Page 1

Issue 12 | 2014

ISSN 1812-5964

MANDELA A South African icon Managing weather risk the Mauritian way

Connecting the SADC


MUTUALKEETMANSHOOPMALL THE PLACE TO BE SEEN FROM MID-NOVEMBER ONWARDS. The Mutual Keetmanshoop Mall offers visitors and tenants a one-stop shopping experience, covering 11 500 sqm and encompassing the widest range of shops, beautiful courtyard rest areas and ample parking. For further information, contact Gottfried Naobeb at gnaobeb2@oldmutual.com or call (061) 299 3201


abiding love for Nelson Mandela even though I never met him. His fight and role as leader of the country paved the way for me to publicly recognise my personal relationship. He created an environment where my son can hold his head high and experience opportunities he might not otherwise have been able to. As South Africa, the continent and indeed the world reflects on the life of this unique African hero, RISKAFRICA chatted to some of the leaders in the financial services industry about their Madiba memories.

What is your first memory of Nelson Mandela? Christelle Fourie, managing director of MUA Insurance Acceptances: I went to school in Paarl, South Africa, so I was always very aware of Madiba living in the Victor Verster prison close by. A very big moment in my life was the day of his release when I was at boarding school in matric. My best friend wrote me a beautiful poem about Madiba and it has been one of my prized possessions ever since. I remember lying on my bed at La Rochelle, listening to the radio about his release. Prem Govender, chairperson of the Financial Planning Institute: My first memory of Nelson Mandela was around the late 1960s. The late Ismail and Fatima Meer were my parents’ friends and, during their visits to our home, I would listen in on the conversations they had about Mandela and the ANC. In particular, I remember the banning orders that were constantly being enforced on people like the Mandelas and the Meers. My clearest memories and a fair understanding of what was going on in the country only surfaced in the 1970s during my high school days. Then he (Mandela) was this mystical figure who was put behind bars for life, deprived of being with his wife and children and we felt very sorry for all of them. Dube Tshidi, executive officer at the Financial Services Board (FSB) of South Africa: Although I have some memories of the Rivonia trial, I was still too young to fully understand its significance. But, when Tata walked out of prison, that moment had a profound effect on me. Here was a man whose life was taken away forcefully and yet he walked out of prison and proclaimed peace. He could have said anything when he was released, but his focus was on forgiving those who had wronged him. That is quite profound.

Rivonia trial speech I had memorised. That day he was finally set free and suddenly become more real to my teen self. Unforgettable.

and disrespect, particularly by the people he mentored and hoped would carry his ideals and use them to create a better country for all.

Looking at where South Africa is today as a country, what do you think Mandela would think of the legacy he has left behind?

Dube Tshidi, executive officer at the Financial Services Board: Most of us think that Tata would look at the progress this country has made, and the challenges we still face, and either reflect on his pride or his disappointment. But that’s not the kind of person he was. Tata would look at everything and quietly find solutions to the problems that still remain. He always looked at the bigger picture. So, while he would agree that we have come a long way, achieved a lot, he would look at what more needs to be done.

Anton Ossip, chief executive of Discovery Insure: My most significant memory of Madiba was the day he was released. I vividly recall gathering around the television to watch this historic moment. We all knew that South Africa would never be the same again.

Christelle Fourie, managing director of MUA Insurance Acceptances: It is human nature to often focus on the negative but if we step back and look at what we, as a country, have achieved since his release, it is still a miracle, brought about by an incredible man who had vision and true leadership. Obviously we have our challenges, but the spirit of our rainbow nation runs very deep in our veins. I believe he would be proud to see how the people of this country, ordinary South Africans, are living together, growing, to become the nation he envisaged. Great change often takes time and we must be patient. We still have a long walk to real freedom but we have so much potential; we have no choice but to persevere.

Tembisa Marele, communication specialist at the FSB: Tata Madiba’s release from prison will forever be etched in my memory. It’s a story I hope to relate to my great-grandchildren. He was the man who, up to that point, had only been a larger-than-life, almost mythical figure that I had sung and prayed about, and whose

Prem Govender, chairperson of the Financial Planning Institute: I have no doubt that the rampant corruption and escalating poverty among the very people he went to jail for would distress him deeply. It can never sit well with such an icon that everything he stood for and promoted is being treated with disdain

6

riskAFRICA

Anton Ossip, chief executive of Discovery Insure: I think he would be proud of all SA has accomplished and especially the peaceful nature of the transition that has persisted. South Africa is a miracle but mainly as a result of Madiba’s work and personality. However, he would expect even more from the country he fought so hard for. Tembisa Marele, communication specialist at the FSB: I think Tata would have mixed feelings about where the country is today. I think he would give a fair assessment that acknowledges both our successes and challenges, and continue to fight for solutions to those challenges.


If you were to pay tribute to this great icon, what would you say?

so that this son of Africa will smile down on us in approval.

Christelle Fourie, managing director of MUA Insurance Acceptances: I would thank him; for creating a future in our beautiful land, a future for me as an entrepreneur and for that of my children. His capacity to forgive and to stay focused on his dream to build a country free of white domination and free of black domination is such an inspiration. He has created a vision that I believe we will achieve in years to come.

Dube Tshidi, executive officer at the FSB: Over the ages God has revealed himself to the human race through special human beings. These human beings all have one thing in common – selflessness. Their immediate families mean a lot to them, but the greater family, the human race, means even more. In Tata we have witnessed such a human being. Just as the Roman Catholic community recently proclaimed the arrival of the new pope by proclaiming “Papam Habemus”, meaning “we have a Pope”, likewise South Africans and the world are justified in saying “Tatam Habemus”!

Prem Govender, chairperson of the Financial Planning Institute: We are a nation in mourning for a man in a situation where no words could adequately describe what he has meant to South Africans in particular and the world in general. I don’t know of another leader or indeed any person who has inspired such emotion globally. We definitely share him with every country, he may be a son of our country but the rest of the world lays equal claim to him. In as much as it is difficult not to become emotional and publicly show our grief for his loss, this giant of a man would rather that we celebrated his life and his triumphs and expend energy on ensuring that his legacy continues by making South Africa a place where we can all stand tall and call it ‘home’. Let us pull together as a nation and put his legacy to work for the good of all

Anton Ossip, chief executive of Discovery Insure: His visionary leadership, humility and ability to transcend bitterness certainly stand out for me. South Africa and indeed the whole world owe so much to this great icon and, for many decades and generations to come, his legacy will live on. Tembisa Marele, communication specialist at the FSB: The lessons we can draw from the life of this great man will live on for many generations to come. The selflessness with which he chose to live his life will continue to shape the character of the South Africa and the world that we all hope to live in. I consider it a blessing to have been alive at the same time as Tata.

What do you foresee in terms of an impact on the country and the insurance industry in the wake of Mandela’s death? Christelle Fourie, managing director of MUA Insurance Acceptances: My biggest concern is the talk of three to seven days of national mourning. We will have to prepare ourselves for a breakdown in service delivery, as well as not being able to conduct business during this time as a nation pays respect to the death of this incredible man. There will be a massive influx of foreign dignitaries, as well as other visitors who will surely flock to our country to pay their last respects. The logistics of arranging this at a moment’s notice will be a massive challenge for our government. Prem Govender, chairperson of the Financial Planning Institute: Fortunately we have had the most efficient and effective people at the helm of National Treasury, the FSB and the Reserve Bank. People who have ensured that we have some of the best regulation in financial services, which has already stood the test of time during and after the 2008 meltdown. With the implementation of the “twin peaks” and Treating Customers Fairly legislation, the financial planning profession can certainly look forward to a bright future, thanks to the legacy of this great man.

riskAFRICA

7


WEATHER MEDICAL RISK

12

riskAFRICA


Managing weather risk the Mauritian way By Hanna Barry

H

aving recently become an insurance hub and haven for business, the island of Mauritius is one of the fastest-growing economies in subSaharan Africa and has been consistently ranked as the easiest country in which to do business in the region by the World Bank. The Mauritian building environment is just as sophisticated as its business environment. Proactive risk management is reflected in strict building codes, which are actively enforced, as well as a highly organised civil response mechanism that ensures the safety of the population. Mauritius ranks 20th out of 189 global economies for ease of doing business, in the World Bank’s ‘Doing Business 2014’. Its ranking for starting a business is 19th, while trading across borders and investor protection rank 12th and paying taxes, 13th. The country’s ranking for dealing with construction permits, however, is 123rd – a drop from 112 in 2013. There are 16 procedures that must be followed and it takes approximately 248 days to get a permit, which compares to an average of 171 days in the rest of sub-Saharan Africa and 147 days in OECD countries. It takes 21 days and costs MUR65 530 (Mauritian rupees), equivalent to $2 152, to secure a building and land use permit. While the overall cost of dealing with construction permits as a percentage of income per capita is, at 27.4 per cent, much lower than the OECD (84.1 per cent) and sub-Saharan Africa (736.8 per cent), there remains a significant disparity between the overall ease of doing business in Mauritius and the ease of securing a construction permit.

Held to the highest standards “Without its acute level of awareness of the destructive potential to life and property of tropical cyclones, Mauritius could not have existed and survived as a viable country, given its small size and severe vulnerability. Cyclones are an inherent and inextricable manifestation of the ecosystem of our latitudes and we have learnt to take them very seriously, respect them

and fear them,” says Ashok Prayag, general manager of Munich Mauritius Reinsurance Company and the former commissioner of insurance for the Mauritian Government. Mauritius experiences an average of three to five tropical cyclones annually and this deep respect and fear of cyclones and other extreme weather events is clearly reflected in the high standards to which it holds its construction sector. The lack of insurance claims for collapsed buildings is evidence of this. As a former British colony, Mauritius continues to adopt the British Standard (BS) for Design of Buildings. The codes of practice in use are the BS 8110-1: 1997, for the structural use of concrete in reinforced concrete buildings; BS CP3: 1972 for wind loading; and the relevant BS codes for steel and timber design. “Wind loading is taken as a very important parameter in the design of all our structures. Based on historical information, Mauritius recorded a maximum wind gust of 280 km/h in 1975, when Cyclone Gervaise passed on the island. Since then, the design wind speed adopted in Mauritius, and specified in construction and design briefs, has been fixed at 300 km/h,” explains Nawaz Joomun, senior consulting engineer at GIBB. GIBB is an African-owned company with a head office in Johannesburg and a network across the continent. “The code for wind loading dated 1972 is an old code formerly used in the UK. We have not swapped to the newer codes given that they are for countries that do not have high wind gusts,” notes Joomun. “The coefficient in the new codes is for hourly mean gust. The CP3: 1972 is more appropriate for Mauritius as it is based on a three-second wind gust. This gives a more conservative design as we use the peak wind gust and not the hourly mean gusts, which are much lower in value.” A three-second wind gust is the highest sustained gust over a three second period, which measures the force of the wind at its highest impact, rather than using the average gust over a one-hour period.

riskAFRICA

13


The legislation regulating building codes in Mauritius includes the Planning and Development Act of 2004, which deals with planning policy guidelines and was prepared by the Halcrow Group in the UK. With origins stretching back to 1886, Halcrow Group Limited is a multinational engineering consultancy company, which delivers planning, design and management services for developing infrastructure and buildings worldwide. The second piece of legislation is the Building Control Act of 2012, which deals mainly with the appointment of architects, engineers and other professionals involved in the project planning and design. A committee regulates building construction in Mauritius using these two acts and there is a representative of the Insurers’ Association of Mauritius on the board of this committee.

The penalty for non-compliance with the Building Act is very severe. The court may declare the building as dangerous and could give orders to pull it down.

“All engineers have a duty of care under the Council of Engineers Act to ensure that building designs are secure and resilient to wind gust, as it is a known fact that wind gusts of up to 300 km/h can occur in Mauritius,” adds Joomun. “The penalty for non-compliance with the Building Act is very severe. The court may declare the building as dangerous and could give orders to pull it down.” Unlike the recent Durban High Court decision in South Africa, which ordered that construction on the Tongaat Mall in KwaZulu-Natal be stopped, court orders in Mauritius are adhered to. In the Tongaat case, Gralio Construction continued to build the mall, a portion of which subsequently collapsed, killing one person and leaving 29 injured. Eight separate insurers contacted by RISKSA confirmed that they were not on the risk and conversations with the industry at the time revealed that many believed the risk to be uninsured. Certainly, the event highlighted that non-compliance with building and construction regulations would likely result in the rejection of an insurance claim.

Proactive risk management In addition to strict building codes that are properly enforced, Mauritius has a highly sophisticated civil response mechanism. Formerly co-ordinated by a number of different bodies, this response mechanism now falls under the National Disaster Risk Reduction and Management Centre, under the Prime Minister’s office. Formed after a cabinet decision taken on 30 August 2013, the centre is to act as the main institution in the country for the planning, organising, co-ordinating and monitoring of disaster risk reduction and management activities at all levels. It was formed in conjunction with a number of other disaster management mechanisms, including a National Disaster Risk Reduction and Management Council, which is to oversee disaster management activities in Mauritius and the outer islands, as well as a Local Disaster Risk Reduction and Management Committee in the municipal city council, the municipal town councils and the district councils to manage disaster risk reduction in the respective localities. Alongside these disaster management centres, Mauritius Meteorological Services monitors

14

riskAFRICA

irregular weather patterns closely. Providing a weather map and seven-day forecasts, it posts warning bulletins on its website for cyclones, tsunamis, torrential rain, heavy swell and storm surges. “By utilising meteorological information gathered by tracking the development of the storm, the idea is to give a sufficient number of hours to the population to reach the safety of their dwellings or designated government shelters, as well as stock up on emergency supplies,” explains Prayag. “This has worked very well and fatalities are a rare occurrence. When fatalities do occur, it is almost always due to the negligence, imprudence or foolhardiness of the victims, such as spectators of storm surges.” Cyclone Hollanda in February 1994 is the last major cyclone to have affected the island. “As there was a construction boom in full swing at the time, there were a number of open air sites

with tower cranes all over the island. These proved to be vulnerable to gusting winds and a number of cranes came down, causing damage to property,” says Prayag. “As a result, against all expectations, engineering policies paid more claims than fire policies with cyclone coverage. The fire policies covered buildings constructed to withstand winds of at least 300 km/h. While the buildings withstood the cyclone, damage from cranes was largely unavoidable. Of course, damage to crop was extensive.” At the time of writing, the death toll from Super Typhoon Haiyan, which tore through six Philippine islands in November, was 5 924. Close to 2 000 people were missing, according to official government figures. Impact Forecasting’s November 2013 Global Catastrophe Recap estimated total economic losses from Haiyan at $5.8 billion. The report


2583 SSP RiskSA1.pdf

1

2013/02/25

Blended Data Your recipe for success.

C

Regulatory compliance and data security has become increasingly important and a mandatory consideration for the insurance business. And with more data being created each day at such a rate, the sheer volume of unstructured and incompatible data is daunting. So how do you conquer the big data rollercoaster?

M

Y

CM

MY

CY

CMY

K

That’s our job - your business is about managing risk, not managing your IT. Just tell us which recipe you want and we’ll blend it for you, leaving you with the perfect, stress-free data cocktail to suit your needs. Whatever the challenge, we can help you blend your recipe for success to achieve the results you want.

Haiyan was one of the strongest tropical cyclones ever recorded. The typhoon came ashore at Category 5 strength with estimated maximum sustained winds of 315 km/h. Beyond the extremely gusty winds, the storm also prompted excessive rains and storm surge heights approaching six metres in height, the report says. “More than 1.2 million homes were damaged or destroyed and the electrical, transportation and agricultural infrastructures were decimated,” it continues. Haiyan would later make a final landfall in Vietnam, where 13 people were killed. An

additional five people died in China and 10 000 homes were destroyed. As the world faces natural catastrophes of this nature, causing untold personal losses to societies and economic losses to the insurance industry, businesses and governments, it must find solutions to build and maintain resilience. Although only one example from one small island state, the excellent risk management implicit in the Mauritian approach to extreme weather – from strict building codes, to the firm enforcement of these codes and the civil response mechanisms that accompany them – is an example to be followed. In light of increasing extreme weather events connected to global warming, perhaps insurers should be looking to improved building standards to mitigate the risk of natural disasters.

SSP - resolving today’s challenges with tomorrow’s technology. Call us on +27(0) 11 384 8600 email info.za@ssp-worldwide.co.za or visit www.ssp-worldwide.com/blendeddata to find your recipe for success.

2383 TheCheeseHasMoved

expects insured losses to run into hundreds of millions of Dollars. Impact forecasting is Aon Benfield’s catastrophe model development centre of excellence.

riskAFRICA

15

3:47 PM


Delphine Maidou CEO of AGCS Africa

Isaac Mahlangu Head of market management, AGCS Africa

After taking some time to refocus its African operations, Allianz Global Corporate and Specialty (AGCS) is back in full force. This time it is adopting a carefully structured approach to its business on the continent, with commitment to deliver on its promise of being a leading global insurer.

T

he Allianz Group’s Africa operations date back to 1912, when it was initially present in Algeria. More than 100 years on and the group is now in 12 African countries, with six entities operating across the continent. AGCS is the corporate and industrial division of the Allianz Group and has a licence to write direct insurance business in South Africa only, providing reinsurance capacity on the rest of the continent. Delphine Maidou, who was appointed as CEO of AGCS Africa in September 2012, emphasises that AGCS has one strategy and risk appetite for Africa. “We don’t separate South Africa from the rest of Africa. Rather, we operate as one Africa,” she says.

technology; pharmaceuticals and chemicals. Previously, 90 per cent of AGCS Africa’s portfolio was made up of property, with marine business accounting for the remaining 10 per cent. This has shifted dramatically over the last year, so that property now accounts for 54 per cent of its portfolio. “This does not mean that our property portfolio has shrunk; it has in fact grown, but other lines of business now have a share across the business, too,” explains Maidou. “Our portfolio has diversified tremendously. This diversification is what AGCS looks like on a global level and is what we are trying to replicate in Africa.”

Originally from Burkina Faso, Maidou spent eight years at Allianz in Canada before joining the AGCS Africa team. Since joining, she has hired 18 technical staff, highlighting AGCS’s drive to diversify its underwriting expertise and write business across the major lines of insurance for which it is known globally. These include property, liability, engineering, financial lines, marine, energy, and package and multi-line (PML). Target segments include oil and gas; aerospace and defence; financial institutions; power and infrastructure; telecommunications and

Maidou continues, “We are investing significantly to grow this entity, because we believe there is significant opportunity here.” In 2009, the group formed Allianz Ghana and, in 2011, Allianz Congo. It expects to expand its geographic footprint in East and North Africa and recently hired someone from Marsh Paris to help AGCS build its West African business and look after its Frenchspeaking countries.

Risk appetite for Africa

As part of this strategic shift and portfolio diversification, AGCS is working hard to

riskAFRICA

17


increase the number of Africa-domiciled accounts on its books. Before the diversification strategy was implemented, most of its clients were international clients writing business in Africa. But this is steadily changing and it is now writing a fair portion of business on a direct basis in South Africa and on a reinsurance basis across the continent. Part of AGCS’s strength is that it is not afraid to write risks that competitors may shy away from, such as aerospace and defence, pharmaceuticals and chemicals. “Globally we have a firm handle on these segments, having written this business successfully in other parts of the world. This means we have the experience, underwriting authority and long-term knowledge to support our local effort in these areas,” comments Isaac Mahlangu, head of market management at AGCS. “Allianz fares well when it comes to dealing with complex risk and we are bringing this expertise to bear in Africa, which is fast developing a more complex risk profile.” Although not without its challenges, AGCS works closely with local partners in African countries where it does business. “We work through our brokers and locally based Allianz entities to ensure that we are complying with local regulations. They also help to facilitate premium collection and claims payment. Occasionally we experience challenges around the quality of the information we receive, as these countries are still developing, which means that some of their risk management processes and systems are also in development stage,” Mahlangu explains. In South Africa, re-establishing trust in the Allianz brand has been its biggest challenge, after it sold some of its insurance operations in the country in 2001. “There is a perception in the market that Allianz exited South Africa about 12 years ago. In fact, we never left the country but took a few years to rethink our approach,” says Maidou. “Allianz’s South African operations were very different then to the way we are structuring them now. It was a retail entity with branches across the country, writing a wide range of insurance classes. Our profitability suffered, so we took a pause to re-evaluate and develop a more structured approach to our business in Africa.” No longer offering personal lines insurance, or trying to write everything for everyone, Allianz has a clear focus, reflected in the relatively niche lines of business in which it has elected to establish a presence. Committed to building these lines of business in Africa, it has accrued a team of technically skilled underwriters. They represent a blend of local and international insights and expertise. While its focus is narrower than some of its peers, in those industry segments where it is directing its energies, it proves a tough competitor. Part of an AGCS parent that boasts operations in 27 countries, more than 3 500 expert staff

18

riskAFRICA

and gross written premiums of €5.3 billion (R73.9 billion) in 2012, it’s not difficult to understand why. “We are not a follow market, or there to fill the slip. We have significant appetite for the risks that we write and will lead those accounts,” says Mahlangu. He notes that AGCS is gaining traction and writing greater volumes of business on the continent. “We have noticed that the market understands and trusts the Allianz brand.” Having avoided a major restructure in the wake of the 2008 global financial crisis, Mahlangu identifies a sense in the market that Allianz is a stable business. “We are not simply writing for our top line and then planning to disappear; we are here for the long term.”

Taking a long view AGCS certainly offers some of the largest capacity on the continent, and the market cannot ignore it. In addition to impressive capacity, Mahlangu says that its underwriting expertise and risk consultants provide a significant competitive advantage, while a global presence proves a strong support to its Africa business. “We have four dedicated engineers who work closely with clients to help them manage their risks. Further, we are on a number of complex risks globally and we are a company that talks to each other internationally,” he says. “There is a lot of best practice sharing across the globe,” agrees Maidou. “I think that our competitors struggle to secure the same global alignment within different business functions. This is an important part of what we bring to clients,” she highlights. The financial strength, signalled by an AA credit rating from Standard & Poor’s and an A+ rating from AM Best, counts significantly in its favour when it comes to large projects. “We’ve had situations across Africa where insureds have requested that AGCS take 100 per cent of the risk on a project, simply because they want the Allianz name on the portfolio. While regulation demands that there be certain compulsory cessions to local insurers, it speaks of the strength of our brand on the continent and we continue to provide capacity to many of these local insurers,” she notes. Looking ahead, its PML product will open it up to doing business with second- and third-tier brokers, since this product caters for the sector just below the corporate segment. As with its specialist lines, its approach will be structured and focused and its choice of partners carefully considered. “We are not a market-share chasing insurer. This is the last of our concerns. What we want is to be the lead insurer on specific accounts and in niche segments. This does not necessarily translate into big market share,” Maidou comments. The market’s interest in AGCS has certainly picked up and it experienced a near 300

per cent increase in the number of enquiries into its office in the past year. While this may be off a low base, it is a clear indicator that AGCS is no longer being ignored. “Previously we might not have even been considered, but this is no longer the case. We’ve had a broker say to us, ‘Ignore Allianz at your own peril’,” Mahlangu remarks, pointing out that AGCS has grown from having just two departments, to having at least two underwriters in every department. “We now have far greater underwriting authority on the ground because of the people we have employed. This has


enhanced the trust of our parent company, so that while the company’s global risk appetite guides us, the local AGCS arm has greater leeway to formulate business cases to the global heads of underwriting. In addition to underwriting expertise, we have established a strong operations team, which will serve to further speed up turnaround times on quotes and claims, for example.” AGCS is also increasing its visibility at key industry events across the continent. It was a ruby sponsor at the International Insurance Conference – Southern Africa,

held in South Africa in July this year, where it won the award for Best New Exhibitor. Outside of South Africa, AGCS was a sponsor of this year’s 40th Annual Conference and General Assembly of the African Insurance Organisation (AIO) in Egypt, as well as the African Reinsurance Forum in Tunisia. All these developments speak to the importance of AGCS Africa to its global parent. “We are not here for quick growth, seeking to upset the market and then having to clean up our book in a year or two because we didn’t

write the business properly initially. Rather, we are taking a focused and structured approach, balancing top line and bottom line growth, but giving priority to our bottom line,” Mahlangu emphasises. “The strategy in developed markets, like Europe and North America, is to maintain premium income, because these markets are saturated. The group’s focus is therefore directed towards emerging markets like Brazil, India, China and Africa. The Allianz Group is investing significantly into Africa because this is where the opportunities are.”

riskAFRICA

19


SHORT MEDICAL TERM

Connecting the

SADC When assessing a region for investment and business opportunities, big business considers how easy it is to move products and services throughout the region. We look at whether the South African Development Community (SADC) has what it takes to become a global trans-shipment thoroughfare. By Nick Krige

20

riskAFRICA


27075_Namibia Broker Focus 130x175.indd 1

2013/06/07 11:54 AM


PROBLEMS

facing the HCV industry

fuel remains sky high. Congestion in the cities and the poor quality of fuel leads to increased consumption, which directly increases costs; and the poor state of the roads has a knock-on effect as it increases consumption because finding alternate routes adds to the journey. As a direct and integral cost of logistics and hauling freight, higher fuel prices result in increased expenditure and decreased profitability for HCV operators. This affects consumers. They end up paying more for products as companies attempt to maintain their cost-effectiveness. “The high cost of fuel results in an increase in demand for loads to be transported. This puts pressure on the tight schedules and associated demands on transporters, drivers and vehicles,” adds Phillips. Insurance impact: There is no direct impact on the insurance industry from rising fuel costs, but it is a well-known fact that when companies need to save money, the first place they look to cut back is insurance. Underinsured HCV operators adversely affects the insurance industry. If a series of unfortunate events befall an underinsured company in a short space of time, it might not be able to handle the cost and be forced to shut down. Additionally, it could lead to negative feelings towards brokers and insurers when claims are declined due to the company not having adequate cover.

By Nick Krige

E

ffective freight transportation capabilities stimulate economic activity and an inefficient system will negatively impact growth and competitiveness of a country. The South African sector relies heavily on road transportation, with just more than 70 per cent of the total ton-kilometres in 2012 being transported by road. That statistic will delight the numerous heavy commercial vehicle (HCV) operators in Southern Africa and the companies that insure them, but there are several issues that come along with being the primary mode of freight transportation.

Poor road conditions The quality of the roads on which HCVs travel is important, not just because good roads allow the trucks travel faster, but because poor roads result in copious other problems for the vehicles that use them. The majority of respondents (73 per cent) of the 9th Annual State of Logistics Survey for South Africa, agreed that the condition of the country’s road network was a significant contributor to the cost of road freight transport in this country. “The condition of roads often results in lost loads and accidents. At the same time, drivers are encouraged to use back roads as a result of ever-increasing toll costs, and to avoid going on the main arterial roads to save money,” says Wayne Phillips, CEO of Lynx Transport Underwriting Managers. Not only do poor roads slow the trucks down, they increase the cost of maintaining the vehicles, the distance they travel and the amount of fuel they use. It can also have an impact on the safety of the truck, its driver and the cargo. If an HCV is forced to take a detour

24

riskAFRICA

along a lesser-used back route, the chance of hijackings and theft increases. Poor road conditions are caused by underinvestment in road maintenance by local authorities and, more importantly, by the over-utilisation of the road network. The latter creates a certain conundrum for HCV operators, because they want as much business as possible, but the more trucks they put on the roads, the worse the condition of the roads will become. Insurance impact: The effect of bad quality roads extends beyond increasing operating costs. Poor road conditions are often the cause or, at the very least, a contributory factor in road accidents, and this has a big impact on insurance premiums. “Poor road conditions add to the hazards and risks of insurance for trucks and loads, and cause delays in the supply chain. Refrigerated loads are particularly at risk through accident or breakdown of machinery,” says Sid Beeton, divisional transport insurance manager at One.

Fuel costs Due to the Rand’s poor exchange rate to the Dollar, South Africa’s dependence on imported crude oil and the high taxes placed on fuel by government, the price of petrol and diesel seems to go up on a monthly basis. “Cost of fuel is more a factor in South Africa than most SADC countries because our fuel is so heavily taxed,” adds Beeton. This has been exacerbated by apparent price collusion between the major oil companies operating in South Africa, which was unearthed by the Competition Commission in 2009. The companies involved were fined, but the cost of

Law enforcement and noncompliance There is a significant lack of law enforcement across all sectors of South African society, and the freight hauling industry is no different. It is not fair to blame the police or claim that they are not doing their job properly because, quite simply, there are not adequate resources. That being said, corruption is rife among certain sections of the police force, which does not help matters. This, coupled with other issues being faced by the HCV industry, makes for a sector that is ripe for abuse by unscrupulous operators. According to the 9th Annual State of Logistics Survey, non-compliance is rampant among some road-freight operators. These operators take advantage of the lack of law enforcement to try and increase profits by overloading their trucks, not properly maintaining vehicles and overusing their drivers. “It is our belief that the enforcement of road driving experience criteria and regular vehicle maintenance checks, including the use of basic risk mitigation principles, would improve the situation for clients and their insurers,” says Phillips. Non-compliance does more than just create unfair competition in the market place; it actually compounds all of the other problems. Overloaded trucks do more damage to the roads, poorly maintained vehicles are more likely to break down or crash, and tired drivers are prone to losing concentration and causing an accident. Additionally, overloaded trucks are more


attractive targets for criminals. “Intensifying punishment for HCV-related infringements would discourage transporters from taking shortcuts, improve the risk associated with heavy commercial vehicles, and reduce the overall technical rate associated with this industry,” advises Phillips. Insurance impact: A lack of law enforcement leaves the fleet of HCV operators vulnerable and at risk. Insurers do not want to be in this situation and the premiums will reflect that. “Lack of law enforcement increases the risk of road transport and allows operators to speed, overload, ignore driving hour restrictions and use un-roadworthy vehicles, which all increase insurance risk factors,” warns Beeton. Non-compliance is a major issue for insurers, because often the trucks are in violation of their insurance policy, which means the insurers are unable to pay out if anything goes wrong.

Labour strikes One only needs to cast the mind back a year to the atrocities that happened at Lonmin’s Marikana mine for an example of the impact labour unrest can have on an industry. Unfortunately, it seems as if the labour unions’ aggressiveness and determination for getting what they want is only intensifying. The instability caused by labour strikes results in low productivity and influences a company’s ability to deliver on its promises. Even when the unrest is resolved and a solution is found, it can result in retrenchments if the company cannot afford the new wage, or can discourage companies from hiring new staff because of the increased cost. Insurance impact: Labour unrest that turns violent can be a big problem for companies and the people who insure them. Equipment and property gets damaged, stock is stolen or destroyed, and production effectively stops until

The railroad issue A large percentage of rail-friendly cargo is currently transported by road because of inadequate rail facilities, which increases transport costs, road deterioration and congestion, but also profits. On the one hand, an improved rail network would improve the country’s capacity to transport freight, but, in the short term, it would take away freight and profits from the companies currently hauling by road. Insurance impact: More freight being delivered by rail would result in a new avenue for freight insurers to explore, but it could also result in a few of the smaller HCV operators shutting down, tightening up the market. In the long run, however, opening up a rail avenue will increase South Africa’s capacity to deliver cargo, which will be good for the economy, freight haulers and insurers.

It seems as if the labour unions’ aggressiveness and determination for getting what they want is intensifying.

a resolution is reached. Someone has to pay for repairs and the loss of income.

Skills shortages This is not unique to the road freight sector, but the industry is experiencing a huge skills shortage in terms of qualified drivers and technicians. These shortages impact vehicle repair and maintenance costs, accident rates, fuel consumption and vehicle lifespan and downtime. Insurance impact: Under-qualified drivers and sub-standard technicians will inevitably cause insurers headaches through accidents and poorly maintained vehicles.

Government inefficiencies According to the 9th State of Logistics survey, inadequate co-ordination among government departments and agencies causes many issues in South Africa’s road freight sector. Skills shortages; poor implementation of plans; poor institutional arrangements between national, provincial and local government; data shortages; a lack of integrated transport policies; and other policy decisions all impact negatively on the industry. Some of the most notable are poor road quality, increased operating costs, increased difficulty importing and exporting goods, higher greenhouse gas emissions and lower quality fuel due to inadequate legislation governing fuel quality. Insurance impact: Despite not having a direct impact on insurers operating in this space, the lack of government support creates an environment that will have an adverse effect on the HCV industry and its insurers.

Crime The high incidence of crime and the lack of law enforcement capabilities aggravates the issue. Theft, vandalism and hijackings are a real danger in this country and lead to increased transport costs, additional costs associated with more stringent security measures, and ultimately hampers the ability of operators to deliver the goods. “The poor condition of the roads intensifies the problem, since these back roads are often poorly patrolled, leaving vehicles open to theft and hijacking, with little chance of recovery of either load or vehicle due to the response times being far worse as a direct result of the conditions,” warns Phillips. Insurance impact: Crime leads to increased insurance premiums. It is as simple as that. High instances of crime have led HCV companies and insurers to spend money on creating ways to mitigate the added risks. While many initiatives have succeeded in protecting freight and drivers, the problem will persist until law enforcement is given the support it needs.

riskAFRICA

25


BUSINESS TRAVEL

Flying high Navigating frequent flyer programmes

Intra-African air travel has taken off thanks to economic growth and expansion of air transport, which has increased flight departure frequency and improved service quality. With more and more business travellers flying within Africa, RISKAFRICA stacks up your frequent flyer programme choices. By Christy van der Merwe

30

riskAFRICA


RISKAFRICA - Issue 12  

RISKAFRICA is the leading print and online source of topical information for insurance professionals in Africa, read by insurance company di...

Read more
Read more
Similar to
Popular now
Just for you