concluded five acquisitions totaling $230 million (R2.5 billion). This included the Pacific and Orient Insurance Berhard transaction in Malaysia for $76.6 million (R817 million). A further $150 million (R1.3 billion) is earmarked for India and South East Asia and R551 million for Africa. Sanlam also increased its shareholding in Capricorn Investment Holdings in Namibia.

Increasing Africa’s low insurance penetration rates is something that most players are keen to have a hand in. “Insurance penetration in Africa is exceptionally low, indicating significant growth runway. Regulatory barriers are generally fewer and regulations less onerous, but there are a few exceptions. The African population’s health is improving, as is longevity. Africa also has a vast young population. One cannot, however, ignore the potential downside risks of doing business in Africa. This does not seem to outweigh positive factors, but political instability, corruption, poor infrastructure, red tape, bureaucracy and inaction all remain real risks,” says Nicolaas Kruger, CEO of MMI Holdings in the PwC report.

Sanlam Emerging Markets (SEM) and Santam have agreed to participate on a 65/35 basis, in all the Sanlam Group’s general insurance business in emerging markets. Santam will provide strategic and technical support to Sanlam and its partners. Santam, through SantamRe its specialist business, and partnerships with SEM, concluded the following SEM participation structures during 2013: Botswana Insurance Holdings Limited – 18.6 per cent; and NICO short-term insurance (Malawi, Zambia, Tanzania, Uganda) – 8.7 per cent. SEM also acquired a 25.1 per cent stake in NICO Holdings (Malawi); and a 37.4 per cent participation interest in Santam Namibia.

It also helps to have alignment of interests as this often leads to disputes down the line - especially when one party wants to exit. It is also important to understand the partner’s track record, financial commitments and to assess whether or not they meet your requirements. This could be in the form of confirming financial resources (do they have the necessary access to funding), do they have the right skills and expertise, and do they understand the local environment. You need to choose a partner that can add value and bring something new to the table, adds McPhee.

Insurers into Africa PwC notes that most large South African insurers have been making acquisitions in the rest of Africa to take advantage of the low penetration rates in these emerging markets. Activity in Nigeria leads, and Kenya, Mozambique and Uganda are also attractive markets to insurers. MMI acquired a majority stake in Kenyan short-term insurer Cannon Assurance for about $28.6 million (R300 million) in February 2014, which will enable a consolidation of the separate licences into one life company and a separate shortterm insurance business. MMI’s acquisition of Guardrisk from Alexander Forbes for $150 million (R1.6 billion), announced in November 2013, was also finalised in February 2014. PwC says that MMI still has $18.7 million (R200 million) for further expansion on the continent. MMI’s target is for the rest of its Africa operations to generate 10 to 15 per cent of group profit over the next five years, where currently, the rest of Africa contributes four per cent to group operating profit. In 2013, Old Mutual announced that it would be spending about $46 million (R5 billion) on M&A in the rest of Africa. To date, it has committed to or funded, acquisitions to the value of about $65.7 million (R700 million). It is also expanding its operations through organic growth in Kenya,

PWC says Sanlam will also explore bolton transactions, and deepening existing partnerships in Africa, India and Malaysia in 2014. It has (R4 billion) discretionary capital available for this purpose.

Diligently does it When it comes to mergers and acquisitions (M&A) in Africa, it is often finding the right partner that is the biggest challenge. The fact that so many insurers have dedicated cash piles to spend on acquisitions in Africa, yet the rate of acquisitions is relatively low, is testament to this.

Choosing a partner in Africa requires following the same processes to achieve a similar comfort level regarding business partners. “In Africa each country is very different. There are different languages, different cultures and customs and this translates into different ways of doing business. Africa consists of 55 countries so you will also need to adjust your investment approach and operating models to meet local market conditions and regulatory requirements. These are areas a local partner will usually be able to assist with,” McPhee notes. When it comes to conducting due diligence on prospective partners, it is typically legal firms and accounting firms, or boutique advisory firms that would conduct this. Deloitte, for example has a full service

offering that assists companies to identify, assess and conduct due diligence on potential partners. In the South African context Deloitte has assisted companies to select black economic empowerment partners in order to comply with the B-BBEE Codes of Good Practice. McPhee explains that when it comes to costs of due diligence, these services are generally charged based on the hourly charge-out rates of the relevant firms. Background and credit checks attract a fee for access to the database and this is generally charged for separately. In some instances, particularly in the banking sector, banks are able to introduce partners through their M&A teams. “It is advisable to appoint an adviser like Deloitte to perform the pre-screening of

partners. You would then narrow the list to meet your criteria and only conduct due diligence on the potential partners on the short list who meet the pre-defined criteria. This results in a more focused approach and saves costs. Typically you would consider two to four partners on the shortlist,” explains McPhee.

A match made in Africa McPhee continues to outline the key considerations and checks when looking for companies to join forces within Africa: 1. Carefully select the right local partner – know who you are dealing with and do your pre-selection due diligence to avoid surprises. Choosing the right partner is especially critical when the local partner is relied upon to drive local relationships, and is likely to have a longer-term involvement in the business. The right partner can help a new entrant in the market to understand local culture, the business environment and facilitate necessary introductions. 2. Perform background checks and do your due diligence – this is important to ensure you are choosing partners with integrity who have the necessary experience and expertise. It will also identify if they have a sound credit history, have any judgements against them or have a criminal record. Finding this out later could have serious consequences on your reputation. In Africa, it is also wise to understand political connections and dealings with governments.

3. Have a good agreement in place – ensure your agreements are clear in terms of roles, responsibilities and contribution by each partner, as well as how disputes or disagreements will be resolved. Have a mechanism to dissolve the partnership should the partner not perform. 4. Understand the country – ensure you understand the country you will be investing in. Its customs, culture, regulations and business practices. These are the areas a good partner will be able to assist you with. 5. Alignment of interests – ensure that interests are aligned to avoid potential disagreements later on. Ensure the partner is committed to growing your business and has the necessary integrity as the local partner is very often the custodian of your brand in that country. 6. Meet regularly and monitor performance – ensure you monitor performance (at least monthly) and that there are clear incentives based on performance. 7. Choose the right advisers – choose an advisor you know and trust. One that has local knowledge and an on-the-ground presence is vital for navigating local nuances and can assist with choosing the right local partner. 8. Agree on how the interest will be held – agreeing on the vehicle to house each partner’s interest has important legal, financial and tax considerations. Perhaps one of the most important things for new entrants into the African market to keep in mind, is that while they have the opportunity to contribute to economic growth and upliftment while ensuring profits for shareholders, there is also a tremendous amount to be learnt from each African country and the way the markets and people operate.

World Economic Forum

on Africa in Nigeria By Sarah Bassett

to aid the search for the abducted girls. He also unveiled an African investment package of over $42 billion as part of China’s commitment to boosting investment and economic support for the development of African economies. According to Premier Keqiang, the upper limit for credit to African countries will be raised from the current $20 billion to $30 billion and China’s development budget for Africa will rise from $3 billion to $5 billion. On the subject of job creation, Nigerian businessman Aliko Dangote spoke up for the African business environment and the need to make the continent attractive for foreign investors. “We want to create 180 000 new jobs in Nigeria,” he said, “This is the best recipe against terror.” Still on job creation, US investment guru Bob Diamond emphasised the need for the African banking sector to open up to small- and mediumsized businesses.

The 24th World Economic Forum on Africa was held in Nigeria from 7 to 9 May 2014, and despite security concerns, delegates and heads of state from all parts of the world gathered in Abuja to discuss ‘Forging Inclusive Growth, Creating Jobs for Africa’.

his was the first World Economic Forum on Africa to be held in West Africa. The delegation, including leaders from politics, business and civil society, assembled to debate ways to create a continent of increased prosperity and strong communities; of strong governments delivering quality services, and leaving no one behind. Though the event was largely overshadowed by the kidnapping of more than 200 girls in Chibok, Borno State, the subsequent terror attacks by the

Islamist group Boko Haram and the limited response of the Nigerian government, the WEF on Africa yielded some interesting outcomes nonetheless.

Forum commitments China’s Premier, Li Keqiang, the only nonAfrican head of state present and also the highest ranking political figure present from the BRICS nations, committed support in the form of satellite and intelligence services

The need for free movement of talent and goods across Africa was a key topic for discussion, with the aim to significantly strengthen businesses and boost intra-Africa trade on the continent. A key view expressed by a number of African leaders at the forum was the need for a proactive approach to border management, to enable trade between various regions. Various parties also addressed the creation of an environment that enables business growth on the continent as opposed to obstructing it. Recognising the importance of travel facilitation and talent mobility as drivers to integrate and develop the region, President Paul Kagame of Rwanda, President Uhuru Kenyatta of Kenya and Prime Minister Moussa Mara of Mali have all signed the Call to Action on Travel Facilitation and Talent Mobility. This urges all African states to work together towards the establishment of joint policies and the removal of barriers to facilitate movement of people. According to attendee Charles Brewer, managing director of DHL Express subSaharan Africa, delegates left the forum positive, feeling the outcomes were productive and of value. Partnerships were established to facilitate the implementation and follow-up on key decisions.

EAST AFRICA

Healthy

outlook By Sarah Bassett

Once an insignificant insurance line, rising incomes, spiraling health costs and shifting culture has seen health insurance become the fastest growing line in the Kenyan market. With so many still uninsured, opportunity and demand are driving rapid innovation in this space.

he best way to describe the change in the Kenyan health insurance industry is, in a word, rapid. This is according to Aon Kenya chief operating officer (COO), Sammy Muthui, commenting on the rise of what is now the fastest growing line of business in the country. By 2016, the market for healthcare in subSaharan Africa will be worth $35 billion,

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according to a report by management and information consultancy, McKinsey. But a skills shortage is constraining it, since the continent is reckoned to host a quarter of the world’s disease burden but has only three per cent of its medical workers. The World Bank suggests that an additional 90 000 doctors and 500 000 nurses will be needed in the next five years. “You have to look at healthcare in Africa – and

this is the case for most of Africa – against a backdrop where there is extremely limited public healthcare funded by government. So, the options are private healthcare, or nothing. Because of this, the demand for private health insurance is infinite,” he explains. While many are without the buying power to purchase cover, the rapid growth of the

middle-income sector in the last 10 years has driven unprecedented growth in recent years. “When I began in the industry, health lines were like the poor cousin of the industry. This has all changed. Today, health is the biggest division here at Aon Kenya. And we’ve only just scratched the surface. Of a population of 44 million, roughly 1 million Kenyans, dependants included, are currently covered by a healthcare insurance product. The opportunity is vast,” he adds. The lack of alternatives also means that the price of healthcare is very inelastic and service providers can — and have — pushed their prices up excessively and demand will remain, given the essential nature of healthcare. So, this again adds to the demand for insurance products to cover these costs. “In Kenya, costs of care have spiralled so high that it is common for people to fly to India for treatment. In certain cases, Aon will cover this. It can be cheaper than having the same treatment in Kenya,” says Muthui. In addition to increased incomes fuelling buying power, the amplified growth on health lines may in part be driven by changing cultural dynamics. “In Kenya, we used to have harambee - a cultural philosophy, a communal spirit - which brought people together to pool their money to combat risk and reach for certain objectives. If we wanted to send a child to school, if there was a health bill, the community would pool its resources. But now,

rural-urban migration and increasing higher education is changing this dynamic. We are becoming more Westernised in our approach. ‘You take care of your stuff and I’ll take care of mine.’And all this points to the need for health insurance,” Muthui explains. With the social healthcare system in Kenya offering extremely limited cover, the government recognises the need for increased penetration in the market. Muthui believes that coverage for at least 7 million people is a reasonable goal for the country.

Innovation drives new growth A number of social healthcare insurance systems have been suggested or trialed in Kenya in recent years, but the only sensible system, argues Onno Schellekens, managing director of Investment Fund for Health in Africa, (a private equity fund based in the Netherlands and Mauritius) is pre-paid private health insurance. While income levels are a key constraint to penetration levels, Muthui points to the fact that until recently, the insurance industry has also been to blame for its lack of innovation in creating affordable products. But this is all changing. In recent years, several large Kenyan insurers have launched microinsurance healthcare products, along with a variety of further innovations for health insurance products to meet the needs of multiple markets. “Telecoms have proved that Africans will

pre-pay for a service that works,” observes Schellekens. Safaricom now offers health cover with local insurer Britam. Its Linda Jamii (‘Protect the Family’) plan provides basic inpatient and outpatient annual cover for two parents and an unlimited number of children for $140 a year. Schellekens’ fund began work with Safaricom in September 2013. PharmAccess, a Dutch foundation that aims to bring affordable healthcare to Africa, is running three pilot schemes that build on the harambee principle, but formalise this pooling of risk. It hopes to find the right mix of price and product to persuade people at the market’s bottom end to buy-in. Also in September 2013, East Africa’s largest insurance group, Jubilee Insurance, partnered with international healthcare company Bupa International, to launch an international health insurance product dubbed Explorer Health Plan. The plan offers regional coverage for regularly-traveling senior and mid-level executives in Africa. With out of pocket payments still the predominant means of access to healthcare in Kenya, accounting for $77 out of every $100 spent on private healthcare in the country, according to the World Bank, the ongoing need for affordable, innovative products in this market and the region as a whole remains the most significant opportunity for the insurance sector in the region.

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n addition to Kenya, Britam has operations in Uganda, Rwanda, and South Sudan. The acquisition expands this footprint to Tanzania, Malawi and Mozambique. The acquisition is in line with the group’s key strategy for regional expansion and a five-year strategic plan which includes expansion into the real estate market. In March, the group recorded a 12 per cent increase in profits for the year ended 31 December, with a profit before tax of Ksh3.2 billion ($37 million).

Market consolidation a healthy sign This is the latest of a number of large mergers in the market, with rumours suggesting that market leader, Jubilee Insurance, also has acquisitions in sight. According to William Maara, general manager of life and pensions at Aon Kenya, the move towards consolidation has significance for the market as a whole. With 43 registered insurers in Kenya, and penetration remaining at 3.16 per cent of gross domestic product (GDP), competition is fierce, and the regulator has spoken of a desire to decrease the number to around 10. “At the risk of sounding monopolistic, with fewer, larger players, there will be less extreme competition pushing down rates to sometimes problematic levels, there will be more solid insurers with increased capacity to carry larger risks and retain a greater percentage of their risk. It will increase professionalism and improve the sustainability of underwriting as competition is less extreme,” he explains.

Consolidation in the East African insurance market By Sarah Bassett

Kenya’s second largest insurer and investment house, British-American Investments Company (Britam), recently announced the approval of its 99 per cent shareholding acquisition of Real Insurance Company, cementing the merged entity as the largest panAfrican insurer in the East and Central Africa regions.

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A spokesperson for the Association of Kenyan Insurers (AKI) agrees that the number of insurers in the market is unsustainable, and that the current pressure to increase top line profits and gain market share is driving unsustainable rates in many sectors. She warns, however, that the focus on size alone could be misguided. “The race should be about who is the most profitable, and not simply the biggest. The top line will mean nothing if the risks are not sustainable.” Head of marketing and distribution at UAP Insurance, Joseph Kamiri, adds that as long as it happens through a process of natural market forces, and is not forced through the regulator, consolidation in the market will be positive for the reputation of the industry as a whole. “If driven by market forces, healthy insurers will grow, while smaller, less capitalised companies will be absorbed. This will increase sustainability, and as a result, trust in the market. The tendency for insurers to fold or to be unable to meet claims in the past has done damage to the industry’s reputation.” He adds that a further benefit is the consolidation of skills, which he believes will further strengthen the industry.

Partner with Aon Best Global Insurance Broker in Africa for 2013* Anton Roux, CEO: Aon South Africa, explains: “This award follows a number of innovative risk management and insurance solutions, empowering human and economic possibilities for our clients to help them achieve sustainable growth, continuity and profitability. Aon has the largest majority-owned network in Africa, servicing clients in 45 out of 54 countries.”

Partner with Aon – put us to the test.

0860 453 672

Call or SMS** ‘Africa’ to 31762 or visit aon.co.za

Risk. Reinsurance. Human Resources.

#AskAon * Aon received the Best Global Insurance Broker in Africa award from Global Finance magazine in its 2013 Best Global Insurers Awards. ** Standard rates apply. Aon South Africa (Pty) Ltd is an Authorised Financial Services Provider (FSP #20555). Aon is the Principal Sponsor of Manchester United.

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It’s all in the

energy By Sarah Bassett

With the continent’s largest wind farm under construction, and work beginning on others, the Kenyan economy is well on its way to making itself the literal powerhouse of the continent. The growth of its renewable energy sectors provides multiple opportunities for investors and insurers alike.

“Kenya is an exciting growth market for renewable energy, with an attractive policy framework, which has enabled the progression of a number of wind and geothermal projects in particular,” says Paul Nel, renewable energy service leader at Aurecon. As a result, investors have been easily drawn to the market, with multiple projects in the scoping, planning and construction phases, creating significant opportunities for support sectors, with the insurance industry no exception. High financing costs, new and quickly developing technology, poor infrastructure and political unrest are all key risks for such projects in the region, driving the necessity for expert, comprehensive insurance cover. “We have huge opportunities for renewable energy across multiple areas: geothermal, wind power, solar and hydro power,” confirms Anne Mkala, head of Aon Risk Solutions at Aon Kenya. “The majority of these projects are run by project financiers. Whether individuals or institutions, project financiers are very particular and detailed in their approach to risk assessment. They are likely to request extensions of cover such as delayed startup, and look for brokers and insurers with particular expertise in this complex cover. We are well positioned for this as we are able to draw on the knowledge and support of the global Aon network, particularly the expertise from Aon London,” she explains.

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Currently, Kenya generates 1 664MW of electricity and plans to expand its power supply by adding a further 5 000MW by 2017. Nearly 50 per cent of Kenya’s energy needs are currently met through hydroelectricity and thermal power, with wind power a rapidly burgeoning area. One of the region’s most notable wind power projects is the Lake Turkana Wind Power project, which is expected to generate 300MW of power when completed within the next four years. This would make it the largest wind farm in Africa. In May of this year, it was announced that work on the 61MW Kinangop Wind Farm had commenced in central Kenya. The project is significant as it is the first major independent power producer (IPP) wind farm in the country, with African Infrastructure Investment Managers (AIIM) the majority owner. “We are planning workshops with our London colleagues for our clients in Kenya and the rest of East Africa. We will focus particularly on new and developing risks in the space. It is crucial to stay up to date in this area, and our global network is valuable in assisting with this,” says Mkala. For private investors intrigued by the growth, political risk may be an increasing deterrent in the Kenyan context, but investorfriendly policies demonstrate the Kenyan Government’s clear intent to grow the sector. For insurers and risk managers in the East African region, such projects are a major growth route of the future.

Global insights,

local experts Located near the centre of bustling, burgeoning Nairobi, the Aon Kenya offices are a constant buzz. In the market since 1947, operations now fill six stories with a business model constantly evolving in response to the rapidly developing Kenyan market; the engine room of East African growth. RISKAFRICA was privileged to spend a week with the dynamic Aon Kenya team.

By Sarah Bassett

Joe Onsando, chief executive officer of Aon sub-Saharan Africa

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aving begun working at the brokerage 23 years ago, Anne Mkala, head of Aon Risk Solutions at Aon Kenya, has watched a transformation over the course of her career. “When I joined, the market was not very competitive. At that time, we handled around 70 per cent of the parastatal book,” she recalls. “Today, we no longer handle any parastatal business, and an influx in competitive companies has seen our profile shift. We handle less of the large-scale portfolios, but continue to grow our existing book.” In recent years, says Mkala, Aon Kenya has worked to align itself more closely with the Aon global network, working to develop the most relevant and up-to-date solutions. “With the support of the Aon global practice leaders, we differentiate ourselves through innovation in products and wordings. We have positioned ourselves as a thought leader, driving development with our underwriters. Aon invests heavily in a number of sectors, so we are able to share a lot of information, wordings and updates, and advise in working with reinsurers to achieve the rights rates.” Looking to the future, Joe Onsando, chief executive officer of Aon sub-Saharan Africa and managing director for Aon Kenya, sees two key growth drivers for Aon in Africa. “The first is new investments coming into the continent, driven by demand for raw materials, energy and food security. The second is the significant opportunity presented by the growing middle class in a number of African countries, which will spur demand for microinsurance and other personal insurance products. Healthcare is an area of particular interest as a more affluent community demands better services and governments use their new wealth to improve service delivery to their populations.”

Adapting to a changing market “The rise of microinsurance poses a significant and absolute threat to the intermediary in Africa, but any threat can be converted into an opportunity,” notes Sammy Muthui, chief operations officer at Aon Kenya. In response, the Kenya team is considering its positioning in the market and whether, outside the traditional broking model, there is a way to service this market. “Currently, the sectors we are successfully talking to are the middle and upper income professionals and the corporate clients. We don’t have a solution for an artisan, for instance. You cannot use our current distribution model and institution model to service that,” he explains. Onsando notes that for Aon Africa as a whole, the response will differ from market to market. “African insurance markets, and regulation around bancassurance, are in different stages of development so Aon’s strategies around bancassurance and microinsurance, will differ. In some countries for instance, we currently have a big administrative role in the bancassurance supply chain, but in others we play more of a consultancy role, since the banks and insurance markets have developed the capacity to administer these schemes without the need for an independent administrator,” he explains.

A culture of innovation This spirit of innovative, progressive and responsive thinking is apparent across the Aon Kenya team. “Creating a culture of innovation in any organisation requires an investment in your people and investment in those activities that will attract and retain the right people to your organisation,” comments Onsando. “In Aon Africa, this is an ongoing journey as we have

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tried to transform our approach from a transactional broker to a risk consultant, with an emphasis on really understanding our clients’ industries, the challenges and opportunities they face and crafting our solutions around these customer needs. “This has required that our staff listen more in their engagements with clients and do additional research work around the particular industry. It has also meant building more collaborative teams for knowledge sharing and going outside our traditional talent pools by employing agronomists, engineers, doctors and so on. We innovate every day around many of our processes,” he adds. One of the most successful demonstrations of this approach was the development of a medical product for a telecommunication client, with staff not permanently located in one place. The Aon team developed a medical product with portable benefits across 18 African countries, requiring collaboration with service providers across the continent.

Regional strength Along with its global network, Aon is skilled in tapping into its regional network. “We also have East African practice groups for oil and gas, which we use to support each other and share information and customer experience across the different East African Aon branches. I view their experience as our experience. Kenya, for instance, is just behind Uganda in terms of the oil industry and so their experience and learning is hugely valuable. They have just been through the process of discovery and industry growth. We rely on each other a lot.” This regional awareness and cooperation appears a strong feature of the Kenyan economy as a whole. “The main impact of regional economic integration, is the creation of larger markets with greater buying power. This eases the movement for resources within that block, to areas where it is most productive. Regulation is harmonised, costs are reduced, turnaround times are cut down and resources are generally more efficiently deployed. The size of the potential market is also significantly increased, which in turn attracts more investment. This will be no different with the Economic Community of West African States,” comments Onsando. “In the short term, regional integration in Africa will be made easier by the fact that our borders are a colonial legacy, that sometimes divided one people and split them into three separate countries. This is particularly true in East Africa where you have the Maasai people in Tanzania and Kenya, among other examples,” he explains.

Risk and response “Political and trade risk has discouraged investment in Africa for a long time. A closer

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collaboration between government and private sector in recent years is, however, improving the situation. Pandemic risk is another area that we have to pay attention to, and one that requires closer private/public sector collaboration. We recently had the Ebola outbreak in West Africa and the impact on supply chains was felt outside the origin country, for example,” says Onsando, commenting on the ever-shifting African risk landscape. For Mkala, it is again the company’s skill in combining the unique local insight with the experience and knowledge of its global network, that is key to enabling the underwriting partners and ensure clients stay current with changing risk. “There are so many new emerging risks and there is also a lack of data and information in the Kenyan market. We have to ensure that we are relevant to our clients and that underwriters’ products and wordings are changing and developing accordingly. So we have to look for solutions and share information. We have developed strong partners with our underwriters this way.” There is a lot of work required to localise or Kenyanise the international reports and information to ensure that what we share is relevant for our market. But the top risk concerns remain the same, and benchmarking is valuable, says Mkala. Commenting on the future of African innovation in response to risk, Onsando adds, “When I look at issues facing the world, global food security is a pressing concern for leaders everywhere. When you consider that 60 per cent of the world’s unutilized arable land is in Africa, and the current inefficient way our agriculture is practised, with its vulnerabilities to drought and other natural calamities, a large part of the solution to future of food security has to come from Africa and a big part of that solution will be de-risking farming and food production in the continent. I think this is maybe where the big innovation will come from. Already, there are a number of companies doing very creative things around agriculture and livestock insurance.” For the immediate, with the world’s developed economies in an apparent recovery swing, Onsando sees little slowing for Africa’s growth prospects, and the future for Aon in Africa is bright. According to Onsando, while quantitative easing may pull some capital from local markets, the fundamental drivers of growth will remain. “These include rising global demand for raw materials, coupled with new discoveries of these resources in Africa; the emergence of new players on the global scene that are forging new and interesting partnerships with African governments and businesses; the changing perception of Africa itself as a lucrative market and a viable alternative for low-cost manufacturing; and finally, the increase in intraAfrican trade and investment.” With oil and gas the fastest growing line for Aon Kenya, and considerable energy opportunities on the horizon, this certainly rings true at the local level. There can be little doubt these are exciting times for Aon in Africa.

EAST AFRICA NEWS

African Trade Insurance Agency posts 144 per cent profit jump Continental trade credit and investment risk insurer, African Trade Insurance Agency (ATI), has posted $1.5 million (Sh128.5 million) profit for the year ending December 31. This is an increase of 144 per cent over the profit made in 2012, where ATI made Sh51 million net profit, marking a turnaround from a Sh21 million loss experienced in 2011. Unveiling the financial results in Nairobi, ahead of ATI’s annual general meeting scheduled to take place in Dar es Salaam, Tanzania, CEO George Otieno said infrastructure development,

especially the energy sector, is playing a key role in the company’s growth. The company is also insuring the financing linked to infrastructure projects. “We are here to support the priority areas of our member countries. Last year, this included large projects such as covering fuel importation into Zambia, insuring a bank’s financing in support of Tanzania’s State power utility’s construction plans, and support of the Olkaria IV geothermal plant in Kenya,” noted Mr Otieno in a statement. “With ambitious objectives to develop infrastructure in most countries, we predict that this priority will

continue driving demand for the next decade.” The firm’s turnover increased by 24 per cent to $13 billion (Sh1 trillion) while the insured trade and investments (gross

exposure) increased 23 per cent, to $872 million (Sh75 billion). Shareholders’ capital increased 14 per cent to $178 million (Sh15 billion) while net earned premium increased by 55 per cent to $6 million (Sh514 million).

Tanzanian insurer launches radio drama to promote insurance culture A new radio drama by Tigo Bima is set to launch on Tanzanian radio station Clouds FM, with the aim of familiarising Tanzanians about the benefits of insurance. The drama is one of the first radio initiatives of its kind, and will run twice a day for eight weeks on the Jahazi and Leo Tena programmes.

MTN Rwanda, Prime Life unveil insurance partnership MTN Rwanda has partnered with insurance firm Prime Life Assurance in a bid to increase the uptake of policies in the country, especially in the lower market segment.

MTN subscribers will be able to buy policies for between RF4 525 ($7) to RF21 625 ($32) per year, which qualify them for benefits of between RF250 000 ($368) and RF1.25 million ($1 840).

Rwanda’s insurance penetration is currently the lowest in Africa, and the partnership is seeking to take advantage of the growing number of mobile users to increase uptake.

“The claims process is simple: payout upon the death of an insured person is processed through the mobile money facility within 48 hours of receiving completed claim documents,”

said Gregoire Minani, Prime Life Assurance CEO. “The service will initially focus on MTN LifeCare, which enables a registered MTN Mobile Money customer to get life insurance cover. In the event that the policy owner dies, their beneficiaries will receive a lump sum payment,” said Norman Munyampundu, general manager of MTN Business.

The project is launched by Bima, a leading provider of mobile-delivered insurance in Tanzania which sells life and hospitalisation insurance in Dar es Salaam through Tigo’s mobile network. The drama’s objectives are to raise awareness about the affordability, accessibility, and value of insurance products for emerging consumers in Tanzania.

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SOUTHERN AFRICA

Constructing the

continent By Hanna Barry and Sarah Bassett

An engineer by trade, Russell Myers had never before heard the term ‘reinsurance’ when he received the phone call. But his interest was piqued when the person on the other end of the line presented an opportunity to travel to Munich for an interview with a specialist electronics reinsurer. Before long, he was heading up Tela’s South African office. SOUTH

good timing. The announcement had just been made that South Africa was going to host the 2010 Soccer World Cup and there was a hive of activity in the engineering and construction sectors. The economy was booming.” Mirabilis far exceeded income and underwriting profit projections in its first year – an unusual accomplishment for a brand new UMA. In March 2011, Mirabilis shifted its licence from RMB to Santam, taking on the business of Santam’s then-flailing engineering UMA, Construction and Engineering Underwriters (CEU). This made Mirabilis the biggest engineering underwriter in Southern Africa and was the start of a successful expansion into Namibia. Today, Mirabilis underwrites Namibian based insurance business through Santam Namibia. “Mirabilis and Santam Namibia have a close working relationship which is maintained by a dedicated team of staff members, able to provide technical and servicing support to Santam Namibia when required,” Myers explains. “While the volumes of policies and premiums are a lot lower in Namibia, the construction market is very stable with many experienced builders which helps reduce the risk. We experience similar competitiveness to the South African market, although with fewer insurance companies.”

Playing as a team That Mirabilis is a well-managed business is demonstrated by its year-on-year premium growth and successful expansion into the vast majority of Africa’s countries. “The only way we will stay the leading engineering UMA is by going the extra mile. Service is the cornerstone of the business. We aim for a 24-hour turnaround on general noncomplex quotes and want to ensure that we are the easiest UMA to do business with,” says Myers.

unich Re and Allianz later absorbed Tela, which had been started by Siemens in 1927, while Myers was offered a job with Swiss Re, as head of engineering for treaty and facultative reinsurance in Africa. In this position, he was underwriting the majority of treaty business for South African insurance companies in the early 2000s and, like so many underwriting managing agents, saw a business opportunity. “I looked at what the engineering UMAs were doing at the time and thought to myself: I could do this,” he remembers. With this belief, he set up Mirabilis Engineering Underwriting Managers in 2006, under a licence from Rand Merchant Bank. “It was

In fact, notes Myers, Mirabilis is now the largest engineering underwriter in Africa, with territorial scope across continental Africa (including all North Africa countries) and the Indian Ocean Islands. “This allows us to offer cover into the broader African market and we can transact directly in various currencies. We cover projects and some operational risks in almost all of these countries.” With a close-knit team culture, employing engineers from various disciplines, the staff at Mirabilis is self-motivated and not micromanaged. Everybody knows what the goals and targets are and gives above and beyond what is required in order to achieve these. “We’re passionate about doing things right. When it comes time to pay the claim, there should be no disputes as to what we thought we had insured or what clients thought they had cover for, because the policy wording has been done properly,” he continues. “There will always be grey areas, but in these instances we look at the spirit of what was intended.” But doing quality business and sourcing quality staff is not easy in an environment

with talent shortages and unsustainably low rates. Myers captures the first challenge as “finding the next generation of underwriters”. Of the second he remarks, “The market is overtraded and almost entirely price driven. In some cases, underwriting is not even considered. This means that some of our competitors are operating with no buffer between premium collected and attritional losses suffered, potentially leading to very high loss ratios.” Considering that we are seeing rates in the engineering market for multiyear projects below the annual fire risk rate, we understand why.

On solid ground With a consistently healthy loss ratio, Mirabilis is way ahead of large portions of the insurance market. “We generally don’t write risks at such low rates, but in the highly competitive and overtraded renewable energy sector, for instance, this is the level at which deals are done, although most of this business is reinsured to the London market. We have managed to maintain good business without generally compromising our underwriting standards but we do come under attack. In these instances we have to decide whether maintaining or growing our book is more important than underwriting profit.” The value of sound underwriting and transparent policy documents was highlighted in the construction of Botswana’s Dikgatlhong Dam, the largest in the country for which Mirabilis reinsured the Botswana Insurance Company (BIC), which, in turn, insured the contractor, Sinohydro Corporation of China. This was a BWP1.6 billion ($180 million) project. “Neither the contractor nor the broker read the policy conditions and so when a flood occurred in the area in the middle of the dry season, the contractor had failed to comply with the policy conditions, which stipulated that diversion works must be in place.” The case was taken to court, where for the first time in the world, Munich Re Endorsement 110 was tested. This endorsement stipulates safety measures with respect to precipitation, flood and inundation on construction sites, where what is deemed an adequate safety measure makes allowance for any of these events occurring for up to a return period of 20 years. Needless to say, Mirabilis won the case with costs. Frank policy documents based on proper underwriting is partly what sets this engineering UMA apart. The other element of its distinction is defined by the risk management services it offers to clients by going on-site and providing much needed advice, insight and expertise into some of the risks faced. “Sometimes it’s only when you have been knee-deep in concrete on a construction site that, as an underwriter, you can really understand the implications and risks involved in providing engineering insurance covers,” concludes Myers.

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Management liability – risk mitigation strategies

One poor decision, made under the pressure of crisis, is enough to land a company’s board of directors or senior management in hot legal water, often resulting in financial and reputational ruin, stress-related illness and even jail time.

Teri Solomon, divisional executive of FINPRO at Marsh

ore and more, directors are being held accountable for neglect or breach of their fiduciary duties, and in our increasingly litigious society, it is inevitable that directors approach and behaviour toward their governance duties and responsibilities, must change. This is the sentiment of Teri Solomon, divisional executive of (FINPRO) at Marsh. “Directors need to change their attitude in how they approach personal liability risk,” says Solomon. “Too many boards believe it can never happen to them, but we’re human, we make mistakes and sometimes uninformed decisions. But we are also in control about

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how we do things and how we can change our behaviour.”

governance principles”. Application of King III principles is the ultimate value tool.

Governance codes like King III, the continuous plethora of new legislation, and the increase in media attention on directors duties have necessitated that boards either revisit or pay more attention to their stated risk strategies. Risk management strategies must be continuously debated and stress tested.

“It is the organisation’s, (and the director’s) conscience, really”, says Solomon.

Questions like ‘what if?’, and ‘what happens if?’ must be continuously asked and scenario planning should never be left off the agenda. In addition, the board must insist that the whole organisation lives and breathes the risk management strategy.

The newest, but probably most legally powerful of these protection mechanisms, is the business judgement rule, introduced into the Companies Act of 2008. Says Solomon, “If a director can prove that they have taken reasonable steps to become informed about the decision they made, and they can evidence they were not conflicted in any way when they made the decision, and that the decision was made in the best interests of the company, then the director may escape liability.”

Personal liability aside, directors can take comfort in the knowledge that there are various protection mechanisms in our law to assist them in the event of them facing personal lawsuits that challenge their decisions. “Top of the list of protection mechanisms must be adherence to good

Directors’ and officers’ liability insurance is also a vital form of protection. “Critical is the defence costs that the D&O policy will provide,” says Solomon. The legal costs of defending a personal lawsuit, without insurance, can easily ruin a director financially.

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.

AFRICAâ&#x20AC;&#x2122;S PRE-EMINENT INSURANCE BROKER AND RISK ADVISOR MARSH AFRICA | www.africa.marsh.com An authorised financial services provider | FSB/FSP: 8414

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EMPOWERING the market

It was through a chance conversation over a Sunday braai that Franco Feris came to join Santam Namibia as financial manager, back in 2005. Moving from a parastatal and public sector background, Feris was excited by the private sector’s fast-paced and responsive decision-making processes, with opportunities for growth all-round. Santam Namibia has not disappointed.

By Sarah Bassett

reviously, financial management had been outsourced to Santam Limited, so his role and department were new to the company and ready to be moulded. “It was the start of an exciting turn for my career, though I had never considered the insurance sector before,” recalls Feris. His transition was so successful that after two years as financial manager, he was made chief operations officer (COO). “Finance is always analytical, and I wanted to get involved in the actions of the business. The role of COO exposed SOUTH

me to all aspects of the business – both the sales and claims sides. Eventually, the whole relationship-management team was also reporting to me. It was an incredibly exciting shift and huge learning journey. Every day you’re meeting new people, new characters, and you have to build a relationship and try to convince this person to believe in your brand.” Five years later, in January 2012, Feris became the chief executive officer (CEO). It is this connection to people and the relationships the industry fosters, that keep him passionate about the organisation and the role he plays today.

“We have a real opportunity to make a difference in people’s lives – we are in the business of rescuing policholders when disaster strikes, paying claims with urgency and efficiency. Therefore, insurance plays a crucial role in the economy. Livelihoods are in Santam’s hands. We put people back in the economy,” he explains. “I believe in the idea of a legacy – something for the next generation to take forward when I leave. I must ensure that when I move on, this business can also move on to its next level because there has been successful coaching within the business.”

The broker’s future There is little question that the direct model is growing and cannot be ignored, but for the time being, Feris sees the role of the broker as central to Santam’s business. “Our view is that we need to continue to invest in brokers so that they are empowered to provide a differentiated service to the client. It is still strong broker relationships that underpin the brand and the business.”

Growing and growing Last year, the business grew in double digits, driven by strong growth on niche lines in particular, offered through strong underwriting partnerships. Emerald Risk Transfer underwrite property risk, contractors all risk through Mirabilis Engineering Underwriting Managers and Stalker Hutchison Admiral provide liability expertise. Also growing is aviation cover, travel insurance through TIC and cargo cover for the transport sector. Personal and commercial lines have seen solid growth.

Franco Feris, chief operations officer Santam Namibia

Feris notes that Santam’s strength on personal lines, lies in its scientific underwriting. “On personal lines, I believe we are the leaders in what we do and this is gaining us the market share. Our profile-based individual underwriting enables us to differentiate and rate clients’ risk accurately. This makes a difference to the bottom line and premium – and personal lines are strongly driven by premium.”

Powerful partners On becoming CEO, Feris had a number of key goals. The first was to grow the company’s market share by one per cent a year for five years. This has been achieved over the last two years. With current market share of 29.5 per cent, Santam Namibia is the clear short-term market leader in the country. The second focus is to diversify the business and build a diverse risk pool that stretches into all areas of general insurance, across personal, agriculture, commercial and niche risks. This diversity, coupled with a world-class scientific underwriting capability, enables the company to steer its way through the ups and downs of the typical underwriting cycle. The third area is the continued strengthening of relationships. “We have 96 people in the organisation and we have to build relationships. I need to ensure that each person knows that they are important in Santam Namibia. Likewise, it is important that the brokers who we get our business from believe in this business. We also have to maintain a strong relationship with the regulator. Regulation is changing rapidly, so it is crucial that we have a consistent and stable relationship with the regulator.”

“Lastly, while we are still firmly behind the intermediary model, we have to work to ensure that our brand is reaching the consumer. In Namibia, two-thirds of the population remain uninsured and have never been exposed to insurance concepts. We have to empower people with an understanding of insurance in order to grow the market.”

Current shareholding is divided at 60 per cent Santam Limited; 28 per cent Bank Windhoek and 12 per cent Nam-mic Financial Services (NFS). “NFS is our BEE partner, with 15 branches and roughly 300 agents across the country. We sell our legal access product through their channels. They are our gateway to the entry market.”

Growing the entry level market is a passion for Feris. This market necessitates a direct model approach using microinsurance products, such as the legal access product already offered by Santam Namibia. “This is the future, and we need to educate this market,” he says. Santam’s approach to this education is innovative.

Bank Windhoek, the second largest bank in Namibia, brings considerable clout as a bancassurance channel – an area of focus for the future. Santam Limited is like a big brother – we rely on its systems and technical advice. We also rely on its brand because we use it ourselves,” says Feris.

At the end of 2013, it launched an educational national television programme on insurance, which Feris presents. The 32-week series is working through the basics — why people need insurance, how an excess works and what a premium is. For Feris, the series serves the dual function of extending the reach of the brand and serving the company’s responsibility to empower people through education.

As the Namibian market moves forward, Feris believes there are two critical issues to be addressed. “There is a pressing skills shortage in the sector and we as an industry have to work to correct this - the quicker the better.” The second is regualtory change. “We need to act as compliant corporate citizens at all times, proactively engaging with the regulator to collectively direct the future of the industry,” Feris concludes.

The challenges ahead

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Medical mayhem By Sarah Bassett

Healthcare claims fraud is an acknowledged problem worldwide and is reported to be on the rise in many African markets, South Africa in particular.

raud is estimated to cost South African healthcare funders between R3 billion ($2.8 million) and R15 billion ($1.4 billion) a year. With fraud committed by both insured individuals and service providers, and increasingly by syndicates, the industry is focusing on how to develop a pre-emptive approach to managing this ever-present risk, instead of reacting after fraud has taken place. Despite much progress in raising awareness and tackling fraud, current approaches often do remain a response, rather than continuous prevention, confirms Lynette Swanepoel, manager of the Board of Healthcare Funders of Southern Africaâ&#x20AC;&#x2122;s (BHF) Healthcare Forensic Management Unit (HFMU). â&#x20AC;&#x153;There are certainly other countries which have had more success with this than South Africa and we have a memorandum

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of understanding in place with our international counterparts and will host the Global Fraud Prevention Summit later this year so that we can learn how to do this better,” says Swanepoel. “To-date, our greatest achievement in forming the HFMU has been the coordination and sharing of information on unethical activities and investigations amongst the various medical schemes who are our members. This has gone a long way to enable our members to mitigate risk and to achieve a unified approach to the fight against white-collar crime in the healthcare space.”

Swindling the system “The common trends will always be the same as long as we have a fee-for-service system,” says Swanepoel. “Many medical scheme members think of the medical aid card as a free-for-all that can be lent to friends and family members who are not registered as dependants, in order to obtain treatment. Members also feel they are entitled to spend their medical scheme benefits on whatever they like or want, such as baby products, toiletries and other commodities. Healthcare providers have capitalised on this mindset, and though it is a small percentage, some will stop at nothing to enrich themselves unduly,” says Swanepoel, stressing that it is a small percentage of healthcare providers who taint the image of the profession in this way.”

scheme for 93 appointments and another for 100 appointments, both on the same day. Another doctor billed for 107 twohour appointments in one day, making it a 214-hour working day.

Diagnosing the doctors In response to escalating service provider fraud, medical schemes are sending investigators dubbed as ‘probes’ into doctor’s rooms to collect evidence. Two people wired with sound recorders will pretend to be patients with particular symptoms to see what the doctor prescribes. In some of these cases, doctors have been caught dispensing or administering cheaper drugs than what they claim for on the bill, or loading their bill with additional codes (code manipulation) for procedures they haven’t undertaken. Often, patients do not understand these codes or simply don’t think to question what the doctor asserts, notes Dr Graham Howarth, head of medical services in frica at the Medical Protection Society (MPS).

KPMG’s Medical Schemes Anti-Fraud Survey, published in 2012, reveals that service provider fraud is on the increase, with code manipulation the most common category investigated, followed by services not rendered.

Fraud from every corner

Examples detailed in a recent report from the Health Profession Council of South Africa (HPCSA) include a physiotherapist who was caught billing one medical aid

Fraud by scheme members: • Claims submitted for services rendered by healthcare professionals, which were never rendered.

Jonathan Broomberg, CEO of Discovery Health, identifies the key trends in healthcare claims fraud, perpetuated against South African medical aid schemes.

• Members ordering high-cost equipment from a supplier – a wheelchair for example – submitting the claims and obtaining the reimbursement, but without paying the supplier or collecting the equipment. • Members share their medical scheme cards with non-members who require hospital admission or treatment by a doctor. • Members collude with doctors, hospitals and/or pharmacies, submitting claims for false hospital admissions or treatment or medication. Fraud by healthcare professionals and services providers: • Pharmacies dispensing generic medication and claiming for expensive brand-name medication. • Pharmacies selling cosmetics and other non-medical items to medical scheme members, and submitting claims for medicines to the scheme. • Healthcare professionals and service providers submitting claims for services or treatments that have not been rendered to patients. For example: claiming for consultations that never took place, or for a counselling session with an unconscious patient. • Healthcare professionals colluding with patients in card sharing. • Providing fraudulent sick notes to patients and then claiming for the consultation. • Changing the diagnosis of a patient to access a specific benefit. • Claiming for materials not used. • Fraud by other individuals and syndicates. • Submission of false membership applications and fraudulent claims on those memberships. • Admission of healthy members to hospital in order to benefit from hospital cash-back insurance. 

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• Brokers providing the scheme with false details for medical scheme membership applications in order to avoid waiting periods and late-joiner penalties being imposed.

Technology and the power of prevention “From an analytics point of view, fraud is often a small intersection between two or more very large data-sets,” explains Estiaan Steenberg, actuary at Discovery Health. Advanced analytics and big data technologies have enabled the medical scheme giant to recover R250 million ($23.7 billion) a year in fraudulent claims. “We now have the tools we need to identify even the tiniest anomalies and trace suspicious transactions back to their source. For example, Discovery can now compare drug prescriptions collected by pharmacies across the country with healthcare providers’ records. If a prescription seems to have been issued by a provider, but the person fulfilling it has not visited that provider recently, it is a strong indicator that the prescription may be fraudulent,” Steenberg adds. The accelerated analytics system built by Discovery Health, in partnership with BITanium, enables the company to run three years of data through complex statistical models to deliver actionable insights in a matter of minutes. It allows for more accurate predictors for chronic conditions, helping Discovery initiate better preventative programmes; identifies possible phantom drug prescriptions by mining data from pharmacies and health providers and cuts development time for predictive models. Critically, the accelerated analytics system has significantly improved fraudulent claims recovery, and allows Discovery to control the costs of its services. Swanepoel confirms that predictive analytics systems are a key strategy for many HFMU members in working to become more pre-emptive in their approach to fraud.

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Lagging behind? While such advances are significant, in many ways South Africa is moving more slowly than some of its African neighbours in the use of technology to combat fraud. In Kenya, where high levels of fraud and the astonishingly high cost of private healthcare have seen insurers routinely make large losses on health lines, the use of smart cards and biometric technology to track identity and maintain records has been widespread since 2011, among the largest insurers in the country. Last year, two of the largest medical schemes in Namibia implemented a biometric identification technology system designed to combat fraud and increase administrative efficiencies. The system was developed in a partnership between technology developers LifePoint and Muvoni Biometric & Smartcard Solutions (MBSS). Biometrics refers to technologies that measure and analyse human body characteristics, such as DNA, fingerprints, eye retinas and irises, voice patterns, facial patterns and hand measurements for authentication purposes. According to MBSS managing director, Stan Khan, 30 per cent of all medical insurance claims are estimated to be fraudulent, or contain administrative errors. “The biometric system ensures that members cannot abuse their card by lending it to non-members. A fingerprint reading is used to identify the member at the point of service. This immediately links, through a cloud based server, to the patient’s correct medical records and history. All treatment and follow-up information can be added direct to these records, significantly aiding administrative efficiency and accuracy and ensuring that the service provider, and the medical scheme, has surety in the identity of the patient.” The system requires that all service providers have a digital fingerprint reader device. In Namibia, relatively low-cost USB devices are in place.

Launched in October last year, two of Namibia’s four largest medical schemes are currently on the system, with approximately 38 per cent of all transactions already being processed though system. “Ongoing enrolment drives are in process, and so far the feedback we’ve received has been very positive,” says Khan. “Currently, we know of one or two pilot projects in South Africa, but no schemes are yet to implement anything at any substantial level. The market here is very different from Namibia of course. For one thing, the industry here is very fragmented. In Namibia, schemes have cooperated with each other in implementing the system, but that is much less the approach here, with schemes instead waiting to see who will move first,” he explains. There are other factors which make implementation in less developed markets easier than in our own, including the lack of existing, out-of-date legacy systems to integrate with. “It’s the phenomenon of leapfrogging – these markets are jumping to advanced technological solutions very quickly, without the need to adapt antiquated systems, because in many cases there were no systems at all.” In future, its potential for pre-empting fraudulent claims activity may expand further. “We do believe this technology has a role to play in monitoring service providers as well as members,” adds Khan. Already it plays a role in nonrepudiation, ensuring that service providers cannot reject responsibility for bills or records issued. This could be expanded to include a broader range of service providers such as dentists, optometrists and pharmacists, ensuring that for all these areas of service and treatment, there must be a legitimate patient present for claims made. There is also potential for signature verification technology that will confirm that both patient and doctor signatures are genuine.

SOUTHERN AFRICA NEWS

POPI Information Regulator established In line with the requirements of the Act, an Information Regulator to oversee the Protection of Personal Information Act (POPI), has been established.

Insurance Laws Amendment Bill withdrawn Finance Minister Pravin Gordhan has requested that the Insurance Laws Amendment Bill (ILAB) be withdrawn, as it lapsed because it was not passed prior to the end of Parliament’s term. The National Treasury and the Financial Services Board (FSB) are considering alternative interim measures (through Board Notice or other bills) to give effect to the intention of the ILAB. The ILAB contains proposed amendments to the Long-term Insurance Act (LTIA) and the Short-term Insurance Act (STIA), both of 1998, and was tabled before Parliament in June 2013. Generally, lapsed bills

are required to be revived by a motion of Parliament, once the new Parliament convenes after the elections. The amendments proposed under ILAB include: introducing insurance group supervision, pending the finalisation of the broader review of the Insurance Laws and Solvency and Asset Management (SAM) project; strengthening the governance, risk management and internal controls of insurers; and addressing regulatory gaps in South Africa’s adherence to international and financial regulatory principles and standards in respect of insurance,

as identified by the IMF/World Bank Financial Sector Assessment Programme evaluation. National Treasury also outlines that the Bill provided for various other critical amendments to the LTIA and STIA, such as enhancing licensing requirements. It is proposed that these critical amendments will also be provided for through consequential amendments to the LTIA and STIA, via the revised second draft Twin Peaks Bill, and further consulted on as part of the Twin Peaks public comment period. The envisaged effective date of these other critical amendments is 1 January 2015.

Hollard launches Africa-based China desk Hollard Insurance recently announced the launch of its Africa-based China desk, established to service the insurance needs of Chinese companies working in Southern Africa. In 2007, Hollard was the first South African insurance company to open offices in China. Since

then, the representative office has played a key role in providing risk management and insurance services to Chinese businesses in Africa. “China represents a significant investor into Africa and, while there are direct insurance opportunities in China, there is a major opportunity in facilitating

cover for Chinese companies working in Southern Africa,” says Yike Shen, manager for the Southern African China desk. The initial focus of the China desk will be to support the Hollard insurance operations based in Botswana, Mozambique, Namibia and Zambia.

Advisory services firm KPMG highlighted that this means that companies cannot rest on a belief that the establishment of the Regulator will cause further delays with regards to POPI implementation. The Information Regulator is the body which will be responsible for monitoring and enforcing compliance with the Act, handling data subjects’ complaints regarding alleged violations to their personal information, and facilitating cross border co-operation in the enforcement of privacy laws. Companies and public organisations have been urged to assess their level of compliance with POPI provisions, and consider implementing any compliance processes, procedures and policies which may need to be established and implemented. POPI was promulgated in November 2013, and commencement has been outlined for 2014. The Act gives a one-year compliance transition period, with a possibility of that being extended for up to three years.

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WEST AFRICA

Jet-setting business travel boosts Nigerian aircraft market By Laura Owings

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Luxury knows no limit in Nigeria’s booming private jet business. But when it comes to insuring these aircraft, the price is steep with a high-risk environment driving costly premiums.

n the heels of being named the biggest economy in Africa, Nigeria is now said to be home to the fastest-growing aviation business on the continent. Much of this is thanks to a growing wealthy class that prefers to fly private over economy. Owners ranging from politicians to clergymen funnel their cash into attractive aircraft ranging from about $39 million to $57 million in price. For example, the long-range Bombardier Global Express XRS, worth about $50 million, is the preferred form of travel for Africa’s wealthiest businessman Aliko Dangote; oil baroness Folorunsho Alakija; and the mobile phone tycoon Mike Adenuga, who also owns both short and long-range business aircraft. Speaking at the Nigeria Business Aviation Conference 2014 in Lagos in March, EAN Aviation CEO Segun Demuren said, “Nigeria is now Africa’s fastest-growing aviation business with more new and preowned aircraft delivered to Nigeria than South Africa in the last year.” According to Demuren, there is no exact figure for the number of private jets in the country, but estimates suggest between 100 and

150, with an anticipated 350 set to be in operation by 2016. “The country’s private jet fleet is larger than the commercial aircraft fleet,” he adds. Despite this growth, the industry faces challenges including the fact that aircraft insurance premiums in the country are up to 35 per cent higher than average, even higher in some cases because of the operating environment. He also said maintenance and service support still remains a challenge. Indeed, Nigerian airline owners and the Ministry of Aviation have singled out the insurance industry for unfairly designating the country’s airspace as high risk, resulting in huge premiums for aircraft insured locally. In a report from newspaper The Punch, former Minister of Aviation, Princess Stella Oduah, called the situation unacceptable. “It makes my heart bleed that Nigerian aircraft registered in Nigeria have to pay twice or more than the amount foreign registered airlines pay on insurance premiums,” she says. “They say the reason aircraft registered in Nigeria cost more is because Nigeria

is considered a high risk nation, but we are not high risk. We are ranked 12th in Africa in terms of safety, and globally we are regarded as safe. So why are we designated high risk back home?” she asked. Aviation insurance involves three major aspects including aircraft insurance, third party liability insurance and passenger liability insurance. While aircraft insurance provides cover against technical damage to the plane, the third party liability provides cover for damages the plane might cause as a result of its flight. Premiums are then considered on a caseby-case basis, explains Fatai Adegbenro, executive secretary for the Nigerian Council of Registered Insurance Brokers. “Every aircraft is underwritten as one entity. You do not lump them together. Instead, you write them one by one,” he says. “This is done in accordance with global guidelines, as the risks associated are the same risks globally. If an airplane crashes into property on the ground, that liability is absolute everywhere,” he adds. Considering this, Adegbenro disagrees with

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claims that insurance premiums in Nigeria are unfairly high. His position is supported by others in the insurance industry, including the deputy chairman of the Nigeria Insurers Association (NIA), Gaius Wiggle. According to him, a number of risk factors are considered in determining local insurance premiums, including the poor state of Nigerian airports, lack of resources and history of aircraft incidents. In particular, he notes the only airports approved for landing in the country are Lagos, Abuja and Port Harcourt, bearing the burden of the growing air traffic demand.

forgo insurance altogether.

Based on this, Wiggle says the air safety of Nigeria cannot be compared to that of other countries. Thus, it is not accurate to say that Nigerian insurers unfairly charge high premiums for aviation insurance, as these factors make aviation insurance one of the high risk profile sectors.

At the Nigeria Business Aviation Conference, chairman of the Airline Operators Committee, Nogle Meggison, said that poor transport logistics in Nigeria plays a part in stimulating the private jet market and has led to broader regulatory change.

These costs, however, are having a negative effect on the growing private jet industry. Media reports suggest that most private jets in Nigeria carry foreign registration so owners can avoid local premiums. Others claim private jet owners hire foreign aviation firms to supply pilots and maintenance services covered by separate insurance policies, or that owners

Remarking on the country’s poor roads, limited domestic airline fleet and no train network, he said executive jets provide a solution to much of the logistical challenges in the country. “The time saving, the convenience and the increased productivity that follows means business aviation is not a luxury but an essential tool for growth in Nigeria,” Meggison says.

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A move by the Nigerian Airspace Management Authority to institute a luxury tax of $3 000 for every departure of a private jet was also rejected by jet owners who said the tax was unfair. Their outcry saw the tax suspended, signalling the political influence of Nigeria’s wealthiest class. These moves push money and employment out of a country that could benefit from both. Indeed, the hype around Nigeria’s growing GDP and aircraft market hide the fact that most of the country’s 170 million people cannot afford to fly.

He continues that the government is supporting expansion by signing the Cape Town Convention thus reassuring lessors about asset security. He also notes that government has invested in new infrastructure including a private jet terminal that opened last year in Abuja and does not impose a time restriction on the amount of time a foreign registered private jet can stay on Nigerian soil. The government has committed to cooperating on insurance, with the aviation minister assuring engagement between the body and the National Insurance Commission (NAICOM) to co-operate on insurance premium rates. Wiggle is sceptical as to the result of such engagement. He says that in terms of safety measures, Nigerian aviation operators still have far to go before meeting the level of their counterparts in countries where aviation insurance premiums are said to be low. As long as insurance premium rates are determined by the exposure to risk, he urges aviation industry operators to reduce their risk by putting adequate safety measures in place. When this is done, aviation insurance premiums will come down.

the world’s specialist insurance market Join Lloyd’s South Africa and participants from the Lloyd’s market at our Meet the Market event during The Insurance Conference Southern Africa event at Sun City on 27-30 July 2014. At the Meet the Market event, meet: • • • • • • • • • • • • • • • •

Abelard Underwriting Agency Amlin Arch Underwriting Managers Ark Underwriting Arthur J. Gallagher Camargue Underwriting Managers Catlin CFC Underwriting Chaucer Factory & Industrial Hiscox Natsure Novae Praesidio Risk Managers RFIB Talbot Underwriting

To register for the IISA conference, visit www.iisa.co.za

Find out about Lloyd’s in South Africa www.lloyds.com/southafrica John Linda Sibanda, General Representative Telephone +27 (011) 505 0000 john.sibanda@lloyds.com facebook.com/lloyds Follow us on Twitter: @LloydsofLondon lloyds.com/linkedin

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WEST AFRICA NEWS Ghana insurance trust commences biometric registration The Kumasi area manager of Ghana’s Social Security and National Insurance Trust (SSNIT), Allandu Azu, confirms that nationwide biometric registration will commence soon. SSNIT is confident that the nationwide biometric registration of its contributors would curb multiple registrations, prevent fraud and speed the verification of the identity of members of the scheme. Registration will be done at employers’ premises, SSNIT’s branch offices and designated places for pensioners. Azu revealed plans to automate SSNIT core business activities: employer-member registration, issuance of smart card to contributors, contribution data management and benefit processing. This, he said, was being done under a new application system called Operational Business Suite (OBS). He was addressing participants at a seminar organised by the Trust in Bibiani in the Western Region.

Stanbic Bank Ghana launches insurance products Stanbic Bank Ghana has launched three products under its Bancassurance unit.The products, motor, travel and homeowners insurance, will be underwritten by Metropolitan Insurance Company Limited. The Stanbic motor insurance is an extensive auto policy designed to protect customers in the event of damage to a vehicle belonging to another party, damage to property or injury to a person, as well as damage to a customers’ own vehicle. The travel insurance covers medical

expenses and losses that a customer may incur when travelling. These expenses include: emergency medical expenses and hospitalisation, emergency dental care, repatriation of mortal remains, emergency return home, delivery of medicines, advance of bail bonds, personal assistance services and 24-hour assistance. It also covers delayed flight or baggage, loss of identity cards, location and forwarding of personal belongings and baggage. Under the homeowners’ insurance policy, compensation is provided for losses from fire, burglary and natural occurrences such as lightning, earthquake, explosion, storm, wind, malicious damage and flooding.

MTN, NHIS to launch Y’ello Health insurance service in Nigeria MTN is partnering with mobile insurance services aggregator Salt & Einstein MTS and Nigeria’s National Health Insurance Scheme (NHIS) to launch Y’ello Health, a mobile based universal health insurance service. Y’ello Health will provide Nigerians affordable health insurance cover on a prepaid basis.

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MTN subscribers will be able to opt into the micro-healthcare insurance scheme through Health Management Organisations (HMOs). The scheme will cover a range of predefined medical treatments for which affordable premiums can also be remitted through the subscribers’ mobile phone. “MTN is a large player in the Nigerian economy, having a good number of registered Nigerians on its database. To be able to reach out to Nigerians, we at NHIS decided to partner with Salt & Einstein MTS and MTN on this new initiative to achieve ‘Universal Health Coverage’ for Nigerians nationwide,” comments Dr Femi Thomas, executive secretary and chief executive officer (CEO) of NHIS.

NEWS INTERNATIONAL

United Arab Emirates Dubai Health Authority approves health insurers The Dubai Health Authority (DHA) has approved 50 insurance firms that will participate in the government’s mandatory health insurance scheme, which will come into effect in October this year. A total of 43 health insurance companies and seven participating insurers last month received their mandatory health insurance permits, allowing them to provide insurance under the Insurance System for Advancing Healthcare in Dubai (ISAHD). The scheme will provide an essential health benefits package to resident employees with salaries below AED4 000 ($1 089), the premiums for which will range between AED500-700 ($136 – $191) per person per year. “DHA recognises that in doing so insurers also have to make a reasonable profit. Only those capable of handling volume business and who can operate effectively over the long term can make the system sustainable. Consequently they are required to meet additional standards,” the DHA said in a statement.

Haidar Al Yousuf, director of health funding at the DHA, said that the roll-out will take place in phases. Companies with 1 000 or more employees will have to cover their staff before the end of October 2014, companies with 100 to 999 employees will have until the end of July 2015 and companies with fewer than 100 employees have until end of June 2016 to make sure that their workers are covered. “Over the next two years, we will begin to see the immediate benefits of the mandatory health insurance scheme as and when its phased roll-out takes place,” Al Yousuf adds.

China China opening up for foreign business The China Insurance Regulatory Commission this April ruled that both foreign and domestic insurers will be allowed to own more than one company in the same segment of the industry. The ruling, which comes into effect in June of this year, will also make it possible for investors to take out loans to finance up to 50 per cent of their acquisitions. Currently investors are only allowed to use own funds when

acquiring investments. It is speculated that the relaxation of rules for deal making in China’s insurance sector could potentially widen the playing field for foreign investors in the sector. “Domestic insurers have been grabbing market share by competing aggressively on price, but foreign insurers haven’t been able to do that because they have no scale in China,” says Jerry Yang, analyst with Daiwa Capital Markets. According to Yang, the deregulation of the industry, including the pricing liberalisation overhauls expected in the second half of the year, should improve market competition for foreign and domestic companies. Sally Yim, vice president and senior credit officer at Moody’s Investors Service, said that the easing of regulations gives foreign insurers the opportunity to build scale. He adds that foreign investors will likely be interested in smaller Chinese insurance companies that are having a tough time competing by themselves. China’s top five life insurers command around 70 per cent of the market. The remaining 30 per cent of the market share is divided between a further 63 smaller companies.

Italy Italian firm enters ILS market Trieste-based Assicurazioni Generali S.p.A. last month closed a catastrophe bond that offers the insurer protection from European windstorm losses over a three-year period. The bond, which offers €190 million ($261.8 million) of reinsurance coverage, was issued by Ireland-based special purpose vehicle Lion I Re Ltd. The deal is the first catastrophe bond closed by Generali, and the insurer has become the first Italian sponsor to enter the insurance-linked securities (ILS) market. The bond, which has been placed via a Rule 144A offering, has an indemnity-based trigger, Generali said in a statement. “Leveraging the consolidation of the group’s reinsurance since 2013, this catastrophe bond allows us to further optimise the purchase of reinsurance protection while maintaining a good degree of flexibility and diversifying the panel of capacity providers in order to mitigate counterparty risk,” Sergio Balbinot, chief insurance officer of Generali says. “We are seeing catastrophe bonds becoming more popular in the European market,” adds Stuart

McMurdo, head of reinsurance at Santam, commenting on the wider impact of the growing ILS market. “It essentially means that less business will be going to the large reinsurers, which will have to start looking more and more in places like Africa for growth opportunities, inevitably leading to a softening reinsurance market in those areas,” he says.

Singapore Temasek sets sights on Africa Singapore’s State-investment company, Temasek, this April closed its first major deal in Nigeria, becoming one of the largest shareholders in oil and gas group, Seven Energy. The deal, that saw Temasek paying $150 million for a 26 per cent share in the company, comes only five months after closing a $1.3 billion deal to buy a 20 per cent stake in several gas fields in Tanzania, controlled by London-listed Ophir Energy. “We’re very interested in Africa, a new market for us. We see opportunities consistent with the themes that drive our investment approach,” says Stephen Forshaw, Temasek’s spokesman. Phillip Ihenacho, chief executive of Seven Energy, says Temasek was, “more

willing to invest in Africa than any previous time”. The World Bank, through its private arm the International Finance Corporation, has made an investment of $105 million in Seven Energy at the same time as Temasek. Temasek first invested in sub-Saharan Africa in 2011 as a partner to the Oppenheimer family, which founded mining companies De Beers and Anglo American. The $300 million joint venture, called Tana Africa Capital, focuses on agriculture and food processing. Tana has invested in Promasidor, a South Africa-based group with operations in nine African countries and sales across the continent, and in Regina, Egypt’s second-largest pasta producer.

USA Willis launches undercover policy Global risk adviser, insurance and reinsurance broker Willis Group Holdings, has launched a new insurance facility to protect cargo both in transit and in store against all types of political violence, terrorism and war risks. The company states that in recent years, cargo losses worth more than $100 million have not been recovered under traditional cargo

insurance policies due to critical exposures being excluded.

Trevor McGarry, executive director of Willis’ marine insurance business.

According to a company statement, traditional cargo insurance policies typically exclude certain losses, such as those arising from civil war, insurrection, rebellion and terrorism for goods in store. Political violence policies, which usually respond to these types of risk, exclude transit exposures and cover fixed assets rather than stock. Willis also says that the new facility, Undercover, has received support from a panel of leading London insurers and that it wraps up the coverage provided by these different policies under a single facility, eliminating gaps in coverage and reducing premium costs by removing duplication of cover. “It is apparent that many companies misunderstand their cover. They think they’re protected when in fact they are not. With all the unrest currently sweeping across the world it can be difficult for companies to be assured that they have the right cover in place, particularly when the definition of violent acts is open to interpretation.

Myanmar (Burma)

The violence in Syria, for example, has been inconsistently reported as a civil war, a rebellion and an insurrection. And yet, how these events are defined has a critical bearing on whether or not insurance policies will respond,” comments

Myanmar to start providing health insurance The Republic of the Union of Myanmar is expected to introduce a first-ever health insurance service by the end of this year, according to a statement made in May by Deputy Minister of Finance, Dr Maung Thein. “The insurance will come within this year. But the timing is not yet set exactly. We are working to launch it faster. Research will be conducted for setting up insurance premiums and compensations. The trial run will be one year,” he says. Thein, who is also chairperson of the Insurance Business Supervisory Board, states that after the initial trial run, insurance policies in the country will be improved and changed according to the results of the trial. He adds that a special task force would also be formed to draw up health insurance policies. The task force will include representatives from the Ministry of Health, Myanmar Medical Association and private insurance companies, as well as foreign experts from international insurance providers.

Diary of a travelling insurance salesman The sometimes sad, sometimes funny observations of Anton Roux, CEO of Aon South Africa, and his colleagues on their travels through Africa.

I saw the

sign (That sort of defeats the purpose of having the machine there in the first place.) In a Botswana jewellery shop: ‘Ears pierced while you wait.’ (I was hoping to be able to leave my ears there while I did the rest of my shopping.) On one of the buildings at a Sierra Leone hospital: ‘Mental Health Prevention Centre.’ (It seems unusual for a hospital to actively try and prevent mental health.) In a maternity clinic in Tanzania: ‘No children allowed!’ (Where should they be born then?) In a cemetery in Uganda: ‘Persons are prohibited from picking flowers from any but their graves.’ (Reminds me of an episode of the Twilight Zone.)

hroughout his travels in Africa, Anton Roux has seen things that are astonishing, incredible, unbelievable and baffling. The following signs, from restaurants schools, road signs and posters – are a collection of his favourite discoveries. In a restaurant in Zambia: ‘Open seven days a week and weekends.’ (They have nine-day weeks in Zambia?) On the grounds of a private school in South Africa: ‘No trespassing without permission.’ (Is trespassing with permission still considered a crime?) On a window of a shop in Nigeria: ‘Why go elsewhere to be cheated when you can come here?’ (Honesty is the best policy, especially when cheating is involved.) An advertisement in Ghana: ‘Are you an adult who cannot read? If so, we

can help.’ (Except they won’t be able to read the sign.) In a hotel in Mozambique: ‘Visitors are expected to complain at the office between the hours of 9h00 and 11h00 daily.’ (Do you get thrown out if you don’t complain?) Alongside a river in the Democratic Republic of Congo: ‘Take note: When this sign is submerged, the river is impassable.’ (Take note: When that sign is submerged, it will no longer be visible.) In a Zimbabwean restaurant: ‘Customers who find our waitresses rude ought to see the manager.’ (He sounds terrifying.) A sign seen on a hand dryer in a Lesotho public toilet: ‘Risk of electric shock – Do not activate with wet hands.’

In a Malawi hotel: ‘It is forbidden to steal towels please. If you are not a person to do such a thing, please don’t read this notice.’ (So, if I’ve read the notice, does that make me someone who would steal towels? And where in the world is stealing not forbidden?) A sign posted in an Algerian tourist camping park: ‘It is strictly forbidden on our camping site that people of different sex, for instance a man and woman, live together in one tent unless they are married to each other for that purpose.’ (People of different sex, for instance a man and an amoeba.) In a Namibian nightclub: ‘Ladies are not allowed to have children in the bar.’ (They probably shouldn’t be in a bar if they are pregnant anyway.) In a photo studio in Chitungwiza (Zimbabwe): ‘Photos taken while you wait.’ (I’d love to see them take my photo if I didn’t wait.)

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