View
218
Download
2
Category
Tags:
Preview:
DESCRIPTION
RISKAFRICA Magazine
Citation preview
Hidden protection: kidnap and
ransom insurance
Issue 06 October | November 2012I S S N 1 8 1 2 - 5 9 6 4
When life happens
AIG looks to Africa
3riskAFRICA
It’s hard to believe that this is the penultimate issue of RISKAFRICA in 2012. The year has flown by at breakneck speed and has certainly been an eventful one for the African insurance industry. In this issue we throw a spotlight on the Southern African Insurance Industry Conference that took place in Botswana in August. The conference was the first of its kind on the continent and saw delegates from the SADC region and Europe descend on Gaborone. Feedback has been positive and it’s encouraging to see so many individuals and organisations taking ownership of the future of insurance in Africa.
This month’s feature article on Namibia’s retirement fund industry was written after we
received e-mails from industry commentators that raised some serious concerns and difficult questions about the sector. As the FIM Bill’s implementation draws near, it seems that many have grown disillusioned with the protection offered to members of retirement funds in our country. This has been highlighted recently by the ongoing court case involving a prominent retirement fund and fund administrator.
In an uncertain world, the protection and provision offered by insurers for unforeseen events and future realities is invaluable. The integrity of this should be fiercely protected and we look forward to bringing you more on this story as new developments unfold. If you’d like to share your thoughts on the matter, please e-mail editor@comms.co.za.
Enjoy the read.
Andy Mark - publisherPublisher & editor in chief
Andy Mark
Managing editorNicky Mark
Copy editorMargy Beves-Gibson
Feature writersBianca Wright Hanna Barry
Nicholas Krige
Art directorGareth Grey
Design and layoutHerman Dorfling
Vicki Felix
10 Old Power Station Building Cnr of Nobel & Armstrong Street
Southern Industrial Area Windhoek Namibia
Editorial enquiriesinfo@riskafrica.com
Advertising and salesMichael Kaufmann | michaelk@comms.co.za
Tel: +2721 555 3577 | Fax: +2721 555 3569 Tel: +264 61 400 717
THE RISKAFRICA MAGAZINE PUBLISHER CC
RISKAFRICA is published by
Copyright THE RISKAFRICA MAGAZINE PUBLISHER CC 2012. All rights reserved.
Opinions expressed in this publication are those of the authors and do not necessarily reflect those of the Publisher, Cosa Communications (Pty) Ltd, COSA Media, and or THE RISKAFRICA MAGAZINE PUBLISHER CC. The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or pro-ducts or the reliance of any information contained in this publication.
Ground floor, Manhattan Tower, Esplanade RoadCentury City, 7441, Cape Town, South Africa
www.comms.co.za
Dear Reader
CONTENTS
Andy Mark
Vulnerable investors? Namibia’s retirement fund members
More of the same or something different?Medical schemes in the SADC region
Country profile: Mozambique
When life happens
AIG looks to Africa
Profile: Quinton van Rooyen, MD, Trustco Group Holdings
Insurers target Africa for growth and margins
Hidden protection: kidnap and ransom insurance
News
4
812
1418
20222432
4 riskAFRICA
• Retirement funds
Hanna Barry
Vulnerable investors?
Namibia’s retirement fund members
4 riskAFRICA
5riskAFRICA
In instances where service providers have made mistakes,
resulting in damages to members, members are
excluded from the minimum information required to assess
whether legal action is appropriate.
The Financial Institutions and Markets (FIM) Bill has received much coverage in the Namibian press over the past year or so. A revised legislative framework, the FIM Bill aims to enhance prudential standards in the financial services industry and address certain weaknesses in the current laws.
In a recent press release, the Namibia
Financial Institutions Supervisory Authority
(NAMFISA) states that, “Through these
prudential standards, NAMFISA aims to
promote prudent behaviour by financial
institutions and ensure that the risk
they take is within reasonable bounds, clearly
identified and well managed.”
The question that immediately springs to mind
is which financial institutions and sectors require
the most significant enhancement of their
prudential standards? Well, the retirement fund
industry has come under fire recently, especially
the lack of protection that exists for members
of the system. The ongoing saga of one
particular retirement fund has been reported
on in Namibia over the past few years and is
just one example of potential ill-protection.
While the jury is still out on this specific case, it
nonetheless raises some difficult questions and
dangerous possibilities.
Are members protected?
Currently engaged in forensic investigations of the
retirement fund industry, forensic investigators,
ISG Risk Services, say that a substantial lack of
member protection exists and will continue
to exist when the FIM Bill is implemented.
According to the company, the laws that restrict
members’ access to information place them at
substantial risk of not being able to look after their
own interests. As it stands, members can access
rules and financial statements only. Additional
information, such as fund performance data, is
inaccessible to members and improved access
to information will not be entrenched in the FIM
Bill. A qualified lawyer, certified financial planner
and partner at ISG, Eben de Klerk, says that
without this data, there is no way that members
can know whether their benefit calculations are
correct, therefore ensuring that their rights are
properly protected. “In instances where service
providers have made mistakes, resulting in
damages to members, members are excluded
from the minimum information required to assess
whether legal action is appropriate,” notes De
Klerk, referring to a case in which it was found
that the retirement benefits of fund members
were incorrectly calculated.
In this instance, it appears that there was an
incorrect calculation of the actuarial reserve
values (ARV), which entailed the mistaken
exclusion of fund members’ 13th cheques, when
the fund switched from a defined benefit to a
defined contribution fund in January 2000. If
proven, this error has caused the fund to suffer
damages of an estimated N$50 million. The
fund’s administrator denies the allegations and
after conducting an independent investigation,
NAMFISA was satisfied that no such mistake
occurred. However, after additional information
was provided to the regulator, it has since
undertaken to conduct further investigations.
“NAMFISA refused to provide us with its
initial report, even after we approached the
ombudsman, who subsequently requested
the report from NAMFISA. What’s more,
during the investigation, neither NAMFISA nor
the investigators made any attempt to obtain
from ISG any of the source documents or
explanations on which our calculations and
conclusions are based,” explains De Klerk.
“This reflects an obviously one-sided approach
because the investigators were provided with
information by the retirement fund or the fund
administrator only, without the complainants
or their legal practitioners, ISG, having any
opportunity to provide evidence, input or
explanations as to how we arrived at the
conclusion that members’ benefit calculations
were wrong.”
De Klerk feels that instead of assisting members,
NAMFISA has in many cases proven to be an
additional obstacle to member protection.
And he doesn’t foresee this changing under
the proposed FIM Bill. “The current section
30 (proposed section 49) of the NAMFISA Act
has in the past been interpreted by NAMFISA
as stipulating that it can provide no information
to a member of a fund, other than the rules
and financial statements. This is also based
on a misinterpretation of section five of the
Inspection of Financial Institutions Act 38 of
1984,” he notes.
Section five states that after completing
their inspection, an inspector shall submit a
report to the registrar, who will then submit
a copy to the financial institution concerned.
“NAMFISA interprets this as meaning that they
are prohibited from providing a copy to the
consumer. This is true even in cases where
members have complained and the information
in question was obtained by the regulator as
a result. NAMFISA is aware that members
are unable to make benefit calculations if not
provided with their member data. Refusing such
information disables members to look after their
own interests and enforce their own rights,
especially when the report is given to the exact
same trustees who could be infringing on these
rights. In the case of one retirement fund, the
6 riskAFRICA
members are not privy to NAMFISA’s report,
which was commissioned on the basis of their
complaints. We don’t even know what the scope
was of what was investigated, which is why we
are now taking the investigated parties to court.”
Pressure from the regulator led the fund in this
matter to eventually provide the NAMFISA
report to ISG. However, it contains none of the
data or information upon which the report’s
findings are based. And De Klerk says that
judging from the report, the scope of NAMFISA’s
investigation was not well-managed and
sufficiently focused. For instance, the conversion
values that would indicate whether a benefit
miscalculation was in fact made are not included.
This information has been refused to ISG and
NAMFISA from day one. “Despite this being a
criminal offense, NAMFISA is not taking any steps
to address this and didn’t reply to a letter we
sent them on the matter in June last year,” says
De Klerk. It is not known or understood why
the trustees would refuse even the regulator the
conversion values.
ISG is currently acting on behalf of 160 members
of this fund, who are taking the risk upon
themselves in taking this matter to court, as
they will be liable for any charges if ISG does
not win the case. The defendants have raised
numerous interlocutory applications and their
strategy is clear. “NAMFISA does not understand
the vacuum they create for consumers in
this regulatory regime. It simply does not get
involved, despite having massive investigative
powers,” remarks De Klerk. “Our concerns are
around access to information. Most people have
no financial means to enforce their constitutional
rights should they want to access information
in the hands of the institutions created for that
purpose, one of these being NAMFISA.” If it
insists on withholding information for reasons
of the protection of personal information or
intellectual property rights, De Klerk says
that it must then be accountable for errors.
However, he adds that in terms of the proposed
legislation, it cannot be. “New regulatory laws
remain futile if members are refused access
to information by funds, service providers and
NAMFISA alike, while a blind eye is turned to
possible misdealing by the regulated funds and
administrators. If it insists on claiming that it has
no locus standi in a matter, as is often the case,
then it must be established who does in fact
have locus standi and is able to resolve matters
on behalf of consumers.”
He adds that another major problem is instances
in which a fund administrator acts as both
administrator or actuary and consultant to the
fund’s trustees. This exhibits a clear conflict of
interest and could lead to smeared information
being provided to the trustees. ISG has tried
in vain to hold a meeting with the trustees of
one particular fund to discuss its findings and
explain the importance of receiving the original
figures and information from the service provider
that was responsible for the fund at the time
of conversion. In fact, one of the reasons it
asked NAMFISA to investigate was because
after approaching the trustees of the fund with
its concerns and findings, they did nothing
meaningful to protect their members.
This raises further uncomfortable questions
about the role of trustees and service providers,
and not only the regulator, in our retirement
fund industry. De Klerk is not the only person
involved in the sector who is concerned about
the protection afforded fund members. Tilman
Friedrich, managing director of Retirement Fund
Solutions (RFS), a leading Namibian pension
fund administrator, says that retirement fund
members may be worse off today than they
were before the switch from defined benefits to
defined contributions.
Compromised advice
Before the switch from defined benefit to
defined contribution funds, funds were not
required to be audited or prepare annual
financial statements and were not managed by
a board of trustees. “Those were the good old
days for insurers, who had the market wrapped
up and could do whatever they wanted without
fear of being questioned. Namibia’s impending
independence provided a convincing argument
to advisers to have the insurers’ shackles
broken,” says Friedrich.
At independence, most funds were liquidated
and members could either take their money
or transfer it into one of the new funds. These
were established as defined contribution funds,
with boards of trustees placed in charge of the
New regulatory laws remain futile if members are refused access to information by funds, service
providers and NAMFISA alike, while a blind eye is turned to possible misdealing by the regulated funds
and administrators.
22118_NAMIBIA "Good And Proper" 130x175.indd 1 2011/10/07 1:49 PM
business of their fund. “Funds had to prepare
audited annual financial statements and were
free to choose all of their service providers. The
risk of poor investment returns was transferred
from the sponsoring employer to the member,”
continues Friedrich. He is sceptical of whether
the newly appointed boards of trustees were
capable of managing the affairs of their fund, both
then and now. In fact, since many of them are so
burdened by running their own businesses, he
thinks that advisers have quietly taken control of
these funds. “Advisers have since done a great
job of continuously developing and inventing
new products and services, in an attempt to
broaden their product offering and build their
business,” he remarks. This has created an
environment prone to conflicts of interest and
dubious practices, fundamentally questioning the
integrity of the industry.
“What complicates matters is that even
the regulator has to get to grips with the
technicalities of many of these products and
services and the hidden interests of their
sponsors,” he continues. “The regulator needs to
critically assess whether practices are in the best
interests of members, but reacts by imposing
increasingly onerous requirements on the
industry, accelerating a move towards umbrella
funds.” This does not solve the issue around
the control that product providers maintain
over funds, which often leads to unnecessarily
complex arrangements in pension funds, akin
to retail arrangements. These arrangements
do not have enough of a positive impact on
members’ returns to justify the incumbent costs.
“I suspect that members today in many instances
are significantly worse off in terms of benefits
received for every Dollar invested in the system,
as the result of the self-interest of their advisers,”
concludes Friedrich.
Ombudsman the solution?
The complaints adjudicator has been removed
from the FIM Bill and renamed the Financial
Services Ombudsman. According to a statement
from NAMFISA, “The functions of the complaints
adjudicator, as an adjudicator for consumer
complaints from regulated financial institutions,
may be expanded to include complaints from
non-regulated financial institutions (other parastatals
providing financial services). The development of
the legal framework for the complaints adjudicator,
now renamed the Financial Services Ombudsman,
will be co-lead with the Bank of Namibia.” Based
on this statement it seems that the ombudsman
could provide greater regulatory rigour. However,
the industry has not yet seen the Financial Services
Ombudsman Bill.
A lack of consumer protection is a concern in
any society. And it does seem that we have
some way to go to ensuring that our retirement
fund members enjoy the protection that must
accompany affairs as serious as these. While
some of the issues raised in this article have
been posed to NAMFISA, it was unable to
respond before our print deadline. We hope to
bring you a response from the regulator in an
upcoming issue.
The regulator needs to critically assess whether practices are in the best
interests of members.
8 riskAFRICA
T he first critical illness insurance product was launched in 1983 in South Africa and is now used worldwide. Dr Marius Barnard, brother of world-renowned heart surgeon Christiaan Barnard, became frustrated watching patients’ financial struggles and designed a product that provides a lump sum payment to a
policyholder facing cancer, a heart attack, stroke and a range of other diseases that vary by contract. It can also provide the financial means to pay for the trauma counselling that so many patients face as a result of battling a critical illness.
Critical illness, such as cancer, can touch even the healthiest of people. When life happens, insurance can carry the astronomical medical costs and provide support for the aftermath. However, deciding which type of critical illness cover is most suitable for your client and ensuring that the insurance company has no grounds on which to void a claim, can prove challenging.
When life happENSAnton Pretorius and Hanna Barry
• Life
9riskAFRICA
According to the South African Depression and Anxiety Group, between 20 and 30 per cent of all cancer patients are diagnosed with depression. This makes it twice as hard to cope with performing everyday tasks. It is times like these that a risk benefit, which gives patients access to excellent medical assistance, can prove invaluable. Major expenses are an added weight on your client’s shoulders and make recovery that much harder.
Beyond the big four
Ian van der Walt, broker manager at Momentum Namibia, says that the insurer does not focus only on the ‘big four’, i.e. cancer, heart attacks, strokes and coronary artery by-pass grafts (CABG), but believes in breadth of cover.
“Our studies reveal that 40 per cent of claims in Southern Africa are outside the big four, so that is the reason why Momentum offers a broader spectrum of cover,” says Van der Walt. These include illnesses such as connective tissue disease; musculoskeletal, gastrointestinal and respiratory disorders; accidental HIV/Aids; major burns; visual impairment; and trauma.
However, figures quote the big four as making up between 70 and 90 per cent of all critical illness claims in Africa. In 2008, these illnesses made up 93 per cent of Old Mutual Namibia’s critical illness claims. Gim Victor, chief executive officer of Old Mutual Life Assurance Company in Namibia, says that the insurer’s Greenlight Care 4U risk product does not differentiate between mild and more severe illnesses, acknowledging that any critical illness needs 100 per cent cover. Accordingly, this risk product pays out 100 per cent at all severity levels for the four core illnesses.
Old Mutual’s Greenlight offers core and comprehensive options on its severe illness benefit. The severe illness (core) benefit covers the most common severe illnesses at 100 per cent of the cover amount. The severe illness (comprehensive) benefit covers the core events, plus a comprehensive list of severe illnesses at 100 per cent of the cover amount. In addition, it offers support centres that connect clients with a network of assistance.
Tiered vs. comprehensive cover
There is an ongoing debate over whether tiered or comprehensive critical illness cover is preferable. Many life insurance companies argue that it’s important to have 100 per cent cover at mild severity levels of the critical illness. If your client suffers from cancer for instance, it is often when the most aggressive chemotherapy treatment is applied to the
mildest form of the disease that the chance of survival is greatest. Comprehensive treatment of the disease in the early stages is more likely to prevent it from progressing further. However, the flipside of this is that tiered cover may be more affordable and offers at least some cover, rather than none at all.
In Old Mutual’s case, while comprehensive cover is generally preferred by clients, affordability considerations do make some customers prefer the core cover option. Both offer 100 per cent cover at all times, but the core option covers the big four only. Victor says, “It is interesting to note that the illnesses covered under the core benefit collectively account for 89 per cent of all Greenlight severe illness claims, which ensures that even under a tiered benefit, a customer is covered for most of the severe illness events.”
Rather than paying out 100 per cent of the cover on diagnosis and allowing the client to invest the money as they choose, tiered cover leaves the client’s money with the insurer. Tiered benefits typically pay between 25 and 100 per cent, depending on the severity level of the illness. For example, most tiered benefits pay 25 per cent for a level D heart attack, cancer and stroke; level D being the least severe level of illness.
Momentum’s benefits are structured as tiered. Van der Walt says that from a cost perspective, tiered cover makes more sense to both the policyholder and the insurer. “Tiered benefits mean that the claim amount paid is based on the severity of the event. Benefits do not necessarily fall away after the first critical illness claim. Multiple claims are therefore possible,” says Van der Walt.
Should your client develop an early stage of disease, a benefit commensurate with the effect on their lifestyle would be paid out, leaving the remainder of the benefit intact. Should the illness worsen, a further benefit would be payable. This allows for further claims for more serious illnesses rather than paying out the whole benefit immediately and leaving nothing should another claim arise. The remaining benefit is therefore intact and continues to grow with benefit increases every year. The upside of this is that lower pay outs for lower severity illnesses prevent an incident in which large pay outs are made for an illness from which a person may make a full recovery and therefore not require such a large lump sum on diagnosis.
However, it could be argued that comprehensive cover offers clients greater peace of mind and significant resource when they need it most.
Our studies reveal that 40 per cent of claims in Southern Africa are outside the big four, so that is the reason why Momentum offers
a broader spectrum of cover.
10 riskAFRICA
Rejected claims and the adviser’s role
To recommend the right cover, a
broker or financial adviser must assess
their client carefully, as risks vary from
consumer to consumer. If your client
has a family history of heart disease, for
instance, look at what is covered for
heart attacks. In terms of lifestyle, if your
client is overweight, a smoker and unfit,
they are at risk of heart disease and a
stroke. It is all about establishing where
your client’s main risk lies and what
cover is available for that.
When it comes to claiming, exclusion
and non-disclosure are the two primary
reasons for non-payment by insurance
companies. A client may try to claim for
a benefit that was excluded upfront at
the underwriting stage. For instance, if
the client has had cancer before taking
out critical illness cover, cancer may be
excluded in their particular policy. Advisers
must make their clients aware of this.
Illnesses causing functional impairment,
such as Parkinson’s and Alzheimer’s, can
also cause non-payment. The diagnosis
The besT of boTh worlds?
Momentum gives clients the option of elevating the
50 and 75 per cent claim event of a comprehensive
critical illness benefit to a 100 per cent payout. This
could avoid a situation where a client cannot afford
comprehensive treatment at a milder stage of an
illness’s progression, resulting in a more aggressive
form of the illness developing. While the premium is
slightly more expensive than a benefit option that does
not offer this flexibility, this does give the consumer the
choice to elevate cover, which is valuable.
of such illnesses is made only once the condition is viewed as
permanent and irreversible, which is often at an advanced stage
of the disease. The problem is that functional impairment cannot
be measured before the condition has been optimally treated
and stabilised and it can be said without doubt that no further
improvement is expected. However, many patients realise
this only at claims stage and have to wait until their functional
impairment has reached the level as defined in their particular
critical illness policy before they are paid out.
Non-disclosure is one of the most common reasons for non-
payment. A client may fail to reveal something about their medical
history or their family’s medical history. Alternatively, clients may
not think that a seemingly banal piece of information, such as that
they are taking blood pressure tablets for instance, can make a big
difference to how their potential risk is assessed. It is critical that
financial advisers ask as many of the right questions as they need
to, and ensure that clients understand the questions clearly and
answer them truthfully.
A client may fail to reveal something about their medical history or their
family’s medical history.
12 riskAFRICA
• Profile
Quintonvan Rooyen, MD
In 1992, Quinton van Rooyen bought an indebted company for N$100. He has since
transformed the company into a successful and expanding enterprise. Now managing
director of Trustco Group Holdings, Quinton shares his unique outlook on business, his passion for family and his dreams for the
future of Trustco Group Holdings.
Trustco Group Holdings
13riskAFRICA
What made you decide to buy Trustco in 1992?
I wanted to make a difference in my life and
the lives of others. As I progressed through my
education, I learnt that while it pays to work
for institutions and others, it is important to
always hold your life in your own hands. Being
independent thinkers, my family and I often
think outside conventional business models.
We bought Trustco in 1992 because we saw an
opportunity for business calling, and we were
confident that our ideas would pay off. Now, we
have to sustain that level of thinking.
You exited the legal sector shortly after completing your law studies. Have you found your law degree useful since then?
Yes, I have found my legal studies extremely
helpful in whatever I do, whether it is in my
private or formal life. Law is an intriguing field
of study. It applies to everyone and everything.
However, as I progressed through life and got
exposed to global economic interactions and
trends, I realised that there is more to life than
the legal profession. In fact, the legal profession
depends largely on economic prosperity to thrive.
Since 1992, Trustco has managed to maintain growth in difficult economic circumstances. To what would you attribute the group’s success?
Our growth has been a function of
determination, clarity of thought and hard work,
but also our capacity to invent non-conventional
methods of conducting business. For instance,
we do not believe that having huge office space,
regimenting status or staff wearing expensive
attire has any progressive bearing on the balance
sheet. We have a lean model of organisational
management that is performance driven, with
all employees subscribing to the growth of the
company by meeting targets.
This is what drives us and makes us tick: the
self-conscious capacity to understand the need
for objectives, the wisdom of setting targets
and the benefits of meeting those targets to
help the company grow. Our growth as a
company has been driven by these principles,
and all our employees understand the meaning
of targets and the relationship between targets
and predictable income at the end of the
working period.
What about your own success? You were voted Business Communicator of the Year 2003 and second Most Admired Business Personality of the Year 2007 and, have certainly built an impressive profile.
I have always appreciated what others say about
me, be it negative or positive, for I have learnt
much from this exposure. However, my ability
to leave a positive impression in the public eye
has resulted from a collective effort by fellow
travellers in the journey of building our business.
I am therefore highly indebted to all whom I have
worked with at Trustco.
Listed on the JSE Africa Board in 2009, Trustco has major plans for its Africa expansion. How has the listing aided these plans and what African countries has the group set its sights on next?
We were the first company to list on the JSE
Africa Board, and we did not regret the decision,
as it was rooted in foresight. Our move to the
JSE Main Board was the culmination of the
realisation that African companies cannot function
in isolation, but should compete with South
African and global companies on a world-class
platform, the JSE. We are proud to have made
these strides.
The listing served as a shot in the arm as we
were able to rub shoulders with the best in
business the world has to offer. This further
expanded our horizons and enhanced our
capacity to move forward with our plans to the
centre of Africa and beyond. As we speak, we
are expanding our services to African countries
like Ghana, Nigeria, Kenya and others. Africa has
its own rhythm and we must move along or lag
behind. This trend has taken root on the horizon
of new business developments and we intend to
stay on course.
At the end of March 2011, Trustco Mobile boasted 1.6 million registered customers across Zimbabwe. What are some of the challenges of distributing through mobile?
Zimbabwe was a learning curve and we regard
it as a success in terms of speed of uptake
and commercialisation aspects. The contract
expired in March 2012, at its peak with 1.8
million customers. The positive side is that our
experience in Zimbabwe lead us to modify the
product offering for simplicity.
How would you describe your management style?
I guess I would say unconventional and people-
focused. We are not managing institutions
driven by public policy manifestations, but rather
business projects driven for results. Our methods
are tailored to achieve our results as articulated
in our objectives, the targets we set and the
extent to which we reach our targets. This
unconventional model in corporate management
sustains open-mindedness in the company and
creates complex awareness among stakeholders.
Being the MD of a large company can be taxing on an individual’s personal and family life. How do you maintain a balance?
It is indeed taxing and challenging and you are
under pressure to strike a balance at all times.
We are fortunate in that this is largely a family
company and everyone feels the obligation to get
involved and understands the pressure on others.
This pulls us together as a family, and we strike a
balance by sticking together as a family. This has
been a blessing.
Do you encourage your kids to follow a career in the insurance industry?
My eldest son graduated from university and is
already sucked into the throes of the company,
being exposed inter alia to the insurance industry
and all its manifestations. Does he like it? I want
to believe that he does, because I believe that he
understands why.
If you weren’t MD of Trustco Group Holdings, what would you be doing?
I guess I would have been caught up in the
narrow confines of the corridors of the judiciary.
There are so many opportunities in Africa and the
world, more so if one can read and write. The
challenge is to be enterprising.
14 riskAFRICA
kidnap and ransom insurance
• Kidnap and ransom
Nick KrigeHiddenKidnap, ransom and extortion (KRE) insurance has become a growth industry round the world because of increasing incidents related to this field. RISKAFRICA takes a look at this intricate insurance policy and discusses the benefits it can provide.
protection
15riskAFRICA
Who needs KRE?
KRE insurance is often thought of as an
extra security measure, required only by
high-powered businessmen and people
who travel to high-risk areas. This is no
longer the case and companies are seeing
it as a necessity for all of their employees.
“Corporates are beginning to recognise
that kidnap, ransom and extortion
insurance is not a standalone nice-to-
have cover, but a component of their
comprehensive duty of care corporate
policy for employees,” says Dani Ettridge,
crisis management, Aon South Africa.
Kidnappings and extortion are not
confined to millionaires and their families,
business executives or celebrities,
although they are often targeted and
those are the most high-profile cases.
Sometimes however, it is just a case of an
ordinary person being in the wrong place,
at the wrong time. Increasing incidents of
victims being briefly held and forced to
withdraw money from an ATM, or getting
abducted by pirates while on a holiday
cruise have made kidnapping a very real
danger for everyone. Even companies
need protection from extortion. “KRE
insurance extends beyond cover for
individuals, but also protects the company
from threats by means of extortion to
their reputation or intellectual capital,”
explains Ettridge. An example of this
might be a disgruntled former employee
threatening to reveal trade secrets to an
opposition company unless their demands
are met.
The paradox
Some may have KRE insurance and
not even know it; it can often come as
part of a corporate insurance portfolio,
especially if the company operates in a
high-risk area or its employees travel
extensively. Unfortunately, a covered
employee cannot know that the cover
exists for them, or the corporation, or it
will void the policy. The reason for this is
that allowing a third party knowledge of
such a policy would open up many doors
for exploitation. “It is a firm condition
of KRE policies that the existence of the
policy cannot be revealed to a third party.
KRE is a reimbursive insurance policy,
which means the insurance company will
reimburse a policyholder after a ransom
is paid. The insurance company is not
directly involved until an insured event
occurs, so there is no reason for any
third party to be aware the policy exists,”
Ettridge explains.
Something else to consider when
preparing a kidnap and ransom policy for
a client is whether the policy coverage
will be void in circumstances in which
employees or representatives of the
company collude in the kidnapping, such
as a driver, even if the kidnapped has
no part in the collusion. So be certain
that any condition or exclusion in the
policy is clear and understood in terms
of the circumstances in which collusion
is excluded.
There is a worry that kidnap and ransom
insurance encourages the business of
kidnapping and extortion. If a kidnapper
finds out that a potential target is insured
against kidnapping, they will expect and
ask for exorbitant ransom fees, and
the insured’s company or family might
be inclined to pay whatever is asked
because of the available cover. However,
according to Ettridge, that is not the issue.
“KRE insurance does not perpetuate the
business of kidnapping and extortion,
because these are criminal acts directed
at companies, which it is believed will pay
up irrespective of an insurance policy.”
Benefits
The numerous subtleties of kidnap and ransom insurance make
it an incredibly complex cover to have, but the reason for this
is that it is susceptible to fraud. Imagine how easy a kidnapping
would be to pull off if the person being kidnapped, or the
company they work for, is involved in the plot to scam the
insurance company.
For those who can get past all the complexities and find
themselves in a position where they need KRE insurance, it can
provide valuable services and guidance in a troubling time. It is
important to consider the individual needs of the client when
negotiating what to include in the policy. Policies may include the
following cover and benefits:
Ransom reimbursement: Ransoms paid for the safe return of
a covered employee or family member in a covered event will
be reimbursed by the insurer.
Personal accident: A lump sum benefit will be paid out in
the event of a loss of limbs, loss of sight, loss of extremity,
permanent total disablement or death of the insured, solely and
directly as a result of a covered event.
KRE insurance extends beyond cover for individuals, but
also protects the company from threats by means of
extortion to their reputation or intellectual capital.
16 riskAFRICA
Loss of ransom during delivery: The
loss in transit of a ransom by confiscation,
destruction, disappearance, seizure or theft
while it is being transported.
Crisis team: Expenses related to deploying
an independent and experienced crisis
response team to help everyone involved
get through the ordeal. “KRE insurance
provides the financial security that ransom
paid following an insured event will be
reimbursed. But the real value behind
having KRE insurance is not the money.
Most KRE insurance policies provide
unlimited funding for an experienced crisis
response team to assist in dealing with an
insured incident that could lead to a claim,”
says Ettridge.
Travel expenses: Travel and
accommodation costs incurred as a direct
result of a covered incident.
Psychiatric expenses: Often people
who are kidnapped require extensive
psychiatric, medical and legal advice.
Reward payments: Rewards can be
offered by a policyholder in exchange
for information that contributes to the
resolution of the covered event.
Financial losses: Personal financial loss,
suffered by an insured person as a direct
result of being unable to attend to financial
matters because of the kidnapping.
Loss of income: The kidnapped’s gross
salary will be reimbursed for the duration
of captivity. Some policies include bonuses,
commissions and pension contributions.
Asset protection: This benefit is to cover
interest on loans taken specifically to meet
a ransom.
Security coverage: Expenses for
security guards hired for the purpose of
protecting members of the family and
crisis response team that visit the location
of the covered event.
Specialised equipment: Costs of
communication equipment, recording
equipment and advertising to help resolve
an insured event.
Rehabilitation benefit: Rest and
rehabilitation expenses that occur directly
following the release of a kidnap victim.
Funeral expenses: Cost of repatriation
of the body of the kidnap victim in the
event of death during a covered event.
This will typically include the costs of
burial or cremation.
Risk mitigation
Even if a client has kidnap and ransom insurance,
prevention is far preferable to having to go through
the ordeal of being abducted. To this end, it is vital that
clients are educated about the risks of kidnapping and
how best to avoid them.
It is important to understand the local environment
that a client is visiting or operating their business
in. Obviously, employing aggressive tactics such as
employing ex-military professionals for security or using
armoured patrols will decrease risk, but understanding
the local environment can be just as beneficial.
Most insurers that offer KRE insurance will have travel
information available for travel to high risk areas and
how to mitigate the risk of kidnapping. Some even
offer training. There are many measures that are
both simple and practical, and on the surface seem
obvious, but often do not occur to people unless
they feel threatened. “Arranging the cover further
protects people because most insurers offer safe travel
and crisis management guidelines and training for
their policyholders to make them more aware of the
risk and the practical measures that can be taken to
safeguard themselves,” explains Ettridge.
A few risk mitigation techniques to advise clients of
are: to not travel the same route every day, even
if they are going to the same destination; travelling
at different times to avoid falling into any sort of
routine that a potential extortionist could learn and
exploit; when travelling it is important that your client
doesn’t appear like a wealthy businessman, as this
immediately highlights them as a potential target and
they should avoid wearing suits and carrying business-
like briefcases. Advise clients to not take the first taxi
offered, but rather arrange transport prior to arrival
and confirm their driver’s name, and preferably car
license number, so as to be sure that they are getting
into the right vehicle.
Constantly being aware and double checking facts
and details is a great way to mitigate risk, but the
sad truth is that there is no guarantee of safety
and criminals will continue to kidnap and extort
whether KRE insurance exists or not. “Unfortunately
kidnappings will happen with or without the
existence of the cover,” concludes Ettridge.
Most KRE insurance policies provide unlimited funding for an experienced crisis response team
to assist in dealing with an insured incident that could lead to a claim.
• Health
By far the majority of the medical scheme spend
is on hospitals. It is probably accurate to say that many of the medical
scheme products on offer are hospital-based
products.
More of the same or
Bianca Wright
Medical schemes in the SADC region
somethingdifferent?
Extending outwards
Metropolitan Health Group, Medscheme, Sovereign, MSO and EOH all have
interests outside of South Africa in the SADC region. “Stringent regulations and
the relative saturation of the market in SA have prompted companies to seek
opportunities outside of South Africa,” says Heidi Kruger, head of corporate
communications at the Board of Healthcare Funders of Southern Africa, adding
that outside of SA, the private healthcare sector is relatively unregulated.
South Africa, Zimbabwe, Botswana, Namibia and Mauritius all have 10 per cent
or more of the population covered by private healthcare. In Mauritius, medical
insurance falls under general insurance.
18 riskAFRICA
Examining the South African Development Community region’s approach to medical schemes can sometimes feel like looking in a mirror of South Africa and at other times, like staring into an alien world. While there are similarities in the way medical schemes are approached and in the challenges they face, there are also differences.
Show me the money
Affordability remains the overriding challenge,
according to Kruger. In Zimbabwe, 93 per cent
of the population are either self-employed or
unemployed and 87 per cent live below the
poverty datum line.
Kruger says that the issues facing funders in SA’s
neighbouring countries are all similar. Lack of
regulated tariffs means it is difficult to contain
costs. High hospital costs are another issue, she
says. “By far the majority of the medical scheme
spend is on hospitals. It is probably accurate to
say that many of the medical scheme products
on offer are hospital-based products. Zimbabwe
reports that many people go to India and Malawi
for hospital procedures as the costs are lower.”
For instance, a hip replacement in Zimbabwe
costs US$22 000 (excluding the hospital stay),
while in India the cost is R13 000 (all inclusive,
including flights, accommodation and so on for an
accompanying person).
Non-healthcare costs are also an issue. Kruger
cites the example of Zimbabwe, where these
costs account for around 21 per cent of the total
costs, in comparison to South Africa where the
average is around 13 per cent.
Another challenge is that health IT systems are
time-dependent and real time and on-line benefit
and payment systems cause difficulties.
The case of Namibia
In Namibia, one of the challenges is the fact that
insurance companies are competing with medical
aids for business. Medical aid funds are regulated
in terms of the Medical Aid Funds Act No. 23 of
1995, while medical insurance is regulated in terms
of the Short-term Insurance Act No. 4 of 1998.
According to Hester Spangenberg, executive
director at Investmed Namibia, both are basically
short-term entities, implying that benefits are
vested annually including the general annual
increases, although during the past few years the
medical aid funds had various interim increases
during the course of the year.
Spangenberg differentiates between the two,
explaining that a medical aid scheme is legally
a not-for-profit entity, managed on behalf of
the members by a board of trustees while an
insurance company is a limited company, owned
by shareholders. “The medical aid funds are
quick to point this difference out to prospective
members and say that all the profits in the
insurance companies goes to the shareholders
and are not to the benefit of the policyholders,”
she says, but adds that what they fail to mention
is that both medical aid funds and insurance
companies are required to maintain a certain
minimum level of reserves to protect the
members or policyholders.
“For insurance companies the level of reserve
is a statutory requirement while for medical aid
funds it is specified that the scheme surpluses
belongs to the members and members could be
at risk when the funds are depleted,” she says. “It
is well-known that one of the open medical aid
funds operates at a very low solvency ratio.”
Lacking in consistency
The Medical Aid Funds Act clearly stipulates
that no portion of any surplus realised in the
fund in any financial year may be distributed to
its members, while no such restrictions exist
on insurance companies. “Thus, insurance
companies may offer roll-over benefits, no-claim
and low-claim bonuses while none of the medical
aid funds may offer any bonuses or roll-over
benefits. Some of the medical aid funds offer
certain roll-over benefits,” she says.
The act also stipulates that the dependants of a
member are entitled to the same benefits as the
member, however most of the funds restrict the
benefits of the dependants and the main members
enjoy higher benefits. An investigation into medical
insurance available in Namibia revealed that
the insurance benefits are based on the family
as a unit and that the insurance companies do
not differentiate between the benefits of the
policyholder or that of the dependants.
Medical aid funds contract with companies
operating on a for-profit basis to provide
administration services to the funds while the
insurance companies are responsible for their
own administration. Currently administrators
of medical aid funds are being paid a certain
percentage of the contributions in lieu of the
services they execute.
“In principle, this should not be a problem,
however the administrators are being paid
immaterial of their performance,” says
Spangenberg. “The fact that the functions of
the administrators are not regulated by a body
like NAMFISA, creates a problem due to the
fact that the trustees of the funds, who should
actually control and manage the administrators,
do not fulfil their functions in this regard.” She
adds that the funds and administrators are pricing
aggressively and are using the reserves of the
funds to do so; they will eventually need to
increase contributions or decrease benefits to
maintain solvency ratios.
In accordance with the Short-term Act, brokers can
be appointed to market the products of the insurance
companies. These brokers are also being regulated
in terms of the act. The Medical Aid Funds Act does
not allow for any person to market any fund although
this has become a standard practice in the industry
and it appears that NAMFISA is doing nothing about
it, according to Spangenberg. In addition, she says,
certain individual and employer groups receive
discounts on their contributions from the funds in
order to prevent such individuals or groups from
leaving one fund to join another fund or insurance
companies. Thus, based on the structure of the funds
where certain groups of members must enjoy the
same benefits for similar costs, certain individuals and
groups are being benefited by paying less, all to the
detriment of the other members.
A challenging environment
Corruption is also an issue in the SADC regions.
Recently, for example, the Zimbabwean
newspaper reported that the Harare Municipal
Medical Aid Society is facing collapse with the
14-member board being accused of massive
corruption and abuse of funds.
Despite these many challenges, however, there is
much that is attractive about the broader SADC
region in terms of medical schemes. Kruger
says, “On a personal note, I believe that there
are many opportunities that could be exploited
on a regional level. For instance, there could be
centres of excellence for the region, geo-mapping
of providers, quality standards across the region
and so on.” Understanding and being able to
leverage both the differences and similarities
and the challenges of the region will ultimately
dictate which medical schemes will prevail in an
increasingly competitive environment.
19riskAFRICA
It is well-known that one of the open medical aid
funds operates at a very low solvency ratio.
On a personal note, I believe that there are many
opportunities that could be exploited on a regional level.
20 riskAFRICA
It would be an understatement to say that AIG’s need for a $182 billion bailout from the 2008 financial crisis made headlines. Media reports have described it as “arguably the most shocking event during the financial crisis” and “the most loathed of the rescues”. Joining AIG in early 2010 to oversee finance, risk and investments, including the insurer’s money-losing credit-default-swap unit, Peter Hancock arrived with 20 years of experience at J.P. Morgan under his belt, where he served as the firm’s chief financial officer and chief risk officer.
“It was a unique opportunity. A company that is a leader in its industry, with enormous breadth and scope of operations, that needed to be refocused,” was Hancock’s cool reply to an incredulous: what were you thinking? “I hit it off with the CEO, Robert Benmosche, whom I’d not met before.” Benmosche wanted to turn the company around. The initial strategy had been to dismantle AIG under the prior CEO, Ed Liddy, but when Benmosche took over in the summer of 2009 he came on the condition that the company was not to be dismantled, but rebuilt. “The premise under which I joined was that this was a going concern; that the company was worth a lot more together than broken into pieces,” continues Hancock.
Much of his first year at AIG was spent recapitalising the company in a way that was sustainable. Some two years on, and the US Government, including the Federal Reserve Bank and the Treasury, has fully recovered its $182 billion commitment to AIG, plus a profit. Grateful to US taxpayers for their assistance, Hancock feels that AIG has fulfilled its promise, not only to repay the assistance, but to rebuild the company in
AIG LOOKS TO
Hanna Barry
• Profile
On his recent visit to South Africa, RISKAFRICA had the opportunity of interviewing Peter Hancock, CEO of Chartis, American International Group’s (AIG) property-casualty businesses. He told us about his decision to join AIG after the 2008 bailout, how the company has been successfully rebuilt and plans to rebrand Chartis under the AIG name.
Africa
21riskAFRICA
a way that is valued by the marketplace. He says that from a market practice point of view, AIG is proud of the way it treats its customers, but welcomes regulators who can validate this. “We welcome greater oversight and the transparency and rigour it brings to our operating processes. The events of 2008 are a good reminder that there needs to be a commitment to a real openness about enterprise risk. All companies of any scale and complexity need to demonstrate to all stakeholders, policyholders, investors and customers that they can deliver on their long-term promises.”
Hancock was appointed CEO of Chartis in March 2011. With operations in 90 countries, Chartis was fairly fragmented at the time and his strategy has been to unify the company culture around common themes; most notably, focusing on value over volume. “This centres on understanding our customers and what they value most about what we do for them. We are not trying to do everything for everybody, but rather focusing on those lines of business where we feel that the scale of our operations brings something significant.” A broad geographic network means that Chartis can bring particular value to clients who are looking to operate globally. It plans to target areas in which its customers have growing needs, for example, emerging economies and specialist lines of business.
Technology, data and the chief science officer
In an increasingly uncertain world, Hancock believes that the insurance industry needs to be agile and flexible, using technology to minimise fixed costs and focus on meeting clients’ needs. Technology, along with the best talent and analytical tools, are the keys to success. “In a low-interest-rate environment, the industry can no longer rely on its investments and will have to make money through excellence in underwriting. This involves underwriting discipline, but also means investing in technology to understand the risks you are taking,” he explains. In this regard, the important role that data plays cannot be overstated. “At the end of the day, insurance is all about understanding what the data can tell you about risk and the relative riskiness of different insureds.
If we are trying to grow value as opposed to volume of business, then this ability to use new technology and new sources of data provides room for plenty of adaptation and optimism. The availability of data today was unimaginable five or 10 years ago.” Hancock believes that traditional actuarial techniques have their limitation because they tend to just extrapolate the past. In fact, so passionate is he about the opportunities around understanding, analysing and integrating data into business practices, that he created the position of chief science officer at Chartis.
Appointed in January this year, Murli Buluswar reports directly to Hancock and has recruited a sizeable team in the short time he has been in this role. Hailing from a range of scientific backgrounds, including medicine, statistics, psychology and seismology, their work feeds into product design and underwriting. It also extends to understanding certain structural drivers of loss. For example, working with scientists from the John Hopkins School of Public Health to analyse over 10 million claims records, Chartis has understood some of the underlying drivers of the long-term medical costs of returning injured workers to work.
As patterns emerge, claims can be more efficiently processed, reserves more prudently set and underwriting improved. “We have one of the largest workers’ compensation insurance businesses in the US and over $20 billion in reserves set aside for future claims,” says Hancock. “We have tried to recruit individuals in the science office who have excellent listening skills and not quantitative skills only, so that they are able to work together with skilled underwriters. This produces the best outcomes, which is a blend of art and science,” he adds, quoting Mark Twain’s famous line: “History doesn’t repeat itself, but it does rhyme.”
Rebranding Chartis
Successfully rebuilt, last month The Wall Street Journal ran a story titled, ‘AIG’s record-breaking stock sale’. Having sold $38.2 billion of stock, US taxpayers have received a $15 billion positive return to date from the AIG bailout, which is being described as a success. In this light, Chartis will be rebranded AIG in October. “The Chartis brand was successful in unifying different antipodes in the property and casualty business, but as we simplified the company we believe that AIG is the right brand to operate under going forward,” says Hancock.
The decision was reached with feedback from customers, distribution partners and brokers, who jointly feel that it is the better recognised brand for Chartis’s products. Hancock is confident that the AIG brand is well-known in the African market. “Those who are knowledgeable about insurance recognise our global standing and longstanding commitment to the local markets.”
Having operated profitably in South Africa for 50 years and in Kenya and Uganda for almost as long, Chartis will continue looking at growth in the sub-Saharan region with some interest. It will be expanding its reinsurance business and exploring opportunities in the energy and construction sectors. Where appropriate local partners can be found, or where local regulations allow the company to operate as fully controlled, Chartis will consider launching further primary insurance operations on the continent.
With plans to target profitable market share and expand its African footprint, it appears this is just the beginning of AIG rising.
Those who are knowledgeable about insurance recognise our global standing and longstanding
commitment to the local markets.
22 riskAFRICA
for growth and margins
• KPMG Insurance Survey
Insurerstarget Africa
While some regard the African continent as a risky investment, KPMG’s Insurance Industry Survey 2012 revealed that Africa is on course to be a global investment sweet spot. Focus on infrastructure, direct foreign investments, improved banking supervision and policy uptakes have all resulted in Africa showing a potential GDP growth figure of $2.6 trillion by 2020.
In its annual review, the South African Insurance Industry Survey 2012, professional services company KPMG released 54 of the 164-page document for comment towards reviewing insurance in other African countries.
KPMG partner and national head of insurance
Gerdus Dixon says, “The South African life and short-term insurance markets are relatively mature, with few obvious merger and acquisition opportunities. It is also competitive, well regulated and, in all likelihood, facing ongoing challenges regarding regulation such as SAM, IFRS Phase II and Treating Customers Fairly.”
KPMG’s head of transactions and restructuring, John Geel, noted several new investments into and across Africa, especially from multi-nationals and larger listed African companies. However, an increased number of smaller companies are also investing due to the improved growth opportunities, as well as regulatory and tax regimes. “This means that companies are now
seeking out the right entity to transact with, negotiate details of collaboration and sign legal contracts,” says Geel.
African countries present insurers with new, untapped markets with massive potential customer populations and burgeoning economic growth, which was forecast by the International Monetary Fund to be 5.5 per cent this year. “Nigeria, Ghana and Angola’s growth rates are already in excess of this,” says Dixon.
He believes that referring to these African countries as the new frontier is inaccurate, as most of the major players have already flown the coop and are actively positioning themselves for dominance in Africa.
The South African life and short-term insurance markets are relatively mature, with few obvious merger and acquisition
opportunities.
2361
The
Che
eseH
asM
oved
With the right technology partner, anything is possible.Make sure you’re partnered with us.Call +27(0) 11 384 8600 or email info.za@ssp-worldwide.com www.ssp-worldwide.co.za
We provide the key.
Providing localised competitive advantage to the evolving African market, SSP technology evolves with you, ensuring that your response to the demanding customer base is always fast and accurate.
The solutions we deliver to brokers and insurers come with over 25 years of insurance industry knowledge and solid market-leading experience.
Businessevolution is paramount
C
M
Y
CM
MY
CY
CMY
K
2361 SSP RiskSA3.pdf 1 2012/07/11 10:15 AM
Distribution channels remain a major challenge in Africa. Insurers will have to embrace modern and alternative
models that are able to connect products with insurers in a reliable
and cost-effective manner.
Africa has appetite to thrive, but is no short-term solution
Apart from this increased appetite for
investment, KPMG has noticed a hunger
for consolidation and expansion and a rapid
improvement in the banking sector on the
continent. KPMG Africa released the Africa
Banking Survey in May to provide a better
understanding of regulatory frameworks.
Fourteen countries were analysed in the
region, providing information in several
areas including the commercial, legal and
tax and banking environments, as well as
governance and reporting issues.
However, Dixon warns insurers against
expecting African countries to provide
them with short-term growth solutions.
He says that it is essential that each African
country is understood and assessed on its
own merits and that the diversity and subtle
nuances play a critical role in unlocking the
secrets to business success.
“Africa’s gross domestic product is expected
to reach $2.6 trillion by 2020, but expanding
into African countries is not a short-term
growth fix, it will take deep pockets and
committed sustainable long-term business
plans to develop the insurance market
in these African countries, particularly
the much vaunted retail or individual life
insurance markets,” says Dixon.
He adds that it is important for
shareholders to understand the return
profile of expanding into Africa, as those
companies that do unlock the potential,
stand to benefit from improved margins on
products coming from the fastest-growing
employed population on the planet. “There
are 500 million people of working age in
Africa and the expectation is that this will
outnumber China and India by 2040.”
Despite the financial crisis of 2008, there
is now more private equity available in
Africa. Insurance giants Leapfrog, Sanlam
and Old Mutual recently announced
insurance acquisitions into African markets.
But many challenges to doing business in
Africa still exist, including the short-term
insurance market, which is spread across
55 countries, many of which do not have
large-scale business present in them. Also,
due to a surplus of industry players in
some countries (like Nigeria and Kenya),
premium is fragmented.
Distribution channels remain a major
challenge in Africa. Insurers will have to
embrace modern and alternative models that
are able to connect products with insurers in
a reliable and cost-effective manner.
The extensive African section of the
report provides some three to four pages
of detail on each of 13 African countries,
highlighted by the insurance team at
KPMG as significant to the industry.
“Exploring expansion opportunities on a
generic African template is not advisable
and will probably result in expensive
‘school fees’ for companies if they do,”
says Dixon. “Africa is simply too big
and growing too rapidly for insurers
and investor to ignore.” Naturally, the
underdeveloped formal economy and
infrastructure will demand more inventive
solutions with regard to strategy, product
design and distribution.
Experts at the sixth KPGM Africa
Conversations Series on transacting in
Africa held in Johannesburg earlier this
year reckon that discussions around the
realities of conducting business on the
African continent are now at a critical
stage and support is needed to boost
this development.
24 riskAFRICA
NEWSSocial health protection must be a focus for African governments
In an attempt to improve universal access to
health services, the East African Community
(EAC) is pushing for a social health protection
programme across all member states, the
New Times in Rwanda reported. However, the
World Health Organisation’s co-ordinator of
health financing policy, Joe Kutzin, says that
universal health coverage is a direction more
than a destination.
“What this means is that you want to move
towards universal coverage. You want to
improve access, financial protection and
quality. And in that sense, those are goals for
every country in the world,” Kutzin told over
200 participants at the opening of a three-
day regional conference on social health
protection, which took place in Kigali, Rwanda
in September. The aim of the conference was
to consider various approaches to providing
universal health coverage in Rwanda, Uganda,
Kenya and Burundi. Universal coverage is the
subject of a new study that reviewed health
systems in 12 African and Asian countries.
Kutzin alluded to the fact that African countries
have not fulfilled the Abuja Declaration, which
requires EAC members to allocate 15 per cent
of their annual budgets to the health sector.
“In order to become a middle-income
economy, a need for regional collaboration
and co-ordination of social health protection
mechanisms must be targeted.” This was
according to Ambassador Richard Sezibera,
secretary general for the EAC.
“More countries are looking for ways to develop
financing systems so everyone has equitable
and affordable access to health services. Each
country can take immediate steps toward
universal coverage despite its levels of economic
development,” Sezibera explains.
However, Kutzin adds that some finance
ministries are skeptical about disbursing such
money because health ministries have not given
full accountability of the funds. This was disputed
by Rwanda’s Minister of Health, Dr Agnes
Binagwaho, who said that “all governments are
capable of doing what Rwanda has done by giving
priority to the health sector”. Rwanda allocates 16
per cent of its national budget to the health sector.
Allegations of embezzling haunt fiS
The gloves are off between shareholders within the Financial Insurance Services (FIS),
a company that was accused by the Namibia Financial Institutions Supervisory Authority
(NAMFISA) of not paying out beneficiaries’ claims, news site allafrica.com reported.
Rob Menzel, the company’s chairperson and majority shareholder, has come under fire
after allegedly embezzling millions of Namibian Dollars. However, Menzel has denied
any wrongdoing. His lawyer, Dave Nezar, says that Menzel is prepared to co-operate
with the Anti-Corruption Commission (ACC) should an investigation be launched.
Nezar wrote to Richard Metcalfe, the lawyer of former FIS managing director Indila
Edward, saying that he may accept his client rejects these allegations with the contempt
which they deserve.
According to allegations, Menzel withdrew N$3.25 million from the company’s account
between 1 February and 15 August this year. Edward’s lawyer, Metcalfe, accused
Menzel of continuing to strip the company and its life reserve fund for his own benefit
and/or the Menzel family trust.
Erna van der Merwe, the deputy director of the Anti-Corruption Commission (ACC),
says, “It was agreed that Metcalfe would furnish us with certain documentation.
Once we are in possession of such documentation, the matter will be submitted to
the director [Paulus Noa] for a decision on whether a formal investigation should be
conducted.”
25riskAFRICA
Stakeholders need to establish Anti-Money Laundering (AML) regimes as it will help curb
crime in the industry.
ARC to manage drought risks in Africa
The African Risk Capacity (ARC), which was established in Ethiopia last month, is a project of the African Union (AU), designed to improve current responses to
drought food security emergencies and to build capacity within AU member states to manage drought risks.
While foreign aid usually takes several months to arrive, the AU says this specialised agency will develop an agreement on a pooled risk insurance facility for droughts,
floods, earthquakes and cyclones in Africa. This is according to a report by Zimbabwe’s Herald Online.
The AU also asked the African Union Commission to convene a meeting of government experts in 2013 to consider and adopt the ARC establishment agreement.
The UN International Strategy for Disaster Reduction says the ARC is a welcome development, which will speed up the distribution of aid to affected regions in Africa.
AMl regimes needed to curb insurance crime
According to The Monitor in Botswana, Africa’s insurance industry has not been
as exposed to white-collar crime as other industries, yet stakeholders are still
advised to partner with financial institutions to expose criminals and prevent the
problem from intensifying.
Speaking at the Southern African Insurance Regional Conference held in
Botswana (15 – 16 August), director of the country’s Financial Intelligence
Agency in the Ministry of Finance and Development Planning, Jackson Madzima,
said, “Stakeholders need to establish Anti-Money Laundering (AML) regimes as it
will help curb crime in the industry.”
Although money laundering is not as prevalent in the insurance industry as in
non-banking financial institutions, the risks are increasing. “Institutions that handle
value should install strong AML regimes and more effective AML sensitisation
and training critical to such institutions,” said Madzima.
Madzima highlighted that international vehicle crime is becoming a growing issue
across borders and is of major concern in the insurance market. He detailed
how cloned vehicles are smuggled between countries and registered in more
than one country.
“Between May and July this year, 25 foreign vehicles were impounded because
they were tampered with or suspected, and in some cases used, to transport
dagga,” Madzima added.
new package cover for low-income earners
Following the launch of a triple package insurance cover by
CIC Insurance Group, Kenyans living in fire-prone informal
settlements (slums) can now insure their household goods
for as little as KES480 (Kenyan Shilling). The product,
known as Nuru ya Jamii, is the country’s first policy targeting
low-income earners, combining property insurance and life
assurance as a package. This was according to a report on
the allAfrica.com website.
The policy has three benefits, which include cover for
household goods in the event of fire, family disability due to
death and family life. CIC Insurance Group CEO, Nelson
Kuria, says the policy would spread insurance awareness and
services to low-income earners who have been locked out
by conventional insurance products.
26 riskAFRICA
Only handful of insurance firms known to nigerian public
Only 15 insurance companies out of 50 firms operating in Nigeria are known
to the public, according to a study conducted by German agency for sustainable
development, GIZ and Riskguard Africa Limited, reports allAfrica.com. The
survey shows that the few insurers known to Nigerians are Aiico Insurance, PLC,
Niger Insurance, Industrial and General Insurance (IGI), Leadway Assurance,
NICON, LASACO, Oasis, Mutual Benefits, Royal Exchange and Crusader. Other
companies identified as underwriting firms include Savana Insurance, Gateway
Insurance, Quality Insurance, Liberty Insurance, CBN Agric Insurance Limited
and Access Insurance.
Concerned by this development, commissioner of insurance Fola Daniel says
the national insurance commission in Nigeria developed a draft guideline for
the entrenchment and development of insurance at grassroots. He says the
guideline on microinsurance is being exposed to the industry, experts and other
stakeholders before a final draft will be released to the market. He adds that the
commission intends on collaborating with other relevant regulatory agencies in
implementing the plan.
MauritiusAfrica’s insurance market still vibrant and growing, hears AiO
With the focus on insurance and reinsurance
in Africa over the next decade, the 18th
annual Reinsurance Forum of the African
Insurance Organisation (AIO) was a good
networking platform for key players within the
insurance arena to unearth opportunities on
the African continent. Five hundred delegates,
representing insurers, reinsurers and brokers
from 65 countries gathered at the picturesque
Intercontinental Hotel and Resort in Balaclava,
Mauritius for the annual event, which coincided
with the AIO’s 40th anniversary. The forum,
held from 30 September to 3 October, was
concluded with an awards presentation.
In his formal address to the delegates, Hassan
El Sayed Mohammed, the president of the AIO,
stated, “The massive attendance at this dual event
is a clear manifestation of the firm commitment to
support the growth of a vibrant insurance industry
on the African continent, capable of facing the
challenges provoked by economic mutations from
outside Africa.” Speaking about the evolution
of the African insurance sector, Martin Ziguele,
manager of Exact Conseil, said, “Africa’s insurance
industry is making small steps, despite historical
issues that were not necessarily inherent only to
this continent. With a production of $50 billion in
2006 to $67 billion in 2010, it showed a growth
of 34 per cent in five years.”
At the awards presentation, accolades were
given to Africa Re in the category for best
insurance organisation while UNCTAD
claimed top honours in the category for
international organisation. In the individual
category, Albert Nduna received the award for
his efforts in establishing the first reinsurance
company in Zimbabwe.
27riskAFRICA
Candidate attorney, Siba Jonas, and associate,
Lauren Kent, from Norton Rose South Africa,
provide us with microinsurance lessons from Africa.
Market overview
• TheAfricanmicroinsurancemarketis
largely untapped. The International Labour
Organisation (ILO) reports that 14.7 million
lives were microinsured, out of a potential
700 million, representing 2.6 per cent of
the target population.
• Thecombinedannualincomeoflow-
income African households is around
$500 billion, according to the World Bank,
meaning there is significant potential
for growth.
Health insurance
• Healthinsurance,arguablythemost
needed cover in Africa, has been taken
up by a mere 0.3 per cent of the market.
Healthcare is financed by individuals in
countries like Guinea, Burundi, Cameroon,
Cote d’Ivoire and Nigeria. In Nigeria,
63 per cent of healthcare needs come from
individuals’ pockets. In Guinea, out-of-
pocket expenditure accounts for up to
88 per cent.
Consumer education
• Asuccessfulmicroinsuranceregime
requires clear communication. The ILO
found that the microinsured often claim
their premiums if the product was not
needed, signifying a fundamental lack of
understanding of the product.
• InGhana,anawarenesscampaignbacked
by government and private institutions
has been rolled out, together with
various industry workshops and training
programmes. A policy paper is being
developed as a result.
• InEgypt,UgandaandWestAfrica,national
and regional workshops have been held as
an introductory step.
• InEthiopiaandZambia,governmentsare
developing microinsurance strategies to
encourage wider deliberation and capacity-
building initiatives.
Premium collection and payment
• InBurkinaFaso,agentswhocollect
premiums are recruited and trained from
the local community, lending credibility
and trust. While this is costly and time-
consuming, with potential for fraud, issuing
the insureds with smart cards and agents
with handheld computers at the collection
points is helping mitigate these risks.
• Usingexistingretailers’infrastructureand
customer loyalty to distribute products
and collect premiums is successful in South
Africa. In Kenya, mobile technology is used
to pay for anything from taxi to insurance
premiums, which is deducted from
available airtime.
• Toovercomechallengesofaffordability,
insurance mistrust, poor delivery
infrastructure and insufficient regulations,
one insurer introduced a comprehensive
product for low-income Kenyan families.
In conjunction with the National Health
Insurance Fund, the family insurance
product provided cover to a policyholder,
spouse and all dependants for hospital
expenses, loss of income, disability benefits,
accidental death and funeral expenses for
an annual premium of $50.
Challenges
• Lackofunderstandingandtrustin
microinsurers and their products.
• Lackoffinancialmeanstopaypremiums
regularly, on time, or at all.
• Difficultieswithtechnologicalinfrastructure,
which hinder insurers in their development
and rolling out of products.
• Highadministrativecosts,especiallyin
remote rural areas where transportation
and communication channels are limited.
• Lackofsuitablyqualifiedstafftodevelop
and market products and administer
processes.
• Religiousandculturalconsiderations
may limit the demand for traditional
insurance products, particularly in North
Africa, where Islam, the predominant
religion, considers commercial insurance
objectionable.
• Difficultieswithpremiumpaymentand
collection.
• Thedesperateneedforconsumer
education to impart basic reading
and mathematical skills, as well as an
understanding of microinsurance.
While opportunities abound, insurers should
study their chosen African market(s) carefully
before committing to significant investment.
OppORTuNiTiES RifE fOR miCROiNSuRaNCE
• Microinsurance in Africa
in AfricAMillions of Africans find themselves trapped in dire
circumstances due to short-term strategies used to eke out an existence. Microinsurance is set to effect real change on the
continent. Through knowing the market, developing innovative products and educating consumers, insurers can capitalise on
the opportunities presented in the African market.
28 riskAFRICA
Molefe Phirinyane, policy analyst, Botswana Institute of Development Policy Analysis.
Above from left: Riana Gous, Insurance Institute of Namibia; Ndjoura Tjozongoro, CEO of National Special Risks Insurance Association; Debbie Donaldson, general manager: Strategy and Planning for the South African Insurance Association.
Thembi Langa, senior programme officer, SADC, addresses delegates.
Regional confeRence tackles industRy issuesThe Southern African insurance industry held its first regional conference in Gaborone from 15 to 16 August. Opening up new market possibilities, improving communication among industry bodies and the role of the insurance industry in sustainable economic development were all topics on the agenda.
• Events
The conference, hosted by Sisco and the SADC (Southern African Development Community) Secretariat saw delegates from almost every SADC country convene at the Gaborone Sun Hotel in Botswana. Delegates from Switzerland and the United Kingdom were present, too. It was the first of its kind on the African continent. Delegates included representatives of insurance associations, institutes and regulators from each country.
Conference co-ordinator, Tshepiso Mphahlane, says the event provided a platform for insurance bodies and supervisors to interact at regional level. He adds that it provided an opportunity for the SADC’s Committee of Insurance, Security and Non-Banking Financial Authorities (CISNA) to give feedback to the industry regarding the harmonisation of insurance laws of SADC member states.
The move towards making cross-border insurance trade possible through enabling legislation opens up new
market opportunities.
29riskAFRICA
Building relationships between bodies
CISNA is part of the Trade, Industry, Finance
and Investment Directorate of SADC and
reports to the Committee of Ministers of
Finance and Investment. CISNA’s vision is to
facilitate the development of a harmonised,
risk-based regulatory framework for SADC
member states. “The move towards making
cross-border insurance trade possible through
enabling legislation opens up new market
opportunities,” said speaker Marcelina !Gaoses,
managing director of Mutual & Federal Namibia.
At the conference, it was agreed that dialogue
between the insurance industry and SADC
should improve. In light of the request, SADC’s
Directorate of Trade, Industry, Finance and
Investment informed delegates that SADC will
establish a business desk which will facilitate
communication between SADC committees
and the regional insurance industry.
Delegates acknowledged that regional
economic integration also calls for improved
communication among industry bodies.
Delegates welcomed the South African
Insurance Association’s (SAIA) plans to establish
a communication hub to facilitate information
sharing. The conference also requested the SAIA
to facilitate the development of a framework for
collaboration of insurance associations.
Sustainable insurance limits risk
Chief executive officer of the Insurance Institute
of South Africa (IISA) David Harpur’s paper,
‘The Importance of a Common Framework for
Insurance Educational Standards’, proposes the
development of education standards and products
that can be transportable across borders. The
paper covered the common approach to
continuous professional development and the
establishment of common standards of local value
with international acceptability.
The conference discussed the role of the
insurance industry in sustainable economic
development. Programme leader at United
Nations’ environmental initiative, Butch Bacani,
told delegates that the insurance industry, with
world premium volume of $4.5 trillion, was
uniquely positioned to tackle environmental,
social and governance issues.
“Sustainable insurance is about reducing
risk, developing innovative solutions and
improving business performance with a view
to contributing to environmental, social and
economic sustainability,” says Bacani.
General manager of strategy and planning at the
SAIA, Debbie Donaldson, told delegates that
the South African insurance industry has indeed
responded to some of these sustainability issues,
in particular energy security (home owners’
insurance), food security (agriculture insurance)
and community risk management (community
risk insurance). “It is important for the short-
term industry to offer products and solutions
that will promote our industry and not harm our
environment and communities.”
Overall consensus at the conference was that
Gaborone hosted a successful event. President
of the Insurance Institute of Mauritius, Sansjiv
C. Nuckchady commented, saying it was well-
organised and of a high standard.
Marcelina !Gaoses, MD of Mutual & Federal Namibia discussed cross-border insurance.
Tshepiso Mphahlane, conference co-ordinator and CEO of Sisco Corporate Advisors.
Regional confeRence tackles industRy issues It is important for the short-
term industry to offer products and solutions that will promote our industry and not harm our environment and communities.
30 riskAFRICA
Asia
AIR opens Singapore office to expand in Asia-Pacific
AIR Worldwide, provider of risk modelling software and consulting services, is opening a new office in Singapore to meet the expanding needs of clients in the Asian insurance market. “AIR has kept pace with the fast-growing markets and our equally fast-growing client base in Asia by opening offices in India (2000), China (2005) and Japan (2008),” explains Uday Virkud, executive vice-president at AIR Worldwide. “The new office in Singapore ensures our ability to maintain and indeed enhance the high quality of service our clients in the region have come to expect from AIR.”
europe
EU insurers’ capital charges may be cut to boost loans
Reuters recently reported that capital charges for insurers in the European Union could be cut to encourage lending for long-term projects and help boost the flagging economy. The news agency was reporting on an announcement by the bloc’s executive body in a high-profile policy shift.
The European Commission has written to the European Insurance and Occupational Pensions Authority (EIOPA) to look at cutting the amount of capital that insurers
must set aside to cover some types of investments. “European insurers are a potentially powerful financing channel for long-term investment in growth- and job-enhancing areas,” says Jonathan Faull, head of the commission’s internal market unit in a letter published on the executive body’s website.
Banks welcomed the review, saying lower capital charges for insurers would help kick-start securitisation. Cash-strapped governments have pinned their hopes on the insurance sector to fund long-term economic development, as banks curtail their lending for big projects in response to tighter bank capital rules.
France still property investment hot spot
According to the latest overseas property hot spot report, compiled by Conti Financial Services, France is still the number one choice for Britons buying property abroad. Investmentinternational.com reported that for the fourth consecutive year, France has topped the list, accounting for 45 per cent of mortgage enquiries received so far this year. This is the country’s biggest share achieved to date, compared to the 39 per cent last year, and just 15 per cent back in 2008. Spain came in second with 33 per cent of enquiries, thanks to excellent buying conditions and signs that the market is starting to bottom out.
Portugal, accounting for 10 per cent of enquiries, is in third position for the second year running. Although
its share is down by two per cent on last year, interest has picked up again over the past three months as falling property prices entice buyers back. Turkey, Italy, USA, Australia, Canada, New Zealand and Ireland make up the rest of the top 10 list.
Clare Nessling, Conti’s operations director, says, “Buyers have increasingly been sticking to locations they know and trust, which is why France and Spain are out on their own at the moment and Portugal is starting to rise in popularity again, too.”
United Kingdom
Business bank on the cards for Britain
British business minister Vince Cable has launched plans to inject £1 billion ($1.6 billion) into a new business bank in a bid to cut borrowing costs for firms. Cable announced the initiative at the annual conference of junior coalition partners, the Liberal Democrats, reported Finance24.
“We need a British business bank with a clean balance sheet and a mandate to expand lending rapidly and we are now going to get it,” Cable said at the conference in Brighton on the coast of southeast England. “Alongside the private sector, the bank will get the market lending to manufacturers, exporters and growth companies that so desperately need support.”
Cable says the new wholesale bank will open up about £10 billion ($16
billion) of finance for small and medium-sized British companies that are struggling to get access to credit. The new bank will lend the cash via existing financial institutions and start within 12 to 18 months. It will be funded from existing budgets and not require any additional state borrowing. The Conservative-led government hopes that it will attract more than £1 billion of capital from the private sector.
UsA
Berkshire invests millions in Torus
Looking to fund its ongoing expansion efforts, Torus Insurance Holdings Ltd received a capital infusion of $100 million from Berkshire Hathaway Inc. The specialty insurer says that it has received funding from National Indemnity Co., a commercial insurance unit of Nebraska-based Berkshire Hathaway, according to Businessinsurance.com.
The Berkshire outlay coincided with an additional round of funding provided by existing shareholders and private equity firms, First Reserve Corp. and Corsair Capital LLC, a Torus spokeswoman says. While terms of the transaction were not released, sources confirmed that the Berkshire infusion ranged from $80 million to $100 million. Torus began operations in 2008 with $720 million in equity funding from First Reserve.
“We are delighted that Berkshire Hathaway has invested in Torus,”
31riskAFRICA
Group CEO Clive Tobin said in a statement. “This is part of an expanding relationship with one of the most respected companies in our industry.” He adds the investment affirmed the specialty insurer and reinsurer’s global development goal.
Torus has substantially repositioned its business in the past two years. In September 2011, Torus said it would acquire Lloyd’s of London syndicate 1301, which underwrites direct and facultative property, accident and health business. In December 2011, Torus acquired the renewal rights to CV Starr & Co.’s continental European business. Torus also sold its renewal rights of its property catastrophe reinsurance book of business and entered the US surety market during 2011.
US CEO confidence lowest in three years
Finance24 reports that US chief executives’ view of the economy deteriorated sharply in the third quarter and is now as bleak as it was in the immediate aftermath of the last recession, with more planning to cut jobs over the next six months, according to a survey released by the Business Roundtable.
The group’s CEO Economic Outlook Index tumbled to 66 per cent in the third quarter from 89.1 per cent in the second, in the sharpest drop recorded in the survey’s decade-long history. Confidence fell to its lowest point since the third quarter of 2009,
when the US had just emerged from its worst recession in 80 years, but remained above the 50 mark, separating growth from decline.
Among US CEOs, 34 per cent expect to cut jobs in the United States over the next six months, up from 20 per cent a quarter ago. Thirty per cent plan to raise capital spending, down from 43 per cent. Over that time period, 58 per cent expect their sales to rise 34 per cent, down from the previous survey’s 75 per cent.
The survey comes less than two months ahead of the US presidential election, in which the weak economy and stubbornly high unemployment are shaping up to be key elements in voters’ choice between incumbent Democratic President Barack Obama and Republican challenger Mitt Romney.
Investors will get a more detailed look at corporate confidence next month when top US companies including Alcoa, JPMorgan Chase and General Electric report quarterly results. The survey of 138 CEOs was conducted from 30 August to 14 September.
The weak economy and stubbornly high unemployment are shaping up to be
key elements in voters’ choice between incumbent Democratic President Barack Obama and Republican
challenger Mitt Romney.
32 riskAFRICA
• Mozambique
inside mozambiqueMozambique is quickly gaining recognition as an attractive investment destination for insurers from neighbouring countries. According to Jaco Moritz of the website, How We Made It in Africa, “Mozambique has transformed from a basket case to one of the world’s most rapidly expanding economies, with growth expected to average around eight per cent a year between 2012 and 2016.” The stable political and economic conditions in the former Portuguese colony have made it a possible idyll for insurers looking to expand. South Africa already has a foothold in the region and is starting to compete with the already established local and Portuguese industry. According to Marsh Africa, there are 10 major insurers operating in Mozambique with the top four being EMOSE, IMPAR, Global Alliance and Hollard. There is one reinsurer, Mozambique Re and growing interest from a variety of insurers in the region.
Bianca Wright
Absa wants to recreate the insurance and financial services offers it has in South Africa in
other markets in Africa, and the Mozambique purchase is in line
with that goal.
33riskAFRICA
Reflecting the past
Mozambique’s insurance industry reflects
its colonial history. In 1987, insurance
was monopolised by the State through
the establishment of (EMOSE) Empresa
Moçambicana de Seguros; but in 1991, this
monopoly was broken and the market was
liberalised. IMPAR and Global Alliance were
founded in 1992. IMPAR is now Seguradora
Internacional de Moçambique and Global
Alliance is the new name of Companhia Geral
de Seguros de Moçambique, which was recently
bought out by Absa.
The regulatory environment has evolved
over time. Decree No. 42/99 of July 1999
established the (IGS) Inspecção Geral de
Seguros (the Inspector General of Insurance)
or the Commissioner of Insurance which
controls insurance activities on behalf of the
Ministry of Finance in Mozambique. George
Mathonsi, managing director of Alexander
Forbes Moçambique, says that following this
decree, in 2003 Law No.3/2003 set new
parameters for the conduct of insurance
business in Mozambique. Decree 41/2003
went on to provide the regulations in support of
Law No. 3/2003 and the Decree No. 42/2003
established the new requirements in respect of
technical reserves and solvency margins.
Mathonsi adds that it is fairly easy to enter the
insurance industry in Mozambique provided the
investor complies with specific requirements
as per the Insurance Decree-law No. 1 /2010
of 31 December. The decree is essentially the
main legislation regulating the operation of the
insurance sector. This law sets the parameters
for the conduct of insurance business in
Mozambique. Issues dealt with include licensing
of insurance sector organisations, restrictions
on non-admitted insurance, operating
requirements, supervision levy, operating criteria
for intermediaries and the penalties for non-
compliance with the act.
Similar to the South African environment,
insurance-related laws are drafted by the IGS.
The draft law is submitted to the Ministry
of Finance for approval and, on approval, is
forwarded to the cabinet. If the draft law meets
with the consent of the cabinet it is placed before
parliament. If it is found to be acceptable it is
signed off by the president and published in the
government gazette. These similarities make it an
attractive option for insurers in other countries.
Creating the future
The interest in the region from South African
insurers was perhaps best highlighted by Absa’s
recent acquisition of Mozambique’s Global
Alliance Seguras, which, in 2010, generated
income of over $25 million, according to the
Absa Group. Absa already has a presence in the
country through its majority stake in Barclays
Bank Mozambique. The bank is majority owned
by Barclays PLC (BCS). Absa CEO Willie
Lategan told Dow Jones Newswires, “Absa
wants to recreate the insurance and financial
services offers it has in South Africa in other
markets in Africa, and the Mozambique purchase
is in line with that goal.” It is not alone; there are
other SA insurers already active in the market
and still others are eyeing the possibilities.
According to Mathonsi, Mozambique’s non-life
market continues to grow at a good rate with
an annual growth in US Dollars of more than
12.5 per cent from 2007. The non-life sector,
he adds, is dominated by the motor insurance
class, accounting for about 46.5 per cent
gross premium written. “The growth of the
insurance industry remains inextricably linked
with economic performance. All indications are
that if political and macroeconomic stability is
maintained, the non-life market will continue
to grow well.” Seguradora Internacional de
Moçambique SA (Impar), one of the largest
private insurance companies in Mozambique
has a market share of 34 per cent. In December
2010, its total premium income reached around
Meticais 1.218 million (equivalent to US$37
million) on life and non-life businesses.
In terms of loss ratio performance,
Mozambique’s non-life sector has had a ratio
of not more than 38.7 per cent for a number
of years, incurred claims to net premiums
earned. “The return on capital for the industry
as a whole is around 13.6 per cent with the
three top companies reporting rates of return
in excess of 25 per cent in 2008 and 2009,”
he says.
The growth of the insurance industry remains inextricably
linked with economic performance. All indications are that if political
and macroeconomic stability is maintained, the non-life market
will continue to grow well.
Meticais 1.218 million
total premium income reached in December 2010
34 riskAFRICA
A growing market
The market size is valued at approximately
US$ 95 million, ranked as follows:
Composite insurers
1. 28.4 per cent – Impar
2. 26.1 per cent – Emose – State insurer
3. 21.9 per cent – Hollard
4. 19.40 per cent – Global Alliance
Non-life
5. 02.5 per cent – MCS
6. 01.7 per cent – Austral Seguros
7. 00.0 per cent – Real Seguros – started 1
August 2010
The only reinsurer registered in the country
is Moz Re, a subsidiary of the ZimRe. “Local
insurers cede a substantial amount of facultative
business to the South African market, principally
Munich Re and Swiss Re. Business is also placed
with regional reinsurers, for example Africa Re,
Kenya Re and PTA Re,” Mathonsi says. “Specialist
markets are used for particular classes or risks;
the aviation sector, tourist lodges, liabilities and
the London market is often used for the specialist
facilities it can provide. There is no single insurer
writing life business or life insurance companies in
the market. Life and non-life business is written
by composite insurers and the life business is very
insignificant accounting for approximately 2.5 per
cent of GPI.”
South African-owned Absa bought the Global
Alliance insurance company and Alexander Forbes
Insurance Brokers. Both have majority direct
foreign investments and are very successful.
Mathonsi adds: “There is no Namibian investment
in the insurance industry but countries like Kenya,
Malawi and Zimbabwe also have successful
insurance investment in Mozambique.”
In another interview with the How we made
it in Africa website, Lategan says, “If you look
at the Mozambican market, it is still very lightly
penetrated with insurance, although it has been
growing in significant double-digits over the
last three to five years. We think this growth is
going to continue, and we want to participate
in that growth.” He adds that Global Alliance
is the number three player in the Mozambican
landscape. “The top four players are all
significant players in the Mozambican context,
and then there are a number of smaller players.
Competition is heating up, but the overall
insurance penetration is still less than one per
cent of GDP.” Absa does not intend to rebrand
Global Alliance as the company already enjoys a
good foothold in the market and has very good
relationships with the brokers.
As a percentage of GDP and expenditure on
a per capita basis expressed in USD in the
year 2008, life represents 0.11 per cent; and
non-life represents 0.69 per cent. “Most of
Mozambique’s population works in the informal
sector, a substantial amount of which comprises
of subsistence farming. These people have no
involvement at all with the insurance sector and
an improvement in insurance penetration hinges
on the growth of formal sector employment and
the economy in general,” Mathonsi says.
Diversifying options
There are currently 33 insurance brokers
licensed in Mozambique, a number of these
with Portuguese or South African shareholders.
The largest insurance brokers according to IGS
statistics released in 2008 are:
•26.5percent–Aon
•21.3percent–AlexanderForbes
•15.7percent–Nationalbrokers
•12.1percent–PoliSeguros
•11.3percent–MSeguros
•13.1percent–Allotherbrokers
Although no official statistics are available,
brokers are now believed to be the most
important distribution channel in the
Mozambique market, certainly in terms of the
business-related insurances with more than 50
per cent market share.
Increasingly insurers are diversifying product
offerings to keep in line with client needs. In
August, for example, Hollard Mozambique
announced its new travel insurance product.
Henri Mittermayer, managing director of
Hollard Mozambique, says: “We are delighted
to announce the launch of the Hollard
travel insurance product in a move that will
revolutionise travel insurance in Mozambique.
Until now, travel insurance in this market
wasn’t necessarily an appealing proposition.
Hollard Travel Insurance will redefine the
travel insurance landscape by providing
consumers with an innovative, affordable and
convenient solution.”
Mozambique remains a relatively untapped
market for insurers and South African and
Namibian insurers are set to take advantage of
the possibilities and leverage the experiences
they have had in their own markets to extend
into this growing target market.
Recommended