Issue 06 August | September 2012 ISSN 1812-5964
Climate change and agriâ€™s uncertain future
Africa A look at the aviation insurance industry in Africa
Global trends in microinsurance and why you should care
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The RISKAFRICA team could not have prepared for what we experienced on the Put Foot Rally. Above and beyond the breathtaking beauty of the countries we visited, were the people who we had the privilege of spending time with. Giving new school shoes to kids in Zambia, while politicians, elders and a local beauty queen looked on, is not an experience that any of us will soon forget. Coupled with adventures like white water rafting down the Zambezi, taking a ferry across Lake Kariba and diving off the coast of Mozambique, the trip served as an enduring reminder of just how fortunate we are to live on this great continent. We are grateful to our sponsors, Pro Sano Medical Scheme and Altech Netstar, as well as every other individual and organisation that contributed to the Put Foot Rally cause in some way. The rally raised well over R500 000 for Project Rhino and other foundation causes. Read the Put Foot Rally wrap on page 32 and visit the RISKAFRICA Facebook page for more pictures. Our feature article this month takes a look at some of the challenges facing the aviation insurance industry in Africa. Struggling to make ends meet during tough economic times the past few years, some insurance providers have drastically cut premium costs while allowing the quality of their service to suffer. But with risks as large as these ones, brokers should be careful to ensure that their clients are adequately covered. Enjoy the read.
Andy Mark Ground floor, Manhattan Tower, Esplanade Road Century City, 7441, Cape Town, South Africa www.comms.co.za Publisher & editor in chief Andy Mark Managing editor Nicky Mark Copy editor Margy Beves-Gibson Feature writers Bianca Wright Hanna Barry Nicholas Krige Art director Herman Dorfling Design and layout Dries van der Westhuizen Vicki Felix
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CONTENTS 4 8 12
14 16 20 22 26 32
Below the line: health microinsurance
Climate change and agriâ€™s uncertain future Global trends in microinsurance and why you should care
Takaful: insurance with a twist Profile: Paul Nkhoma, Hollard Zambia Zimbabwe insurance overview News The Put Foot Rally 2012 wrap
Opening Africa Nick Krige
There are few local insurers big enough to provide aviation insurance in Africa. While aviation cover is offered by insurance companies in African countries, it is expensive, incomprehensive and is not always guaranteed to deliver if called upon. RISKAFRICA takes a look at some of the challenges of insuring aircraft in Africa.
Companies looking for a quote should be made aware that the civil aviation authority (CAA) with which their aircraft are registered could have a huge impact on premiums.
Opportunity in the African market The capacity of most African insurers to underwrite aviation risk is limited by the fact that a large portion of aviation insurance is done in US Dollars, and many African economies suffer from a lack of foreign currency. This means that local African underwriters can only write a small portion of the US Dollar-based risk and the balance needs to be insured somewhere else, usually South Africa. The risks of insuring aircraft in Africa The South African aviation insurance “The fish tothebefull market is able and will willinghave to cover range of risks facedthe in Africa, which makes flown over weekend to the be continent a huge opportunity ready forgrowth the Monday for the saturated African market. marketSouth in Europe.” The move of South African insurance companies into the African aviation market will allow brokers in these countries to negotiate more favourable deals for their clients. According to Richard Turner, managing director of aviation insurance company GIB, there is a big skills shortage in the aviation insurance industry currently, with many of the experienced people having moved on or retired. Mistakes in this industry can be hugely detrimental to the company involved, as aeroplanes are expensive and policies that are sold are worth a lot of money. People who are knowledgeable about aviation are currently in high demand by the industry.
Placing aviation cover in Africa remains expensive, due to the risks involved in flying, operating and maintaining a plane in Africa. The lack of expertise and technology in the aviation industry in countries outside of South Africa makes things more complicated for insurers. “Companies looking for a quote should be made aware that the civil aviation authority (CAA) with which their aircraft are registered could have a huge impact on premiums,” says David le Roux, sales manager of Airborne Insurance Consultants, an insurance brokerage based in Johannesburg, South Africa, that catering exclusively to the aviation industry. For example, the insurance premiums of a plane that is registered with the South African CAA operating out of Botswana could be as much as 30 per cent lower than if the plane was registered with the Botswana CAA. This is because insurers cannot be assured that quality control checks and standards are as strict. If a plane is registered with the South African CAA, there is a certain standard a plane has to live up to before it is allowed to take off, but if the standards of a local CAA are not as strict it will increase the chance of something going wrong and premiums will reflect that. Unfortunately Africa has a terrible loss history; countries like Zimbabwe, Angola and the Democratic Republic of Congo are among the countries with the highest incidents of loss due to poor equipment and facilities, lack of technology, war and civil unrest. This makes it incredibly difficult for insurance companies to offer attractive premiums. Clients should be made aware that the payable excess tends to increase as soon as an aircraft leaves South Africa because of the higher loss rate in Africa. “The reasons for the higher loss rate are linked to the CAA standards throughout Africa,” says Le Roux, but it also has to do with the lack of equipment and technology available to African countries. Quality of infrastructure is directly related to the strength of the local economy and most Third World countries do not have the financial means to modernise their airport facilities.
The reasons for the higher loss rate are linked to the CAA standards throughout Africa.
“For example, very few airfields in Africa, outside of South Africa, are equipped with an instrument landing system (ILS),” adds Le Roux. An ILS is a ground-based instrument approach system that uses a combination of radio signals and high-intensity lighting arrays to provide precision guidance to landing aircraft, especially in unfavourable conditions like fog, heavy rain or snow. The lack of this technology naturally increases accidents and loss claims, which in turn increases premiums and excess payments. Turner highlights another problem faced by aviation insurance companies. “There is a perception that premiums are more expensive because more accidents happen in Africa. That may be the case, but another reason for higher premiums is the cost of retrieving an aircraft that needs repairs.” This cost is incurred by the insurance companies because there is often inadequate skills and equipment to effectively repair an aircraft, so it needs to be brought back to South Africa to assure the quality of the repair. The good news is that risk in countries neighbouring South Africa, such as Namibia, Botswana, Lesotho, Swaziland and Mozambique, is treated the same by South African aviation insurance companies as local risk. This means that aviation risk can be covered at South Africa’s relatively cheaper
domestic rates by its neighbouring countries. Understanding the different conditions and circumstances that aircraft operate in, on a case-by-case basis, is key to identifying the unique risks that each aircraft faces. This ensures that only the risks that each individual aircraft is facing are covered, keeping the cost of covering aircraft in Africa affordable. The status of the aviation insurance industry The status of the aviation insurance industry in a particular country is reflective of the health of that country’s economy. Things have been tough since 2008, but according to Le Roux, the market is growing, even if it is at a fairly slow pace at the moment. But he admits that it’s difficult to tell. When an insurance company releases a new product or offers more competitive prices, some companies will look to take advantage of a better offer, which will make the insurance company that they move to look good without actually changing the size of the industry as a whole. Turner believes the aviation insurance market is a challenging one. “Aviation is a luxury and we are in a recession. People are not as interested in buying or hiring private planes presently. The elevated fuel price doesn’t help either.” It is a buyer’s market in the aviation insurance business at the moment, but clients should
Types of aviation insurance There is a wide range of cover available in the aviation insurance market, but the following are the most common: Public liability insurance This coverage, often referred to as third party liability, covers aircraft owners for damage that their aircraft does to third party property, such as houses, cars, crops, airport facilities and other aircraft struck in a collision. It does not provide coverage for damage to the insured aircraft itself or cover for passengers injured on the insured aircraft. Public liability insurance is mandatory in most countries and is usually purchased in specified total amounts per incident. Passenger liability insurance Passenger liability protects passengers travelling in the accident aircraft who are injured or killed. In many countries this coverage is mandatory only for commercial or large aircraft. Coverage is often sold on a per-seat basis. Combined single limit (CSL) CSL coverage combines public liability and passenger liability coverage into a single coverage with a single overall limit per accident. This type of coverage provides more flexibility in paying claims for liability, especially if passengers are injured, but little damage is done to third party property on the ground.
it is on the ground and not in motion. This would provide protection for the aircraft for such events as fire, theft, vandalism, animal damage, weather damage, hangar collapse or for uninsured vehicles or aircraft striking the aircraft. The amount of cover may be a blue book value or an agreed value that was set when the policy was purchased. Most hull insurance includes a deductible to discourage small or nuisance claims. Ground risk hull insurance in motion (taxiing) This coverage is similar to ground risk hull insurance, not in motion, but provides coverage while the aircraft is taxiing, but not while taking off or landing. Normally coverage ceases at the start of the take-off roll and is in force only once the aircraft has completed its subsequent landing. Due to disputes between aircraft owners and insurance companies about whether the accident aircraft was in fact taxiing or attempting to take-off, this coverage has been discontinued by many insurance companies. In-flight insurance In-flight coverage protects an insured aircraft against damage during all phases of flight and ground operation, including while parked or stored. Naturally it is more expensive than not-in-motion coverage since most aircraft are damaged while in motion.
Ground risk hull insurance, not in motion This provides coverage for the insured aircraft against damage when
be warned against going for the cheapest option to save a few pennies. “Insurance supply has never been greater, but the quality of service provided is below what it used to be. It is great for consumers because aviation insurance has never been cheaper, but they must be careful. Every company in the industry has the ability to pay claims, but willingness to pay is another thing entirely. The amount of premium income is going down and margins are getting tighter. Consumers should check with their brokers to make 100 per cent sure that they are covered for everything they think they are,” concludes Turner.
Climate change and agri’s uncertain future Hanna Barry
Climate change is a term frequently bandied about on the airwaves and in the print media. Whether your personal view holds to fully fledged climate change or simply climate variability, the fact is that the climate is being affected and this, in turn, is affecting Africa’s farmers.
“We see it in rainfall and wind patterns. While the frequency has perhaps not changed, the severity certainly has,” explains Andries Wiese, head of agriculture for Mutual & Federal. Severe droughts and floods are becoming more frequent and have significant impacts on the agricultural sector. “We see increased dependency on irrigation farming and an increasing uptake in multi-peril crop insurance (MPCI),” says Wiese. “MPCI cover is more expensive than hail cover. The mere fact that farmers are prepared to spend that extra money indicates their concern for losses in this area,” he continues. While MPCI cover is one option, it’s impossible to provide all
farmers with this type of cover. Insurers need to spread their risk and might be unable to give all the farmers in a district MPCI cover, especially if the area has experienced five years of drought. Those farmers who have waited too long may find that insurance becomes unobtainable and be left to self-insure. MPCI cover also requires a lot of work on the part of the insurer. For example, those farmers who are covered by MPCI on Santam’s books are visited regularly and inspection reports are done on their farms to ensure that the farmer is managing their own risk adequately (for example, applying the correct herbicides at the correct time), before a claim is paid.
We simulate what the hail will do to the plants by removing certain parts and percentages of the plant in different growth stages and then calculating on that basis what the yield loss will be. Our tables can also be used to assess frost damage and damage as a result of locusts.
In response to this difficulty, Santam has developed weather index insurance, which guarantees a certain amount of rainfall. Rainfall loss is an indirect indication of what the yield loss will be. In addition, Santam’s hail insurance cover enables farmers to insure for their chosen tonnage and value per ton, within certain reasonable parameters. Hail damage is determined through plant component removal, from stand damage to stem damage, secondary damage, fruiting damage, limb damage, seed and leaf damage. “We simulate what the hail will do to the plants by removing certain parts and percentages of the plant in different growth stages and then calculating on that basis what the yield loss will be. Our tables can also be used to assess frost damage and damage as a result of locusts,” explains Kobie de Beer, crop insurance manager at Santam’s Mooihoek research farm, just outside Bloemfontein in South Africa, where some of this research takes place. Growth stages are finely tuned, which helps to accurately assess the vulnerability of the plant. For example, damage that happens in two different growth stages a mere three-and-a-half days apart can make a 13 per cent difference to the impact of that damage on the eventual yield. It is also critical to wait the correct period of time after removing a plant component, before assessing the damage. For example, a severely bruised sunflower stem can recover within a matter of days and produce beautiful and healthy sunflowers. At first glance, a farmer might assume after a hail storm that he has lost 50 per cent of his yield, which may not be the case. Weather index insurance is not available in Namibia, but hail insurance and MPCI are.
Safe agriculture Kilimo Salama, ‘safe agriculture’ in Swahili, is a pay-as-you-plant insurance programme for Kenyan farmers to insure their farm inputs against drought and excess rain. The programme, which is a partnership between the Swiss-based Syngenta Foundation for Sustainable Agriculture, Kenya’s UAP Insurance, and telecommunications company Safaricom, uses a low-cost mobile phone payment and data system that is linked to solar-powered weather stations. The system issues insurance policies and compensates farmers for investments in seeds, fertiliser and other inputs that are lost due to either insufficient or excessive rains. Kilimo Salama is supported by the International Finance Corporation (IFC) and Global Index Insurance Facility, which is supported by the European Commission. According to the Syngenta Foundation, smallholder farmers are unwilling to invest in superior seed or fertiliser because drought or flooding could easily wipe out the benefits of more expensive inputs. But using poor-quality seed from previous harvests means that yields remain far below their potential. To overcome this problem, the Syngenta Foundation launched the Agriculture Index Insurance Initiative in 2008. Its aim is to explore and develop the potential of microinsurance for smallholders. With Kilimo Salama, smallholders can insure selected farm inputs at their local retailer and pay half the premium.
Certain risks in agriculture are too big for the private sector to carry alone. Manage, don’t bet the farm As a result of the vagaries of climate change, farmers are having to be more proactive in the way that they manage risks and are adopting alternative farming methods and technologies. In drier areas farmers are moving over to irrigated crops. This is far more manageable and produces tremendous yields, but it threatens the sustainability of water resources. Irrigation equipment and centre pivots are also more at risk of flood damage, for instance, if situated nearby rivers or dams. An increase in natural disasters due to climate change, such as floods, fires and storms, can leave these farmers with billions of dollars’ worth of damage. New technologies and methodologies, enabling precision farming, give rise to a new set of challenges. De Beer explains that there is also a constant drive for higher yielding cultivars that are less susceptible to disease.
“Farmers want to grow more to a blueprint. While years ago a farmer could grow and harvest almost anything at any time and sell it at his local co-op, now he has to think carefully about the market and take produce to market at certain times in order to get the best prices. For this reason, farmers want more predictable and stable crops.” In order to farm more precisely, farmers are spending more on technology, calling for higher levels of asset cover to protect expensive equipment. While it’s heartening that farmers are being more proactive in their business practices, the problem is too large for any one sector to tackle. “Certain risks in agriculture are too big for the private sector to carry alone. Without the public sector, we are exposing our producers unnecessarily,” says Wiese. The need for PPPs in the agricultural sector is undisputed. An innovative insurance solution in Kenya, with a focus on smallholder farms, recognises this need.
Kilimo Salama’s agri business partners pay the other half of the premium. Initially, those were Syngenta East Africa Limited and the fertiliser company MEA. Their involvement enabled the scheme to get off the ground quickly, in time for the next growing season. The Syngenta Foundation is adding more agri business partners and insured products as the initiative moves forward. In 201, it expanded with Kilimo Salama Plus, which goes beyond inputs and gives farmers the opportunity to insure the value of their harvest. Due to high demand, farmers can also insure a wider array of crops including maize, wheat, beans and sorghum. The payments are sent directly to a farmer’s mobile phone via Safaricom’s popular M-PESA mobile money transfer service. Using M-PESA combined with the automated weather stations allows farmers to quickly collect pay-outs with virtually no claims process and no need for an agent to visit the farm to confirm losses. This contributes to keeping the cost of insurance low, and thus within farmers’ reach. Included in the programme is a helpline funded by the Syngenta Foundation that is staffed by agriculture experts from Safaricom, offering farmers free advice on how to improve production and protect their investments. “Agricultural insurance is particularly important in Kenya and elsewhere in Africa today as the extreme weather patterns generated by climate change are introducing greater volatility to food production and food prices,” says Dr Wilson Songa, agriculture secretary of the Kenyan Minister of Agriculture. As concerns as serious as food security loom large, the need for effective agricultural insurance solutions realised through successful public-private partnerships is underlined. But what might face these partnerships and solutions in the future?
Smallholders produce a large share of the food consumed in developing and emerging market countries.
The future of farming With 60 per cent of the world’s remaining arable land in Africa, it’s no wonder that China, and to a lesser degree India, is buying up what’s left of it. This could lead to global food shortages and some believe that smaller farms may cease to be economically viable and widespread consolidation will follow, leading to fewer, larger and more sophisticated farming businesses in the future. However, according to the Syngenta Foundation, farm size in parts of Africa is forecast to decline for at least a generation to come. “In the long run, farm size may rise as people migrate to cities, the markets for land rentals and sales develop, and consolidation takes hold. Over the past few decades, however, farm size has declined in many countries.” The foundation says that while large-scale, industrialised agriculture plays a central role in feeding
the world, global food security also depends heavily on smallholders and will continue to do so for many years to come. “There are approximately 450 million small farm units (up to two hectares) in non-OECD countries. Assuming an average household of five, about one-third of the world’s population depends on small-scale farming for at least part of its livelihood,” says the foundation. “Smallholders produce a large share of the food consumed in developing and emerging market countries. Their ability to earn income from farming and, in turn pay for inputs, consumer goods, and, for example, education, also affects general development prospects and the nature of economic transformation.” How does the size of the farming operation impact on insurance? Wiese emphasises that from an insurance point of view, the size of the farm is less important than the management controls of the farmer, since the risks are essentially the same irrespective of the size
or specific branch of agriculture. But insurers do need to understand what those risks are. A combination of in-house technical expertise, tailor-made solutions based on individual professional underwriting and a foot firmly planted in the industry, through forums and co-ops, for example, will keep insurers on top of these risks, abreast of developments and equipped to educate the sector about insurance and risk management needs. Considering what is at stake, specialist knowledge is paramount and insurers should underwrite these risks only if they have the technical expertise to do so. There is need for knowledgeable guidance from brokers and insurance solutions that are dynamic enough to work well in today’s complex environment. Governments around the world are seeking to create risk funding mechanisms that will ensure food security into the future and the insurance industry is seen as a key partner moving forward.
Global trends in
microinsurance and why you should care Hanna Barry
iewed as a grudge purchase by even the most affluent, insurance might seem a pipe dream for those with considerably less cash to burn. Yet insurance companies are reaching and making clients out of what has become a mass market, also commonly referred to as the world’s poor. Known as microinsurance, these products, targeted at low income earners, have experienced extensive development over the past five years. “Since 2008, we have seen numerous innovations emerging to overcome the challenges of providing viable insurance
services to more low income people,” says Craig Churchill, team leader of the International Labour Organisation’s Microinsurance Innovation Facility. “Efforts should now focus on increasing effectiveness so that insurance products can successfully reduce their vulnerability.” The ILO and the Munich Re Foundation recently released the second volume of the Microinsurance Compendium, Protecting the poor. “The Compendium comes at the right time to help insurers, delivery channels, donors and other stakeholders to understand what it means to provide valuable risk-management
services to the working poor,” Churchill adds. The Compendium was launched at the beginning of July at the ILO in Switzerland, with live webcast broadcasting to those who were online. At the launch, Churchill gave an overview of the main trends in the sector, explaining what has changed in the microinsurance landscape in the last five years and the challenges to be tackled to cover more low income people with quality and affordable products. He outlined four key trends that have emerged since the first volume was published in 2006.
1. Significant growth Six years ago, 78 million people from 100 of the world’s poorest countries were covered by some form of microinsurance. Today, 500 million people enjoy coverage. While the most recent study included other large countries not accounted for in the original assessment, the growth of microinsurance remains significant. According to Churchill, they key drivers to growth are: - Government subsidies and creating an enabling environment for microinsurance by accommodating it in a country ’s regulatory space. - Alternative payment platforms that make the process of premium collection easier and more affordable for insurance companies. A proliferation of payment infrastructure for utility bills and airtime, for example, has potential to make microinsurance easier to access and administrate. - The emergence of automatic cover. A large portion of microinsurance is accounted for by credit life insurance, which is linked to microenterprise loans that are contingent on taking out this type of cover. This concept is expanding, so that people who buy airtime or bags of fertiliser can automatically receive cover. This gives people some exposure to insurance before they are asked to pay for it directly. Churchill concedes that moving from automatic cover to the voluntary purchase of insurance is challenging. 2. A diversity of institutions Recent years have seen a flood of interest in microinsurance from commercial insurers. At least 33 of the 50 largest commercial insurers are involved in microinsurance in some capacity or another. This is up from just seven in 2005. With an abundance of new distribution channels, these companies are not only risk carriers, but actively involved on the delivery side too. From co-operatives to cellphone companies, any organisation which has a financial transaction with a low income household and has secured their trust is a potential distribution channel for microinsurance. 3. Product evolution Initial microinsurance products were primarily of the credit life or health insurance kind, the latter often provided by a health mutual. But new products are beginning to emerge. “We are seeing a whole new set of risks and target groups now being covered,”
says Churchill. Products targeting migrant workers have been developed and there is emerging interest for disaster insurance and agricultural insurance. More importantly, the value of the products has evolved. Products formerly providing cover for hospitalisation only now include outpatient benefits such as discounts for pharmaceuticals. This highlights the drive towards delivering real value to customers. 4. Concern for client value “Several years ago, the major issue was how to get insurance to low income people. Now that we have made great headway on the access dimension, we want to ensure that low income people really benefit from the insurance they are getting,” explains Churchill. Client value is particularly important to secure donor support, which hinges on whether and how low income earners benefit from these products. It goes without saying that it is important for clients too. “If we are going to successfully create an environment in which low income people naturally turn to insurance to manage risk, then they need to see some value and benefit from insurance.” Despite being able to earmark broad trends in microinsurance development, Churchill admits that assessing its impact is more complex. It’s not as simple as attributing certain outcomes to microinsurance, but requires randomised and controlled testing, comparing the lives of those who have insurance with those who don’t. Of course, a range of mitigating factors and variables must be accounted for; timing is important, too. The true impact of microinsurance is best assessed with mature and stable products. In instances where microinsurance has not performed well, it may be due to underdeveloped products and not a case for writing microinsurance off completely.
Demographic dividends While the proof may ultimately lie in the product, good products take time to develop. “What the developed world took several hundred years to accomplish cannot be replicated within a decade in the developing world, even given all the new technology and knowledge that is now available,” says Dirk Reinhard, vice-chairman of the Munich Re Foundation. “Providing microinsurance effectively requires the involvement of many stakeholders from both
the public and private sector who are not used to working together and who often have very different objectives and operating systems. What matters now is the process of getting key stakeholders to work together effectively.” Indeed, active government support is one of the factors to which the latest report attributes Asia’s success. Large and dense populations, interest from public and private insurers and proper distribution channels are some of the others. Asia covers roughly 80 per cent of the market, with estimates that 60 per cent of those covered live in India. Latin America accounts for 15 per cent of the market and Africa just five per cent. As global demographics undergo profound shifts, African insurers would do well to reassess how they fulfil the critical functions they perform across our continent; especially when it comes to how low income and emerging markets access insurance. South African political analyst and futurist, Daniel Silke, notes that over the next decade, 128 million Africans are going to have discretionary income for the first time, giving Africa’s top cities tremendous spending power. By 2050, a quarter of the world’s population will live in Africa. “A young population is critical to economic growth and this is one of the things that Africa has in abundance,” he explains. Where there are young people there are workers and opportunities for foreign investors. By 2030, Africa’s GDP buying power will equate that of the European Union. As what is above the ground becomes just as attractive to investors as what is beneath it has been for decades, a tremendous window of opportunity opens up for foreign investors and local businesses to move into a continent with a very dramatic demographic dividend. Based on figures that boast impressive economies of scale, the case for microinsurance development and expansion in Africa is thrown into sharp relief. Although it is unlikely to single handedly break the cycles of poverty that so much of the world’s population is locked into, microinsurance can be a powerful form of social protection. “Microinsurance is at the intersection of social protection, social security and financial inclusion,” says John Woodall of the ILO’s social security department. It is a vehicle to extend social security and enhance the social protection of those on the periphery and, in so doing, contribute to building burgeoning African economies.
Below the line
microinsurance Hanna Barry
While the risk of anti-selection is minimised in large groups, which are more likely to have a mixture of old, young, sick and healthy, achieving scale is not easy.
“Healthcare is arguably the most important, most intimate and possibly the most expensive service that any of us receive,” says Jeanna Holtz, chief project manager at the International Labour Organisation’s Microinsurance Innovation Facility. She was speaking at the recent launch of the ILO and Munich Re Foundation’s Microinsurance Compendium, Protecting the Poor. This is the second volume of this publication and tracks the global trends in microinsurance since the first report was released in 2006. Providing viable options to manage health risks to a great number of low income households is inherently complex and challenging. Typical health microinsurance products cover hospitalisation only, are simple to design and cheap to administer, but often fall short of covering the spectrum of risks that low income individuals are trying to cope with.
Recognise the challenges The frequency of outpatient healthcare is the key driver of expenditure for these households. Not least because they face a double-disease burden. A high incidence of infectious disease, caused in large part by poor sanitation, and an increasing incidence of chronic illness, makes this a heavy burden to bear. The multiple stakeholders involved in the healthcare arena, who often have very different agendas, present further challenges. In addition, fraud and other forms of misuse of healthcare products is a problem even in this arena. This can be from patients and healthcare providers; intentionally and unintentionally. While the risk of anti-selection is minimised in large groups, which are more likely to have a mixture of old, young, sick and healthy, achieving scale is not easy. If health enrolment was mandatory, virtually any risk could be captured. The problem with voluntary products is that those who anticipate a greater use will be more inclined to enrol and use the product. Therefore pre-existing conditions need to be minimised, but ideally, large aggregated groups, such as members of a co-op, should be captured. Despite these challenges, Holtz says that health microinsurance reduces out-of-pocket costs and overall household expenditure. Individuals who receive more healthcare have a more active health-seeking behaviour than those who do not. While this is positive, it needs to be conclusively linked with health outcomes themselves. The real question is, does receiving healthcare actually lead to healthier people?
Creating client value As with other forms of microinsurance highlighted in the previous article, public-private partnerships are a valuable vehicle to assist schemes achieve scale and reach new populations. These partnerships leverage the reach and financial capability of government together with the innovation and know-how of the private sector. Critical, in light of considerable scope to offer more comprehensive products that can cover a range of healthcare risks faced by low income earners. Over and above this, says Holtz, these products need to include additional benefits and value-added services, so that even members who don’t fall ill and incur claims can benefit through discounts on certain medicine supplies and free medical check-ups. A focus on outpatient cover, through
While cashless models aren’t without their own challenges, they have shown an ability to provide good healthcare to clients. consultation benefits and access to medicine, for example, would reduce the up front financing burden this places on clients. Products need to be simple and conveyed in a way that is easy to understand, as healthcare insurance is often not understood by clients. For example, RSBY (Rashtriya Swasthya Bima Yojna) in India provides hospitalisation for low income households. Through public-private partnerships, this scheme has achieved significant scale with 25 to 35 million households covered and 100 million individuals. RSBY is a government-sponsored scheme for the population of India living below the poverty line. About 75 per cent of the financing is provided by the Government of India, while the remainder is paid by the respective state government. In some states, the government pays up to 90 per cent of the premium, leaving just 10 per cent to be covered by the state government. State governments engage in a competitive public bidding process and select a public or private insurance company licensed to provide health insurance by the Insurance Regulatory Development Authority (IRDA) or enabled by a central legislation. The technical bids submitted must include a number of elements as per the government’s requirements. Beneficiaries need to pay only Rs. 30 ($0.54 or roughly N$4) as the registration fee. But many households still choose not to enrol, even though it is virtually free. This underlines that there is more to it than having a product that offers excellent value. Unlocking demand is equally important.
There is room for improvement in payment models, too. Instead of members paying for healthcare up front and then seeking reimbursement from insurers (reimbursement claim model), insurers paying healthcare providers directly could prove more effective (third party, or cashless, claim model). This means that clients will be making only a single payment, in the form of a premium, to their health microrinsurer and the microinsurer will in turn pay the healthcare provider after it has provided healthcare services to the insured patient. “While cashless models aren’t without their own challenges, they have shown an ability to provide good healthcare to clients,” explains Holtz. Together with flexible payment options, timing the enrolment cycle of products is important. “The schedule needs to be welltimed with the economic activity of the community. In some cases, insurance was offered when clients didn’t have money. This is only one of many unanticipated barriers that need to be understood,” adds Holtz. “It’s critical to focus on reducing illness and promoting health, promoting the financial viability of health insurance schemes and
Takaful insurance with a twist M ikhaila C rowie and H anna B arr y
Takaful insurance may just be the answer to poverty relief in Africa. While economic growth on the continent is expanding rapidly, Abass Mohamed, the corporate risk and research manager at Takaful Insurance of Africa Limited (TIA), believes that takaful has great potential to contribute to the continentâ€™s GDP and provide economic support to its people.
Bear ye one another’s burden
As a need-driven concept, it developed into the Malaysian market, where it remains highly successful, and has grown to boast an estimated premium of $1.5 billion worldwide.
Takaful is the Shari’ah-compliant alternative to conventional insurance. The latter goes against Al-riba (interest), Al-maisir (gambling) and Al-gharar (uncertainty), principles which are outlawed in Shari’ah law. “Commercial insurance is based largely on commercial factors. Takaful, on the other hand, is guided by the principles of improved welfare for all, which aims to establish a social order based on universal brotherhood,” explains Hassan Omar, Shari’ah compliance manager at TIA. Conceived as co-operative or mutual insurance, members of a takaful fund contribute money into a pooling system in order to guarantee each other against loss or damage. Losses are divided and liabilities spread according to the community pooling system. Takaful is conceived as co-operative or mutual insurance, where members contribute a certain sum of money to a common pool. The purpose of this system is not to gain profits, but to uphold the principle of “bear ye one another’s burden”. The world’s first takaful company was established by the Faisal Islamic Bank of Sudan in 1979 when a Sudanese Shari’ah scholar grappled with how the Shari’ah prohibition of trading in insurance could be overcome. This is according to a research paper entitled, Takaful Islamic Insurance: Concepts and Regulatory Issues. As a need-driven concept, it developed into the Malaysian market, where it remains highly successful, and has grown to boast an estimated premium of N$12.3 billion worldwide. But the concept is still grappling with existence on its birth continent.
The potential for insurance growth in these areas, where primary needs are clearly far more important, is relatively modest.
Slow but sure Although there have been a number of developments in Africa in the takaful space, with a reinsurer setting up in Egypt and new direct insurers in other countries, low levels of economic development on the continent impede growth. A lack of regulatory environments, low purchasing power and the general perception of insurance in these markets present challenges. “While there is definitely interest in the takaful model in Africa, countries with majority Muslim populations tend to be in the poorer parts of the continent. The potential for insurance growth in these areas, where primary needs are clearly far more important, is relatively modest,” says Neil Gosrani, analyst at Standard & Poor’s. While takaful is keeping pace in a country like Kenya, generally in those places where it is taking a greater hold, there are higher levels of economic development. “But there is certainly an increasing interest and we expect this industry is going to flower in Africa as it has done in the Gulf.” Based in the Gulf region in Dubai, Kevin Willis, director at Standard & Poor’s, says the headline issues facing the takaful insurance market in Africa include product distribution, product comprehension and the acceptance of the product to the policyholder or takaful
fund member. From an operational perspective, obtaining economies of scale, or policyholder volume, and operational efficiency are a challenge. Growth is also hampered by risk-averse investment management philosophies, especially since there are not many overtly Shari’ah-compliant alternatives to equity and real estate investments that will provide a notable level of return to the takaful fund and shareholders. In Malaysia, Islamic banking solutions have played an important role in the growth of the takaful market. In addition, a Shari’ah board which all the local insurance companies report to, enables the regulatory promotion of the products. In fact, a lack of standards remains one of the biggest challenges facing the global takaful market. This was raised at the recent International Takaful Summit in the UK. Different rules seem to apply in different parts of the world, which creates confusion. A uniform set of standards pertaining to regulation, accounting and insurance models would do a lot to boost growth. It’s certainly positive that Nigeria plans to release guidelines for takaful insurers in the country. Speaking at the 39th African Insurance Organisation’s (AIO) Conference and General Assembly in Sudan earlier this year, Fola Daniel, commissioner of insurance in Nigeria,
says guidelines will be released before the end of the third quarter. The commissioner said that takaful insurance would create opportunity for more Nigerians to embrace insurance, helping operators to increase the level of insurance penetration in the country. It currently stands at less than six per cent and Daniel says the country is looking seriously at takaful as a means of addressing this gap. With its philosophy of mutual support in times of need, takaful may even be one of the solutions to addressing low levels of economic development in Africa. “Through effective and efficiently priced products that identify and meet the needs of poor people, takaful is a short-cut to progress and improves the livelihoods of the low income earners,” says Abass. He thinks that takaful is a good alternative to insuring the uninsured in Africa. “Takaful insurance has a lot of potential to reach consumers who are uninsured at the moment, or who may want to convert form conventional insurance to a Shari’ah alternative,” agrees Gosrani.
“Shifting global dynamics and demographics mean that people are looking for alternative insurance solutions and risk protection mechanisms.”
Bird’s-eye view In an Ernst & Young World Takaful Report, Shari’ah scholars raised concerns that the senior management at many takaful companies are not familiar with key Shari’ah principles and run a takaful company as they would a conventional insurance company. The same report suggests that the quality of underwritten business is the reason takaful companies operate at a loss. Complex risks are not well understood and potentially mispriced. Furthermore, many of these operators are new entrants with limited access to quality clients, which negatively impacts their loss ratios. The report concludes that in order for young takaful operators to overcome these challenges, they will need to build scale or consider mergers.
Optimised performance wins
According to Willis, while specialised knowledge of Shari’ah law is not necessarily essential, brokers and insurers must understand the need for insurance and the demand for Shari’ahcompliant solutions in the markets they wish to enter. “Religious aspects of takaful insurance need to be placed alongside, but not necessarily ahead of, risk protection,” says Willis. The overt religious tagging of takaful can be controversial and lead to misunderstanding among conventional insurers. “Takaful should be perceived as an alternative to conventional insurance, based on a shareholder or mutual company model where companies want to break even and are not seeking a profit,” he notes. It can be viewed as a more ethical form of insurance and therefore attractive to some consumers.
Brokers can play an important role here and are beginning to have a much more notable presence in a market dominated by direct players. “Brokers can bring a more skilful distribution mechanism to the market for the benefit of the policyholder, in so far as the broker is working on behalf of the policyholder to find the best cover,” notes Willis. “They are able to eliminate administration fatigue for policyholders and provide more effective insurance solutions for complex risks.” Shifting global dynamics and demographics mean that people are looking for alternative insurance solutions and risk protection mechanisms. Takaful is one such solution and – just as those companies that had the foresight to move into Africa in the early days when no-one else dared and are now reaping the rewards – brokers and insurers would do well to get their heads around it before the market becomes highly competitive. “In the long term, it’s an industry to watch,” concludes Gosrani.
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As Gosrani rightly points out, in Africa it is a case of explaining insurance before any form of it can take off at all. Insurers need to understand the needs of the market, focus on product education and demonstrate the value of risk protection before African consumers buy into the concept. “Client focus can tend to be very short term across the insurance industry. Insurance companies need to show that they actually do pay claims over a sustained period of time, in order to ensure the policyholder continues paying for cover for years to come,” says Willis. “Insurance companies in general can do a lot more to explain what value they provide. Often insurers focus on developing a successful business, but miss out on including and creating value for the broader community in which they operate.” This is true of both conventional and takaful insurers.
Paul Nkhoma Hollard Zambia
I had a good feeling about the group when I visited the Hollard Arcadia campus. The environment was quite different from the typical formality in the insurance industry at large. I did a lot of research and learnt that Hollard is an exceptionally innovative and passionately successful company.
ollard Insurance expanded its presence in Zambia earlier this year by opening a life insurance office in Lusaka. RISKAFRICA chatted to Paul Nkhoma about becoming MD of Hollard Zambia; how Hollard sets itself apart from its competitors; and some of the challenges faced by the insurance industry in Zambia. Tell us about your journey to becoming MD of Hollard Zambia. I began my career as a graduate trainee in 1995 with the biggest insurance company in Zambia, Professional Insurance and worked there for 15 years. I had several achievements during my stint, including opening a branch in the Copperbelt town of Kitwe, which became the second-biggest branch for the company. During this time, I worked in various positions of increasing managerial responsibility, the last being general manager/chief operations officer, responsible for handling all corporate and mining accounts. Why did you choose Hollard? I had a good feeling about the group when I visited the Hollard Arcadia campus. The environment was quite different from the typical formality in the insurance industry at large. I did a lot of research and learnt that Hollard is an exceptionally innovative and passionately successful company. How is Hollard different from other insurers in Zambia? Hollard’s success can be attributed to our emphasis on partnerships, our philosophy to approach business with a long-term focus, our strong and differentiated culture and our proven track record in delivering innovative insurance solutions. Partnership lies at the heart of Hollard’s business model. Strong, long-term relationships are formed with other players in the insurance value chain in order to leverage diverse capabilities. The fact that Hollard is an unlisted company means that we are able to adopt a long-term view in the pursuit of opportunities that will produce profits on a sustainable basis, rather than focusing on projects that produce quick returns in the short term, but which may ultimately prove to be unsustainable. Hollard has a distinctive culture that is premised on the idea that the business that we do and the way that we conduct our business can be a catalyst for positive and enduring change; that Hollard will do well by doing good. While we recognise that strategy has a place in determining how to compete, we also firmly believe that culture is the ultimate differentiator. Differentiated products, technologies, systems and processes can be rapidly and accurately duplicated in today’s high-tech world, a differentiated culture cannot easily be copied.
What are the biggest challenges that Hollard Zambia, and the broader Zambian insurance market, face? The biggest challenges are to increase the penetration levels of insurance and foster talent in our rapidly growing market. The uptake of insurance currently stands in the range of five per cent. Lots of public awareness is needed as well as looking at distribution channels that can suitably reach the large majority of consumers. Further, although the number of insurance companies in Zambia is increasing rapidly (on the short-term side, it has increased from six companies to 15 in the past three years), the talent pool in the market is not increasing proportionately. How do you deal with those challenges? Regarding the low penetration levels, we are working with both the pensions and insurance authority and the Insurers Association of Zambia to promote awareness about the importance of insurance. One of our strengths is partnerships. In South Africa, we have proven and successful experience delivering affordable insurance to lower income consumers through affinity groups like banks and retailers. Replicating this model in Zambia is a possibility. On the issue of talent, the changing landscape requires new levels of flexibility and resilience in human resource terms. The requirement for insurers to invest in talent development has never been more pressing. The current people merry-go-round among insurers, reinsurers and brokers is not sustainable in the face of new challenges and blossoming opportunity. Hollard’s reputation as a great employer is evidence of the priority given to people development and the creation of an attractive culture and working environment. These capabilities are set to become an entry to the game for successful insurers of the future. How are the current global economic issues affecting the insurance industry in Zambia? The impact is not the scale witnessed in more developed economies. The effect has been indirect. As the sluggish global economy has hampered overall economic growth and foreign direct investment, the insurance market has been correspondingly affected. How has Hollard tailored products to the Zambian market? Please provide examples. An example of tailoring a product to the local market is our pure monthly policy. It is designed for customers to be able to pay premiums on a monthly basis, in contrast to the industry norm of paying premium upfront for the whole year. How do these compare to products in Hollard’s other African offices? This is actually a product that is used in other Hollard markets. A key advantage is that we are
able to share best practice ideas in areas such as product development and customer service with other Hollard African offices, and therefore use resources efficiently and optimally. Hollard Zambia experienced phenomenal growth in 2011, increasing gross premium intake by over 700 per cent; what does 2012 hold for Hollard Zambia? Our target is to grow our business by at least 80 per cent. This is taking into account five new short-term insurance companies (and counting) entering the market this year. In 2010, 49 per cent of total insurance income in Zambia left the country in the form of reinsurance payments. Do you see this as a problem for Zambia and more specifically its insurance industry? I believe this is a matter the regulatory authorities are looking into. Reinsurance isn’t optimal in this market in part because the current capital requirements for insurance companies are relatively low (currently there is a ZMK 1 billion minimum capital requirement). Instituting appropriate capital requirements will allow companies to retain risk in Zambia and thus reinsure less. How has the situation changed since 2010? There has been a slight reduction in reinsurance outlay for the whole short-term insurance market in 2011 compared to 2010. In 2010, the total short-term insurance market gross written premium was ZMK838 billion of which ZMK409 billion (49 per cent) was paid out as reinsurance. In 2011, the gross written premium was ZMK862 billion of which ZMK389 billion (45 per cent) was paid out as reinsurance, representing a four per cent reduction in reinsurance premium paid out. What are the benefits of reinsuring outside of Zambia? Firstly, although the Zambian market has three reinsurers, they do not have sufficient capacity to cater to all the insurance companies in Zambia. Thus it is necessary for insurers to use foreign reinsurers. Further, Hollard’s reinsurance programme is underpinned by the world’s biggest reinsurers that are rated A or higher by leading rating agencies such as Standard and Poor’s, How optimistic are you about the growth potential of the Zambian insurance market? Given the low penetration level, the growth potential of the industry is considerable. Further, Zambia is currently ranked among the top 10 fastest-growing economies in the world, demonstrating the high potential of our market.
• Insurance in Zimbabwe
Zimbabwe insurance overview Arguably one of the most controversial African countries and one that has been burdened with economic instability for the better part of a decade, Zimbabwe is still an attractive insurance market for those courageous enough to face the challenges. Bianca Wright
Making a comeback After years of declining revenues and a shrinking market, the Insurance and Pension Commission (IPEC) gave the industry some good news in April this year. Its short-term insurance report for the fourth quarter showed that total and gross premium written (GPW) increased by 35.51 per cent to US$158.97 million. The report also stated that the growth in GPW was driven by the premiums generated from motor and fire insurance, which was at US$33.41 million and US$15.08 million respectively. “The insurance industry has
been on a recovery path because of macroeconomic stability since the inception of the multi-currency regime. There has been an increase in the motor vehicles that are on Zimbabwe’s roads,” the report says. “In 2011, the country spent US$1.365 billion on the importation of motor vehicles.”
increase in total retained profit from negative $1.69 million for the year ended 31 December 2010 to $11.99 million for 2011. The sector recorded positive underwriting results for the period under review as reflected by underwriting profits of $3.54 million and $6.28 million for the direct short-term insurers and reinsurers respectively.
The growth in business translated into improved profitability with direct short-term insurers reporting a retained profit of $6.2 million for the year under review, compared to $1.90 million reported for the year ended 31 December 2010. The report added that reinsurers also reported an
IPEC also noted that there was a decrease in risk appetite among direct short-term insurers and reinsurers as denoted by the decrease in the average risk retention ratios from 55 per cent and 68.37 per cent in 2010 to 48.15 per cent and 63.66 per cent in 2011.
Still troubled waters Despite this, Zimbabwe’s insurance sector still has some way to go before it will reach its previous peak. According to a report by Claudius Chikundura of the Insurance Institute of Zimbabwe (IIZ): “In Zimbabwe, the penetration ratio is assumed to be slightly above three per cent. Current industry statistical data is not readily available. At its best in 2007, the penetration ratio hovered around six per cent.” Chikundura adds that the factors which led to a drop in the ratio include the increased underinsurance, policy lapses, insurance cover reductions and policy cancellations in the backdrop of a hyperinflationary environment as well as a decline in foreign direct investment. Other factors include reversal of private capital flows, reduction of revenues from tourism and reduced access to credit and trade financing. One of the core challenges facing the Zimbabwean insurance market is lack of confidence. Many of the sector’s clients lost their contributions due to hyperinflation and the adoption of the multi-currency system in 2009 and, as result, lost faith in the insurance industry. The Zimbabwean Government has recognised this and, at the Insurance Institute of Zimbabwe annual congress in November 2011, VicePresident Joice Mujuru challenged the industry to come up with strategies to restore confidence in the sector. “I am aware that thousands of Zimbabweans still feel aggrieved with regard to their policies that were rendered valueless by the inflation of 2007–2008,” Mujuru says. “Thus, I want to urge the insurance sector to do more in terms of changing public perception about insurance. Does the public know about the benefits of insurance, what a policy is and what its terms are?”
According to IPEC, the short-term insurance industry in Zimbabwe had 26 direct short-term insurers and eight reinsurers registered during the quarter ended 31 December 2011. Zimbabwe’s market features a number of international players, including Aon Zimbabwe. Its Zimbabwean operations include Aon Risk Services, the largest division of Aon Zimbabwe in number and revenue, Aon Risk Management Services, Consulting and Reinsurance. Already in 2009, Garikai Dumisani, IIZ general manager, urged the Zimbabwean insurance industry to go back to basics. “As an industry, we are alert to the fact that cash flow and liquidity are major challenges to both individuals and corporates. In response to this, we have moved from the traditional annual premiums, to quarterly and monthly contracts,” he said at the institute’s annual conference.
insurers reported solvency ratios which were below the regulatory minimum of 25 per cent,” the IPEC report said. The report also noted that Export Credit Guarantee Corporation and Agricultural Insurance Company remained closed to new business. The Commission is finalising the operational modalities of Lloyd’s following its readmittance into the Zimbabwean market. Zimbabwe’s insurance sector seems poised for a significant recovery and is ripe for opportunities from potential investors, provided they enter the market with eyes open to the challenges that still exist.
Regulatory rigours Compliance also remains a challenge. A report in the Zimbabwe Herald stated that in 2010 IPEC deregistered at least 74 companies that were all technically unsound. “A majority of the companies failed to raise the statutory minimum capital required to operate, which at present is pegged at US$300 000 for short-term and non-life insurers, US$400 000 for reinsurance and funeral assurers, and US$500 000 for life assurers,” the newspaper reported. Despite recovery, some insurers were also still coming up short in terms of compliance. “Of all the direct short-term insurers and reinsurers, only two direct insurers reported capital levels which were not compliant with the regulatory minimum requirement of $300 000 as stipulated in Statutory Instrument 183 of 2009 as at 31 December 2011. The same
As an industry, we are alert to the fact that cash flow and liquidity are major challenges to both individuals and corporates. In response to this, we have moved from the traditional annual premiums, to quarterly and monthly contracts.
The decline in insurance clients has had significant impact on the industry. In July 2011, David Birch, the chairman of FBC Reinsurance Limited, told the Institute of Bankers of Zimbabwe Winter School, that the approximately 30 Zimbabwean insurers are all chasing a paltry US$150 million in annual premiums, which represents an average gross income of US$5 million for each player. “After reinsurance costs, this hardly leaves enough income for administration, claims dividends and receiving costs,” he says, adding that 80 per cent of the premium income is controlled by a few companies.
The Big Three IPEC’s report stated that in 2011 Baobab Reinsurance Company, FMRE Property and Casualty Reinsurance Company, and ZB Reinsurance Company remained the top three short-term reinsurers with a combined market share of 63.89 per cent in terms of gross premium written. “In terms of net premium written, Baobab Reinsurance Company was the market leader with a market share of 28.32 per cent followed by ZB Reinsurance Company and FMRE Property and Casualty Reinsurance Company with market shares of 18.03 per cent and 17.63 per cent, respectively,” the report says.
total of 72 insurance practitioners received diplomas and certificates during the Insurance Institute of Zimbabwe’s (IIZ) annual graduation ceremony held at a local hotel on 27 July, The Herald reported. Of the 72 graduates, 21 were inaugural recipients of the associateship diplomas under the associateship programme that was introduced by the institute in 2009, while 45 received certificates of proficiency and the remaining 16 received IIZ diplomas in insurance. Insurance and Pensions Commission (IPEC) chairman and ZB Financial Holdings chief executive, Elisha Mushayakarara, who was guest of honour, commended the IIZ for taking steps to train people at a time when the industry was being resuscitated. However, he challenged the institute to ensure that it incorporates elements that promote good governance and ethics in the courses. “Zimbabwe lost a lot of skills during the past 10 years. Efforts must be made to close the gap. It is therefore encouraging to note that the IIZ is playing its part in this regard. The scandals that keep recurring in our financial services sector are a cancer, which must be stopped,” he says. “It is therefore my fervent hope that IIZ programmes place great emphasis on core courses that include business ethics and good corporate
governance, to enable graduates to be imbued with a high sense of morals.” IPEC plans to intensify its supervisory role of the sector through various measures, including amending the insurance legislation to ensure that insurance companies are run on sound corporate governance principles, while ensuring that the interests of policyholders are protected. “I appeal to directors and managers of all insurance companies to uphold the principle of
The insurance industry in Zimbabwe continues to raise the bar every year in terms of service quality and the products being offered to the consumer.
utmost good faith in the conduct of insurance business. In addition, I call upon the industry to quickly and wholeheartedly embrace the philosophy of treating customers fairly. Other markets are doing so and there is no reason for us not to do the same,” he adds. Speaking at the same occasion, IIZ president and Fidelity Life group chief executive, Simon
Chapereka said the institute would continue to raise the bar in training by exploring ways of improving the quality of the programmes on offer. “It is in this vein that we are in the process of developing an advanced programme, the fellowship. This is going to be the pinnacle of the institute’s qualifications,” he explains. Chapereka highlighted the progress that the local insurance industry has achieved. “The insurance industry in Zimbabwe continues to raise the bar every year in terms of service quality and the products being offered to the consumer. Because of the efforts the industry is making, we are seeing more Zimbabweans appreciating the need for and importance of insurance in their daily lives. We have been able to play our part because we have prioritised capacitating of our staff with key skills through the IIZ.” The IIZ associateship diploma is recognised by the National University of Science and Technology for entry into the master of science in risk management and insurance degree programme. In addition, holders of the associateship diploma are eligible for admission as associates of the Insurance Institute of South Africa. The IIZ diploma in insurance is recognised by the Chartered Insurance Institute of the United Kingdom, as equivalent to its own diploma.
NEWS Africa ripe for microinsurance boom Microinsurance has experienced a spectacular boom in recent years with an increase from 78 million lives covered in 2007 to nearly 500 million according to recent estimates. However, Africa has lagged behind the trend with only 25 million low income lives covered, making the continent ripe for expansion. In an effort to realise this potential, the International Labour Organisation’s Microinsurance Innovation Facility and the Centre for Financial Regulation and Inclusion (Cenfri) are collaborated in July with University of Stellenbosch Executive Development (USBED) to present this year’s programme in Microinsurance Business Strategies for African Markets. The programme is aimed at banking and insurance professionals, mobile network operators, retailers and technology providers, policymakers, consultants, expert advisers and researchers in the areas of microinsurance or low income financial services. The untapped market in Africa for microinsurance could be as much as 40 per cent of the adult population. African insurance markets typically contribute no more than two per cent of GDP and serve less than five per cent of the population. Cenfri director, Anja Smith, believes distribution is critical to reaching the vast, untapped market in Africa and expressed the need to start imagining a landscape where some distributors become one-stop shops. “Distribution partners in microinsurance should not only sell policies and collect clients’ money, but also allow clients to make changes to their policies and become the point where claims are paid. If not, we risk losing client value where it ultimately matters,” Smith says.
Old Mutual expanding into Nigeria The opinion that the Nigerian market’s growth potential is one of the highest in Africa has convinced Old Mutual to start operations there before the end of this year. It will enter the market by acquiring Nigeria’s Oceanic Life, according to group finance director Phillip Broadley. “Our current focus is on being able to start our business in Nigeria and then we will look beyond that,” he says. “Nigeria will be a new operation if we go ahead and
complete the transaction.” Old Mutual has 1.2 million customers in Namibia, Zimbabwe, Kenya, Swaziland, Malawi and Botswana, and 3.3 million in South Africa, sub-Saharan Africa’s largest economy. “We will grow our business in Africa as fast as the market demands it,” Broadley adds. In sub-Saharan Africa, economic growth is estimated at five per cent in 2012 and 5.3 per cent in 2013 compared with 4.7 per cent last year, according to the Global Economic Prospects Report released by the World Bank last month.
Ghanaian insurers target informal sector Insurance companies in Ghana are looking at ways of making life insurance products more attractive to consumers, focusing on those in the informal sector. A recent study conducted by FinMark Trust indicated that only five per cent of the country’s 24 million people had signed an insurance policy, and most of those were the mandatory motor insurance policies. Currently insurance penetration in sub-Saharan Africa is very low with Ghana having less than two per cent, the lowest in the region, compared to South Africa’s 14.8 per cent and Namibia’s 7.3 per cent. Kwame-Gazo Agbenyadzie, president of the Ghana Insurers Association (GIA), admits that the industry is dealing with a number of challenges which need to be addressed in order to improve the quality and penetration of service delivery. “As practitioners, we are very optimistic about the future of our industry given the positive socio-economic developments in our country. There are bound to be new challenges and greater demands on us as insurance practitioners.” “There are ongoing developments to improve the regulatory regime such as the development of a new insurance bill and regulations, code of practices and a risk-based supervision modelled to adopt international standards to ensure that the insurance industry in Ghana lives up to a higher standard of professionalism in its operational and management practices,” he adds.
Kenya licence granted to Continental Reinsurance Continental Reinsurance has been granted a license to operate in Kenya and it has established the company as a subsidiary, capitalised with a Sh500 million (N$48.5 million) investment from shareholders, with plans to increase the paid-up capital to Sh800 million (N$77.7 million) by the middle of next year. The company has been doing business in Kenya since 2008 and chief executive officer, Femi Oyetunji, is pleased to be able to increase their presence. “We believe that Africa is central to our business and that Africa must develop Africa. Our vision is to be able to provide support for the African market so that premiums generated will remain in Africa.” “We are expanding because we believe that reinsurance conducted at a Pan-African scale is in the best position to offer clients stability, longevity, innovations and a more tailored service that is responsive to market conditions,” explains managing director George Nandy.
Marsh continues expansion across sub-Saharan Africa Insurance brokerage Marsh Africa expanded its operations by acquiring Alexander Forbes Risk Services’ operations in Malawi. This transaction follows Marsh’s acquisition of Alexander Forbes’ South African insurance broking operations, Alexander Forbes Risk Services (AFRS) and related ancillary operations earlier this year, as well as Alexander Forbes’ insurance broking operations in Botswana, Namibia and Uganda. “Our previously announced plans to expand our presence across sub-Saharan Africa are advancing according to plan and we are very pleased to welcome Malawi into the Marsh Africa family. With its impressive economic growth rate and expanding appetite for insurance products and services, Malawi is an attractive market for us and we look forward to building a leading presence there,” comments Jurie Erwee, CEO of Marsh Africa. “Malawi’s rapid development, especially in such important sectors as telecommunication, mining and energy, increasingly requires companies to adopt more advanced insurance solutions and risk management practices to meet their particular needs. Together with our respected and knowledgeable team in Malawi, we will draw upon Marsh’s global resources and placement skills to enhance our service to local companies,” adds Brian Blake, vice-chairman of Marsh Africa.
Nandy acknowledged that they have recognised the need for increased emphasis on products driven by the requirements of the typical East African. “We are working with other stakeholders to develop products in response to the ever-changing client needs,” he confirms.
Our previously announced plans to expand our presence across sub-Saharan Africa are advancing according to plan and we are very pleased to welcome Malawi into the Marsh Africa family.
MMI merges Namibian operations MMI Holdings Limited (MMI) consolidated its Namibian operations with the purchase of the remaining 51 per cent of Momentum Life Assurance Namibia Limited from FNB Namibia Holdings Limited. Now, with complete ownership of Momentum Namibia and 77 per cent of Metropolitan Life Namibia, MMI will consolidate Momentum Namibia into Metropolitan Namibia‚ housed under Metropolitan International‚ a division of MMI. “This acquisition is an important milestone in the integration process of MMI’s Namibian operations. Momentum Namibia and Metropolitan Namibia have an equally strong presence and together they have the potential to be a financial services leader in Namibia. The transaction also represents an important building block to enhance MMI’s strategic focus on Africa,” says MMI Group CEO Nicolaas Kruger. MMI will inject N$350 million into its Namibian operations to finance this acquisition‚ which includes the consolidation of Momentum Namibia’s asset management and property companies into Metropolitan Namibia.
Imagining a corruptionfree Africa Business without bribery in Africa doesn’t have to be an illusion. The continent has an ever-improving business environment and conducting business merely requires adequate preparation, educated decisionmaking and patience.
ccording to the International Monetary Fund (IMF), seven of the 10 fastest-growing economies for 2011 to 2015 will be African, with growth rates well above five per cent. Mark Stewart, BDO Durban managing partner, says, “Never underestimate the level of transparency in Africa. We have grown used to shrugging shoulders and claiming, ‘This is Africa’. If you are realistic about time-frames and apply the same levels of corporate morality as apply within other countries, this statement is simply not true.” BDO is a worldwide network of independent public accounting firms serving international clients. The firm established the Africa Desk several years ago to facilitate clients’ requirements when broadening their business into the continent. There are substantial benefits to companies considering expansion into Africa, particularly
as the developed world continues its struggles against recession and debt. Indications are that $150 billion (N$1. 3 trillion) in foreign direct investment would filter into Africa during 2012 and that 43 per cent of international investors viewed Africa as a more lucrative opportunity than Asia. In 2009, Angola, Nigeria, Ghana, Zambia and the Democratic Republic of Congo (DRC) emerged as the top investment destinations, driven by the growing demand for minerals, construction, gas and oil. This year, Ghana is expected to experience the highest gross domestic product growth, with Nigeria coming fourth. Past mistakes by companies seeking out African business opportunities have proved costly and a deterrent against further exploration into the continent’s potential. These include a lack of knowledge and planning before entering a new market; lack of knowledge on the local business culture; and misinformation on local share capital requirements, foreign exchange regulations, taxes and local participation legislation and work permit regulations. BDO tax director, Kemp Munnik, highlights several issues including the business model and local tax legislation, which companies need to consider before expanding into Africa. Local tax legislation could dictate a change in a company’s traditional business model to ensure the investment is tax efficient. Key to success in Africa is respecting the local laws and regulations of the country in which business is being conducted, as many countries do not apply Roman-Dutch law, but rather legislation that takes local customs and religions into account. Considering the place of effective management refers to something currently applicable to South African law, but likely
Withholding tax emerged as the most efficient method for collecting taxes in Africa and Munnik stressed that the business model would dictate the amount of tax withheld.
to change should the country adopt the international principle of effective decisionmaking rather than management. If the strategic management decisions were taken in South Africa and not in the newly established local entity, the South African Revenue Service would apply South African taxation policies to the foreign entity or employees. Withholding tax emerged as the most efficient method for collecting taxes in Africa and Munnik stressed that the business model would dictate the amount of tax withheld. This may force companies to change their thinking, despite head office only ever opening branches and not local companies. “Doing the homework before embarking on an expansion drive was critical as delays are costly. However, investors should limit their financial and reputational risk, recognising that the degree of risk differs from country to country; those with high returns come with high risks. Lastly, be prepared to be frustrated as it takes time,” Munnik concludes.
• Clem Chambers
a headache for insurers C l e m C h a m b e r s | C E O o f A DV F N
What remains to be seen is how firms can balance restoring the company to growth, in already difficult waters, while not upsetting shareholders and creating internal difficulties.
The ongoing nature of the Euro crisis means Germany is in as much trouble as France and Italy, despite its reputation as the stable, economic ‘power haus’ of Europe and there is yet to be agreement on how to solve the crisis.
erman Chancellor Merkel amplified this tense position by arguing that the proposed solution of Eurobonds, supported by other key Euro economies, would not happen “as long as I live”. Outside the Eurozone, this creates substantial problems for both UK insurers and banks. For some banks over half of their debts are to be collected from the Eurozone; for London-based multinational insurers, such as Aviva, this adds another dimension to its current difficulties as a high proportion of its business comes from this troubled area. This creates a situation where insurers may face a lack of credit and an inability to secure revenue; a frightening situation but one that we have got used to. While the crisis seems to have become part of the everyday life of the western economies, for some shareholders things are starting to
change, with shareholder revolts sweeping across the London market and leading insurers facing the anger of investors. As Q2 ended, Aviva shareholders voted by a majority of 54 per cent to oppose the company’s remuneration report. The angry shareholder meeting lead to Aviva’s chief executive, Andrew Moss, resigning only days later. It seems not only elected politicians can be removed by protests. This emergence of shareholder activism presents listed insurers with a further headache to add to the Euro challenges. What remains to be seen is how firms can balance restoring the company to growth, in already difficult waters, while not upsetting shareholders and creating internal difficulties. Aviva says that the search for a new chief executive will last at least till the end of 2012, meaning that the company will go through a strategic review, aimed at
refocusing the business, building capital and relocating funds to increase returns, without one.
This emergence of shareholder activism presents listed insurers with a further headache to add to the Euro challenges
The clear intention of reviewing and improving the business will please existing and potential shareholders, but news of the revolt and resignation resulted in Aviva’s share price hitting a 2012 low of 251 as the quarter ended with only a mild recovery so far in Q3. The lack of a chief executive at a time of reviewing the business and an unsettled Eurozone isn’t exactly the ideal conditions for a share price recovery. The company cites
positive Q1 operating profits but it is clear that there is much work to be done, with S&P warning that the company’s credit rating may see a Q3 downgrade. It is unlikely that the old expression, “The pound is sinking, and feeling quite appalling” will turn out to be true; but after so many years of financial problems, you’d be forgiven for thinking along those lines. The summer is a boring time in the market even when there are crises everywhere. We have experienced the first summer slump and in Europe and the US there has been a nice recovery. The question remains: will there be another slump in a few weeks and will Euro politicians grind through the currency crisis to unify Europe? Only until all the necessary paperwork is signed for deep fiscal unification, temporary bandages will be applied. The crisis continues, both in markets and in the boardrooms.
Europe Low interest rates make life difficult for insurance industry Efforts to stimulate economic growth and rescue the banking sector in the Eurozone is placing extra stress on the insurance industry, according to Nikolaus von Bomhard, chief executive of Munich Re. Low interest rates are great for consumers who need cheap credit, but they don’t help large investors who are looking to make gains on big capital investments. The fluctuating value of money is critical to insurers’ business, as they typically receive money up front and are liable to pay policies out at a later stage. In an environment where the interest rates are extremely low, it is very hard to remain profitable when many annuity and life insurance products guarantee returns significantly higher than the current interest rate. Von Bomhard also expressed his view that banks should be allowed to go bust and creditors be made to carry a share of the losses.
United Kingdom Record summer rain could cost UK insurers This year Britain suffered its wettest June on record, which caused widespread flooding and plenty of headaches for insurance companies.
The Association of British Insurers states that insurance companies in the United Kingdom were forking out £17 million (N$217 million) a day in compensation to customers whose homes have been flooded or vehicles damaged. RSA Insurance group was the first major insurer to reveal its potential losses when it revealed claims have reached £50 million (N$639 million). Oliver Steel, equity analyst at Deutsche Bank, says Aviva could face about £60 million (N$491 million in claims and believes other insurers such as Direct Line Group and Legal & General were also likely to take a sizeable hit from the wet weather.
Italy Major Italian insurers downgraded Moody’s lowered the credit rating of three major Italian insurers, which puts extra pressure on the Eurozone’s third-largest economy. Italy’s largest domestic insurer Generali Assicurazioni and its subsidiaries were lowered to BAA1, while Unipol Assicurazioni, and Allianz Spa had ratings cut by two notches each. “The downgrade of Generali reflects the insurer’s direct exposure to Italian sovereign risk in terms of both investment portfolio and business profile,” Moody’s says. The announcement came in the wake of Moody’s cutting the credit ratings of a string of Italian banks,
which brought the country’s money lenders in line with a downgrade of Italy’s sovereign rating. Moody’s adds that Generali’s rating could drop even further if there is another downgrade to Italy’s sovereign debt rating, deterioration in the group’s solvency or a weakening in its financial flexibility.
United States Public pension’s underfunded American public pensions are $4.6 million (N$37.6 million) short of the amount of assets needed to cover project liabilities. According to a report by State Budget Solutions, the average plan is only 41 per cent funded and taxpayers are going to have to make up the difference. “Without government actions, states, counties, cities and towns all over America will go bankrupt,” says Bob Williams, president of State Budget Solutions. “Failing to understand the scope of the pension crisis sets taxpayers up for a bigger catastrophe in the future.” Public pensions have relied on an assumed investment return of around eight per cent, which is not very realistic in the current market. “Continued weak performance of pensions’ investment portfolios is likely to underscore the need for additional changes to benefits, contribution policies and assumptions, including the
investment-return assumption,” Fitch says. New York workers’ compensation premiums to drop New York State employers will see a drop in workers’ compensation premiums for the first time since 2008, according to New York Governor Andrew Cuomo. He also announced that the 2007 Workers’ Compensation Reform Law, which ensured benefit increases for injured workers and cost reductions for businesses, has now been fully implemented by the state. “In order to create jobs and get our state’s economy back on track, it is essential that New York’s businesses remain in a competitive position to succeed in the global marketplace. For years, the workers’ compensation system has been too costly for businesses and ineffective for injured workers. With the new measures implemented by the state, and our continued work together with the business and labour communities, we will remain on track to create a system that works better for both employers and employees,” states Cuomo.
Middle East Iran offers to insure foreign ships Iran has offered to insure any foreign ships that enter its waters in an attempt to circumvent a European Union ban on insuring ships carrying Iranian oil, which has had a marked effect on their exports.
“The Islamic Republic of Iran will take all responsibility for insuring any foreign shipping line and any ship that enters Iranian waters,” says Seyyed Ataollah Sadr, the managing director of Iran’s Ports and Maritime Organisation. European insurers account for a large portion of the marine insurance sector and Asian buyers of Iranian oil have had a difficult time replacing them since the EU’s ban came into place. As a result, Iran’s oil exports have taken a dip, forcing the Middle East country into action. The report did not provide details of how the scheme would work for foreign companies or how a policy would be paid out in the event of an accident.
India Insurance companies investigated for tax evasion Indian insurance companies are on the radar of a government intelligence agency after complaints of tax evasion. The directorate general of Central Excise Intelligence (DGCEI) has begun a probe into allegations of tax evasion against various insurance providers to the tune of around $65 million (N$529 million). According to a senior DGCEI official, who did not wish to be identified, “There have been some instances of tax evasion by insurance firms. An enquiry is being conducted by officials.”
Records of insurers are being crossreferenced to find out if there are any additional abnormalities. The inquiry so far has found service tax evasion of at least Rs 300 crore (N$529 million). The investigations are underway and the amount is likely to be higher, according to the official. The names of the insurance companies involved have not yet been revealed. Most of the irregularities have been found in payments to insurance brokers or agents and on occasions where companies were providing incorrect data about the amount of policies sold or renewed.
The most severe single event was a series of storms across multiple states in America between 2 and 4 March when more than 170 tornadoes were counted. The storm left 180 000 homes damaged with total losses in the region of $4 billion (N$33 billion).
Global Natural catastrophe losses down The first six months of 2012 have been more pleasant than last year if you are in the business of insuring natural disasters. The total insured loss came in at around US$12 billion (N$98 billion), which is well below the 10-year average of US$19.2 billion (N$156 billion). Last year was a particularly bad one for natural disasters, especially in Japan and New Zealand, with insured losses soaring to $82 billion (N$668 billion). In 2012, almost 85 per cent of worldwide insured losses were incurred in the USA, mostly due to wild fires and an earlier than usual tornado season, which has seen near-record levels of tornado activity.
In 2012, almost 85 per cent of worldwide insured losses were incurred in the USA, mostly due to wild fires and an earlier than usual tornado season, which has seen nearrecord levels of tornado activity.
The Put Foot Rally 2012 wrap
It was always going to be about more than the rhinos. What we didnâ€™t realise is just how much impact we were going to make. The emotion caught us by surprise, too. There we were, the three Team RISKAFRICA boys, swallowing hard to keep the tears from rolling down our cheeks.
I was rewarded with a spontaneous hug from a little girl who will never remember my name, but whom I will never forget.
art of the Put Foot Foundationâ€™s work was to donate school shoes to needy kids en route. We ended up paying for a new borehole pump, laying floors in classrooms and painting the walls inside the rundown school buildings in this remote Zambian village. Everyone was there; politicians, elders from the surrounding villages, and even a local beauty queen. It was when the politician, dressed in her finest, fell to her knees in the dust in front of all of us with tears of genuine gratitude in her eyes, that I felt a little guilty at just how little we had done; and a little irritated at the politicians back in South Africa with their seven series BMWs, missing school books and Sandton mansions. I found myself sitting on a chair in the sweltering sun trying to find a pair of shoes for the chapped and dusty feet in front of me. Once, when I managed to find a particularly scarce size that we thought had been â€˜sold outâ€™, I was rewarded with a spontaneous hug from a little girl who will never remember my name, but whom I will never forget.
The Put Foot Rally was about all of this and more. When news came through that we had cracked the R500 000 (N$500 000) mark for foundation causes and Project Rhino (with the help of a donation from South African insurer, Etana, which nudged the final tally over the half a million mark at the Malawi checkpoint), and when we heard that our efforts would make it possible to equip anti-poaching teams with ground-toair communications; pay for a pilot to fly surveillance over critical areas; and equip ground crews with badly needed equipment for the anti-poaching teams back home, we were especially grateful to our sponsors, Pro Sano Medical Scheme and Altech Netstar, for making our incredible adventure possible.
high tide, but it was nothing a little Q20 water-displacing spray couldn’t fix. We made some incredible friends, delivered RISKAFRICA magazines to out-of-the-way insurance readers and made a tiny difference to one little girl and her school in Zambia. And, of course, we provided the tools for crack anti-poaching teams to win the war on rhino poaching. All-in-all a pretty satisfying three weeks’ work.
Of course, there was also the fun and adventure of taking a 17-year-old Land Rover through Africa. The old girl never gave us a second’s hassle, rumbling into life and running for up to 10 hours a day without complaint. Okay, so maybe there was that water crossing in Mozambique where I tried to drown her during spring
Thanks to the following for supporting RISKSA and the Put Foot initiative. Alan Stitzer Altech Netstar Andy Mark Brokersure Carel Nolte
ETANA Johan Barnard Kim Gallus Nick Evans PG GLASS
Sandra Dunn Steve Symes Tracy Feakes Willis SA
Everyone was there; politicians, elders from the surrounding villages, and even a local beauty queen.
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