SEPTEMBER 2014

Industry intelligence to nancial professionals www.cover.co.za

HOSPITALITY
Home away from home

AGRICULTURE
Digging a little deeper

MANDELA DAY
Giving back

HEALTHCARE
Fertile or failing system?

OFC_landscape.indd 1 2014/08/21 10:36 PM

 With our ever-expanding national footprint, Renasa is probably closer
than you think. And we dont fob you off on a call centre, or even expect
you to queue at our door. Renasa still treats brokers like brokers with

Astronauts.indd 1 2013/03/02 11:05 AM

Untitled-1 1 2014/09/05 3:17 PM

 personal service around claims and the fastest turnaround on commercial
underwriting decisions. Want to meet us in person? Well come to you.
Contact Renasa today on 0860-renasa or visit www.renasa.co.za

Astronauts.indd 2 2013/03/02 11:05 AM

Renasa DPS template.indd 2 2014/08/21 10:53 PM

 25 YEARS OF INDUSTRY INTELLIGENCE

CONTENTS
COVER SEPTEMBER 2014
08

SEPTEMBER 2014

Industry intelligence to nancial professionals www.cover.co.za

HOSPITALITY
Home away from home
SHORT-TERM
AGRICULTURE
Digging a little deeper

MANDELA DAY
Giving back Product liability and safety standards 16
Changing our mind about taxis 18
HEALTHCARE Agri Insurance to feed the world 20
Fertile or failing system?
Legal liability case study 34
OFC_landscape.indd 1 2014/08/21 10:36 PM
A potential nightmare 88

ON THE COVER
HOSPITALITY RISKS 8
The hospitality industry faces a multitude of
risks, from personal liability to contents and
building damage. Many of these risks may
look like normal householders risks, but the FINANCIAL PLANNING
underlying dangers of not looking for special
advice are serious. The industry responds. Tax and the Buy and Sell Agreement 46
Astute greasing the wheels of industry 49
AFRICA AND AGRICULTURE ARE SYNONYMOUS 20 Success with beneficiary funds 51
More and more the world is looking towards Cost drag and investment performance 52
Africa to provide it with food. Africa is perfectly Can SA survive the global pension crisis? 54
suited to a fast growing agricultural sector and Interest rate cycle what to 55
the insurance industry is ready with innovative Changing face of retirement 56
insurance solutions to ensure sustainability of a They still think all that glitters is gold 58
crucial sector.

HEALTHCARE SA - QUO VADIS? 65

Healthcare provision and funding in South
Africa is a controversial issue, partly because
of the failing public healthcare system, but
also due to the high cost of private medical
care. Are we winning the battle to provide UMA CORNER
affordable care to all?
Genric buys UMA interests 42
MANDELA DAY A TIME TO GIVE BACK 78
COVER did the rounds on Mandela Day to
see how the industry spent its 67 minutes in
support of a better country. In most cases 67
The views expressed in this magazine do not necessarily represent
minutes turned into a day! those of its owners, publishers or editorial staff. Editorial
contributions sent to COVER are subject to editorial change to suit
the style of the magazine. All manuscripts, photographs and other
Subscription rate: R470 per annum in South Africa. similar matter are accepted on the understanding that no loss or
Other rates on application. damage is borne by the publisher, the editor or their personnel.

2 COVER SEPTEMBER 2014

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Untitled-1 1
75638 Cover.indd 1 2014/08/21
2014/05/19 10:54
11:58 PM
AM
 60 78

EDITOR
Tony van Niekerk
tony@cover.co.za

RISK MANAGEMENT EDITORIAL

Annetjie van Wynegaard
annetjie@cover.co.za
Payment fraud on the rise 74
Tika-tika tactics and risk management 75 Taryn Kerr
taryn@cover.co.za
Debt markets in plain English 76
ADVERTISING & MARKETING
Hermione Ballinger
hermione@cover.co.za

EDITORIAL, ADVERTISING & MARKETING

Thenjiwe Roda
thenjiwe@cover.co.za

ADMIN & SUBS

TECHNOLOGY Brent Munnik
brent@cover.co.za
Insurance and the digital revolution 34
LAYOUT & GRAPHIC DESIGN
Accelerating value from digital investments 36 Wesley Chipps
Technology issues on LISP platforms 39 wesley@cover.co.za
Security in the eye of the beholder 40
Publisher
COVER Publications

Street address
80 Devilliers Way,
Glencairn, Cape Town

Postal address
P O Box 2030
REGULAR Sun Valley, 7985

Editorial 6 Telephone (083) 567-0757

Fax (086) 642 6263
Coffee with COVER and Global Choices 44 E-mail: info@cover.co.za
Governance 85 Website: www.cover.co.za

Events 89 Images: 123rf.com; istockphoto.com

Market cover 92 & shutterstock.com
Product Development 94 Editorial Board
People on the move 96 Peter Atkinson, Seamus Casserly,
Mike Duncan, Ronald Gordon, Mark Haken,
Jonty Kirkman, Baravand Madhav,
Rod Pearson, Colin Travers.

Advisory Committee
Carel Nolte, Viviene Pearson, Kalim Rajab

The Editorial Board serves in a voluntary and

independent advisory/technical capacity. Members do
not in any way represent their employer companies.

See our Facebook page

(www.facebook.com/COVERPublications)
and follow us on Twitter @covertony & @coverchat

() 2014
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or
by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publishers. Any
unauthorised reproduction of this work will constitute a copyright infringement, rendering liability both under civil and criminal law.
4
ISN 1013-1507 COVER SEPTEMBER 2014

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Untitled-1 1 2014/08/21 10:57 PM
 Editorial

Are we
there yet?
In this issue of COVER we are
looking at a few issues that
would, at first glance, seem like
repeat stories. Unfortunately
it is simply the next episode
of a variety of recurring yet
unresolved issues.

Firstly, we have the ever-growing

problems with the demarcation
debate and the issue of Gap Cover.
Every time we revisit this I think that,
surely, we have to be there with
these new amendments. Alas, the
latest amendments that is aimed at
clearing this up and moving towards an
acceptable landscape of demarcation,
does everything but that. The
confusion deepens and the outcome is
even worse than it was before. If these
amendments stand, we will see a mass
exodus of intermediaries and UMAs
from the medical insurance space.
Read the article by Webber Wentzel on
page 70. On page 66 Peter Jordaan,
Fedhealth, revisits consumer education
as a way to reduce the cost of medical
aid contributions.
The agriculture sector is more and more
seen as a vital part of stability, peace
and sustainability on the global front.
2014 is the Year of Agriculture in Africa
and in South Africa our government
would like to create 1 million jobs in this
sector by 2030. All this means that the
pressure is on the insurance sector to
mitigate the various risks facing farmers.
COVER has done a few features on
agri insurance in the past, but this one
certainly is the most interesting one so
far, covering everything from reinsurance
to financial management by farmers.
There are opportunities here and many
players are working to unlock these.
This month we also bring you our 2014
Insurance Conference Special Insert.
This magazine brings the conference
to all those who could not be at the
conference, sharing with them the
fun and the learning that made this a
special event. We bring you a variety of
summarised presentations, comments
from various attendees, photographs
and so much more. I guarantee that
you will want to be at Sun City in 2015
after reading this.
As per usual, COVER was at the
conference in full force. Not only do
our efforts bring you the Conference
Magazine, we interviewed no less than
27 people over the two days, making
the videos available to you on our
website, courtesy of Zurich. Visit www.
cover.co.za/article/videos for all the
brief clips with industry leader insights.
We also recorded all the presentations
on video and these will be made
available to you via the IISAs website
for CPD points. Now you can watch
any of the conference presentations
you missed, from the luxury of your
office chair.
Our fun initiative at the conference
was called Flip Im in a Fliek and if
you have not seen the hilarious video
clips staring your very own colleagues
in famous roles, better log onto our
website in the video category and
watch them. There are also great
prizes to be won by simply voting for
the industrys best actor.
Lastly, COVER also launched our
Lifestyle App, powered by Oneloyalty.
If you are a COVER reader, you can
also benefit from the fabulous offers
on this app. Simply download from any
app store and away you go.
Hope you have a stunning read.

6 COVER SEPTEMBER 2014

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Untitled-1 1 2014/08/21 10:58 PM
 Hospitality Feature

Insuring the home

away from home
What happens if a
tourist falls sick on
your premises, or
your pets scratch
their cars? Tourism
is an important
contributor to
the South African
economy. The
hospitality industry
faces a host of
challenges, but has
also come up with
innovative solutions.
COVER travelled
to the heart of the
hospitality sector.

8 COVER SEPTEMBER 2014

Sep 14.indd 8 2014/08/21 10:25 PM

 Arrive as a guest,
leave as a friend
President Jacob Zuma recently
announced that South Africa had
a record number of 9,6 million
international tourist arrivals in
2013; predicting that the sector
will contribute approximately
R125 billion to the countrys
revenue by 2017. The protection
of this sector is, therefore,
vital not only to the growth
of the countrys GDP but also
to the development of small
to medium enterprises (SMEs)
in the industry, which have a
direct impact on job creation.
Here are a number of trends
currently affecting the hospitality
insurance sector in South Africa.
Demand for this type of niche
insurance will continue to grow in
South Africa even though a number
of the more opportunistic guesthouses
or B&Bs have shut down since the
World Cup in 2010, more well planned
properties continue to open. In fact,
the Western Cape boasts the largest
number of B&Bs, followed by KwaZulu-
Natal and Johannesburg. It is essential
that insurers work closely with industry
players to continue to create relevant
products that meet customer needs
as the sector develops. Collaborating
with various associations such as the
Federated Hospitality Association
of South Africa (Fedhasa) and the
National Accommodation Association
of South Africa (NAA-SA) is non-
negotiable listening to feedback and
developing tailored solutions is crucial
to the sustainability of the hospitality
insurance sector.
SIMPLY PUT
Underwriting in the hospitality sector is
specialised and close attention needs to
be paid to a customers requirements in
terms of contents, liability and business
interruption, among others. The
COVER SEPTEMBER 2014
Sep 14.indd 9
principals of Treating Customers Fairly
(TCF) have never been more important,
with focus being placed on simplified
IN FACT, THE WESTERN
CAPE BOASTS THE LARGEST
NUMBER OF B&BS,
FOLLOWED BY KWAZULU-
NATAL AND JOHANNESBURG.
policy wording and ensuring that
customers understand exactly which LANA MIZEN,
elements are covered, and which are Head of Hospitality,
not. In terms of the claims process, time Zurich South Africa
constraints do pose a challenge. If an
incident occurs it needs to be resolved
in a timeous manner to avoid business
losses and reputational damage. Insurers Hospitality claims are usually fairly
need to prioritise in-depth training for run of the mill; however, there are
brokers on new products and solutions sometimes some extraordinary
as well as industry developments, occurrences that all owners should be
particularly when it comes to regulatory prepared for from a manager getting
changes. Personalised road shows burnt while making breakfast and being
almost certainly need to form a key part admitted to hospital for a week, to
of this engagement. children of guests wetting the beds
NO HORSING AROUND
Owners often think that personal cover
is comprehensive enough. However,
this type of insurance does not include OWNERS OFTEN THINK
liability or business interruption cover.
THAT PERSONAL COVER IS
An international tourist could be injured
on the premises, have their belongings COMPREHENSIVE ENOUGH.
stolen or a storm (or worse a volcanic
ash cloud as seen in 2010) could
prevent guests from arriving at the
establishment, resulting in a loss of
revenue. An owner could fall ill with no and mattresses having to be replaced.
one to run the business, while bilking Animals also pose a number of risks
(when guests leave without paying) is a rat gnawing on a patrons expensive
also a common occurrence, negatively shoes or a horse licking a guests car
affecting profit margins. In addition, damaging the paint job, making the
it is recommended that polices are guesthouse liable for costs. The fact
extended to equipment, including remains that anything can happen and
maintenance cover an air conditioner finding suitable cover to help mitigate
failing in the middle of summer in these risks could mean the difference
Durban or a washing machine breaking between a business thriving or shutting
down mid-cycle could leave owners down, ultimately impacting the growth
with disgruntled and dissatisfied guests of the South African tourism industry
who are not likely to become repeat and consequently, the countrys
customers. economy.
9
2014/08/21 10:25 PM
 Hospitality Feature

Changes in SAs hospitality

customers bring opportunity
more economic boutique facilities or
up-market guesthouses.

This has forced a change in how

the owners and managers of these
properties perceive risk. For example,
a family on holiday does not generally
take expensive electronic equipment or
jewellery.

THE DISAPPOINTING
NUMBER OF TOURISTS TO
THE 2010 WORLD CUP IN
DAVID PRATT,
Head of Hospitality and Tourism
SOUTH AFRICA LEFT AN
at Hollard Broker Markets ECONOMIC BACKLASH.

There have been two important Businessmen and women, however,

shifts in South Africas
hospitality industry involving the
nationalities of our visitors and
where travelling business people
are choosing to stay.
In the past tourists to South Africa
would have mainly travelled from the
United States and Europe, but we are
seeing larger numbers of visitors from
India, China and Japan.
Even more significantly is the increase
in visitors from our neighbouring
countries and further afield from
within Africa. They tend to visit our
country to purchase goods and depart
fairly quickly. Questions insurers and
hospitality providers need to be asking
is whether insurance needs have
changed compared to past guests, and
if the risks and needs associated to
these new visitors are different from
each other? We have been doing that
and made some changes to meet new
risk challenges and realities.
OPPORTUNITY IN CHANGE
With the economy remaining relatively
static many businesspeople are
switching from commercial hotels to
almost always have a laptop, iPad,
iPhone, and quality accessories. As
a result of this change in the visitor
demographics, Hollard Hospitality and
Tourism has amended our Broadform
Liability to increase the guests
personal effects extension at no
additional cost to clients.
There is an opportunity for brokers in
increased B&B or guesthouses which
they can attract through impressive
and valuable guidance. These are new
businesses that can be turned into
loyal customers by nurturing them.
While there are few intermediaries who
specialise in hospitality, our goal at
Hollard Hospitality is to offer specialist
support, expert underwriting and
competitive products so brokers can
deliver impressive expertise.
2010 FOOTBALL BACKLASH
The disappointing number of tourists to
the 2010 World Cup in South Africa left
an economic backlash. The hospitality
industry spent big money gearing up
for growth prior to the World Cup but
the projected volume of visitors didnt
arrive. This left high levels of debt and
hospitality clients choosing greater risk
retention.
Sensitive to this, we are offering free
value-add services. For example, at no
cost, our surveyors make use of infra-
red technology to identify hotspots and
weaknesses within normally invisible
electric cabling. This is to prevent fire
outbreaks and problems associated
with interrupted electrical supply. Our
job is to take worry off the shoulders
of our clients and use our expertise to
help them succeed.
While infra-red identification of
hotspots is important there are many
other risk reduction possibilities. Once
all risk mitigation measures have been
identified and corrected, hospitality
clients can more safely determine their
comfort level of carrying portions of
their own risk.
We find that this sensitivity to their
current reality means when they need
and can afford increased insurance
protection, they know who to trust.

10 COVER SEPTEMBER 2014

Sep 14.indd 10 2014/08/21 10:26 PM

 VOLCANO 30373
WE TRUST YOU,
OUR BROKER,
TO PROTECT
OUR MUTUAL
CUSTOMERS...
...by offering the right kind
of insurance advice & solutions.
Together we can turn our customers
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Personal, Agri, Business, Corporate,
Marine or Engineering.

To know more about our range of short-term

insurance solutions, contact us
on brokers@mf.co.za

30373 MF_ 1Broker Integrated_Cover Mag.indd 1

Untitled-1 2014/03/20 10:59
2014/08/21 11:50 PM
AM
 Hospitality Feature

Hospitality and
gaming: the risks
Every day, the hospitality and
gaming industry faces a new
and growing world of risk.
This sector is confronted by a
variety of potentially damaging
threats, particularly as they
deal with an influx of new
leisure and business travelers.
Theres constant pressure from
the evolving marketplace that
impacts important issues in risk
management and threatens profit
margins.

Hotels are popular targets among cyber

criminals and hackers due to the type
of information collected from their
guests. A single breach could result
in hundreds or even thousands of
pieces of guests personal information
(names, addresses, credit card
details etcetera) and payment details
being compromised, and apart from
regulatory implications, could result in
serious brand damage.
According to Morne van Zyl, Senior
Consultant at Marsh Africa in the
Marsh Risk Consulting Division, the
hospitality and gaming industry is
susceptible to more than just cyber
risks.
The industry is exposed to a number
of security risks such as armed robbery,
table scams by punters in collusion
with dealers, theft from rooms and
other public areas, fraud and injury to
guests.
FIRE REMAINS ONE OF
THE MOST SEVERE RISKS
FOR THE INDUSTRY
Fire remains one of the most
severe risks for the industry and an
organisations risk mitigation strategies
should include staff and public
evacuation, protection of assets such
as servers, critical electrical equipment
and the buildings and its contents.
Businesses in the hospitality industry
also contend with occupational health
and safety risks, failure of utilities
such as power and water, food safety
as well as general hygiene including
Pandemic risks.
It is crucial for businesses to ensure
they are working with a broker who
understands the risks typically faced
by the hospitality industry. While
proper insurance coverage can assist in
shielding a business from liability once
a lawsuit arises, hotel management
are advised to mitigate the factors that
can lead to injury or loss. In addition,
businesses need to consider their
brokers experience in managing such
insurance claims.
Van Zyl adds, Marsh Risk Consulting
offers a wide range of Risk
Management Solutions covering
a number of topics such as fire
safety, infra-red inspections (IRIS),
occupational health and safety,
environmental management consulting
and training.

12 COVER SEPTEMBER 2014

Sep 14.indd 12 2014/08/21 10:26 PM

 JHB 46757

We offer
all sorts of
worry-busting
stuff.
We just cant fit it all in here.

Were super proud of being awarded the FIA Personal Lines Insurer of the Year 2014.
It stands so nicely next to our 2013 award. But more importantly, it means were
doing right by our brokers and partners. When we get accolades like this from people
like you, boy do we celebrate. And then we go right back to working on how we can
get better, so that we can help you to make everyones lives a lot less worrisome.

Proud winner FIA Personal Lines Insurer of the Year 2013 and 2014,
thanks to our brokers and partners.

personal commercial corporate investments The Hollard Insurance Co. Ltd, Hollard Life Assurance Co. Ltd and Hollard Investment Managers (PTY) Ltd
are authorised Financial Services Providers.

Untitled-1 1 2014/08/21 11:01 PM

 Hospitality Feature
Crime creates mass losses
in hospitality industry
PAUL HALLEY
(MD of Ascent)
AND SHARON PATERSON
(CEO of Infiniti Insurance)
The past few years have seen
a growing trend in employee
criminal activity, both directly
and indirectly, within the
hospitality industry, as constantly
highlighted by the media,
said Paul Halley, Managing
Director of Ascent. Ascent
is an underwriting manager
underwritten by Infiniti Insurance
Limited. As an underwriting
manager in the Tourism,
Hospitality and Entertainment
sectors, he has been privy to this
new industry anomaly.
Were not talking about minor
pilferage, but rather large scale and
complex criminal activity.
He outlined that the complexities of the
hospitality supply chain, variable pricing
models, technological advancements,
human resources models in the sector
and socio-economic pressures, have
all contributed toward the rising trend.
Theft by, or with the assistance of,
employees whether intentional or
otherwise, is one of the most common
and frequent causes of loss in the
Tourism, Hospitality and Entertainment
sectors. The short-term and seasonal
nature of the industry, skill portability
and volume of low to medium skilled
employment opportunities, exposes
the sector to such incidents. A
volatile labour and socio-economic
environment and the frequent use of
migrant and foreign labour are also
contributing factors.
With sector players not officially
recording the percentage of crimes with
an element of employee involvement,
best guess estimates trend this
14
Sep 14.indd 14
number to be around 90% plus. We
can confirm that, in our estimation,
and based on regular review of
circumstances involved in both direct
and indirect crime, this number could
be a conservative estimate, said
Halley.
Recent immigration rule changes
for employers are expected to assist
against this scourge. Ultimately it may
make things worse. Recent changes
mean work permits in the Hospitality
and Food and Beverage sectors will
be difficult to come by as these
industries are listed as undesirable
business for work permits under
new legislation. Desperation could
increase fidelity losses or drive further
sophistication of the black market for
fake and fraudulently obtained permits.
This phase will require additional
vigilance on the part of employers
and regulatory compliance to ensure
all foreign employees have valid work
permits.
Paterson said that indirect crime assists
INDIRECT CRIME ASSISTS
EXTERNAL FORCES TO GAIN
INFORMATION ON OR ACCESS
TO PREMISES, SAFES, SECURITY
SYSTEMS AND BANKING PATTERNS.
Sharon Paterson, CEO of Infiniti
Insurance and Underwriter of Ascent,
said, Directly, fidelity losses can be
sophisticated and extensive, occurring
with the ingenious use of point of sale
and accounting software technology
and syndicate involvement. The
prospects of recovering the money are
usually very low and losses include
theft of stock, money and other assets
of the establishment. This is very
common within restaurants where
syndicates have employed devious
techniques of manipulating point of
sale and accounting control systems.
In many instances the perpetrators
have disappeared and cannot be
brought to book. The human resource
model in the sector together with the
fact that there is little or no basis for
formal sharing of information regarding
employees among operators and
employers often means the individual
implicated has secured another similar
job in a different region or town but
in the same sector and so the cycle
continues.
external forces to gain information on
or access to premises, safes, security
systems and banking patterns. This
form of indirect involvement can be
particularly dangerous as it places
owners, staff and guests at risk of
being drawn into the dangerous
circumstances that come with
contact crimes. Assets and cash can
be replaced when insured correctly,
lives on the other hand cannot. This
also affects the perception of South
Africa as a tourist destination with
security being a major differentiator
for international tourists and business
people.
Halley concluded, Ensure your clients
have the cover they need when it
comes to protecting against theft.
Choosing an insurance partner that can
assist with risk management practices
and regulatory compliance will
safeguard your clients, and go a long
way to eliminating this risk exposure. It
will also provide you with the ability to
get back on your feet quickly and easily
after a loss.
COVER SEPTEMBER 2014
2014/08/21 10:26 PM
 Finding it tough
to stand out from the crowd ?

New National Assurance -

treating brokers and administrators for
who they really are
SAs oldest black insurer |
A rating |
FSP 2603 |
www.nnac.co.za |

Untitled-1 1 2014/08/21 11:01 PM

 Short-term
Product Liability:
What Safety Standards are applicable?
ERIC DOM,
Underwriting Manager Liabilities, Global
Casualty, AIG South Africa Limited
When introducing products to
market, manufacturers must
ensure a reasonable level of
safety to avoid product liability
claims. What safety standards
are applicable and do they vary
depending on where the product
is sold?
In addition to legislation which
applies to product safety and with
which manufacturers must comply,
there are also local and international
safety standards that guide product
specifications and provide consumers
with quality assurance.
Locally, product safety standards are
regulated by bodies including the South
African Bureau of Standards (SABS),
the National Consumer Commission,
the National Regulator for Compulsory
Specifications (NCRS), and the
Department of Trade and Industry, as
well as industry authorities.
These bodies act in terms of legislative
frameworks such as the Standards
Act and the Consumer Protection
Act; the SABS also operates as the
standardisation body for the Southern
African Development Community of 14
countries.
16
Sep 14.indd 16
For South African importers and
manufacturers, there is also a strong
onus to adopt international standards
either European or American.
While each member country within
Europe has its own standards-
setting organisation, there is also an
umbrella level at which standards are
administrated across the region to
provide the European Norms Standards.
Where harmonised European standards
exist, they are then adopted as national
standards by the standardisation bodies
of each member country to provide a
common approach.
WHILE STANDARDS ARE VERY
USEFUL, THEY HAVE THEIR
LIMITATIONS AND SHOULD
BE SEEN AS A BASELINE.
There are also international
product safety standards which are
administrated by ISO the International
Organisation for Standardisation.
Some ISO standards are adopted as
harmonised European standards.
European and ISO standards are risk-
based, which means risk assessment
(or design review) is implicit in their
application. The standards help
guide judgments made during the
development process; however,
manufacturers must take responsibility
for the type and level of safety
precautions selected there is no
simple look-up chart.
American product safety standards
are developed via non-governmental
Standards Development Organisations
(SDO). Many industry sectors have
their own SDO.
Unlike Europe, American safety
standards do not have any clear
structure. Product-specific standards
tend to be self-contained documents
providing guidance that may be specific
to the product.
While standards are very useful, they
have their limitations and should be
seen as a baseline. Thats owing to
the consensus approach taken to
establish standards (whether European
or American); as a result, the
guidance provided us often somewhat
basic.
Therefore, while passing a standard
is necessary, it is not sufficient it is
not enough to confirm that a product
is safe for its intended uses. More
work may still be required in terms of
testing, labelling and providing user
information to avoid product liability
claims.
Finally, it should be borne in mind that
product liability claims arise from not
only as a result of inadequate design,
but also through manufacturing faults.
Failure to adhere and comply with
standards may bring manufacturers
directly into breach of statutes
or breaches in Health and Safety
regulation. Omissions such as these will
make it extremely difficult to defend
a liability claim into terms of our
common law.
Therefore, manufacturers must have
quality management systems in
place to ensure their production and
distribution operations are effective;
the ISO9000 standard for quality
production processes is provides
a recognised level of guidance for
production processes.
AIGs web-based Product Liability
Service is a training system which helps
manage product liability risks. Courses
cover a variety of topics including
management, safety warnings, risk
communication, legislation and
standards, to promote good risk
management. The service is supported
by tools including a model corporate
product safety policy statement, a self
assessment audit and a risk assessment
tool.
Eric Dom can be contacted at
eric.dom@aig.com
COVER SEPTEMBER 2014
2014/08/21 10:26 PM
Untitled-3
Untitled-1 11 8/7/14 11:02
2014/08/21 10:49 PM
AM
 Short-term
Shot right changing
our minds about taxis
Fifteen million commuters
take taxis daily, according to a
household survey by Statistics
SA 2013. The taxi industry is
one which the whole country
should accept that we cannot do
without, said Maroba Maduma,
Head of Sales at SA Taxi.
According to statistics on their website,
www.sataxi.co.za, the South African
public transport system services 6,7
million people per week. 83% of these
trips are made by taxis, of which there
are about 200,000 on the road.
We finance small business owners
to help them earn a living, said Brad
Shirras, Executive Director of SA Taxi.
18
Sep 14.indd 18
BY ANNETJIE VAN WYNEGAARD
be it due to slow repairs, an accident,
or strikes it affects the economy
directly. People need to get to work.
Taxis are a vital part of South Africas
public transport infrastructure and
economy.
INSURING TAXIS ARE SAFE TO USE
The purpose of Khusela Taxi Insurance
and Khusela Taxi Business Insurance
is to help taxi owners improve the
safety of their vehicles. Their taxis are
their livelihood, and Khusela protects
their business by keeping their vehicles
safe and on the road. The products
are also designed to help taxi owners
earn an extra income. These products
are targeted at the taxi industry and
underwritten by Guardrisk.
Khusela Taxi Business Insurance
is offered to taxi owners who are
financing their vehicles through SA
SA Taxi is a small independently owned
Taxi, whereas Khusela Taxi Insurance
participant in vehicle financing in South
is for non-financed vehicles (vehicles
Africa and a member of the Transaction
that didnt require finance or are
Capital group of companies. In October
financed through another institution).
2013 SA Taxi launched two insurance
Both products provide comprehensive
products, Khusela Taxi Insurance and
insurance coverage for the taxis as
Khusela Taxi Business Insurance.
businesses.
Its not just an investment into
In addition to comprehensive coverage,
SMMEs, said Maduma, but an
taxi operators can earn 10% back on
investment in the economy of the
their premiums from the first month, if
country. When a taxi is unavailable
COVER SEPTEMBER 2014
2014/08/21 10:26 PM

their vehicles pass a safety check every
six months, install an approved tracking
device, and sign up for an SMS theft
or hijack alert system. These services
offer incentives to the taxi operators to
take care on the road. The SMS alert
system will tell the operator when the
driver is entering a dangerous route.
The insurance offering also provides
instalment protection. Khusela Business
Insurance will pay up to 100% of the
taxi owners next instalment to his
credit provider, if his taxi is not repaired
within seven days of an accident or
breakdown.
Owners can gain access to legal advice
for their business through the Taxi
Business Legal Assist option.
COVER SEPTEMBER 2014
Sep 14.indd 19
If taxi owners go to the correct and
approved panel beaters, Khusela
reduces the excess payable by the
operator in the event of an accident.
All this serves to change the behaviour
of taxi operators, taxi users, and taxi
commentators as a whole.
MEDIA MOOLA
Shirras said the Khusela products are
designed for business owners who
want to run successful taxi businesses.
Through the smart application of
telematics, SA Taxi Media can show
media companies exactly which routes
the taxis take and how often. By
clearly identifying the target audience
for media houses through the use of
tracking data, SA Taxi Media offers
advertising for the companies on the
taxis mobile billboards! The revenue
from the advertising goes straight into
the taxi owners pocket a nice second
income.
TRUST AND REACHING THE
MARKET
Trust, respect and knowledge are
important in this business. Maduma
said when they choose their insurance
partners, they ask: Will this person
best serve the taxi industry, and
provide a proper service for our
customers? Khusela/SA Taxi Protect
work closely with brokers to bring
the products to the market, and have
made lasting partnerships with Scottfin,
Venshaw, Zwene Insurance Brokers,
Kelello Financial Services and Taccsure.
SA Taxis head office is in Midrand, and
the company has offices in the Western
Cape, Mpumalanga and Kwazulu-Natal.
Mobile branches service the Eastern
Cape and North West region to assist
customers who are not able to visit
branches in a central location. SA Taxi
takes the branch to them. In addition,
SA Taxi embarks on monthly outreach
programmes to attend to clients in
extreme regions.
Consumer education is at the heart
of their interactions with current and
prospective clients. SA Taxi uses
outreach programmes, mobile offices,
and focus groups to get in touch
with their clients. They have regular
meetings with their clients to ask,
What do you need? Their Midrand
offices house a welcoming centre that
sees 45 visitors on average per day,
and 60 visitors on a busy day.
In addition to serving the taxi industry,
Khusela also has a fully staffed call
centre thats operational every day all
day, and Taximart a workshop where
taxis are repaired, from engines to
upholstery, thereby creating jobs and
adding to the economy.
19
2014/08/21 10:26 PM
 Agri Feature
AFRICA
CAN FEED
THE WORLD
All stakeholders agree agriculture is vital for economic growth and food
supply in South Africa not to mention job creation. The industry leaders in
agriculture cited innovation, partnerships, and the importance of brokers in this
space as vital roots for robust growth in the industry. COVER dug a little deeper.
SOWING THE SEEDS OF
SUSTAINABLE AGRICULTURE
The African Union has declared
this year to be the Year of
Agriculture and Food Security
in Africa, with the South
African government identifying
agriculture as a key driver of
employment; hoping to create
one million jobs by 2030.
A number of factors have affected the
THAMI GXABHU, agricultural sector in the country from
Product Underwriter, Zurich South Africa climate change and extreme weather
conditions, to land claim issues and
crop disease. The insurance sector
has an even greater responsibility
to mitigate these risks, and most
importantly, enhance collaboration
between the private and public sector.
Here are some of the developments
that will shape the agricultural
insurance landscape going forward.
20
Sep 14.indd 20
LEGISLATION AND POLICY
UNCERTAINTY
The Rural Development and Land
Reform Minister, Gugile Nkwintis,
official proposal that workers take
over half of the farms they work on
is causing significant debate and is
fuelling uncertainty in agricultural
South Africa.
While this may be rooted in good
intention, it is causing farmers to
reconsider whether they should
continue to put more money into
expanding and improving conditions
on their farms, especially as they are
not even sure if the land will remain
in their ownership in the near future.
The challenge is that if a farmer
wont invest more in his land, he is
even less likely to spend money on
insurance. However, the opportunity
is that government has an interest
COVER SEPTEMBER 2014
2014/08/21 10:26 PM
 from the perspective of maintaining
productivity for the economy and
safeguarding the wellbeing of the
rural community and a way to do
this could be by mandating set levels
of agricultural insurance and creating
mechanisms to incentivise insurance,
for example, through premium subsidy
schemes or public private partnerships
with insurers.
CHANGING WEATHER PATTERNS
Given the vulnerability of farmers
and their insurers to weather related
events, it is obvious that reinsurance
is a crucial element of the agricultural
risk management equation. The
International Panel on Climate Change
expects an increase in temperatures
by 1,5% by the end of the 21st century
with Southern Africa expecting a 10%
decrease in rainfall. This will have an
undeniable and far-reaching impact on
the agricultural sector, which will see
a steep incline in the dependence on,
and need for, investment in irrigation
systems, damming and more resilient
and drought resistant seed or crop
stock.
FUTURE CHALLENGES OF
FARMING IN SOUTH AFRICA
Brokers can be local mentors
The agricultural industry, vital
to our nation, faces challenges
that are broad and deep and
will require super management
by experts in specific areas to
overcome, as well as practical
support from the government.
But expert mentoring from
intermediaries can help.
Andre van der Walt, Head of Hollard
Agri, is part of the team who has been
negotiating with the government for
their material and practical support. He
has also been calling on experienced
brokers to pass on their expertise to
new farmers and is a specialist insurer
in agriculture.
COVER SEPTEMBER 2014
Sep 14.indd 21
EMBRACING DIVERSIFICATION
Agriculture needs to consider
diversification and exploration of new
markets. This can be seen in the move
from livestock to game farming. There
has been a significant increase in the
promotion of aquaculture, in particular,
the farming of Tilapia as a potential
substitution for dwindling hake and
kingklip reserves. The South African
Department of Agriculture, Forestry
and Fisheries (DAFF) recently reviewed
fishing rights allocations, licensing and
quotas, further driving the growth
of the sector. There is no doubt that
the expansion of this industry is a
welcomed development in the fight to
attain food security and a clear and
growing opportunity for agricultural
insurance providers.
LIFESTYLE CHANGES
With a growing middle class and
increasing urbanisation, there is
a correlating pressure for higher
standards in production practices and
better quality produce. An example of
this is the trend towards organically
farmed fruit, vegetables and meat
products. For insurers, organic farming
He explains current challenges:
Integrating new farmers into the
established farming community has
been in progress since 1994. Added to
challenges connected to that transition,
extreme and unexpected weather
brings with it a significant set of
challenges and the requisite set of
skills to address them especially
in terms of understanding what
comprises risk within the delineated
parameters of an organic farm
environment. The increase in female
farmers is also an interesting trend
and this changing customer profile
should be factored into the agricultural
insurance sales process.
It is certain that agriculture will
continue to be critical to the
achievement of country and continental
development goals, not just in terms
of food security, but also as part of
job creation, market creation and
international relevance, as Africa starts
to achieve its own potential to feed
the world.
Insurers must stay cognisant not only
of the reality today, but also the
requirements of tomorrow, as their
ability to de-risk agricultural investment
ensures the farmers capacity to grow
their contribution to food security and
enhance the perceived value of the
goods South Africa produces.
changes have confronted even the
most experienced farmers during the
last decade, resulting in severe crop
losses.
Now the duty of the insurance
industry is to do all in our power to
help farmers overcome the trials they
face. They grow our food and are a
vital support to the economy and well-
being of all South Africans. In addition
to being our food supplier, they earn
valuable income through exports, and
employ millions.
Van der Walt points out brokers can be
local mentors. Intermediaries have a
major role to play in empowering new
farmers with valuable knowledge. By
building relationships, shaking hands,
talking eye to eye, they can encourage,
21
2014/08/21 10:26 PM
 Agri Feature
pass on knowledge and go beyond
selling insurance to being very smart
advisors and mentors.
From the insurance perspective,
farmers have unique risks and
protection needs. Understanding
them is a must if we are to assist. At
Hollard Agri we have a combination
of 200 years of farming expertise
which we offer to brokers. In addition,
intermediaries should see themselves
as a vital two-way communication
channel. They are the eyes and ears
of insurers on the ground, throughout
THE F INANCIAL
HEALTH OF FARMERS
BARBARA FOURIE,
Collections Specialist, Coface,
the international credit insurer
During the last three to five
years financial reporting by
farmers has improved as they
realise how important these
reports have become when their
credit risk is being assessed by a
third party.
The age of a business gives a
good indication of the stability and
experience of the farmer. The condition
and age of the machinery might again
22
Sep 14.indd 22
the nation, and can identify new needs
as soon as they arise. Also, brokers
can keep farmers informed regarding
effective risk control and management
as well as advances in insurance
designed to save them money and
provide complimentary add-ons a
continuous goal of ours.
HOW CAN YOU HELP?
Van der Walt believes one of the
two biggest challenges facing the
agricultural sector is unifying and
combining efforts between the old
and new generations of farmers. Unity
is essential in driving agriculture to a
successful future. This is an area where
local brokers can facilitate introductions
and skills sharing and make a big
difference.
We also have to be sensitive to the
continuous increase in production costs
to farmers including interest rates,
reflect if the farm is financially healthy.
Because weather patterns can be a
direct reason for crop failure, it is
important to take this natural element
into consideration and the location of
the land.
fuel and salaries. This means the only
financial beneficiary is the middle man,
while it is the farmer who carries all
the risks.
However, in spite of the size of
these challenges, the potential of
the agricultural industry cannot be
questioned. We must succeed in
finding solutions. South African farmers
have proved themselves able to
rise to challenges by innovation and
endurance and meanwhile we have to
be creative in how we can assist.
The future may require radical
change from us including new and
extended covers to accommodate
natures unpredictable events or
technological developments. That
is why insurers have to stay on top
of daily developments locally and
internationally and act pro-actively and
helpfully to empower and protect.
Security is sometimes required to
secure the debt. This could be in the
form of a cross company guarantee
which is usually the case when a
farmer has set up a trust and all equity
is in the trust. A cession of crop or
a notarial bond is accepted more
frequently these days as a valuation
can be done to determine the value of
the crop or assets.
Credit providers need to take extra
care when granting longer periods for
repayment of debt. If terms are too
long, the general farming sector tends
COVER SEPTEMBER 2014
2014/08/21 10:26 PM
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Untitled-1 1 2014/08/21 11:53 PM

 Agri Feature
to spend the money received from
their harvest rather than pay the input
costs incurred.
They then have to request extensions
on the repayments of between three
and six months. This is again assessed
on a case by case basis as the credit
period can then be anything between
18 to 24 months. Recovery in the
industry is in general good although
over a long period.
This is one of the sectors where cash
flow assessment is important and one
of the few business models that is
entirely funded by credit. As a creditor
it is extremely important to remain
close to your debtors in order to know
as soon as there is a possibility of
something going wrong, allowing you
to mitigate the risk effectively.
ROBUST GROWTH THROUGH INNOVAT ION
JUTTA DREWES,
Specialist Underwriter, Munich Re
INNOVATION IS THE WAY FORWARD
FOR AGRICULTURAL INSURANCE IN
SOUTH AFRICA
South Africas agricultural sector is
facing grave threats weather in the
short-term, climate change in the
long-term, declining competitiveness
on global markets, skills and technology
transfer deficiencies and untold
others. Insurance, like for other business
activities, allows the most unpredictable
of these risks namely destructive and
volatile weather events to be mitigated
for the farmer.
Considering the importance of the
agricultural sector to the South African
economy not merely its contribution to
GDP, but its role in stabilising the rural
economy and safeguarding national food
security we all need the sustainability of
24
Sep 14.indd 24
Trade references can have an impact
on the amount and terms granted.
The history with the supplier could be
considered, as well as the information
supplied by an information bureau
as to how the farmer conducts his
business.
The risk of default in this industry is
high and can have a catastrophic effect
on cash flow. It would be prudent to
insure these trade credit invoices in the
event of non-payment or insolvency
with a credit insurer with extensive
experience in and understanding of this
industry in order to facilitate, rather
than hamper growth.
Understanding the risk involved when
granting credit takes understanding
and knowledge of the industry and
experience in writing risk within this
specific industry. The following can be
crop, livestock and asset insurance to be
maintained. As seen in recent production
seasons, this sustainability is at risk due
to the changing frequency and magnitude
of weather events. While we are highly
concerned about drought in the important
maize-producing regions of the country,
the hail events of 2013 have also left their
mark on the sector and the bottom line
of the crop insurance industry.
As reinsurers, our role is to provide the
capital that the industry requires to
offer agricultural insurance to farmers.
In addition, being international players
and learning from insurers all over the
world, our technical insight is important
to ensure that, notwithstanding climatic
events, underwriting, loss assessment
and other technical aspects are of a
high standard. This is the first step in
maintaining sustainability.
Another contribution Munich Re can
make to the South African industry is our
experience in Public-Private Partnerships
(PPP) in which we are participating as
reinsurer in many countries. The stability
of any countrys agricultural sector is
arguably both a political and economic
imperative, and hence the sector should
be supported as such, especially where
the systemic risk is of such a magnitude
that it is not viable for the private sector
to carry it single-handedly.
considered and possibly play a huge
role in the assessment when granting
credit:
Financials
Asset valuation
The age and/or experience
of the business
The age of machinery
Location
Product
The automation of farms
Environment
Security
Terms
References
A PPP for crop insurance involves
government support in the form
of premium subsidies and loss
participation. Premium subsidies allow
for greater market penetration when
premiums are cheaper, which results
in better portfolio diversification and a
higher proportion of farmers insured.
Loss participation limits the downside
and ensures the availability of private
risk capital. This results in a more
cost-effective use of fiscal funds than
with other state interventions (notably
disaster relief payouts).
Different, yet standardised, products
from comprehensive yield insurance
to index insurance (with two different
product concepts: area yield and
weather-based index and the use of
new technologies like remote sensing,
result in covering various crops and
mitigating climate risks, while supporting
both commercial and smallholder
producers.
While being concerned about the current
state of the sector, our commitment to
the sector in South Africa remains. Our
experience in other countries helps us
to support the PPP process and enable
innovation, working together with
our partners in achieving the ultimate
objective of a robust, sustainable
agricultural insurance market.
COVER SEPTEMBER 2014
2014/08/21 10:26 PM
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COVER_Reinsurance_LH_EN_010814.indd
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2014/08/21 13:39
11:54 PM
 Agri Feature
TOWARDS CREAT ING A SUSTAINABLE
FUTURE FOR AGRICULTURE
GERHARD DIEDERICKS,
Head of Santam Agriculture
Effective risk management (in
the form of adequate crop and
asset insurance) is vital and
this is where Santam Agriculture
is making a real difference
helping farmers create a
sustainable future.
While the agricultural industry has
experienced a relatively good year
compared to previous catastrophe
years, the industry continues to face
numerous challenges and Santam
Agriculture has a duty to help inspire
organised agriculture and agri-
businesses in South Africa. Commercial
farmers will continue to be exposed to
risks and it is vital they remain aware
of these risks, and mitigate them as
much as possible.
At Santam Agriculture, we place
substantial focus on illustrating the
fundamentals of insurance to farmers.
We know how much insurance
discrepancies can cost the farmer,
and so we spend a great deal of time
ensuring that we offer real solutions
and sound advice, relevant to each
farmers specific circumstances.
Insurance is often seen as a grudge
purchase and Santam Agricultures
challenge is to make it more practical.
For us it is all about knowing clients
26
Sep 14.indd 26
and deciding what will work best for
them and their specific circumstances.
Discrepancies are often the result
of ill-advised insurance cover. It is
important the farmer only consults
with accredited intermediaries who
understand the nuances of the
agricultural environment. Farmers
should avoid using the services of
intermediaries who attempt to sell
policies at a much lower rate. Cheaper
premiums dont necessarily mean that
the same cover is offered.
Santam Agriculture values stakeholders
business requirements and has a
responsibility to help stimulate a
positive environment for farmers.
Santam Agricultures research farm,
Mooihoek (near Bloemfontein), is
a good example of how Santam
Agriculture can add value for farmers
and producers. The scientific research
done at Mooihoek provides farmers
invaluable information about the
potential damage to crops at various
growth stages.
INSURANCE IS OFTEN SEEN AS A
GRUDGE PURCHASE AND SANTAM
AGRICULTURES CHALLENGE IS TO
MAKE IT MORE PRACTICAL.
Our sponsorships with relevant players
in the agricultural industry are another
way that we are able to get closer to
our stakeholders. They also give us the
opportunity to get critical input when
developing custom-made products
to address specific needs. In this
regard we are especially pleased to be
associated with the Young Farmer of
the Year competition on a provincial
level in the Free State, North West,
Western Cape and Mpumalanga. The
competition rewards high calibre, young
South African farmers for their hard
work, and their contributions to the
industry.
The challenges that young farmers
face are just as daunting as those
faced by more established farmers, but
they dont always have the support to
bounce back when fate steps in. We
need to cultivate young farmers for the
continuation of a healthy agricultural
industry.
PRODUCT OFFERING
Multi-peril crop insurance is becoming
increasingly popular among farmers
because of increasing production costs
and a more unpredictable environment.
We offer multi-peril crop insurance,
basic and specialised insurance
covering risks such as hail, damage to
stored grain and fire on orchards, veld
and sugar cane.
Farming is also not just about crops
and livestock. Farmers are often
vulnerable to liabilities when a death
or an injury happens on their farm,
or when theres damage to their
property. Thats why we put together
tailor-made policies to cover farming
property against risks such as damage
caused by animals, spread of fire,
dam wall damage, hunters liability,
warehousemans liability, products
liability and general employment
practices.
Other benefits to Santams Agriculture
Asset insurance includes vehicle
insurance that covers tractors, trucks,
bakkies, farming implements, fire,
theft and third party liabilities. The
cover available includes buildings,
machinery and equipment, damage
to stock and livestock, loss of
income, vehicles, specialised farming
equipment, funeral expenses and legal
liabilities.
Santam tries to make insurance more
accessible, sustainable and attractive
to farmers. With more than 83
years of experience, we understand
the complexity of the industry and
the need for a variety of insurance
solutions to address enhanced
production and technology.
COVER SEPTEMBER 2014
2014/08/21 10:26 PM
 Our Corporate and
Business Insurance sets
the standard when
it comes to:
Property
Commercial
Vehicle and Asset Finance
Marine
Guarantees
Agriculture
Corporate
Call us on 0860 999 334

Standard Bank Insurance Brokers (Pty) Ltd is an authorised financial services provider (FSP224).
A member of the Standard Bank Group. Moving Forward is a trademark of The Standard Bank of South Africa Limited.
Products are underwritten by Standard Insurance Limited. SBSA 3513-9/13

3513-A4-B-insurance.indd
Untitled-1 1 1 2013/10/15 11:55
2014/08/21 10:00PM
AM
 Agri Feature
PARTNERING FOR GROWTH
PARTNERING TO CAPITALISE
ON AGRI OPPORTUNITIES WILL
BENEFIT OUR INDUSTRY AND
COMMUNITY
The importance of agriculture
should never be underestimated as
it impacts on the wellbeing of every
South African and the world at large.
As insurers, food security and the
protection of the vehicle that secures
it should be top of mind for us all.
Despite challenges within the sector,
specifically the crop sector, there is
an air of optimism within the market.
More insurers are returning to the
agricultural insurance market after
seeing the importance of a healthy
agricultural sector as well as the
value that our industry can add to the
sector.
Mutual & Federal Agri has been selling
agricultural insurance for over 90
years. The agricultural asset insurer
delivers solutions to and in partnership
with the agricultural industry in South
Africa. Although the agricultural
sector is inherently valuable, the risks
the sector is exposed to cannot be
ignored. This leaves insurers with
the responsibility of insuring large
amounts of property and assets. As
part of the larger Old Mutual group,
Mutual & Federal has a compelling
value proposition for the farming
sector, offering a fully inclusive and
comprehensive financial solutions
package tailor-made to meet any
farmers specific needs.
28
Sep 14.indd 28
Opportunities in the agricultural sector
are plenty. However, outdated products
within the crop sector will ultimately
become a challenge within this ever-
changing and volatile environment.
Technology is also becoming a real
driver in efficiencies and productivity
and this will challenge insurers to
remain innovative and relevant to cater
for the industry, and its clients, ever-
changing needs.
Enhancing product offerings should
be an ongoing process, as should
reviewing risk management and
mitigation solutions. Insurers should
deliver real solutions for the modern
farmer. At Mutual & Federal our brokers
have the necessary relationships with
farmers and understand their specific
needs and circumstances. These
strong relationships, combined with
an extensive knowledge of insurance
and our insurance products is vital
to us servicing the agricultural sector
correctly and fairly.
Below are just a few examples of the
innovative cover offered by the Mutual
& Federal Agriplus policy:
It focuses on livestock needs, such
as covering veterinary costs to save
animals after a fire or the automatic
inclusion of droving of animals
in terms of the liability policy.
It covers farm equipment with
precision farming technologies
for electronics, transit cover for
property while being transported on
the farm or the cost of temporary
repairs to vehicles, to prevent
additional exposure ofvehicles
and occupants to further loss.
It includes labour relations advice
and management services.
It also includes pre-emptive cover
to extinguish fires before they
spread to neighbouring properties.
This segment offers infinite
opportunities for our business partners
to grow and expand their own
portfolios and businesses.
Mutual & Federal will therefore
continue to partner with our brokers to
capitalise on these mutually beneficial
opportunities.
ANDRIES WIESE,
Manager: Agriculture
at Mutual & Federal
COVER SEPTEMBER 2014
2014/08/21 10:26 PM
 INSURING THE
AGRICULTURE SECTOR
BY COLIN SCOTT
Risk Manager
Renasa Insurance Company Limited
& PETER MAGGS
Divisional Manager
Renasa Insurance Company Limited
A helicopter view of South African
agriculture would suggest that the
sector is becoming less attractive to
insurers. The number of active farmers
has declined sharply and it is estimated
that there are less than
30 000 active today. Land claims,
crime, liabilities arising under new
legislation (such as the Veld and Forest
Fire Act), labour and other issues
create huge uncertainties. Farmers,
and not just the smaller ones, find it
increasingly difficult to compete with
subsidised agricultural products from
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COVER SEPTEMBER 2014
Sep 14.indd 29
abroad. The input costs of the business
such as fertiliser, fuel and cattle feed
seem to be ever rising. And insurance
is also an operational cost which must
be justified, and not just seen as a
grudge purchase.
The intermediary is also an important
Despite this, Renasa believes that the
agricultural sector remains a viable
proposition for insurers prepared to
better satisfy the specialised and
evolving needs of farmers. We are
well aware of the obstacles farmers
face and the increasing importance
of carrying insurance that is both
adequate and affordable. It is Renasas
philosophy to assist the farmer by
giving him the opportunity to recover
quickly after suffering a loss and our
policies and claims procedures are
designed accordingly. Although we do
not offer crop and wildlife insurance,
we provide farmers with a single,
tailored policy combining a wide and
appropriate range of focused covers,
not only for a farmers business assets,
but his personal assets as well. Renasa
recognises that agricultural insurance
needs to be increasingly flexible.
For example, spotter plane costs
for fire prevention and fighting is a
recent extension. Similarly, increasing
emphasis is being placed on risk
management and risk control features.
factor in successful agricultural
insurance. To this end, Renasa
has formed a partnership with the
intermediaries, which market our
products. Our intermediaries are well
positioned in most farming areas.
They bring knowledge of the local
area and conditions which provide our
farmer clients with a more appropriate
solution and competitive pricing.
It also provides them with a major
advantage in the faster settlement of
claims.
29
2014/08/22 1:27 AM
 Agri Feature

2014 THE Y EAR OF AGRICULTURE

IMARA INVESTING IN AFRICA

In making 2014 the Year of
Agriculture, the African Union
has concentrated its focus on
private-sector investment and
public-private partnerships to drive
the sector. This development is
complemented by the level of
interest shown by private equity
(PE) firms in the sector.
In June 2013, the Africa-focused Future
Agricultures Consortium reported
that there were 53 PE funds that had
raised or were raising funds targeted
at African agriculture. Twenty-seven of
them are focused solely on agriculture,
but together they had a target of
raising an estimated USD 5,8bn.
More recently, United States firm
KKR & Co. made its first African PE
investment in Africa through Ethiopias
Afriflora, a rose producer, in early June
2014. Kenyan PE investor Centum
Investment Company is now engaged
in a legal tussle over its bid to take
over REA Vipingo Plantations, the
owner of several East African sisal
farms.
Small and medium-sized enterprises
(SMEs) account for 90% of business
activities in many African countries.
African Agricultural Capital, backed

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or email Brent:
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30 COVER SEPTEMBER 2014

Sep 14.indd 30 2014/08/21 10:26 PM

 by Belgiums Volksvermogen, the
Rockefeller Foundation and the Gatsby
Foundation in 2004, was the first fund
focused on small companies in African
agriculture. Its AAF SME Fund is a USD
36m pan-African PE fund dedicated
to companies along the agricultural
value chain. Last year it took an equity
stake in Top Crust, a bakery in Lagos,
Nigeria, with expected annual yield on
investment in excess of 35%.
With increasing urbanisation and
fast-growing middle classes, Africas
urban food markets are expected to
grow fourfold by 2030, according to a
World Bank study. There is a growing
food gap between regional demand
and supply, and between regional
supply and global demand, explained
Brian Frimpong, managing partner of
Databank Agrifund Manager, which
manages the AAF SME Fund. We
see this as a win-win opportunity to
make decent profit for our investors
and create significant wealth for the
continents farmers, including the
millions of small-scale farmers with
access to inputs, best practices and
2402 ILASA Half Page Horizontal Ad.pdf 1
strong links to markets, said Frimpong.
The AAF SME Fund has committed
USD 4m in debt and equity to
Cameroons West End Farms, a 350ha
farming enterprise that is projected to
expand into a 20,000ha operation.
The demand for PE funding in
agribusiness is huge. We have reviewed
over 500 viable business plans since
2012, and we have over USD 100m in
approved projects in the pipeline, said
Frimpong. The fund managers intend to
launch the AAF SME Fund II early 2015
to make more than USD 100m.
SMEs not only require funds but
technical support too. Accordingly,
Phatisa, managers of the parent African
Agriculture Fund with USD 243m, has
secured a technical assistance facility
of EUR 10m (USD 13,6m) to finance
studies and capacity-building projects
for small firms, bottom-of-the-pyramid
market support and out-grower and
smallholder schemes across its portfolio
companies.
The global players are bringing in larger
resource bases. Tana Africa Capital,
a USD 300m fund founded in 2011
2014/02/05 12:34 PM
by South Africas Oppenheimer family
and Singapores Temasek, also aims
to invest primarily in agribusiness
and consumer goods across Africa. In
April 2014, The Carlyle Group ended
fundraising for its Sub-Saharan Africa
Fund after taking in USD 198m more
than its USD 500m target. It is investing
in agriculture, consumer goods and
logistics and made its first investment in
Tanzanias Export Trading Group.
As agriculture is generally seen as one
of the more volatile sectors, particularly
at the SME level, we appreciate this
trend as we also believe that the
returns more than outweigh the risk.
While we see significant benefits
in accelerating the development of
Africas agricultural sector, we also like
the fact that interest is also shown at
developing activities higher up the value
chain as we believe that this will also
have more transformational benefits to
employment, exports, and ultimately,
GDP growth on the continent.
More specific to our coverage, we see
this development helping reduce import
bills for our Consumer/FMCG sector
companies in the long term.

If you are a Loss Adjuster who is a

cut above the rest, you have to be one
C
of our members.
M

CM

MY

CY THE INSTITUTE OF
CMY
LOSS ADJUSTERS OF
K
SOUTHern AFRICA

Providing insight and guidance, overseeing education and ensuring continuous professional
development to Loss Adjusters of distinction for over 50 years you know you can rely on us.

For more information please visit www.ilasa.org.za

Tel +27 11 325 1977 Fax 086 519 9446 E-mail admin@ilasa.org.za
First Floor Victoria Gate South, Hyde Park Lane Manor, Hyde Lane, Hyde Park, Johannesburg

COVER SEPTEMBER 2014 31

Sep 14.indd 31 2014/08/21 10:26 PM

 Financial Planning
As your life changes 360life
will change with you
360Life is a dynamic insurance solution from
Nedbank Insurance that gives clients the financial
security they need at every stages of their lives.
When 360Life launched in 2010, our main objective was
to provide a flexible solution that would protect our clients
through the different stages of their lives. In addition, we
wanted to make sure that this was not a one-size-fits-all
solution, but that it will be flexible enough to cater for each
clients unique needs, says Nedgroup Lifes Senior Product
Actuarial Analyst, Deevashan Naidoo.
Underpinning our product development strategy is a need
to respond to ever-changing client needs. As a result,
we offer continuous improvements to our solutions, said
Deevashan.
Since the launch of 360Life we have been continuously
enhancing and improving the benefits and features to
provide our clients with better options and choices. We now
offer a complete range of risk benefits to cover our clients
against death, disability and critical illness. But thats not all.
Untitled-1 1
Nedgroup_sep.indd 1
We also offer a range of rider benefits that can be taken
in addition with our core risk benefits. By combining the
various benefits each client is able to get what they need.
To keep up with our clients needs we have not only
enhanced some of our benefits, but we also reviewed our
pricing, Naidoo said.
What does this mean for our clients?
Carer benefit offered for longer durations
Suffering from a chronic condition or a disability can make
a person helpless and in need of constant supervision. This
comes with a number of additional costs for the family.
Instead of a daily helper the person may now require
a qualified nurse to provide day care nursing. With this
in mind we launched the Carer benefit in March 2013
to provide a regular income for a specified period to
supplement income during this tough period. This benefit
was launched with a cease age of 66. To meet our clients
needs better we will now be offering this benefit for a
longer term up to 76 years next birthday- to match
improved longevity.
2014/08/22 11:45
2014/08/07 12:00AM
AM Nedg
 extension of CritiCal-illness Conditions
Many South Africans live unhealthy lifestyles and are most
likely to suffer from a cardiovascular disease at a younger
age. Cardiovascular diseases are not only a risk to men,
women are just as prone to cardiovascular disease. At the
same time cancer is still on top of the list of insurance
claims for women. Therefore critical illness insurance
should form part of everyones financial plan. However,
most people consider this an optional extra rather than a
necessity. As a result even the few that have bought critical
illness benefits are underinsured.
Other reasons for critical illness cover are: Improvements
in medical technology have resulted in prolonged life for
cardiovascular disease and cancer patients. Conditions such
as Dementia and Alzheimers have long term impact and
can cause an upheaval for the whole family. Whether the
client has Cancer or Dementia, he/she will need additional
money to cope with the change in lifestyle which may be
required or for additional medical costs that may arise or
simply to provide peace of mind.
To provide our clients with even more protection for critical
illnesses we have increased the number of conditions
covered under our comprehensive illness benefits. We now
cover a total of 81 conditions. We pay 100% of the cover
amount for some of the benefits. The good news is that
even our existing clients can upgrade to these enhanced
options without any additional underwriting.
survivor benefit
This benefit is another way of ensuring that our clients have
complete critical illness cover.
With the Survivor benefit we will pay our clients a regular
lump sum if they survive for at least five years after
we have paid a critical-illness claim. The benefit makes
provision for clients who have survived cancer, a stroke, a
We pay 100% of
the cover amount for
some of the benefits.
heart attack or a coronary artery bypass graft. In addition
to receiving the normal lump sum under the critical-illness
benefit, a client will receive 10% of the claim amount at the
end of five years and every five years thereafter until the
end of the term or death.
A person can only buy this benefit as a rider to any of our
critical-illness benefits, excluding the Critical Illness Child
benefit.
1:45 AM Untitled-1 2
Nedgroup_sep.indd 2
Whole-of-life-disability Conversion option
We now offer an automatic conversion for specific disability
benefits. When these benefits reach the end of their term,
they will automatically be converted to the whole-of-life
Physical Impairment benefit. However, clients still have the
option to terminate the benefit at the end of the term. The
automatic conversion applies to new as well as existing
clients.
funeral support serviCes
360Life and 360Business clients will be provided with
funeral support services at no additional cost. These
services will be available to clients and their immediate
family, including domestic workers.
The benefits provided under these services include free
transportation of the mortal remains to the funeral home
of the clients choice and assistance with all the funeral
arrangements.
neW premiums
Our pricing review has resulted in some significant
improvements to our already competitive pricing. Our
clients will now be able to get even more cover at a better
premium, depending on their profile.
Life changes every day and so will your needs. While some
of the changes may cause upheaval in your life, 360Lifes
changes make your life even more secure. Make change
happen.
This product is underwritten by Nedgroup Life.
Nedgroup Life Assurance Company Limited Reg No
1993/001022/06, First Floor, Ridgeside Campus, 2 Ncondo
Place, Umhlanga Rocks, 4320. We support resolution for
unresolved disputes via the Ombudsman for Long-term
Insurance. We are an authorised financial services provider
(licence number 40915).
We are a registered credit provider in terms of the National
Credit Act (NCR Reg No NCRCP61).
A member of the Nedbank group.
For further information visit
www.nedgrouplife.co.za
2014/08/22
2014/08/07 12:00
11:45AM
AM
 Legal
The Errant Fuel Dispenser
Legal liability and policy response issues
In April we reported on the iiSA
breakfast on liability insurance.
Stefan Terblanche, Managing
Member of The African
Adjusting Firm, was one of the
presenters. Herewith an article
by Stefan on legal liability and
policy response issues.
It is modern technology that initially
brought us the internal combustion
engine, then modern shopping malls
and all things convenient such as the
drive through food retailers, drive
through banking facilities, conveniently
located service stations for the
purchase of fuel and the modern,
centre island multi product dispensing
fuel pump which leads us to the
errant fuel dispenser!
In years gone by there was a clear
distinction between petrol and diesel
fuel dispensing pumps at a service
station. Usually only petrol dispensing
pumps were located in the centre
section of the forecourt while the
diesel dispensing pumps were located
elsewhere, usually to the side of the
forecourt.
In keeping with customer
convenience and the increase in the
number of modern diesel technology
vehicles on our roads, this has
changed.
The modern approach is now to have
multi-product fuel dispensing pumps
located on centre islands in the general
34
Sep 14.indd 34
forecourt area. These dispensing
pumps can normally dispense leaded,
unleaded as well as diesel fuel.
The various product dispensing
nozzles are usually clearly marked
with different colours, attached to the
handles of the dispensing nozzles and
displayed on the pump, indicating the
different products i.e. green for petrol,
purple for diesel etc.
Also, the size of the dispensing
nozzles will differ, it will be noted that
the dispensing nozzle of the diesel
dispenser is somewhat wider than that
of the petrol dispensing nozzle. This
does mean that although the bigger
and broader diesel dispensing nozzle
will often not fit into the opening of
a petrol tank inlet of a motor vehicle,
the much narrower petrol dispensing
nozzle will fit into both the tank inlet
of a petrol tank as well as a diesel fuel
tank.
Also note that with many modern
vehicles, not only is the fuel tank inlet
of a petrol fuel tank narrower (and
therefore a diesel dispensing nozzle
wont fit into this inlet), but also, there
is a protective device installed serving
as a valve that must be pushed open
by the dispensing nozzle before fuel
can be dispensed directly into the tank.
It is only the narrower petrol dispensing
nozzle that will fit into the inlet in a
sufficient manner to push open this
valve to enable the dispensing of
petrol.
Unfortunately the diesel tank inlet of a
motor vehicle remains unprotected.
This wider inlet, as indicated above,
will accommodate both the diesel
dispensing nozzle as well is the petrol
dispensing nozzle and, as such, fitting
a safety device such as a valve in this
inlet will serve little purpose. Instead,
reliance is placed on clearly marking
the fuel tank with the word diesel to
warn the dispenser that this is in fact a
diesel vehicle/tank.
Despite these attempts to safeguard
and minimise the incorrect dispensing
of fuel, this occurs regularly and usually
relates to the incorrect dispensing of
petrol into the fuel tank of a diesel
vehicle.
What then about the Legal Liability of
the Service Station operator as well
as cover provided in terms of Liability
Policies for contingencies of this nature.
Much is made of the vicarious liability
of an employer for the negligence of
an employee who acted in the course
and scope of his employment. It is,
however, writers own view that this
is not a claim in delict and that, as
such, vicarious liability will not be of
relevance.
COVER SEPTEMBER 2014
2014/08/21 10:26 PM

Instead, there was a contract of sale
entered into between the Buyer of the
fuel and the Seller of the said fuel,
being the Service Station. We hold the
view that this should be considered a
claim in contract, relating to breach
of contract in that the Seller supplied
the incorrect Product to the Buyer,
therefore breaching the contract which
was entered into between the Buyer
and Seller. It is this breach, which
would then give rise to the typical
subsequent damage to Third Party
property, which usually forms the
subject of claims intimated by a Buyer
of fuel when the incorrect fuel was
dispensed into his vehicle.
Suffice to say that legal liability will
attach to the Seller/Service Station for
this contractual breach relating to the
dispensing of the incorrect product.
Where then can such legal liability be
considered in terms of general Liability
Policies available in our insurance
industry.
The standard Liability policy offered
in the market would be a typical
Multi-Mark type policy which would
normally provide:-
Public Liability cover;
Products Liability cover (if elected
by the Insured and reflected as
such on the Policy Schedule);
Defective Workmanship liability
cover (again, only if elected by
the Insured and reflected as
such on the Policy Schedule).
Claims relating to the incorrect
dispensing of fuel will typically not fall
for consideration in terms of the Public
COVER SEPTEMBER 2014
Sep 14.indd 35
Liability section of the Policy as the
Specific Exceptions usually specifically
excludes liability attaching to the
Insured consequent upon damage
caused by goods or products sold or
supplied by the Insured.
Should an Insured enjoy both
Products Liability as well is Defective
Workmanship type cover in terms
of the Policy issued, it is of course
a moot point whether the claim
should be considered as either the
one or the other. It does, however,
become relevant when an Insured has
elected only either Products Liability
cover or, alternatively, only Defective
Workmanship cover. Depending on
which cover was elected and, under
which extension of the Policy, the claim
is then dealt with, will decide whether
in fact the Insured enjoys liability cover
for such contingencies or not.
Again, it is writers view that this is
typically a Products Liability type claim.
It relates to what is predominantly a
Contract of Sale and the damage which
forms the subject of the claim was
caused by a product supplied by the
Insured.
The contract entered into between
the Buyer and Seller was not that of a
typical contract of service which one
would for instance find when ones
vehicle is taken in for a maintenance
service. As it is predominantly a
Contract of Sale and not a Contract
of Service, we therefore also hold the
view that the matter should not be
dealt with as a Defective Workmanship
type claim. The damage itself (usually
to the engine of the Buyers vehicle)
was not caused by workmanship, but
was in fact caused by a Product and
should more correctly be dealt with, as
indicated above, in terms of a Products
Liability type claim.
This type of Liability Policy is freely
available in the insurance industry/
market and it should not be difficult
for Service Station operators to obtain
liability cover to protect them against
instances of liability attaching following
the errant and incorrect dispensing of
fuel.
Other than the steps taken by the
motor industry/fuel industry to provide
some protection against the errant
dispensing of the fuel, as detailed
above (relating to different nozzle
sizes on dispensers, clearly marking
the fuel pumps and attempting to
provide protection on the fuel tank
inlets, ongoing training to forecourt
personnel), can anything else be done
in an attempt to prevent such incidents
and to minimise related risks?
Yes, indeed this may well be one of
those incidents where the modern way
is not necessarily the best. Perhaps
the time has again arrived to create
separate fuel dispensing areas for
petrol engine vehicles as opposed to
diesel engine vehicles. Service Station
operators should perhaps consider
creating fuel dispensing islands
dedicated to only dispensing petrol as
opposed to others dedicated to only
dispensing diesel.
Lastly then, the issue is often raised
that the Buyer was also negligent
in that he/she did not alight from the
vehicle to ensure that the correct
product, as purchased, was being
dispensed into the fuel tank of
vehicle. Such a defence, which relates
to contributory negligence can
unfortunately not be used as a defence
against a claim in contract.
35
2014/08/21 10:26 PM
 Technology
BY ANNETJIE VAN WYNEGAARD
The impact of the digital
revolution on insurance
SSP hosted a breakfast seminar
where industry experts Martin
Vipond, KPMG, and Craig
Beattie, Celent, discussed the
journey from legacy systems
to digital. Rhys Collins, SSP,
facilitated the discussion.
Vipond said the amount of mobile
traffic is 18 times higher than internet
traffic. Technology is changing the
competitive environment for insurance
companies.
Technology has brought about
a cultural change in how ready
consumers are to interact with
insurers using digital. A common trend
among the younger demographic
is an accelerated adoption of 24/7
connectivity, and young people seeking
advice and validation online.
THE VALUED INSURER A VISION
FOR SUCCESS
Vipond said when it comes to products
and markets, the insurer must have a
clear understanding of customers and
how they behave. This understanding
must reflect in the features around the
product. The product and policy must
be simple and easy to understand.
Vipond cited www.hioscar.com, a New
York based medical insurer aimed
specifically at young people living in
New York, as a good example of how a
company can use technology to make
a product simple and presentable on
mobile phones.
Vipond said that the majority of people
want to research online but purchase
offline.
36
Sep 14.indd 36
More people, especially in Africa, have
chosen mobile over desktop. Insurers in
turn need to think about doing mobile
first.
DIGITAL STRATEGY
Digital needs to be incorporated in the
overall business strategy. Vipond said
digital integration doesnt have to be
expensive. The trick to start is to find
areas that are cheap to implement, for
example giving brokers tools to interact
via social media, which are low cost
and quick to do.
Any strategy should encompass an
inclusive strategy to brokers, he
concluded.
DIGITAL CONSUMER EXPERIENCE
Craig Beattie said telematics for
example Google, self driving cars,
global licences could mean the
end of motor insurance, as they are
designed to bring down premiums.
Insurers need to change with the
digital environment by changing the
game early on. Ask yourselves: how
do I support my clients when theyve
had a loss? Digital cannot take away
the human element. This is where
relationship building is important.
Telematics is about understanding what
your clients are doing, what risks they
are taking, and informing them so they
can make informed decisions, said
Beattie. Technology helps the insurer to
mitigate own losses and give value to
customers.
At the end of the day technology can
help you forge a partnership with your
client by adding value to their lives.
NOT ALL DIGITAL IS GOOD
Beattie said the UK banks and
government have invested in
infrastructural changes in the economy,
to educate the consumer about doing
banking online. The result is a well
educated consumer who does his own
financial services online without a
broker.
With this came a major paradigm
shift in distribution which in turn has
reshaped the market. Beattie said the
influence of the intermediary drops as
product commoditisation increases.
This has brokers asking, how do we get
online and sell insurance without the
same marketing budget?
Beattie said we now see questions
regarding insurance appearing in
Google searches. Consumers are
switching to alternative, unregulated
channels for advice. Beattie argued
that the UK is too focused on digital
for digitals sake.
IN CONCLUSION
Beattie said digital is still ill-defined,
although people have an innate sense
of what is and isnt digital. Digital does
not require rigorous measurements
to be intuitively useful. He concluded
that more digital is not always
better. Technology is a good fit for
simple products, but when it comes
to complex products which require
advice from a professional, the human
element cannot be erased. He said
some markets simply arent ready for
digital, and digital typically reduces
profits in the industry.
COVER interviewed Rhys Collins on
video! Take a look: http://bit.ly/1jTezSU
COVER SEPTEMBER 2014
2014/08/21 10:26 PM
 $
115.1M
Average property casualty claims
paid each business day in 2012

63,000 AIG employees

worldwide
130Countries where
AIG has clients

Whats behind AIGs numbers?

$
1.5B
90 +
Global Property
per risk capacity

one
World Trade Center
rebuilding
Years helping
people insure brighter
tomorrows

as lead insurer

People.
Insurance isnt about numbers. Its about people. In our case, 63,000 people
coming together to take on the impossible challenges. Because we believe that
with the right people and the right attitude you can turn even the toughest today
into the brightest of tomorrows. Learn more at www.aig.com

Insurance and services provided by member companies of American International Group, Inc. Coverage
may not be available in all jurisdictions and is subject to actual policy language. For additional information,
please visit our website at www.aig.com. AIG South Africa Limited is a Licensed Financial Services Provider
FSP No. 15805 Reg. No. 1962/003192/06

AIG13166-ZA-BrandNumbers-297x210-Ad-0614.indd 1 30/06/2014 16:18

Untitled-1 1 2014/08/22 12:03 AM
 Technology
Five behaviours that accelerate
value from digital investments
JOHAN POTGIETER,
PwC Technology Industry
Leader for Southern Africa
From business strategy to
execution, digital technology
has become the foundation for
everything we do, according to
PwCs sixth Annual Digital IQ
Survey report.
This study reveals how well business
and IT leaders understand, value and
weave digital technology into the
fabric of the business. This is known
as their Digital IQ. In this years study,
PwC identifies the five key behaviours
that make for high digital IQ. Those
businesses in the study that have a
strong digital IQ were 2,2 times more
likely to be top-performers in revenue
growth, profitability and innovation.
The survey was carried out among
1,500 business and IT executives
across Asia, Africa, Latin America,
North America, and Europe.
The following five behaviours enable
organisations to accelerate value from
their digital investments, exploiting
their virtual value chain to alter
business models and capture new
markets.
1
CEO actively champions digital
A digital CEO sets and steers
the companys digital visions and
tackles the challenges that come
with new ways of doing business. 81%
of top performers say their CEO is an
active champion in the use of IT to
achieve business strategy, compared
with 68% of other companies.
The healthcare industry had the highest
level of active-champion CEOs, which
is not surprising given that the focus on
technology to transform patient care
and reduce costs has been a key focus
there for more than a decade.
A digital strategy should consider the
dimension of everything the business
does its growth and cost goals,
38
Sep 14.indd 38
products and services, partnerships,
marketing and customer engagement,
talent acquisition and retention,
operations and more. For every
strategic question, the CEO must ask:
What are the digital opportunities
here? Does digital introduce new
challenges? CEOs will be the ones
to pose the questions, but to answer
them will require the collective
knowledge and insight from other
functional leaders.
2
Strong CIO and CMO
relationship 70% of top-
performing companies say they
have a strong Chief Information
Officer (CIO) and the Chief Marketing
Officer (CMO) relationship, compared
with just 45% for non-top performers.
The CIO is internally focused and
there has been virtually no change
in involvement around customer and
product innovation during the last six
years.
The CEO must ensure that marketing
and development teams engage
the CIO in early discussions around
product, service, and customer
innovation.
Failing to involve the CIO in market-
facing innovation where digital
technology is a primary driver is
counter-intuitive. Dont leave room
for interpretation when it comes to
market-facing digital technology like
consumer apps, websites, or customer
analytics. Get explicit agreement
between the CIO and CMO on who
owns the initiatives, the role each
leader will take on, and when and
how they are expected to work
together.
3
Outside-in approach to digital
innovation The top performers
in the survey are more likely
to look to outside sources like
industry analysts, vendors, universities
and labs, to fill their idea pipelines,
in addition to internal sources. But all
companies tend to rely most heavily on
traditional sources like internal planning
sessions and workshops.
A better approach is what is
referred to as outside-in innovation
which embraces new ideas and
experimentation that comes from
unlikely sources and industries. The
outside-in approach can even be
applied inside the company, where
companies can seek out hidden
innovators, such as enthusiasts of the
maker movement who might work in
operations or customer services.
4
Significant new IT platform
investments Top-performing
companies are innovating
how they think about IT and
remaking it to improve the needs
of the business. The study refers to
this model as the New IT Platform
a thorough approach, addressing
how the IT mandate, processes,
architecture, organisation, and
governance must change to keep up
with the business.
Surprisingly, when it comes to which
technologies they are betting on, all
companies in the study agreed that
mobile customer technology, private
cloud, data mining and analysis,
externally-focused social media, and
cyber security would be of the most
strategic importance in three to five
years.
Companies in Asia and Africa were
more likely to use agile processes than
their regional counterparts, possibly
contributing to more success in
delivering in IT projects.
5
View digital as an enterprise
capability The study
suggests that companies begin
broadening how they think
about their digitally-savvy resources,
realising that it is becoming essential to
have a digital capability that is woven
throughout the business rather than
only centralised in a single function.
The survey found that top-performing
companies were more likely to have
stronger skills in crucial areas like
digital architecture and user experience
design.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 LISP platform snag
no reason to turn
away ETF business
WEHMEYER FERREIRA,
Head of db X-trackers in South Africa

No financial service professional likes to turn away

business, though opportunities are apparently being
missed in the exchange traded fund (ETF) space
because of technical constraints on some LISP
platforms.

Most established LISP platforms were designed with strong

focus on capital allocations into unit trusts.
In a Unit Trust transaction the cash sum determines the number
of units to be purchased and fractions of a unit can be added
until the total amount is accounted for. So, R10 000 will buy
X-amount of units and fractions thereof, with no cash left over.
However, in the ETF industry, investors can only deal in
complete units. They cant buy fractions of an ETF.
These technical limitations do not affect all LISP platforms.
These systems enable a purchaser to invest up to the nearest
whole unit while remaining cash is held in an interest-bearing
account.
A month later, when the next purchase order comes in, the
new money and cash held over from the previous transaction
are pooled and further investment up to the nearest whole unit
goes ahead and so on.
Unfortunately, this type of flexible accommodation of ETF
purchases is not designed into the functionality of some long-
established LISP platforms.
Financial advisors that work predominantly across one of the
platforms without the functionality may therefore assume that
ETFs cannot be integrated into a Unit Trust solution. This is not
the case and independent financial advisors should not think
they have to forego these business opportunities.
An increasing number of clients are becoming aware of the
advantages of ETF investing. Allocations into ETFs are growing
and we expect the trend to continue. It would be a pity if
advisors missed the opportunity to assist their clients because of
technical constraints that apply to some but certainly not all
LISP platforms.
ETF options are already available across some South African
LISP platforms. Alternatively, a financial advisor can go directly
to an ETF management company and make arrangements for
the purchase of whole units, supported by a cash account to
accommodate remaining cash which will then be ear-marked
for subsequent ETF purchases.
In future we believe ETF availability will be built into all LISP
platforms. For the present, however, we have to deal with
functionality constraints on some older systems.
Advisors keen to respond to growing ETF demand will find that
these limitations can be easily bypassed.

COVER SEPTEMBER 2014 39

Sep 14.indd 39 2014/08/21 10:27 PM

 Technology
Enter: eyeThenticate
Technology vs. white collar crime
ANDRE IMMELMAN,
CEO eyeThenticate (Pty) Ltd
When Dr Martin Cooper of Motorola
made the first cellphone call back
in 1973, using a gadget that truly
deserved the pejorative term, brick,
the world received the announcement
with little more than a yawn, mostly
dismissing it as something that had
little commercial application! At the
time, pundits forecast that a city
the size of London with its highly
concentrated business community
and advanced infrastructure would,
optimistically, never see more than
12,000 of these devices ever being
deployed!
Of course, history tells a very different
story...
This year, there will be more mobile
phones in circulation, than there are
actual people in the world, doing
more things than anyone could ever
have imagined and certainly much
more than Dr Cooper ever purposed
for his invention. In fact, according to
a recent survey conducted by O2 in
the United Kingdom, actually using a
mobile phone to make a call ranked
only fifth on the list of things that
people do with their iPhones and their
Galaxies and their Blackberries and
their whatever.
In the short space of only a few years,
mobile phones have truly revolutionised
the way we now do life, how we go
about our business, how we go to
school, how we interact with each
other, and so on. The one thing
we all carry with us all the time all
40
Sep 14.indd 40
over the world, has truly developed
into a veritable Swiss army knife -
somewhere, there is an app that we
can download to allow us to do almost
anything.
However, all of this unprecedented
convenience comes at a very high cost
that is escalating exponentially each
day: mobile phones make very easy
targets for hackers who are bent on
defrauding us using any number of
very clever ploys. For example, the
next time you happen to find yourself
waiting in the business lounge of the
airport, casually sipping a Bloody Mary
while catching up on your emails or
putting the finishing touches to your
latest business proposal or doing your
banking on your smartphone or your
tablet, the person sitting right opposite
to you, also casually sipping something
with a little umbrella sticking out of it,
could very well be intercepting every
one of your communications.
SECURITY CONCERNS
REMAIN THE BIGGEST BARRIER
TO MOBILE PAYMENTS
- ABI Research
For only a few dollars from an online
store, it is very easy for anyone who
is even remotely tech savvy to buy a
cheap piece of kit that allows him to
set up a rogue WiFi hub or cell phone
tower that looks just like the real thing.
And so, while youre blithely going
about your business and even before
your flight departs, there is someone
on the other side of the world who,
armed with all your credentials, is
transferring money out of your account,
or ordering the latest HDTV from
Amazon on your credit card, or doing
anything which only you are normally
supposed to be able to do.
Mobile communications have promoted
identity theft into the foremost
commercial crime of our day. And
because it is so easy for anyone
to dispossess us of the information
which only we are expected to know
(password, PIN, login, OTP...) - all
the things which we depend on to
let us do the things which only we
are supposed to be able to do, this
problem has given rise to one of the
most fundamental questions of our
time: how do we know with certainty
that anyone is actually who he says he
is?
Think about it for a moment - we
merely accept, as a matter of course,
that the other person is in fact who his
business card says he is, or how hes
been introduced to us, or what it says
on his letterhead or at the bottom of
his email.
Now, while it really doesnt matter
if Mr X isnt actually who he says he
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 is if were partnering together for a
game of golf, but its an altogether
different matter if hes authorising us
to realise all the investments held in
his name, especially if hes using his
smartphone to issue that instruction.
Because then, considering just how
easy it is for anyone to be disposed
of his credentials, merely relying on
the fact that he happened to know
the correct login name and password,
or the correct PIN or OTP, or because
he happened to know the answer to
some secret question, really isnt good
enough.
Realising that we cannot safely rely on
someone knowing the right information
(or even having the right credentials)
to tell us who he really is, cell phone
manufacturers like Apple and Samsung
responded by relying instead on who
we are, i.e. some sort of biometric that
uniquely defines each of us. However,
the very day after Apple launched their
fingerprint scanner on their flagship
iPhone 5s, the Chaos Computer Club
in Germany published a simple way
on YouTube that show just how easy
it is for anyone to break Apples much
vaunted ID Touch technology.
Representing the culmination of
nearly 212 years of research and
development by computervision
scientists at the Hypervision Research
Laboratory at the University of
Johannesburg, a breakthrough
technology was developed that allows
the identity of a user to be established
to very high levels of certainty (+/-
99%), using nothing more than a
standard, off-the-shelf smartphone!
COVER SEPTEMBER 2014
Sep 14.indd 41
Based on the discovery that the retinal
vascular structure of the human eye
is unique, stable and uniform over
the lifetime of an individual, and that
it can be detected using a standard
+/-5Mp camera on a smartphone,
robotics engineers from Resolution
Circle at the University of Johannesburg
were able to develop code that will
allow the technology to we wrapped
inside an app running on any iOS,
Android, Windows Mobile or Blackberry
smartphone.
The technology has the potential to
truly revolutionise, not only mobile
communications as we know it today,
but much of the way we currently go
about things: imagine for example an
ATM that comprises nothing more than
a cash dispenser - no screen, no touch
pad (that serves very effectively to
spread germs and viral infections), no
bank card... or imagine a retail store
with no point-of-sale, no checkout
queues, no credit cards, no PIN pads,
no NFC scanners... or a customer
services clerk that doesnt have to ask
any of those annoying questions over
the phone to try an figure out whether
shes actually talking to the right
person.
Exhaustive trails have demonstrated
that the technology rivals high-end
(and very expensive) biometric systems
and that the technology is sufficiently
robust to be considered for serious,
mission-critical commercial applications
that require the identity of a person to
be established to a very high degree of
certainty.
The technology will be made available
exclusively to institutional interests via
eyeThenticate (Pty) Ltd, a joint venture
company between the University
of Johannesburg and business,
with the exclusive aim of bringing
the technology to market, both
domestically as well as internationally.
41
2014/08/21 10:27 PM
 UMA Corner
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42
Sep 14.indd 42
GENRIC
Insurance buys
majority stakes
in critical UMAs
MC DU TOIT,
Chief Executive of GENRIC
GENRIC Insurance has acquired majority equity in
a number of underwriting management agencies
(UMAs), marking the next phase of expansion for
the insurance company.
The niche short-term insurer, which is backed by A-rated
reinsurance companies, has bought all the shares in its
following UMAs: Polygon Underwriting Agency; Sirago
Underwriting Managers; Quantum Liability Underwriting
Managers; and Lynx Transit Underwriting Managers.
GENRIC also holds a stake in new aviation UMA, Planesure
Underwriting Managers.
Since GENRIC started with its expansion last year, the
company has registered considerable growth. Turnover has
increased by 40% for two consecutive years, a growth
trend that GENRIC is set to continue.
WIDENING OF PRODUCTS ON OFFER
The insurer has also in the past year expanded its product
offering. One example of this is the unique Dealer Assist
policy, which insures motor dealerships against actions
brought by customers under the Consumer Protection Act.
GENRIC underwrites the policy through its UMA, Quantum
Liability Underwriters.
Another new suite of products launched by GENRIC in the
past year, which is in keeping with its rapid expansion, is
its automotive products. GENRIC can now offer brokers and
their clients policies that are designed exclusively with the
car owner in mind.
GENRIC also expanded on its rental guarantee policy by
offering great-value insurance to landlords of residential and
commercial properties, be it a single property or a group of
properties.
And most recently GENRIC launched another new UMA,
Planesure, a niche UMA in the general aviation space.
Planesure enters a sphere of the market where limited
insurance is available for clients with general aviation needs
that is, clients with aircraft that have 30 seats or less.
GENRIC HAS LANDED
To support the product expansion, GENRIC has also made
a number of strategic appointments of veterans within their
specific sectors. Among these are the appointments of
Charmayne Ditchfield and Jamie Illing, both renowned in
their fields of automotive and aviation respectively.
GENRIC is set to make further equity acquisitions in critical
UMAs.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 FOXP2 JOHANNESBURG/131
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Liberty Group Ltd an authorised fi nancial services provider in terms of the FAIS Act (Licence No. 2409). Terms and conditions apply.

Untitled-1
#131 1 Trade 297x210.indd 1
Educator 2014/08/22
2014/02/06 12:04 AM
5:53 PM

Leveraging the
opportunities
C
OVERs Taryn Kerr sat
down with Andries van
Staden, Managing
Executive of Absa Insurance,
to speak about all things
bancassurance. We found
out where the challenges and
opportunities lie in this space,
and what the Absa Insurance
strategy has up its sleeve.
44
Coffee_sep.indd 1
Coffee with
COVER
Where do you see Absa Insurance
t into the South African short-term
landscape?
We have dened ourselves as a bancassurer,
focusing almost exclusively on this. Being
part of a bank, we believe that is our strength
and where our opportunities lie. We would "We have defined
rather take these opportunities and do them
well, as opposed to competing in the open ourselves as a
market with guys who are more geared
towards that environment. bancassurer,
What is your strategy in the above focusing almost
context? exclusively on
We want to be the best bancassurer, and this."
that has taken us down a route of really
trying to see what works where. An example
is the house owners insurance Absa will do
the bond, while we give the customers the
convenience of a policy with Absa as part of
the process. A lot has changed, as we now
really have to make the customer aware of
this policy, where in the past it was not as
transparent. If you look in the market, people
are after that business, so we really have to
make the customer aware of the benets.
Many people will offer the policy for free
or a cash-back option, but if you read the
smaller print, it is a different story. We want
to protect the Absa customer and we want
to protect the bank, so our excess on this
policy is very low. We do not want people
defaulting on their bonds because another
catastrophe has occurred.
We have taken this down all the lines: home
loans market, vehicle and asset nance,
travel with Absa card, the broker model (both
private and business), and the agricultural
assets and crop market.
2014/08/22 12:06 AM
 Where do you see the real
challenges facing your company
and the industry as a whole, over
the next few years?
We do not have a unique business in terms
of challenges, and I think the challenges
we face are service, cost and efciency and
customer education. A lot of customers
buy insurance as a grudge purchase, but
it is really tested the day you have a claim.
Two years ago we had a tough time due
to the hailstorm in Johannesburg, and we
learned a lot of lessons out of this. We thus
documented a comprehensive catastrophe
plan, and a year later we tested that plan
with double the size which taught us a lot
but also tested us. Service is a big thing,
but the attitude of people in this tough
environment is also important, with a specic
focus on customer-centricity.
Cost and efciency is critical for all of us,
with a focus on getting things automated
and getting people to self service and
monitor the progress of their claims. We have
"A lot of
customers buy
insurance as a
grudge purchase,
but it is really
tested the day you
have a claim."
"Consumer
education has
a few elements
to it."
Coffee_sep.indd 2
had some success there through launching
the insurance on Absa online, where you can
buy your insurance online pre-populated for
existing assets nanced with Absa and have
information linked. A lot of the cost efciency
is IT, but to implement the IT also costs a lot
of money. You need to think carefully about
the technology out there, so you are not
throwing money at everything, but rather
investing in smart technology.
Consumer education has a few elements to
it. If we do not educate people around the
need and value of insurance, then this market
will not grow. By educating the consumer
as to why a certain policy is important to
them, we can ensure that this environment
continually develops and changes. We also
need to educate consumers on exactly what
their policy covers, what excess means and
other valuable insurance terminology, in
order to become more time efcient. On the
same footing, we have also concentrated
on educating our staff on how to treat a
customer fairly and empathetically.
How do we approach these
challenges, what are the essentials
to growing business, and where do
you see the opportunities?
For us, we feel that a client has a trust
relationship with their bank, so we want to
ensure the customer that we are a trusted
insurance partner here to protect the
customer and the bank. It is a difcult
conversation and relationship we have, as
some claims we simply cannot deem as valid,
and people then want to take their banking
business elsewhere. A great opportunity
for us in the bank is to leverage the existing
platforms to enable customers to self service,
in ways such as customers being able to use
the Absa online tool. We are focusing on the
protection of the client, and we are looking
at using technology and smartphones as a
form of proactive risk management. We want
to be a value-add to the customer and not
just a policy.
What role do intermediaries play in
your strategy?
In the bancassurance area, the private bank
clients often prefer to have intermediaries,
so Absa has our own force called Absa
Insurance and Financial Advisors. We
leverage the relationship that these
people have formed in the banks with the
client, by further offering them bespoke
business or private bancassurance policies.
Intermediaries have a very specic advice
role within the agricultural space, so we train
them on our product offering.
Andries van Staden, the person
behind the Managing Executive
- What makes him tick and what
gets him reading till all hours of the
morning?
What drives and denes me are my
values, very closely aligned to that of the
Barclays Group respect, integrity, service,
excellence and stewardship. The rst four
are very corporate, but the stewardship
is very important for me. The denition
focuses on the fact that you want to leave
something better than you found it, or that
you continuously grow others through what
you do. This is probably why I enjoy it here;
as I continuously try to do things better such
as being a better parent or getting up early
to improve my cycling. In the business, we
are in very interesting times for house owners
and the insurance environment, so I question
how I can leave the legacy better than I
received it. The stewardship value in me
really drives me to be a better person, and a
better Managing Executive for Absa.
45
2014/08/22 12:06 AM
 Financial Planning
Life insurance and buy-and-sell
agreements: tax implications
SCHALK MALAN,
Executive Director, BrightRock
Have you spoken to your
clients about the estate duty
implications of their buy-and-
sell agreements and the life
insurance policies funding these
agreements? It is important to
have this discussion to clarify
any uncertainty your client
might have, make sure that
the agreement is legally valid
and adequately addresses your
clients needs.
The Estate Duty Act 45 of 1955
outlines how life insurance policies and
buy-and-sell agreements are taxed.
Life insurance usually forms part of the
deceased estate for tax purposes and
estate duty is imposed in terms of the
Act.
Section 3(3) of the Act says that,
any amount due and recoverable
under any policy of insurance which
is the domestic policy on the life of
the deceased is regarded as deemed
property of the deceased and will be
subject to estate duty in the deceased
estate.
46
Sep 14.indd 46
WHATS IMPORTANT
TO REMEMBER IS
THAT BUY-AND-SELL
POLICIES ARE EXEMPT
FROM THIS TAX DUTY
This means that on a policyholders
death, their life cover forms part of the
estate for tax purposes.
Whats important to remember is that
buy-and-sell policies are exempt from
this tax duty, if certain conditions are
met:
Section 3(3)(a)(iA) of the Act provides
that Section 3(3) is not applicable if:
1. The policy was taken out by a
person (Company, CC or trust) who
was a partner (co-shareholder) of the
deceased as at the date of death;
2. On the date of death of the
deceased the person who acquired the
policy was a partner of the deceased
or held shares or a like interest in a
company in which the deceased, on
that date, held shares or a like interest;
3. The purpose of the policy was to
enable that person to acquire the
whole or part of the deceaseds interest
in the partnership or the deceaseds
shares or like interest in the company
and any claim by the deceased against
the company;
4. No premiums for the policy were
paid for or borne by the deceased.
WHAT DOES THIS MEAN FOR YOUR
CLIENT?
They wont be liable for estate duty on
the proceeds of the buy and sell policy
if the business partners have taken
out business insurance for purposes
of a buy-and-sell agreement, and the
partnership still exists.
Insurable interest must also exist at
the time of the deceaseds death for
the exemption to apply. But keep in
mind that whereas insurable interest
at policy activation stage is required to
establish a valid contract of insurance,
the Act focuses on the deceaseds date
of death.
So, even where a valid insurance
contract exists at the date of the
deceaseds death, the partnership or
shareholder relationship must still exist.
If the partnership or co-shareholder
relationship no longer exists, the policy
proceeds will be a deemed asset in the
estate of the deceased and estate duty
will apply.
TAX IMPLICATIONS FOR SHARES
HELD IN TRUSTS
The remaining exemption requirements
seem to be, in most cases, quite clear
where share or interest is held by an
individual, but these become quite
complicated where the share or interest
is held by a trust or a company.
SARS has issued guidelines on how
this works. External Guide: Estate
Duty Implications on Buy-and-Sell
Agreements explain the estate duty
implications where shares are held in
trusts.
Consider the following scenarios:
SCENARIO 1: NATURAL PERSON
A AND COMPANY/TRUST B ARE
PARTNERS (CO-SHAREHOLDERS) IN
COMPANY X.
Company/trust B has taken out a life
insurance policy on As life to enable
Company/trust B to purchase As
shares/interest held in Company X
in the event of As death. Company/
trust B has paid all premiums from
the policys inception and remained a
shareholder of Company X until the
date of As death.
In the above example, the exclusion
will apply because:
The reference to person in
Section 3(3)(a)(iA) includes
companies, CCs and trusts.
Company/trust B subscribed to the
policy and was still a shareholder of
Company X at the date of As death;
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
Untitled-1 1 2014/08/22 12:08 AM
 Financial Planning
The policy was taken out with the
purpose of enabling company/
trust B to acquire As shares/
interest held in Company X;
All premiums were paid
by company/trust B.
SCENARIO 2: NATURAL PERSON
A AND COMPANY/TRUST B ARE
PARTNERS(CO-SHAREHOLDERS) IN
COMPANY X.
LOOK AFTER
WHATS IMPORTANT
AND WE WILL
LOOK AFTER YOU
Contacts
Tel: +27 11 459 1640
Fax: +27 11 268 5887
48
Sep 14.indd 48
(iA) requires that both A and director/
trustee B must hold a share/interest at
the date of director/trustee Bs death.
Director/trustee B does not hold any
share/interest as it is held by company/
trust B.
If all the requirements arent met, and
the exclusion does not apply, all policy
proceeds will be subject to estate duty.
The amount that is subject to estate
duty can be reduced by the sum of
all premiums paid, plus interest on
these premiums, calculated at 6% per
annum. If any premium was paid by
the deceased, the premium deduction
will not be allowed.
A has taken out a life insurance policy REGULAR REVIEW IS ESSENTIAL
on director/trustee Bs life, to enable A Make sure that you regularly update
to purchase director/trustee Bs shares/ your clients life insurance policies and
interest held in Company X in the
buy-and-sell agreements as part of
event of director/trustee Bs death. A
their annual portfolio review. A client
has paid all premiums from the policys
may have experienced a major life
inception, and remained a shareholder
changing event, or the business could
of Company X until the date of
have a new owner. You need to know
director/trustee Bs death.
about these events so that any policies
In this scenario, the exclusion will or buy-and-sell agreements can be
not apply because Section 3(3)(a) updated.
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COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 Astute discovering new
oceans through change
On 24 July 2014, Willie
Snyman, Executive of Business
Development at Astute,
addressed delegates at the
Johannesburg Country Club
during the ACORD Conference.
Snymans speech was entitled,
Efficient workflow and data
exchange in the financial services
long-term industry.
Snyman highlighted the challenges the
industry faces today, and provided a
brief overview of the core business of
Astute. He also introduced the new
MD of Astute, Jacques Rossouw, and
expressed his excitement at the new
possibilities this appointment holds for
the future of the company.
ASTUTES HISTORY AND PURPOSE
The Financial Services Exchange (Pty)
Ltd, trading as Astute, was launched
in April 2000 as a collaborative
service between members of the Life
Offices Association of South Africa
(LOA) (now part of ASISA), which
recognised the need to establish an
electronic exchange for the long-term
insurance industry. The initiative was
spearheaded by the Liberty Group,
Sanlam and Old Mutual, who set up
the company on behalf of the industry
as the initial shareholders.
COVER SEPTEMBER 2014
Sep 14.indd 49
Astute has been built on two pillars
to provide compliance to regulation and
assist in fraud prevention.
In early 2011 Astute was awarded
the tender by SAIA to set up the
STRIDE exchange system to handle
financial information for the short-term
insurance industry.
Astute currently has a client base of
more than 20 000 registered users on
the various Astute systems. When an
insurance broker or an advisor had to
do client portfolio summaries it could
take weeks, now it only takes seconds.
The next challenge is complete and
secure information.
THE ROAD AHEAD
We face several challenges in the long-
term financial services industry. Limra
has identified four major drivers for
businesses going ahead: Demographics,
regulation, technology and external
factors.
DEMOGRAPHICS
Taking into account fertility, mortality
and migration, our population growth
is about 1%. With our economy growth
rate of just under 3%, our per capita
income is rising. In South Africa we
have a young population, but we are
growing older. Our median age grew
to 25, up from 22 in 1996. But 39%
is still under 20, and 28% between 20
and 35. This means two thirds of our
population is under 35. Our working
age population grows 650 000 per
annum and we have a backlog of 4,5
million jobs. This all affects stability
and the ability of individuals to save.
At a recent Sanlam EB symposium, the
following questions were asked:
Why dont people help save the planet?
Why dont people save for retirement?
Only 29% of fund-members can retain
their standard of living. When people
leave a company, 71% take cash and
not preserve. Only 21% know the value
of their funds. 43% just wants to know
their money grows (default). 59% of
pensioners have a cash flow problem.
WILLIE SNYMAN,
Executive: Business Development, Astute
REGULATION THE BIG UNKNOWN
In South Africa we have TCF, Twin
Peaks, RDR, POPI, SAM, binder
holders, FAIS etc.
Regulation either creates new markets
or makes it difficult to do business.
The Office of the Pension Funds
Adjudicator (PFA) reports that TCF
principles in their current form are
not working in the retirement sector.
Muvhango Lukhaimane, the Pension
Funds Adjudicator, has called on the
FSB to entrench the TCF principles into
legislation so that the industry can get
a sense of where it stands.
The issues are excessive management
fees and record of advice
understanding choice of investment
and associated costs. The third
principle of TCF is that customers
should be given clear information
and are kept appropriately informed
before, during and after the time of
contracting.
Regulation has been tough on
the intermediary. The FSB Deputy
Executive Officer of FAIS, Caroline
da Silva, pointed out that if you have
the customer at the heart of your
business, compliance to regulation is
easy. Assuming that intermediaries are
giving fair advice (advice that is not
purely motivated by personal gain), it
49
2014/08/21 10:27 PM
 Financial Planning

is the quality of the products which pointed out that a company needs to
will contribute towards poor advice. create a culture that does not have
This is the responsibility of the product an immune system. These companies
provider. are adaptable to change and can
change systems accordingly. We
There is a cost saver. If there is need quicker technology adaptation.
a higher level of trust between Another aspect of innovation is to
the intermediary and the client, spread the intelligence pool within an
transactions can be quicker. The client organisation and to use everyones
trusts that the intermediary is selling talents. No one is smarter than
them the best product which can result anyone. If faced with a problem, the
in lower costs. company should pool the wisdom of
the company. Innovation can only
TECHNOLOGY THE BIG CHANGE happen in an empowering culture
AGENT where management is open to the
The majority of humans are not great possible opportunities that change can
innovators because they are defined present. Demand is the major driver
by social norms. Chairman of social towards innovation.
media network Mxit Michael Jordaan
To make it practical, the following have Nkandla. Globally there will
questions need to be asked: always be wars that have an impact
here, for example Israel and Gaza.
What is desirable for users? What is
possible with technology? What is Man cannot discover new oceans
viable in the market place? unless he has the courage to lose sight
of the shore.
EXTERNAL FORCES Andre Gide
If one country sneezes, another country
catches the cold. Interest rates are For us, going forward includes
rising again. We have Marikana. We expanding the core of your business.

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50 COVER SEPTEMBER 2014

Sep 14.indd 50 2014/08/21 10:27 PM

 Beneficiary Funds:
A unique South African phenomenon
The South African long-term
insurance industry is faced with a
unique challenge with regard to
Beneficiary Funds, as prevailing
third world levels of financial
literacy are often at odds with
the first world insurance products
offered in the marketplace.
A recent study commissioned by
the Financial Services Board (FSB)
on financial literacy in South Africa
found that 49% of respondents were
unable to live within their means,
while 30% had encountered financial
difficulty. Of those interviewed, 44%
had experienced situations where
their income didnt cover their living
expenses in the past year. The research
also found that people with the
least education suffered the greatest
financial shortfall. Respondents who
couldnt meet their monthly financial
obligations said they borrowed money
from family and friends.
These findings illustrate the low levels
of financial literacy prevalent in South
Africa, which means a significant
proportion of the population is unable
to make sound financial decisions.
Based on that stark reality, its easier
to understand the need for Beneficiary
Funds.
TRUSTEES: PROTECTING THE
VULNERABLE
When a minor loses a parent they fall
under the care of a legal Guardian: a
person who has the legal authority and
duty to care for their personal wellbeing,
their property and financial interests.
A Board of Trustees has a common law
mandate to ensure that a Guardian is
able to execute their duty of care of
a minor. Accordingly, Trustees need
to establish if a Guardian is able to
manage a death benefit originating
from a pension fund responsibly and
competently to benefit the minor in
their care.
The board therefore needs a toolkit to
assess and deliberate on these factors,
and understand how this money will
COVER SEPTEMBER 2014
Sep 14.indd 51
be utilised to benefit the minor directly
until they reach age of majority (18
years old).
Trustees also need to apply their
minds in terms of the type of payment
used in distributing these funds. The
board can choose to pay the benefit
out in instalments, or pay a lump sum
to the legal Guardian on behalf of a
minor.
However, due to financial literacy levels
these modes of payment may carry
significant risk. The board therefore
needs to manage this risk, which
is what led to the development of
Beneficiary Funds.
49% OF RESPONDENTS
WERE UNABLE TO LIVE
WITHIN THEIR MEANS, WHILE
30% HAD ENCOUNTERED
FINANCIAL DIFFICULTY.
SOCIAL FUNDS
Deliberating Trustees should keep in
mind that a death benefit originating
from a pension fund is really a social
fund that aims to ensure people do not
become reliant on the state, or worse,
destitute following the death of the
primary breadwinner.
Trustees then need to make a value
judgement on the Guardians ability to
manage this windfall amount as certain
circumstances and situations may
dictate that a Beneficiary Fund is the
most suitable option.
While this decision is generally made
in the best interests of the child, the
Pension Funds Act also states that
there is an onerous duty on Trustees to
carefully consider all the facts before
denying anyone the right to administer
funds on behalf of a minor. The
Pension Fund Adjudicator deals with
numerous complaints when Boards
unilaterally decline to give lump sum
JEANETTA HENDRICKS,
Beneficiary Care Specialist, FedGroup
pay-outs as Guardians see this as an
infringement of their right to care for
the minor.
For these decisions to stand up to the
scrutiny of the adjudicator, the Board
must offer good reason to withhold the
funds from the Guardian, or show an
inability on the part of the Guardian to
execute duty in the best interest of the
minor.
In addition, common law dictates that
the Board may not deprive a Guardian
the right to administer a fund on behalf
of the minor. Accordingly, industry best
practice guidelines require that Trustees
first consider direct payments. Only
when there is good reason, both in law
and in fact, can they consider other
options.
When the Beneficiary Fund option is
selected it is important to consult with
the Beneficiary and Guardian (where
reasonable) to ensure that they feel
their best interests are served, and that
they understand the rationale behind
the decision.
Despite the challenges, Trustees
should also embrace this option as
low financial literacy in this country is
fact, not fiction. Until the basic level
is raised Boards need to protect the
interests of minor Beneficiaries and
Beneficiary Funds are a safe, reliable
and prudent legal means to address
this problem.
51
2014/08/22 1:28 AM
 Financial Planning
The effects of cost-drag on
investment performance
DUNCAN THERON,
CEO, Grey Swan
If you were a pro-cyclist trying
to win the Tour de France and
you could (legally and honestly)
increase your chances of reaching
your goal by just shaving off
some weight off your bicycle and
yourself, would you do that?
If you were to climb Mount Everest and
could increase your chances of reaching
the summit by slightly reducing the
weight of your back pack, would you
do that? In both of these examples
physical weight is putting a drag on
your performance and reducing your
chances of reaching your goal.
When it comes to saving for
retirement, you have a similar situation.
Costs associated with your investment
are those often ignored factors putting
a drag on your performance and
reducing your chances of reaching
your financial goals. Being mindful
of the small things such as cost-drag
can relatively easily improve investors
performance.
ARE ALL COSTS CREATED EVIL?
Financial advisors, administrators
or platform service providers and
investment managers each fulfil a
very important role and need to be
52
Sep 14.indd 52
remunerated for their work. What
investors should be mindful of is that
they understand what exactly the fees
are and that they are comfortable
paying the fees for the service
rendered. What we are concerned
about in this article is that there
comes a time when the additional
cost outweighs the additional benefit
or some fees might be excessive
compared to another provider.
Suppose you are faced with a selection
between two investment managers
with similar track records and skill but
the one is more expensive than the
other? Or what if you have to choose
between two platforms to administer
your investment and they both have
great online functionality, a wide
selection of fund choices, provide
excellent administrative services and
are reliable, arent you going to choose
the least expensive one?
EXPLANATION OF COSTS
To provide a better understanding of
related costs, we are going to focus
on costs related to an investment in a
collective investment scheme on a LISP
(Linked Investment Services Provider,
which is the South African jargon for
an investment platform). We are not
going to expand on any additional fees
associated with wrappers or fund of
funds fees.
Normally there are three costs
associated with a unit trust investment
namely, financial advisory fees,
administrator or platform fees and
investment manager fees (collectively
referred to as costs in this article).
THESE COSTS ARE EXPLAINED IN
MORE DETAIL BELOW.
1. FINANCIAL ADVISORY FEES
The financial advisor will charge his/
her client for the services they render
which might include, for example,
performing, drafting and implementing
a financial needs analysis, investment
strategy and performance monitoring.
These fees can be initial (once-off)
fees on a lump sum investment or
initial (once-off) fees on every debit
order and/or annual advisory fees
which are ongoing.
2. ADMINISTRATIVE/PLATFORM
FEES
The administrative or platform fees are
related to a Linked Investment Service
Provider (LISP). A LISP is a company
that enables you to invest in a wide
range of collective investment schemes,
such as unit trust funds, via one source
(or platform). The LISP will manage
the administration of the investment
for the client which includes the
processing of cash movements in and
out of funds, performance calculations,
monthly statements, online access
to investments, and provision of tax
certificates. These fees can be levied by
way of initial and/or annual fees and are
normally based on a sliding scale.
3. INVESTMENT MANAGER FEES
The investment manager will charge the
client for the day-to-day management
of the investment or fund. Usually a
funds performance is shown net of
fees as unit trust prices are calculated
on a net asset value basis, which is the
total market value of all assets in the
portfolio including any income accruals
and less any permissible deductions
from the portfolio divided by the
number of units in issue.
Collective investment portfolio fees and
charges were deregulated on 1 June
1998. Prior to deregulation, collective
investment portfolios were not legally
allowed to charge more than 1% as an
annual management fee and 5% for
initial charges. After deregulation, the
ceiling on annual fees was removed,
meaning that funds launched after
deregulation do not have the same
restrictions imposed on them. Fees
are thus determined by market forces
and the actual costs incurred can differ
from fund to fund.
Any level or type of fee may be
changed, but the management
company has to give its unit holders
appropriate written notice of any
increase in fees, additional fees or
change in calculation of fees and
charges.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 Following the deregulation of fees and charges, multiple
classes of units were introduced for example class A, B or
X. This allows management companies to identify different
types of unit holders and to differentiate between the
service offered to different clients and the annual fees they
charge.
trusts. You received a return of 10% (R50 000), costs were
3% (R15 000) leaving a net performance of R35 000, hence
the total portfolio value is R535 000. If the investment and
costs remain unchanged over the years, it will give you a
total portfolio value of R983 576 after 10 years, R1 934 842
after 20 years and R3 806 128 after 30 years.

The fees are disclosed on the management companys fund
fact sheet and other marketing material. The LISP will also
be able to provide the fees. Be mindful not just to take the
annual management fee or fee at benchmark into considered
because typically, that is not what you are going to pay. The
cost that will be deducted from the unit price is the Total
Expense Ratio (TER). The TER shows the charges, levies
and fees relating to the management of the portfolio and is
expressed as a percentage of the average net asset value of
the portfolio, calculated for the year at the end of the most
recent completed quarter. A higher TER does not necessarily
imply a poor return nor does a low TER imply a good return.
The table below shows the performance if you invested
R500 000 with the second investment manager. In year
one you start with R500 000 in unit trusts. You received
performance of 10% (R50 000), costs were 1% (R5 000)
leaving net performance of R45 000, hence the total
portfolio value is R545 000. The investment and costs
remain unchanged over the years, giving a total portfolio
value of R1 183 682 after 10 years, R2 802 205 after 20
years and R6 633 839 after 30 years

COSTS CAN MAKE A DIFFERENCE OVER

A ONE YEAR PERIOD, HOWEVER COST-
DRAG WHICH IS THE MAGNITUDE OF The table below compares the end values for the two
THE DIFFERENCE THAT COSTS MAKE ON investment managers.
PERFORMANCE OVER TIME, IS STAGGERING.

There also might be performance fees which will be part of

the TER. A maximum performance fee will be charged if the
fund exceeds a given relevant benchmark, for example the
JSE All Share Index, by a certain percentage. Should a fund
underperform its benchmark, the annual fees may be waived Cost-drag amounted to over R850 000 after 20 years and
entirely. almost R3 million over 30 years. Clearly costs should be
a major factor as part of your investment decision making
IMPACT OF COSTS ON YOUR INVESTMENT process.
Costs can make a difference over a one year period,
however cost-drag which is the magnitude of the difference
that costs make on performance over time, is staggering.

Lets take an example where you invest R500 000. You

have a choice between two investment managers who both
produced performance of 10% per year before fees, but the
first investment manager charges fees of 3% per year while
the second investment manager charges fees of 1% per year.

The table below shows the performance if you invested

R500 000 with the first investment manager. In year one
you start with a lump sum contribution of R500 000 in unit

CONCLUSION
In the end all the little things add up to make a big
difference. It is important to consider costs when selecting
a financial advisor, LISP and investment manager. Just like
shopping or paying for a service, you need to compare
the initial fees and annual fees of service providers and be
aware of any additional costs as they may influence your
investment significantly

COVER SEPTEMBER 2014 53

Sep 14.indd 53 2014/08/21 10:27 PM

 Financial Planning

Surviving the global pension crisis:

Does SA have cause to worry?
savings shortfall at nearly $100 trillion.
In the developed world unfavourable
demographics and unwillingness on the
part of policymakers to make difficult
choices are the problems key drivers.
Aging populations, longer lifespans and
static retirement ages have led Marin
to conclude that, without meaningful
changes, generational conflict is on the
horizon.

It is estimated that the global

recorded wealth in monetary assets is
approximately $132 trillion, of which
roughly $50 trillion is allocated as
retirement assets. Looking forward
to 2050, Marin calculates a current
retirement funding need of almost
NERINA VISSER, double the amount just under $100
CFA, using content from trillion. Higher taxes, he warned, are
DAVID LARRABEE, almost certainly going to be part of any
CFA solution.

Marins demographic argument relies

No megatrend will define the
next 40 years more than the
global pension crisis, according to
Richard Marin . Speaking recently
at the 2014 CFA Institute
Financial Analysts Seminar, his
sober assessment of the state of
the worlds pension plans should
serve as a wake-up call for the
some of the worlds biggest
economies.
BUT JUST HOW BIG IS THE
PROBLEM?
Marin estimates the global retirement
heavily on old-age dependency ratios,
the number of people over the age of
65 versus the size of the labour force.
With post-retirement life expectancies
on the rise and birth rates slowing,
nearly all developed countries will
see this ratio rise sharply by 2050;
resulting in fewer workers supporting
more retirees. With pension obligations
already at unsustainably high levels in
many countries, its no wonder Marin
called this a defining moment for our
species.
To illustrate the magnitude of the
problem, Marin compared countries
pension liabilities with GDP and found
Germany and France the pillars
of the EU and Japan to be in
particularly bad shape, with pension
liabilities well in excess of annual GDP.
The United States, whose pension
troubles have been well-chronicled,
is in comparatively good condition,
with unfunded pension liabilities at
roughly 50% of GDP (including Social
Security). But Marin was quick to cite
Boston University economist Laurence
Kotlikoff, whose paper Game Over:
Simulating Unsustainable Fiscal Policy
projects a 35% chance that in 30
years, the US governments obligations
to its seniors will exceed 100% of
everyone elses earnings. Ominously,
Kotlikoff refers to this predicament as
game over.
Marin was not all doom and gloom.
A self-described optimist, he says
the pension crisis is not without a
solution. But any meaningful reform
will require some hard political choices.
Higher taxes seem to be inevitable.
Retirement ages will also need to be
raised, and we will likely see more
and more privatisations (which are
already under way in Greece). Also,
Marin expects defined benefit plans
will continue to be phased out, and
investors will become more aggressive
by taking on more risk. With enough
time and the right measures, we may
survive the crisis.

54 COVER SEPTEMBER 2014

Sep 14.indd 54 2014/08/21 10:27 PM

 Slower should
not mean never
The South African Reserve
Bank (SARB) has indicated
it believes interest rates will
need to be increased further.
However, it has also suggested
there is no urgency regarding
hiking the rates.
Deputy Governor of the Reserve
Bank, Daniel Mminele noted during
his speech at the SARB Financial
Markets Departments annual
cocktail function on 24th June
the current rate cycle need not
match the speed and magnitude
of earlier cycles, partly due to
the absence of material demand
pressure on prices.
In addition, real interest rates abroad
are still very low / negative. And,
presently, developed economies
cannot afford a sharp increase in real
interest rates.
Importantly, too, the SARBs own
medium term inflation forecast
shows inflation settling within its
inflation target range through next
year. On current information this is
a reasonable forecast if the Rand
remains stable. Recent sharp falls
in domestic grain prices at producer
level, if sustained, are also especially
helpful.
All of the above suggests the SARB
can remain at ease.
But, there is increasing evidence
emerging in the inflation data
pointing to pass-through effects
from Rand depreciation into prices.
I suppose one could ignore this and
hope it fades without any lasting
impact on inflation expectations
and wages, if the Rand remains
stable. Yet, the risk of higher than
expected inflation outcomes is
significant and we know central
banks are concerned about inflation
expectations. South Africas inflation
expectations have remained
relatively well anchored, but are
close to the 6% upper limit of the
COVER SEPTEMBER 2014
Sep 14.indd 55
RYNO
Killing himself with
30 a day.
ARTHUR KAMP,
Investment Economist
Sanlam Investments
inflation target range. Ostensibly,
it is easier to prevent a surge in
inflation expectations while they
remain contained than to rein in
expectations once they have bolted.
The latter could turn a mellow
interest rate hiking cycle into
something rather more stringent.
The bottom line is the SARBs
communication strongly suggests
the Bank intends increasing its repo
rate again at some point. Given the
apparent split between members
of the SARB MPC in May (about
whether or not to hike the Banks
repo rate) it is hazardous to guess
as to exactly when this point will
be reached. However, inflation is
significantly above 6% (6.6% in May
2014) and inflation expectations,
while stable, are elevated. Further,
although real interest rates abroad
are expected to remain low for an
extended period, they are unlikely to
remain as extraordinarily low as they
currently are. This suggests a further
repo rate hike this week would be no
surprise.
After all, slower should not mean
never.
55
2014/08/21 10:27 PM
 Financial Planning
Retirement is changing.
Are you ready?
JEAN LOMBARD,
Head of Business Integration &
Research at Glacier by Sanlam
We can expect a number of
changes from March 2015 and
beyond. And the landscape
around these changes is a
complex one. Increasing
longevity means ones savings
need to last longer and
governments proposals around
retirement reform aim to
encourage investors to act in
their own best interests.
RETIREMENT REFORM OBJECTIVES
INCLUDE:
Ensuring that all employees
contribute to some form of
retirement savings vehicle;
Ensuring that these savings are
preserved for retirement funding only;
Ensuring that people are able to
save through reasonably priced
investment products; and
Ensuring that investors have
a sustainable income for
life, post-retirement.
South Africans, generally, do not
save enough for retirement. A large
56
Sep 14.indd 56
proportion tend to cash in some or
all of their retirement savings when
changing employers. This is evident in
the low savings rate of the country -
various studies estimate that less than
10% of people can retire comfortably.
To increase the level of retirement
savings, Government believes tax
incentives can play a valuable role.
NEW SAVINGS PRODUCTS FOR A
NEW LANDSCAPE
From 1 March 2015, Government is
expected to introduce tax-friendly
discretionary (after-tax) savings
products, designed to encourage
additional savings, over and above
compulsory retirement savings.
SOUTH AFRICANS,
GENERALLY, DO NOT SAVE
ENOUGH FOR RETIREMENT.
The intention is that these savings
vehicles will not attract capital gains
tax or tax on income and dividends.
However, there will be an initial annual
contribution limit of R30 000 and
a lifetime limit of R500 000. These
amounts will be inflation-adjusted on
a regular basis. Once this product has
been launched, the current interest
exemption (R23 800 for persons under
65, and R34 500 for persons 65 years
and older) will no longer be adjusted
for inflation.
A NEW ALIGNMENT OF
RETIREMENT SAVINGS PRODUCTS
Also on 1 March 2015, the deduction
of contributions and the lump sum
payable in respect of pension and
provident funds will be aligned.
Benefits will also be treated the same
way for contributions made from this
date. Currently, members retiring
from a company are able to withdraw
100% of their contributions in a
provident fund. From 1 March 2015,
the member can only access one-third
of the amount and will be compelled
to use the remaining two-thirds to
purchase an annuity as is the case
with a pension fund. Members can still
withdraw all contributions (and the
growth thereon) made to a provident
fund prior to this date.
If the total amount in the provident
fund, pension fund or retirement
annuity (RA) is less than R150 000
at retirement, then the member may
withdraw the full amount in cash.
THE NEW CAP ON TAX BENEFITS
ON RETIREMENT FUND
CONTRIBUTIONS
In an attempt to simplify current tax
incentives, employer contributions to
retirement funds will become a fringe
benefit in the hands of employees for
tax purposes.
As from 1 March 2015, employees can
claim a tax deduction of up to 27.5%
(currently 15% of non-retirement
funding income) of the greater of
remuneration and taxable income
on contributions to a pension fund,
provident fund or retirement annuity. A
ceiling of R350 000 per tax year will
apply, and unused deductions may be
rolled over to the following year.
Remember that members can continue
to make tax-deductible contributions to
a retirement annuity even beyond the
age of 70.
YOUR LAST CHANCE
The R350 000 tax deductible ceiling
means that investors have a last
opportunity between now and 28
February 2015 to make additional
ad-hoc contributions to their retirement
annuities to enjoy the tax benefits.
Excess contributions can be carried
forward and as of 1 March this year,
can even be utilised after retirement.
Lets look at an example:
Suppose a clients non-pensionable
income is R5 million. 15% (R750 000)
of this income can be contributed to an
COVER SEPTEMBER 2014
2014/08/21 10:27 PM

RA and is tax deductible. (Investors
may contribute more than this,
although the amount above 15%
will not be tax deductible). Tax will
be calculated based on an income
level of R4.25 million, assuming no
other deductions. This translates to a
massive tax saving.
From 1 March 2015, the tax
deductible amount will be
calculated as 27.5% of the greater
of remuneration or pensionable
income but the amount which is tax
deductible in the same year as the
contribution is capped at R350 000.
Under the same scenario, the taxable
income will be R4,65 million -
decreasing immediate tax advantages
dramatically.
RETIREMENT ANNUITIES
(RAS) HAVE MANY OTHER
BENEFITS WHICH MAKE THEM
AN ATTRACTIVE RETIREMENT
SAVINGS VEHICLE:
The returns within the RA are
not subject to income tax, capital
gains tax or dividends tax.
The lump sum payout at retirement
(a maximum of one-third of the
capital) or on death, may be
tax-free within certain limits that
apply to lump-sum payouts from
retirement savings products.
On death, any benefits paid out
from an RA are free of estate duty.
An RA can be used to provide
for medical expenses since
the income after age 65 will
effectively be tax-free if used to
fund these medical expenses.
COVER SEPTEMBER 2014
Sep 14.indd 57
RYNO
Pays a packet for
risk insurance as a smoker.
THE 2014 SANLAM BENCHMARK
SURVEY IDENTIFIED A FEW
KEY HABITS OF FINANCIALLY
HEALTHY RETIREES, DEFINED
AS THOSE EARNING R25 000
OR MORE PER MONTH IN
RETIREMENT:
Start early - Affluent retirees save
for 33.2 years on average, the
rest save for about 29 years.
Save as much as possible
Financially healthy retirees
save 8% (excluding employers
contribution) of their salary,
whereas the average is only 7.3%.
Dont rely on the company
37% of financially comfortable
retirees have an RA in addition
to their company pension fund.
Leave your savings alone
Only 12% of affluent retirees
dipped into retirement savings
when they switched jobs
21% on average did.
Widen your nets 98% of
affluent retirees have an extra
source of income compared
to 68% on average.
Use the pros 88% of affluent
retirees consulted a financial
adviser before retirement
and 72% after retirement.
The average is 58% before
retirement and 34% thereafter.
As always, we recommend that
investors consult with a qualified
financial intermediary who will be
able to ensure that their investment
portfolio is in line with their risk
profile and investment objectives.
57
2014/08/21 10:27 PM
 Financial Planning
All that glitters aint gold
IAN MIDDLETON,
Managing Director of Masthead
A recent advertisement in a
national Sunday newspaper
proclaimed 20% guaranteed
return, zero risk, zero liability.
We all would like to believe
there is that proverbial pot of
gold at the end of the rainbow.
In an economy where consumers
are cash-strapped and pensioners
seek higher incomes, not only can
consumers be enticed into putting
their money into an investment like
this financial advisors can also fall
into the trap. When business is tight,
its tempting to go after great offers
like this.
In the words of Prince: All that
glitters aint gold.1 These lyrics serve
as a reminder of the pitfalls and
responsibility on financial advisors.
This is when they should remember
their duty of care to their customers.
Besides knowing their customers, they
also need to know the providers with
whom they do business and about the
products they recommend.
Much has been written about the
need for financial advisors to do a
due diligence on the providers with
whom they do business and the
products they suggest. There are
many regulatory provisions that set
out the onus on advisors. There are
provisions in the FAIS General Code of
Conduct, provisions in the principles
of Treating Customers Fairly, and
58
Sep 14.indd 58
provisions linked to common law that
were highlighted as far back as 1997
(long before FAIS) in the Durr vs ABSA
case2. Some or all of these provisions
have been highlighted in several FAIS
Ombud determinations, including a
recent determination in favour of the
complainant, Dr Craig Stewart Inch3.
DUTY OF CARE
Despite the regulatory provisions
driving the need for due diligence, the
real reason for doing a due diligence
should be because this onus and
action are core to the care with which
professional advisors want to treat their
customers.
What does a due diligence involve?
It is essentially an assessment of
risk the risk of a company not
performing as promised; or a product
that does not pay out (perhaps
because of exclusions), does not meet
the expectations created, or is not
suitable for the customer to whom
it is recommended. A product due
diligence entails a dual investigation of
what the product comprises (e.g. its
features, risks, benefits and lifespan)
and whether it is suitable for the
customers needs.
Advisors are obliged to stay up to date
with every provider and/or product they
have on their shelves. Therefore, the
more products, the more exposure, the
more risk and the more due diligences
needed.
In corporate advisory practices, the
onus of doing a due diligence rests
with management and/or specialists
backing up management. They do
the homework and determine what
advisors can sell. But what does a
small advisory business do? What is
expected of advisors? How should
they conduct a due diligence? Whats
acceptable and whats not?
The following words in the Durr 4
case sum up the duty of care and
the actions needed to protect oneself
and ones customers: if the
adviser himself does not have the
personal competence to make the
enquiries, it is incumbent upon him
to harness whatever resources are
available to him or if necessary to
ask for professional opinion before
committing his clients funds to such
an investment.
Regulation and case law (FAIS
Ombud determinations) provide
principle guidance but approaching
due diligence from the perspective of
what would you do if your parents
want to invest? is a practical and
sensible way to deal with things.
Applying simple rules of thumb,
including some tips from the FSB5,
should help advisors meet the
expectations of a due diligence:
The farther an investment appears
to veer away from the norm or be
outside the mainstream (e.g. in
relation to returns, commissions,
penalties, promises), the more you
should dig for information or stay
away. The higher the promised
return, the higher the risk.
Do not blindly accept what you
are told or what you read about a
company or a product. Dont take
things at face value, especially if they
sound too good to be true. Dont
rely only on marketing brochures
these tend to underplay the risks.
Understand how the product works.
If you dont understand all the risks
(product/company), ask questions.
Keep an audit trail of what you did
to get to grips with the product.
In the Durr v ABSA case, the
judge stated: One of the first
requirements of a professional is to
know when he may be getting out
of his depth. These words should
help advisors to stay focused. If you
have any doubt about a product
and/or company, stay away.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM

TRIED AND TRUSTED
Another way to manage risk in this
area of due diligence is to stay with
the tried and trusted. Many advisors
stay with listed companies, as they
give extra protection. In addition to
FSB regulation, listed entities are
subject to the rules governing the
Johannesburg Securities Exchange
(JSE). These provide customers,
investors and advisors with peace
of mind that there are measures
in place that afford them some
protection.
MANY FAILED
INVESTMENT SCHEMES
WERE UNKNOWN,
UNLISTED AND EVEN
UNLICENSED OR
UNREGULATED.
By contrast, many failed investment
schemes were unknown, unlisted
and even unlicensed or unregulated.
They did not have an established
reputation or brand name. They
certainly did not apply the provisions
of the King Report on Corporate
Governance (some even conducted
their own valuations). As such, they
add risk to an advisory business.
Before deciding to move away from
the tried and trusted, apply the tests
listed earlier advisors should line up
their due diligences and find out as
much as possible.
CREATE A HOUSE VIEW
One way to manage risk in an
advisory business is to create a
house view a process by which
advisors pick several companies
(or providers) with whom they are
prepared to do business. Providers
are thus limited to a manageable
number, based on a set of factors
that serve as their due diligence.
This helps to avoid the pitfalls that
come with doing business with too
many providers and carrying too
many products. Through this process,
exposure to risk is limited.
IN FORMING A HOUSE VIEW,
ADVISORS SHOULD LOOK TO
THINGS LIKE:
Who oversees the product
provider from a regulatory
COVER SEPTEMBER 2014
Sep 14.indd 59
SAVE THE
perspective (e.g. for licensing
and regulatory contraventions)?
RYNO
Track record and experience.
Are they who they claim to
be? Do their products do
what they promise to do?
Their investment performance or
claims ratio. Are they financially Ryno needs to quit
sound? Are they likely to be
around in a few years time? the killer. With a
Can they follow through on commitment to do so,
promises? This is about the Altrisk will give him
capacity, capability and expertise to
deliver. Do they offer appropriate a reduced premium
infrastructure, support and
training? Do they have the systems from day one.
and processes to deliver what
they promise (e.g. service)?
While it is appropriate to consider Plus well help him quit.
the types of issues above in
relation to all ones business
partners, the level of detail required If your clients smoke talk
differs depending on who one is
considering. The FAIS Ombud will to them about Altrisks
take judicial notice of the main,
established brands in the insurance Proactive Smoker it
and investment field, so the level could save their life and
of due diligence required there is
less. But if you move away from the their pocket.
mainstream, your questions need to
be more intense and deep.
Making due diligence a core part For more
of your advice business will not
only help to satisfy regulatory information
requirements but will also speak to your
demonstrate care in looking after
your customers financial wellbeing, Altrisk broker
while at the same time significantly
reduce risk in your business. consultant or go
to www.altrisk.co.za
1
Gold is track #11 on the album
The Gold Experience, written by
Nelson, Prince Rogers and sung by Were your type
Prince.
of risk insurer.
2
Durr vs ABSA Bank Ltd and Another
1997 (3) SA 448 (SCA)
3
Craig Stewart Inch vs Impact
Financial Consultants CC and Michal
Johannes Calitz
4
Durr vs ABSA Bank Ltd and Another
1997 (3) SA 448 (SCA), at 463
5
FSB Workshop presented to IFAs
(2013)
59
Altrisk is a division of Hollard Life Assurance, an authorised
financial services provider (FSP 17697).
2014/08/21 10:27 PM
 healthcare
OUR HARROWING
HEALTHCARE SYSTEM
For most South Africans access to the best
private healthcare is not just a priority, it
is essential. There is no disputing the fact
that the public healthcare system has all but
completely collapsed in most provinces. On
the other end of the spectrum is a world-
class private healthcare system that will
literally cost you an arm and a leg if you do
not have appropriate medical aid or health
insurance.
60
Sep 14.indd 60
COVER looks at the access to medical aids
and the expenses involved, and the need to
ensure that costs do not grow further out of
reach. We also look at consumer education
and the role of the intermediary, as well as
the loyalty programmes contribution to
the industry. Finally, we chat about the hot
topic of the Demarcation Regulation, and
how insurers are dealing with the future
changes.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 Lifestyle programmes
prove their mettle
Commentary from Resolution Health and Zurreal
The rise of non-communicable
diseases (NCDs) during
the past decade has seen
the healthcare industry
undergoing a major shift from
traditional models of curative
care to more preventative
models focusing on holistic
wellness. In response to this,
the market for healthcare
lifestyle programmes has
experienced astonishing
growth in South Africa.
Latest statistics from the World Health
Organization (WHO) show that NCDs,
which include cardiovascular diseases,
certain cancers, chronic respiratory
diseases and diabetes, are by far the
leading cause of death in the world,
representing 63% of all annual deaths
and approximately 35% of deaths
in South Africa, says Mark Arnold,
Principal Officer of Resolution Health
Medical Scheme.
COVER SEPTEMBER 2014
Sep 14.indd 61
Against the backdrop of the rising tide
of NCDs, which have been fuelled
by tobacco and alcohol use, physical
inactivity, unhealthy diets and obesity,
loyalty and lifestyle programmes
have come to the fore as a means to
incentivise members to adopt healthier
behaviours in order to stem the tide of
costly and at times deadly, NCDs.
According to Arnold, lifestyle
programmes have proven their
mettle in terms of transforming the
healthcare industry and improving
clinical outcomes, reducing healthcare
costs and improving the disease profile
of members. The sophistication
and innovative design of lifestyle
programmes today has enabled the
industry to collect valuable data, which
delivers enormous insights into the
behaviour of healthcare consumers.
Lifestyle programmes are no longer
about retention but rather about holistic
wellness and active engagement with
the lifestyle programme, he says.
Many people view healthcare cover
as a grudge purchase, one that should
provide immediate benefits and results.
The immediate benefits of preventative
care can, at times, be rather difficult
for healthcare consumers to envisage
and buy into. Lifestyle programmes,
on the other hand, allow for the
integration of rewards into healthy
lifestyle choices which in turn increase
member participation, drive desired
behaviours and ultimately improve
member wellness while reducing
healthcare expenditure, asserts
Arnold.
Most medical schemes offer members
access to a lifestyle programme for
an additional fee. Resolution Health
Medical Scheme offers members
access to the entry-level Zurreal
loyalty and lifestyle programme at no
additional charge, while making sure
that members, first and foremost, get
the best possible bang for their buck in
terms of their benefit options.
For example, Zurreal rewards members
for simply undergoing routine health
checks aimed at identifying problem
areas early on. Combined with
medical scheme cover that provides
superior benefits, prevention and
cure are seamlessly integrated while
allowing members to earn cash-back
rewards along the way. Other rewards
include exceptional education, gym and
sporting rebates, discounts at selected
stores and even a free 24/7 telephonic
legal helpline, to mention but a few,
he says.
However, Arnold cautions that while
some schemes may have impressive
loyalty programmes on offer, these
schemes do not always offer good
value when it comes to benefits. A
lifestyle programme should offer quality
health benefits, first and foremost, to
consumers. Rewards should also not be
the overriding reason someone chooses
to belong to a medical scheme. Rather,
the member should look at the overall
benefit structure without the frills and
choose a scheme that will be there for
them in their greatest hour of need,
he concludes.
61
2014/08/21 10:27 PM
 healthcare
A potential lifeline for
SAs healthcare crisis
Efficient Human Resource
Management (HRM) has been
overlooked as one of the
ways to address problems in
the South African healthcare
arena argues new research
from the UCT Graduate School
of Business.
An unlikely collaboration between a
medical doctor and a business school
academic has thrown some light on
how the ailing healthcare system in the
Eastern Cape could be improved.
Health services in the province
are plagued by an inefficient
administration and severe staff
shortages there are just 2.97 public
doctors per 10 000 people, a ratio
among the lowest in the country. For
healthcare workers in the region, late
62
Sep 14.indd 62
or inadequate payment of salaries
and shortages of medicines and basic
medical supplies are just two of the
challenges they encounter.
Now research conducted by medical
doctor Bruce Longmore and UCT
Graduate Business School Senior
Lecturer Dr Linda Ronnie suggests that
Human Resource Management (HRM)
could help to address the grievances
and concerns of healthcare workers by
efficiently carrying out HR functions
and delivering a seamless service
designed to eliminate their workplace
frustrations.
It almost seems obvious, says Dr
Ronnie, and yet HRM has been largely
overlooked in the sector as a means
to address the healthcare crisis. But it
is clear that the fundamental failings
of the HR department have caused
substantial frustration among doctors
of all ages, providing a significant push
factor away from service in the state
sector and having a direct impact on
their willingness to remain in service
at the medical complex. Only 32% of
the surveyed doctors were willing to
commit to continue working in this
environment, 45% said they wanted to
leave and 23% were undecided. The
impact of poor HRM revealed in the
study can only perpetuate the staffing
problems that plague the sector.
KEY HR PRACTICES THAT WERE FAILING
THE DOCTORS
The research was centred on a medical
complex in the Eastern Cape, which had
been identified as having critical staff
shortages and difficulty with retaining
staff.
The researchers interviewed heads of
departments at the medical complex
and sent questionnaires to 250 doctors.
Seventy five doctors responded to
the survey and it became abundantly
clear that the majority found that
HRM practices at the complex were
inadequate and a constant source of
frustration.
Most doctors felt that being paid on
time and accurately was the most
important HR practice; and a large
majority of respondents mentioned
that accuracy in salary payments was
problematic. Sixteen percent of the
doctors had been victims of late or
inaccurate payment, and numerous
others feared non-payment on a
monthly basis. This has a critical effect
on staff retention.
Healthcare workers in the survey
rated document management
and communication efforts by the
complexs HR staff as the second and
third most important priorities in
workplace satisfaction. Eighty four
percent of the doctors surveyed rated
these services as dismal. The doctors
cited numerous cases of repeated
document loss, identity fraud and
failure of communication.
Ranking fourth, being respected and
valued by HR staff, was something
that doctors felt was less important
than the basic HR functions being
undertaken properly. However, one
doctor ranked this practice as first,
stating, If the staff of HR respected
and valued us, then they would pay
us on time, keep our documents safe,
strive to communicate effectively
and place priority on our continued
education.
The last HR practice, reimbursement
for courses/conferences attended
and special leave requests, although
playing a critical role in both the
doctors development and the clinical
functioning of the hospital complex,
was ranked by doctors as least
important.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 77% OF DOCTORS IN THE YOU TAKE
SURVEY RATED THE OVERALL
COMPETENCE OF HR STAFF CARE OF YOUR
AS UNACCEPTABLE. EMPLOYEES
WELL-BEING,
WELL TAKE
CARE OF THEIR
RETIREMENT.

77% of doctors in the survey rated the overall

competence of HR staff as unacceptable, making it clear
that a major deficiency existed which impacted on the
doctors on a daily basis. Its not easy being a business
owner. Just because youre an
SOLIPSISTIC RATHER THAN ALTRUISTIC GENERATION Y expert in your field, doesnt mean
In the questionnaire sent to healthcare workers, age
category selection was used to determine whether there
youre an expert in the ins and outs
were generational variations in the survey responses. of running a business. Allow our
Generation Y, or healthcare workers from 25 to 32 years dedicated employee benefits team
of age, formed the largest group of respondents - almost to take some of the complications of
70%.
running a business off your plate.
This is interesting for a number of reasons. A significant Like developing a staff benefits
portion of the complexs medical workforce is made strategy, healthcare and retirement
up of a generation that is proving challenging and fund consulting, investment risk,
difficult to manage, according to expert studies. Seen
business risk and asset cover. You
as the most high-maintenance group to enter the
workforce, Generation Y are multi-taskers who have high can leave it all to us, so you can focus
expectations of themselves and their employers. This on what youre really good at, your
poses attraction, motivation and retention challenges for business. For more information, call
the public health sector, said Longmore and Ronnie.
0800 551 552, email info@psg.co.za, or
RETAINING THE BEST visit psg.co.za
According to Ronnie, South African public hospitals need
to urgently strive to retain the services of qualified,
committed healthcare professionals. However, this
will not happen unless doctors working in these
facilities know that trained and equally committed HR
staff members are successfully attending to all their
administrative concerns.

Following our research, we suggest that an improved

understanding of the HRM challenges in this public
hospital setting may be employed at a national level to
PSG Wealth Financial Planning (Pty) Ltd is an authorised
facilitate the retention of doctors in the SA public sector financial services provider. FSP 728
as a whole, she said.

COVER SEPTEMBER 2014 63

Sep 14.indd 63 2014/08/21 10:27 PM

 healthcare
Managing SAs private
healthcare challenges
Although many private
medical schemes are
moving out of reach for low
and middle income South
Africans, medical aid cover
remains a necessity, owed
largely to the ever increasing
costs in healthcare in South
Africa.
Peter Jordaan, Principal Officer of
Fedhealth says that there are several
requirements to ensuring medical
aid cover doesnt grow further out
of reach for many South Africans,
namely improved stakeholder
communication and collaboration, as
well as improved consumer education
and empowerment when it comes to
managing health.
Medical scheme increases are
driven by improved technology,
which unfortunately is most often
accompanied by increased prices, as
well as increased utilisation of these
technologies and other benefits. A
scarcity of resources increases demand,
64
Sep 14.indd 64
and conversely, when new healthcare
facilities are made available more
people seek out medical care that they
normally wouldnt have considered.
Owing to a lack of education, most
people visit specialists and undergo
invasive medical procedures when its
not always necessary.
This brings us back to the need for
education not only for consumers
but for healthcare providers too.
Healthcare providers need to ensure
theyre properly informed about the
different treatment options and they
should also be aware of their pricing
comparable to others offering the same
treatment.
From a consumer perspective, medical
aids should take joint responsibility for
helping members better understand
and appreciate the benefits of good
health and a healthier lifestyle,
hence the recent trend towards more
sophisticated loyalty programmes that
reward behavioural change.
A broad-based approach to health and
wellness, one thats practical and starts
with education, is the best way to go.
If members are empowered to better
understand health and wellness, they
can then make more informed choices
and select the correct lifestyle path for
themselves.
Intermediaries play a key role in
helping consumers become more
aware of the various options available
to them, and how to get the most out
of their medical aid. While it may
be tempting to select the cheapest
option, members deserve reliable
and value for money medical aid.
Intermediaries guide members in
choosing the best option for their
budget and their health requirements.
We all want to get the most out of
our medical aid schemes. The key to
achieving this is by understanding and
using your medical scheme benefits to
their best effect.
Members of medical schemes ensure
that they use a designated service
providers (DSP) or health provider
within their schemes network in order
for their prescribed minimum benefits
(PMBs) to be paid in full. An excellent
way of maximising your benefits is
by using the health care provider
networks or DSPs specified in your
particular medical scheme.
These networks have been created
with scheme members and health
providers interests at heart. These
partnership models ensure that
medical scheme members have access
and cost certainty when visiting
one of the DPS providers and this
ensures that their scheme benefits are
maximised.
These partnership models or networks
of DSPs benefit all involved. Healthcare
providers gain because they are
ensured cost-certainty, and the
schemes in turn are able to anticipate
future healthcare provider related
costs via these models. This kind of
collaboration is essential to ensuring
the medical aid industry remains
sustainable.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 SAIA shares thoughts on
Demarcation Regulations
The South African Insurance
Association (SAIA) has
announced that it has made
its submission to the National
Treasury with regard to
the revised second Draft
Demarcation Regulations.
The SAIA, an industry body
representing sixty member companies
in the short-term insurance industry,
made its submission following the
National Treasurys release of its
revised second draft Demarcation
Regulations (the Regulations) on 30
April 2014.
The SAIA said it welcomed the
inclusion of medical expense shortfall
cover (GAP cover) as a permissible
accident and health policy under
the Short-term Insurance Act, but
proposed that the R50 000 cap be
removed in order not to exclude cover
for consumers who may have claims
for costly procedures such as joint
replacements.
Interestingly, the average age of GAP
policyholders is 46 years of age. The
SAIA supports strategic approaches
to address the underlying causes of
spiralling private healthcare costs to
make healthcare more affordable to
consumers, says SAIAs Adv. Suzette
Olivier, General Manager: Legal.
She said that the capping of GAP
cover will lead to a massive reduction
in cover for consumers but not
necessarily to a reduction in premium
as policyholders pay a minimal
amount for GAP cover in excess of the
average cost of claims whilst receiving
huge value for little or no additional
premium. Olivier added that local
and international trends indicate
that the annual increase in medical
treatment far surpasses that of the
Consumer Price Index (CPI), hence
the annual increase on caps provided
COVER SEPTEMBER 2014
Sep 14.indd 65
in the Regulations were impractical. in support of the Treating Customers
The SAIA also expressed concern with Fairly outcomes.
the impact of the Regulations on
the approximate three million South In its submission, the SAIA also
Africans travelling internationally made proposals on the HIV and
per year. The Association said the AIDS category provided for in the
Regulations which is currently
alignment of commission for health
insurance and medical schemes will limited to employee groups. The SAIA
negatively affect the sustainability submitted that this limitation should
and distribution of the travel be removed to permit cover for the
insurance market. unemployed and other groups.
Olivier confirmed that the average The SAIA also proposed that other
international leisure travel policy categories of critical illness health
was around R600 and provided as policies should be considered as
a once-off, non-renewable policy. permissible in the event that these
The commission proposed in the illnesses are viewed as epidemic in
draft Regulations will reduce nature and/or have a large financial
the commission from a current impact on consumers and on the
commission average of R120 to health care system in support of the
R18. The SAIA emphasized that the National Development Plan.
suggested commission was insufficient
The SAIA has met with representatives
considering the cost associated
of the National Treasury (NT) and the
with selling and administrating such
Financial Services Board (FSB) on 29
products as well as maintaining
May 2014 on this issue in the interest
sufficient professional indemnity
of a sustainable insurance market that
insurance.
supports fair consumer outcomes.
The SAIA expressed concern that
this may lead to negative consumer
outcomes such as an increase in the
costs of the products or travel policies
ceasing to exist. Olivier noted that
travel insurance was invariably sold
by travel agents, who as a matter of
course, do not sell medical scheme
products hence there was a limited
risk of intermediaries selling travel
insurance instead of offering medical
scheme products.
Olivier said the proposed alignment
of commission would also drastically
reduce commission payable on the
average GAP cover policy of R113 from
R23 to R3. The SAIA proposed that the SAIA Chief Executive, Barry Scott
issue of the payment of commission affirmed, We confirm our appreciation
provided for in the Regulations should to the National Treasury and the FSB
be deferred to the FSBs soon to be for the opportunity to participate
released Retail Distribution Review, in the process and look forward to
aimed at reviewing the existing further consultations in respect of
framework of advice, distribution and those areas of concern identified by
remuneration of insurance products, the SAIA.
65
2014/08/21 10:27 PM
 healthcare
Demystifying demarcation regulations
It is no secret that private
medical cover in South Africa
is astronomically expensive,
with healthcare providers
often charging triple the rate
of the medical aid scheme.
The National Treasury has thus
released a second draft for
the demarcation regulations,
which will concentrate on
the use of short-term health
products and gap cover
policies.
COVERs Taryn Kerr sat with Johan
Henning and Ernie van der Vyver
(partners at Webber Wentzel), to speak
about the second draft, and how it is
affecting their clients and the insurance
industry as a whole.
66
Sep 14.indd 66
TK: What is the difference between
the first and second draft of the
Demarcation Regulations. What are
the main changes?
EvdV: As an overview, the main issues
as far as changes are concerned,
is that National Treasury intends
to substantially reduce the broker
commission that may be earned on
health insurance products to align it
with the commission currently earned
on medical scheme products, and that
there is a type of gap cover referred to
as medical expenses cover that insurers
will be entitled to provide. There are
also more policy benefit limits, which I
think will create more problems.
BINDER SERVICES WILL BECOME
OBSOLETE FOR THESE TYPES
OF PRODUCTS, WHICH WILL
HAVE A BIG IMPACT ON THE
MARKET IN TERMS OF UMAS.
JH: In terms of the commssion,
they have tried to regulate the
commission in the Insurance Act, but
with reference to commission in the
Medical Schemes Act which has
caused major interpretation problems.
You have slightly different concepts
here. On the insurance side, you
have intermediaries, binder holders,
and people performing outsourcing
functions. Intermediaries interposes
between the clients and the service
providers, performing a very specific
function. That concept is not the same
as a broker within the Medical Schemes
Act, as this broker has a much wider
meaning and services rendered. A
broker service in the Medical Schemes
Act encompasses all the concepts
intermediary, binder services and
outsourcing services.
Regulation 28 of Medical Schemes Act
has been brought in for insurance, with
a provision that states that you cannot
get ongoing fees if you get any other
fees. There is an intertpretation that
you will not be able to get binder and
outsource fees on health and accident
policies. Binder services will become
obsolete for these types of products,
which will have a big impact on the
market in terms of UMAs.
EvdV: Commision will drop from 20%
to 3% or R71.01, whichever is the
lesser, which is the big concern. The
way it is drafted states that other fees
earned for other functions, will be
done away with completely. I think
that it is worse than people think. The
restriction on commission levels does
not take into account that Gap Cover
premiums are substantially lower than
medical scheme contributions and that
same level of advice is required for
both products.
TK: If the Dermacation Regulations are
accepted as is, what do you expect the
consequences to be
EvdV: I wonder if intermediaries will
still have an appetite for these types of
insurance products? Firstly, there will
be massive cost increases if they are
treated as medical schemes. Secondly,
there is a lot of uncertainty being
created by having these categories, and
there is the power to reject a product
completely. Lastly, no one will want
to sell it based on the low commission
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 fees and this is putting the distribution
channels at serious risk.
JH: The way that we see this working
is that accident and health policies
fall under the Short-term Insurance
Act. If a benefit offered by an insurer
can also be clasified as business of
a medical scheme, the insurer will
have to ensure it is consistent with
the requirements of the Gap Cover
Regulations. Ernie made a good point
on lump sum benefits, dread disease,
and income replacement policies and
how this will be regulated.
EvdV: They are trying to regulate
income replacement policy benefits,
and I argue that they simply cannot
regualte this under medical scheme
regulations. The Act says, if you have an
insurance product that complies with
the business of a medical scheme, only
medical schemes can do this, unless it
falls within the demarcation regulation.
Ensuring your client decides on
the right medical aid scheme
Tips by Momentum Health
THE RIGHT FIT
Such has been the evolution of
medical aid cover over recent years in
South Africa that you can indeed find
cover that most affordably suits your
individual needs. Whether you are a
healthy young person who would like
to be rewarded for being active, or
someone who suffers from a long-
term chronic condition, your financial
adviser will have more than one option
to choose from in shaping your cover
around you.
Rather than to simply compare the
average increase in contributions for
that year from various schemes, it
is advisable to sit with your adviser
to make sure you are getting the
COVER SEPTEMBER 2014
Sep 14.indd 67
IRB will never fall within the business
of medical schemes because it is a loss
of income payment, thus it should be
totally excluded.
TK: What problems are you seeing with
the fact that there are two regulators?
JH: The Council for Medical Schemes
will not have jurisdiction, but it can
advise the registars, who can then
prohibit a product. This is a huge risk for
the insurance industry, as there is major
uncertainty. An insurer can develope
a product that fully complies with the
legislation and incur all upfront costs
of the roll-out, but the CMS can then
decide that they do not like it, and the
product will be stopped. We are not
sure if this is constitutional, but it can
also seriously hurt the industry.
EvdV: The time limit for compliance
is also quite short, with around three
months given to submit all policies for
best value, and benefits that fit you.
Comparing the options offered by your
current medical aid will also help you
determine if you need to consider an
option change instead of switching to a
new scheme altogether.
ADDITIONAL BENEFITS
If you do decide to change your
scheme, it is also important to consider
things like: Does the medical aid offer
any rewards programmes and how will
that benefit you? Can you benefit from
paying into a medical savings account,
rather than belonging to a more
expensive, comprehensive option? Can
you tailor your benefits to e.g. make
use of certain selected providers for a
lower contribution? If you prefer being
hands-on when claiming or interacting
with doctors, does the medical aid have
a mobile app that allows you to do
things like get authorisation instantly
or track claims?
LONG-TERM VIEW
The long-term sustainability of the
medical aid you are on or consider
approval. It will take inurers a longer
time to change systems, especially
where they have monthly products and
not annual products.
TK: How are you assisting and advising
your clients around these regulations?
EvdV: We are helping them by
submitting comments, but also
helping them to restructure policies,
such as the issue of the travel
policy benefit change. The product
commission is limited and affected by
the regulation. Some clients cannot
see the future for these kind of
products, with another problem lying
at a distribution level.
JH: The regulations create difficulty as
it is poorly drafted and opens up many
issues around misinterpretation and
uncertainty. Working with different
bodies and pieces of legislation is
clearly not the way forward.
joining should be one of the most
important factors you take into
account, as it could affect your future
contribution increases, as well as
the schemes claims paying ability.
It is important to ensure that your
scheme offers a flexible solution to
accommodate changing needs, while
making sure that the Scheme not only
grows, but grows sustainably.
In addition, you should determine
whether the scheme has seen
membership growth over the past
three years, if the scheme has recorded
an operating surplus in recent years,
as well as if it holds the legislative
minimum solvency requirement. Any
scheme that ticks these boxes should
provide you with the peace of mind
that your health would be safe in their
hands, assures Damian McHugh, Head
of Sales and Marketing at Momentum
Health.
67
2014/08/21 10:27 PM
 healthcare
Demarcation Regulations
Is it a well-thought-out policy framework or
appeasement of the medical scheme regulator?
Michael Settas, Managing
Director of Xelus
The lead up over the past 8
years to the second draft of
the demarcation regulations
released by National Treasury
(NT) in April 2014 makes for
some interesting reading.
This draft aims to set the framework
around how health insurance products,
mainly gap cover and hospital cash
plans, will operate in the market in
alignment with medical schemes.
The entire draft is based on two
assumptions firstly, that medical
schemes are being harmed by health
insurance products and secondly - a
more subtle assumption - that nothing
is wrong with the existing medical
scheme regulatory framework which
has been in place since 2000 when the
Medical Schemes Act, No 130 of 1998
(MSA) came into effect.
The simple truth is there is no evidence
to support the first assumption, a
matter emphasised by the Supreme
Court of Appeal in a 2008 court
case. Secondly, there is ample
evidence that the medical scheme
regulatory framework requires drastic
amendments if medical schemes are to
survive.
Their contribution increases have
averaged 3.4% above CPIX since
2001 and, most notably, have
simultaneously been providing less
and less benefits for members over
that same time period. In 2006,
members belonging to the cheapest
option of each of the 4 largest open
medical schemes1 made up 6.8% of
their collective membership, whereas
this figure had ballooned to 18.6% by
68
Sep 14.indd 68
2011. At the other end of the scale,
the combined proportion of members
belonging to the most expensive
option of each of these schemes
had declined by 36% over the same
period.
By virtue of a socially oriented rights-
based policy framework, medical
schemes have unfortunately been
hamstrung in their ability to manage
costs and have resorted to limiting
the rate at which they reimburse
claims, carving out certain cover and/
or imposing co-payments on certain
claims. A concomitant result is that
members also downgrade their cover
because they are simply unable to
afford the increases.
Statistically this means that if benefit
levels had been maintained over the
past decade and no members had
downgraded options, cost increases
would have been even higher than
3.4% above CPI. That extra missing
cost, not reflected in global medical
scheme statistics, is now being carried
by members on an out-of-pocket
basis or they simply forego treatment
because they cannot afford it.
Unfortunately, its virtually impossible
to measure the total out-of-pocket
expenditure or the impact on health
outcomes of necessary treatment
foregone.
All in all, its very clearly an
unsustainable policy framework yet
the insurance industry now faces
the prospect of NT imposing the
same framework onto the insurance
industry.
WHERE DID IT ALL START?
2006 The Council for Medical
Schemes (CMS) obtains a High Court
order that gap cover products are
illegal because they are doing the
business of a medical scheme and are
harming medical schemes. The insurer
concerned appeals in the Supreme
Court of Appeal (SCA).
2008 The SCA rules unanimously
in the insurers favour. Gap cover
is neither doing the business of a
medical scheme nor causing them
any harm and is 100% legal.
The CMS, in defiance of the SCA
ruling, continue to state publically
that gap cover and other health
insurance products are illegal.
2008 - The Insurance Laws
Amendment Act is promulgated
setting the framework for
demarcation and determine
what health insurance
products are permitted.
2012 - The first set of demarcation
regulations are released for comment
they propose a ban on gap cover
and hospital cash plans. NT receive
more than 300 submissions, outlining
the distinct need for health insurance
since consumers are exposed to
substantial out-of-pocket risks.
2014 The definition of doing
the business of a medical scheme
is amended in Parliament via the
Omnibus Bill and becomes a catch-
all clause that includes virtually any
product covering health services.
2014 - NT release the second
draft of demarcation regulations
permitting gap cover and hospital
cash plans but with provisos they
adhere to similar unsustainable
underwriting practices entrenched
within the MSA. Any product doing
the business of a medical scheme
and not listed in the demarcation
regulations will be illegal.
It appears that a politically negotiated
compromise was met between NT
and the CMS in drafting the 2nd set of
regulations. It is clear the CMS desires
the banning of all health insurance but
NT faced real constitutional challenges
in going that route so they had to find a
compromise.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 RESTRICTIVE UNDERWRITING Chronic Condition Prevalence per 1000 beneficiaries Increase from
The hairy parts of this draft are the very restrictive 2006 2011 2006 to 2011
underwriting practices, namely: Hypertension (High
57.6 78.8 36.8%
blood pressure)
Hyperlipidaemia
Maximum waiting period of 6 months; (Cholesterol)
23.9 32.9 37.7%

Pre-existing conditions must be fully covered; Diabetes mellitus

12.0 22.1 84.2%
type 2
Premiums must be equal for the same Hypothyroidism 9.7 13.7 41.2%
product regardless of risk. Glaucoma 1.8 2.7 50.0%
Rheumatoid arthritis 2.0 2.6 30.0%
That rampant anti-selection will occur is obvious to even Bipolar mood disorder
the most optimistic observer. Consumers can postpone (BMD)
0.7 2.3 228.6%

membership until their health status deteriorates and then
secure full benefits within 6 months.
This practice has been widespread in medical schemes and
the cost impact is abundantly obvious. The graph below shows
hospital costs from 1990 to 2010 (stated in 2010 prices). It is
very clear to see what happened to costs from 2000 when the
new MSA came into effect. Prior to 2000, risk rating and full
underwriting was permitted by medical schemes.
Further evidence of anti-selection is shown below the
average number of dependents per member in medical
schemes shrunk by nearly 20% from 2000 to 2010. This
shows that members selectively insure their dependents
based on their health status with the knowledge that they
can join and obtain full cover after the waiting periods have
passed if their health status changes.
In the table below we can see from a CMS study performed
early in 2014 that the burden of chronic disease is
increasing dramatically over time. This clearly indicates that
healthier members are opting out of medical schemes and/
or sicker members are joining.
The prevalence of chronic disease in an insured population
is a strong indicator of substantially higher hospital costs. It
is therefore no surprise to see the rampant increase in hospital
costs since 2000 and is emphatic evidence that this current
regulatory framework is unsustainable.
Parkinsons disease 0.5 0.8 60.0%
Chronic renal disease 0.2 0.3 50.0%
Systemic lupus
0.16 0.22 37.5%
erythematosus (SLE)
We have to accept that human nature drives most people
to act to their advantage if they are given the opportunity.
Consumers select against the system and the result is that loyal
members who conscientiously maintain their cover have to
carry the added cost burden resulting from opportunism that is
legitimised by an intrinsically unfair system.
The only manner in which a rights based framework can be
sustainable is if membership of the entire system is made
mandatory. This would mean everyone contributes fairly and
no anti-selection is in fact possible.
It is disingenuous for the medical scheme regulator to claim
that health insurance is harming medical schemes when it is
abundantly clear that the existing policy framework within
which they operate is what is causing the harm and subsequent
rampant cost escalations.
If NT imposes this same rights-based framework onto health
insurers the same cost problems will bedevil the insurance
industry.
BROKER COMMISSION
Further so-called alignment between the two industries has
been proposed by restricting broker commission on health
insurance products to 3% - the same level as medical schemes.
However, this entirely ignores the massive disparity between
costs in each industry - the average contribution to a medical
scheme in 2014 is R2,900 whereas the average gap cover
premium is R113.
Considering that the advice process for an intermediary is very
similar for both products, it cannot possibly be considered an
alignment. In fact it can rather be considered a de facto closure
of the health insurance industry since which broker is going
to subject themselves to the FAIS risk and effort of the advice
process in order to earn R3/month?
CONCLUSION
It is very disconcerting that after numerous well written and
factual submissions on the first draft of the regulations, that
the contents of the 2nd draft are still driven by ideological
conjecture, tacitly attempting to defend a healthcare policy
framework that is so clearly unsustainable.
Treasury would also do far better to await the findings of the
Competition Commissions healthcare inquiry, which may well
shed much needed light on the intrinsic problems within a very
complex industry.
1
Bonitas, Discovery Health, Medihelp & Momentum Health

COVER SEPTEMBER 2014 69

Sep 14.indd 69 2014/08/21 10:27 PM

 healthcare
Opening doors to
affordable healthcare
Access to healthcare is a
universal right for all people,
regardless of their social or
economic standing. In South
Africa - like elsewhere in the
world - access to medical care
is unequal: on the one hand,
there is a public healthcare
system that is free, but under-
resourced and poorly managed,
and on the other, a world-class
private healthcare system that
is well resourced, but facing
increasing cost pressures
This discrepancy paints a picture of
unequal and inequitable access to
healthcare during a time that society
is facing a rapidly ballooning burden
of disease while battling increasing
healthcare costs.
Global trends in healthcare show that
these problems are not unique to
South Africa, although that ours are
exacerbated by severe demographic
challenges. We have an ageing insured
population, a pattern of young people
staying out of cover, and a rapidly
increasing chronic disease burden
that is driven by increases in diseases
70
Sep 14.indd 70
of lifestyle almost a perfect storm,
says Dr Jonathan Broomberg, CEO of
Discovery Health.
This pattern of adverse lifestyle
behaviours adds to significant
increases in the volume of healthcare
services consumed by the population.
At the same time, there are avoidable
administration practices, such as,
duplication, waste, overtreatment that
compound the cost problem pressures.
Other cost drivers can be found on
both the consumer and the supplier
sides of the healthcare system. One
example is the rapid emergence
of new technologies while these
do improve outcomes, they also
push up costs. The problem is that
technologies in the healthcare sector
have a different effect to other sectors
such as information technology.
Instead of lowering cost by improving
productivity, they instead add to that
cost, says Dr Broomberg.
To increase access to as many people as
possible, it is vital that medical schemes
find innovative ways to contain costs
while ensuring that members maintain
the benefits they needs.
Discovery Healths Keycare plans are
based on a network of GPs, specialists
and hospitals, across the country where
people can easily access cost-effective
healthcare at affordable premiums.
This has opened up private healthcare
to over 400,000 low income people
who did not have such access in the
past.
Discovery Health is also innovating in
several other ways to improve quality
of care and reduce cost. Examples of
this innovation include partnerships
with GPs and specialists which reward
doctors for delivering higher quality
and more cost effective care, and
HealthID, Discovery Healths electronic
health record for doctors.
These innovations are critical, but will
not be enough to solve the problem
of access and cost for all South
Africans. Some key policy changes
by government and public-private
partnerships are also critical if we are
to achieve a sustainable solution for
ensure universal healthcare coverage.
One of the most powerful ways to
tackle the rising cost of medical care is
educating people about the behaviour
changes need to lead healthier lives.
Because people react better when
incentivised, some of the best
solutions to change high risk health
behaviours that lead to costly illnesses
are incentivised wellness programs.
Vitality, a science-based behavioural
program developed by Discovery
and now being rolled out around the
world, motivates people to engage
in activities to maintain and improve
health through a broad reward set that
addresses behavioural motivators.
Today, Vitality has approximately
6 million clients around the world,
including 1.7 million in South Africa.
We have hard data demonstrating
hugely powerful impacts of Vitality
on the health and mortality risks of
Vitality members, says Dr Broomberg.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
Untitled-1 1
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s e :
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2014/08/22 12:27 AM
Cover 297x210mm.indd 1 2014/05/06 11:43 AM
 healthcare
Under siege:
Marketability and sustainability
of Gap cover products
The National Treasurys
Second Draft Demarcation
Regulations to the Short
Term Insurance Act are
not sufficient in substance
and form to ensure the
marketability or sustainability
of Gap cover products.
This is according to Alexander
Forbes Health which submitted its
commentary on the regulations to
National Treasury.
Gap cover refers to the cover that is
needed for shortfalls in expenses
between what a medical or hospital
scheme pays for procedure and the
actual cost of a procedure.
We are encouraged by National
Treasurys acknowledgement
that appropriately designed and
marketed health insurance policies
play a meaningful role in protecting
consumers against unexpected health
events and welcome the explicit
provision in the regulations for the
72
Sep 14.indd 72
continued sale of Gap cover and
Hospital Cash Plan insurance within
defined product parameters, says
Butsi Tladi, Managing Director of
Alexander Forbes Health. However, we
urge Treasury to review the conditions
related to commissions; policy benefit
limits; and underwriting and waiting
periods which we regard as unworkable
and potentially harmful to the viability
and sustainability of Gap cover in their
current form.
Alexander Forbes Health argues that
the proposed limit on commission to a
maximum of 3% plus value added tax
of the premium, in line with Regulation
28(2) of the Regulations to the Medical
Schemes Act, is unreasonably low and
is not commensurate with the advice
and service obligations of accredited
healthcare consultants in terms of the
FAIS Acts, General Code of Conduct.
The company says the restriction on
commission levels does not take into
account that Gap Cover premiums
are substantially lower than medical
scheme contributions whilst the advice
process to members is similar in nature
and complexity.
The expected average commission
earned on a Gap cover policy would be
between R3 and R5 per member per
month (based on an average monthly
policy premium of between R100 and
R165 per member). This would not
cover the costs incurred for providing
the services expected of an accredited
consultant, says Tladi. She says in
applying these commission levels to
the Alexander Forbes Health client
base, as an example, annual revenue
from Gap cover policies would be
expected to reduce by approximately
85%.
The impact to our business would be
significant and could potentially result
in the layoff of 13 to 14 jobs or 14%
of our representative consultants.
This would have a profound impact on
the quality of service delivered to our
medical scheme clients, many of whom
are joint Gap Cover clients.
Alexander Forbes Health urged
National Treasury to maintain the
current commission level at a maximum
of 20% and to place reliance on the
General Code of Conduct to safeguard
the individual consumer and to ensure
fair and proportionate commission for
advice and services rendered.
The company says that the proposal
to remove underwriting for health
insurance business and to severely
restrict waiting periods is misguided
and irrational. The consequence of
this approach is a rise in unexpected
high cost claims and an increase in
premiums for members. Ultimately, in
the absence of appropriate levels of
control health and accident policies
will become unaffordable and
unsustainable, said Tladi.
Alexander Forbes Health said Treasury
needed to align the underwriting terms
and conditions and the application
of waiting periods to the Medical
Schemes Act. It said in so doing, it
would support the removal of the
maximum entry age for Gap cover
policies with the replacement of a Late
Joiner Penalty, similar to that which
is contained in Regulation 13 of the
Regulations to the Medical Schemes
Act, where creditable coverage is linked
to the applicants length of medical
scheme membership, as a pre-requisite
for Gap Cover.
The limitation on policy benefits under
the demarcation regulations were
found undesirable by the company.
There is an apparent inconsistency
in the limit for Gap cover benefits
as stated in the regulations and
those stated in the Explanatory
Memorandum. This makes it difficult
to provide accurate and meaningful
comment. Suffice to say that in general,
Alexander Forbes Health does not
support pre-defined benefit payments
linked to health events as these are an
inefficient method of providing Gap
cover benefits, said Tladi.
In its submission, the company said
that the very nature of Gap cover
policies is to protect medical scheme
members from additional unbudgeted
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 health products, along with all relevant
legislation, is needed to ensure that
the rights of all citizens, to adequately
protect themselves from financial
hardship resulting from health-related
risks, are protected and preserved.

We acknowledge that in the

absence of an appropriate regulatory
framework, the right of consumers to
exercise choice may cause younger and
healthier members to terminate, limit
or reduce their medical scheme cover
which may cause harm to medical
schemes. We also recognise that
consumers may mistakenly believe that
accident and health policies offer the
same level of protection as a medical
scheme or are medical schemes
themselves, said Tladi.

Alexander Forbes Health also

costs arising when medical scheme
cover for in-hospital related healthcare
expenses is less than the actual rate
charged by healthcare providers. In
the absence of regulated tariffs for
healthcare providers, the shortfall
in cover is highly variable and
unpredictable. We request urgent
clarification on the limitation of
Gap cover policy benefits to enable
more meaningful comment and
recommendations to be made.
Alexander Forbes Health said that a
holistic review of health insurance,
medical scheme and occupational
appealed to Treasury to wait for
the publication of the findings
of the Competition Commission
Market Inquiry into the Private
healthcare sector before finalising
the regulations. The Competition
Commission Market Inquirys Draft
statement of issues stated the Inquiry
panels wish to understand the
nature of competition among medical
schemes and other providers of
health insurance in the South African
market and the impact of this on
the aordability and quality of the
products and services that consumers
purchase.

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COVER SEPTEMBER 2014 73

Sep 14.indd 73 2014/08/21 10:27 PM

 Risk Management
KPMG has noted a new trend in
relation to business fraud, which
poses a serious risk of significant
financial loss. Lucas Chiloane,
Manger in Forensic Technology
at KPMG and Roy Waligora,
Partner at KPMG.
A payments fraud scheme is on
the rise exposing businesses to
potential financial and reputational
loss. Fraudsters target companies by
pretending to be from suppliers and
divert otherwise valid payments to the
fraudsters bank account.
Fraudsters seem to be targeting
businesses using supplier or vendor
bank account details. In one such case,
a fraudster contacted an individual, a
relatively junior staff member, in the
accounts department and said that they
were calling from one of their suppliers
who wished to inform them that their
account details had been changed. The
accounts clerk, as normal, requested
proof of the change in bank details in
the form of:
a signed and stamped letter from
the bank confirming the change
in bank account details; and
a signed letter from the supplier on
the suppliers letterhead, confirming
a change in bank account details.
74
Sep 14.indd 74
Payment
fraud on
the rise
The requested (forged) documents
were then provided in a matter of
minutes via email communication.
The documents appeared to meet the
FRAUDSTERS SEEM TO BE
TARGETING BUSINESSES
USING SUPPLIER OR VENDOR
BANK ACCOUNT DETAILS.
requirements necessary to execute
the change of supplier bank details on
the system. Email spoofing tactics -
which involve using technology tools
to disguise the source or sender of an
email, and make it appear as though it
had been sent from a legitimate email
address - are normally used to send
the requested documents.
The fraudsters take the time to gain
an understanding of the business
and establish with which suppliers
businesses deal as well as which
individual in the accounts department
to target. In some instances supplier
account details are altered, and as
soon as the payment is processed, the
records are restored. This happens
in cases where the fraudsters work
in collusion with internal accounts
personnel.
POSSIBLE SOLUTIONS:
KPMG suggests implementing the
following proactive solutions:
Institute a process in which approval
from at least two senior members
in the accounts department is
required before any changes to
supplier details are made.
Make a simple call to your
regular contact at the supplier to
confirm the change in details.
Verify all the details (e.g. address,
phone number etc) on the change
letter and whether the signatory
is employed at the bank issuing
the change letter. The details
supplied by the fraudsters are
usually fictitious and are designed
to obfuscate verification thereof.
Put in place regular data analytics
or monitoring procedures to identify
recurring changes in supplier details.
Ensure that all supplier invoices
reflect bank account details and
the relevant purchase order number
before being processed for payment.
Allocate a dedicated supplier number
to each supplier, to be quoted on the
invoice for identification purposes.
Consider an arrangement whereby
only duly authorised individuals in
the supplier firm sign each invoice for
comparison with a signature held by
the creditors department.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM
 Can tiki-taka tactics keep
risk management on the ball?
As football pundits will be well
aware, tiki-taka is a style
of play popularised by both
FC Barcelona and the Spanish
national team. Characterised by
speed, accuracy and control, its
already proved a winning formula
for footballers. But could a tiki-
taka approach also help the risk
managers of tomorrow achieve
their goals?
They may be operating in very
different fields, but it is in the interest
of both football players and risk
managers to stay on the ball. In
tiki-taka-style soccer, players do this
quite literally, keeping the football as
much as possible within their team
and passing it quickly between
themselves as they change their
designated positions. When it comes to
risk management, the ball in question
is risk data- and players positions
become types of risk.
Just as their soccer-playing
counterparts are in almost constant
possession of the ball, tiki-taka risk
COVER SEPTEMBER 2014
Sep 14.indd 75
managers will rarely need to look far
for their data or collect it themselves.
With access to risk data almost a
given, they are free to concentrate on
the most skillful aspect of their game:
risk analysis.
focus on application implementation
Like the ball of tiki-taka soccer, the
flow of risk data should always be
in motion, enabling smooth-running
processes and real-time analysis. But
it must be under control, too even
in times of crisis. In the same way
that tiki-taka players often switch
positions, risk managers must also be
able to work with data from different
departments, navigating across multiple
information sources and associated
risk silos. Their performance can
inspire spectators, whether executive
boards or auditors. And in the form of
regulatory bodies they even have their
own referees: authorised to interrupt
the game, with decisions that cant be
disputed.
Speaking of regulators, possibly the
purest expression of tiki-taka risk
management can be found in the
Basel Committees Principles for
Effective Risk Data Aggregation and
Risk Reporting (better known as
BCBS 239). These principles must be
implemented by 2016 and will now
be incorporated in local South African
regulations.
As well as insisting on the control,
availability and accuracy that defines a
tiki-taka approach to data, BCBS 239
will in another footballing parallel
require major investment by financial
industry organisations.
Ultimately, the tiki-taka approach,
whether on or off the pitch, is
about far more than expenditure,
however significant. It is, quite simply,
superior: guaranteed time and again
to reap results. Above all, for risk
management as with football it
could change the game as we know
it to the delight of players, spectators
and referees alike.
SunGard Financial Systems provides
mission-critical software and IT
services to institutions in virtually
every segment of the financial services
industry including banking. These
solutions address the processing
requirements of a broad range of users
within financial services. SunGard also
provides professional services that
and integration of these solutions and
on custom software development.
SVEN LUDWIG,
Senior Vice President, Risk Management
and Analytics, EMEA, SunGard
75
2014/08/21 10:27 PM
 Risk Management
Debt markets explained
GREGOIRE THERON
Head of Manager Research
KARLIEN DE BRUIN
Senior Investment Analyst,
both GraySwan
Debt securities and the bond
market are sometimes treated
as the ugly duckling of all asset
classes. They are simply not as
well understood by investors
as equity markets. This article
explains the difference between
three classifications often
mentioned by investment
managers when they report back
to investors on the performance
of their bond or fixed interest
funds.
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Sep 14.indd 76
1. EXECUTIVE SUMMARY
When it comes to debt securities
and the bond market there are three
broad terms that are often used by
investment managers. These terms
are different ways of classifying debt
securities or bonds and should not be
confused as perceived risk assessment
terms.
All debt securities are analysed in
terms of the following three terms:
Listed or unlisted debt
Secured or unsecured debt
Rated or unrated debt
When comparing debt securities on
a very high level and in broad terms
listed debt is generally regarded as
less risky than unlisted debt, secured
debt is expected to be less risky than
unsecured debt and finally rated debt is
presumed to be less risky than unrated
debt.
On closer inspection though there are
many intricacies that need to be kept
in mind when analysing debt securities.
There are some listed debt securities
that are owned by a small group of
investors and not traded actively on the
bond exchange and are therefore very
illiquid. There are many good credit
quality unlisted debt securities.
Secured debt is backed by an asset
and could be presumed to be of
better quality due to a better recovery
rate on default than unsecured debt.
However, government debt securities
are unsecured debt but are among the
highest credit quality debt securities
available.
Securities with higher credit ratings
are deemed less risky than lower rated
securities. However, there is a global
move away from only relying on credit
rating agencies to assessing the risks
internally. There is no requirement
for debt securities to be rated by
independent credit rating agencies
before inclusion in indices or to be
listed on the bond market.
There is no blanket answer when
assessing the risk of debt securities and
each security should be assessed in
detail on its own.
2. LISTED VS UNLISTED DEBT
2.1. Listed Debt
Listed debt securities are listed on an
exchange and can be bought and sold
in the secondary market. These debt
securities are generally more liquid
than unlisted debt securities. However,
there are some listed debt securities
that are owned by a small group of
investors and not traded actively on the
bond exchange and are therefore very
illiquid.
Yield spreads are typically a factor
of credit quality and liquidity but
sometimes other factors like market
demand can impact this as well hence
the current low spread environment
seen in the current listed credit market.
One benefit of listed debt securities
is that pricing is conducted by an
independent entity and all securities
are priced with the same methodology.
2.2. Unlisted Debt
Unlisted debt securities are not traded
on an exchange, but through the
Over-The-Counter (OTC) market.
Market makers such as investment
banks facilitate the buying and selling
of unlisted debt securities in the OTC
market.
In some cases investment managers
would originate the debt themselves
such as infrastructure bonds and
development bonds and hold such
unlisted debt until maturity. Investors
could think of unlisted debt in the
fixed income asset class similar to what
private equity is in the equity asset
class.
Unlisted debt securities are not
exchange traded and therefore are
perceived to be less liquid than listed
debt securities. This does not however
mean that unlisted debt is of lower
credit quality.
A possible drawback of unlisted
debt securities is that pricing may
be conducted by the holder of such
securities. This creates a potential
conflict of interest and opens it up for
perceived manipulation. It is therefore
very important that investors are fully
aware of their investment managers
valuation process.
COVER SEPTEMBER 2014
2014/08/21 10:27 PM

3. SECURED VS UNSECURED DEBT
3.1. Secured Debt
Secured debt is tied to an asset that
is considered to be collateral for the
debt. Mortgage and car financing are
both examples of secured debt. Your
mortgage loan is secured by your
home. Similarly, your car financing is
secured by your vehicle. If you become
delinquent on these loan payments, the
lender can repossess and sell the asset
to try to recover the outstanding debt.
Similarly in the bond market, secured
debt is backed by physical assets
that have been securitised such as
mortgage back securities (MBS) and
asset backed securities (ABS). These
assets can be repossessed and sold in
order to recover the outstanding debt.
Only a small portion of the listed debt
securities (on the bond exchange)
consists of secured debt. Many of the
unlisted debt securities are secured
debt and backed by physical assets
such as a solar power plant for
example. This is primarily due to the
fact that investment managers have
better negotiation powers in respect
of the unlisted market where they
are able to dictate terms to a certain
degree whereas the listed market
is pretty much a take it or leave it
situation.
3.2. Unsecured Debt
Unsecured debt is not backed by any
physical asset or securitisation vehicle
and lenders dont have rights to any
collateral for the debt. This is not to say
that unsecured debt is not backed by
COVER SEPTEMBER 2014
Sep 14.indd 77
a stream of cash flows. For example,
government bonds are unsecured debt
securities as it is not backed by any
physical asset that can be repossessed
and sold. However, government bonds
are backed by tax revenues as the
government can just raise taxes when
it needs to make debt payments. Tax
revenues cannot be repossessed and
sold and therefore does not constitute
an asset that can be used as collateral
to secure debt. Other examples of cash
flow streams are toll road revenues and
power plant revenues.
Most of the securities listed on the
bond exchange are unsecured debt.
Government debt is among the highest
credit quality securities and therefore
being unsecured does not detract from
the quality of the debt security.
4. RATED VS UNRATED DEBT
Investors have to assess the credit
quality of bonds or debt securities. One
approach is by considering the credit
ratings assigned to debt securities by
credit rating agencies.
4.1. Rated Debt
Rated debt is debt securities that
have been assessed by credit rating
agencies. Securities with higher ratings
are deemed less risky than lower rated
securities.
Even so, the Bond Exchange of South
Africa (BESA) does not require debt
securities to be rated in order to list
on the exchange. It is completely the
preference of the issuer to be rated or
not.
In addition, the Financial Services
Board made amendments in a notice
(notice 80 of 2012) to the Collective
Investment Schemes Control Act in
which all reference to credit ratings or
rating agencies were removed.
Regulation 28 and the amended CISCA
place the onus on the investment
managers and investors to put internal
processes and ratings in place to assess
the risks of debt securities internally
and not only rely on credit rating
agencies.
4.2. Unrated Debt
Unrated debt has not been assessed
by credit rating agencies. Issuers of
unrated debt securities sometimes have
to offer higher yields than those paid
on highly rated debt securities because
there are no quality guarantees.
However, the industry is evolving
and as the sophistication of the debt
market improves the yield spreads
should narrow and merge.
In the absence of credit ratings, the
average investor on the street cannot
differentiate between a low risk bond
being issued by a financially strong
institution and a highly speculative
bond. Although credit ratings are not
full proof, unrated bonds are perceived
to be more risky but investors need
to take comfort from the expertise of
their chosen investment manager and
assess that they have put the proper
steps in place in order to assess the
risks at hand.
5. CONCLUSION
Debt securities can be classified as
listed or unlisted debt, secured or
unsecured debt, and rated or unrated
debt.
Most of the bonds listed on the Bond
Exchange of South Africa (BESA) are
rated, however this is not a listing
requirement and solely the preference
of the issuer. Most of the bonds on
the bond exchange are unsecured
debt such as corporate bonds
and government bonds (although
government bonds are implicitly backed
by tax revenues).
These terms are different ways of
classifying debt securities and should
not be confused as perceived risk
assessment terms. Each debt security
should be assessed for risk on a case
by case basis.
77
2014/08/21 10:27 PM
 CORPORATE SOCIAL INVESTMENT
On Friday, 18 July, we celebrated Nelson Mandelas birthday by
dedicating 67 minutes of our lives to a worthy cause. COVER had a
peek at the tip of the iceberg of the industrys generosity of spirit.
Camargue goes beyond
insurance again
It was a biting cold Friday
morning when Camargue
management and staff, new
interns and learners, and other
industry volunteers arrived at
the Thomas Mofolo Secondary
School in Soweto. Douglas Haig
and Isaac Chindotana from
Lireas and Camargue EPL Claim
consultant Simon Miyambo also
joined the group of amateur
painters.
Charles Marriot, Mosiwa Malula, Naledi
mentors and Thomas Mofolo staff and
students welcomed the team with
buckets of yellow paint and a waiting
classroom. After a productive morning
the room inside reflected the glistening
sun outside, and the group went back
to Camargue where a tribute day was
held in honour of Nelson Mandela.
78
Sep 14.indd 78
67 minutes
for Madiba
I am not a saint, unless you
think of a saint as a sinner
who keeps on trying.
- Nelson Mandela
Camargue supports the Naledi
Leadership programme, which was
introduced in Soweto schools in 2013.
The acronym, Naledi, stands for:
New Thinking
Attitude
Leadership
Enterprise
Direction
Individuality
The purpose of the programme is to
prepare young people for the world
of work by exposing them to the
work place and to a different set of
internal values. The programme helps
students build emotional intelligence
as a platform for future leadership.
During the five month programme
the students learn sustainable work
place appropriate behaviours and
attitudes to be embedded. This results
in well groomed candidates ready for
learnerships and graduate training
programmes. Camargue has sourced
members from this programme with
great success over the past three years
for the INSETA programme.
Their mantra for students is: resilience,
relationship, resourcefulness, reason,
respect and responsibility.
In the afternoon Camargue held a
graduation ceremony where MD Mitch
Marescia congratulated the 2013/2014
Learnership graduates for successfully
completing this programme. Mitch also
introduced and welcomed the new
learners and interns.
To find out more about the Naledi
programme contact Charles Marriott via
the website: www.deliver.org.za
COVER SEPTEMBER 2014
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 COVER SEPTEMBER 2014 79

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 CORPORATE SOCIAL INVESTMENT
Fulcrum gives bags
of warmth this winter
At Fulcrum, we are big on
ideas, people, and giving back.
So when Fulcrumeers, Liebie
Du Plessis and Kurt Solomon,
came to us with a brilliant and
creative idea to give back on
Mandela Day, we jumped at the
opportunity to get on board.
We teamed up with 5FM to contribute
to the Community Initiative For Social
Enhancement campaign. This initiative
has not only organised a food and
materials distribution centre, but they
also volunteer in helping the elderly,
and caring for people with HIV/AIDS
and orphans, and provide them with
domestic and other general household
maintenance. They put out a plea for
help with 5FM, calling for donations of
food items, blankets and warm clothes
for winter.
Kurt and Liebie spearheaded the
project that saw Fulcrumeers putting
together 100 cosy Bags of Warmth on
Mandela Day, which each contained:
80
Sep 14.indd 80
Our Fulcrumeers were very excited
about this initiative, and went above
and beyond the call of duty to help
out. Our enthusiastic team stepped
up to the challenge and started a
production line of note. We had 100
bags done in no time! Whatever we do
at Fulcrum, we give 500%. Mandela
Day was no exception. We chose to
give something lasting to those in need
of warmth this winter. I think that is a
reflection of how we do everything we
do from the heart, enthusiastically,
and with gees. Knowing that 100
people will be warmer with our help
this winter is the best feeling ever!
said Du Plessis.
A personalised blanket, coffee, tea,
Cremora, sugar, cookies, socks and 2
minute noodles. What would a Bag
of Warmth be without a personalised
Fulcrum touch? Each Fulcrumeer wrote
a heart-warming message that was
included in each bag.
These hampers were collected by
the friendly staff from Thokozani
Transport Movers, who dropped it
off at the distribution centre. Our
staff volunteered to distribute our
parcels personally and we are awaiting
confirmation as to when and where.
Like everything we get involved with,
we like to add our unique Fulcrum
energy and touch to it, and Mandela
Day 2014 in the Fulcrum Camp stands
testament to this.
Read more about this day on Fulcrums
website: www.thefulcrumgroup.co.za
COVER SEPTEMBER 2014
2014/08/21 10:28 PM
 AVBOB spends time
with the homeless
For the third year in a row AVBOB is
proud to be participating in Mandela
Day. AVBOB head office staff and the
Tshwane Metro Police Department
(TMPD) joined forces to serve and
bring hope to residents of a shelter
for homeless people. The shelter
is situated on the corner of Eskia
Mphahlele Drive and Struben Street
in Pretoria. The shelter provides
living quarters for in excess of 600
destitute adults and children.

AVBOB staff from the Bethlehem Life

Office celebrated Mandela Day by
spending time with the patients of
Dihlabeng Hospital, Phekolong Hospital
and Nketoana Hospital.

SAIA team giving

back on Mandela Day
The South African Insurance
Association (SAIA) spent time
giving back to the community on
Mandela Day, at the Johannesburg
Childrens Home (JCH), situated
in Observatory in Johannesburg.
The SAIA sorted and packed items
donated to the Home from the SAIA
team as well as other donors as
part of the 67 minutes for Mandela
Day.

A book shelf was also specially

made and donated as part of the
Associations contribution to JCH
Library.

The JCH provides a safe refuge for

64 children who have been abused
or abandoned. The children are in
need of special care as foundedby
the Childrens Court.The JCH provides
an opportunity for children to start a
new life and go on to become happy,
successful and fulfilled adults.

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 CORPORATE SOCIAL INVESTMENT
RGA makes Christmas
in July happen

RGA spent their 67 minutes on

Mandela Day by hosting a Christmas
in July luncheon at Loaves and Fishes
Shelter in Observatory.

Loaves and Fishes is a home that

provides a temporary residence for the
destitute while providing counselling
and skills to get the residents back
to a normal life off the street. The
shelter teaches residents how to
make money through making and
selling artwork to provide an added
income for themselves. Staff dished
and served residents lunch followed
by the distribution of care packages
consisting of toiletries to the residents
who are unable to afford the simplicity
of soap, a toothbrush and toothpaste.
The residents and staff of Loaves and
Fishes were so grateful for these small
gestures and thanked RGA for giving
them hope in their darkest times. 67
minutes were well spent which was
both humbling and rewarding to those
who were able to participate.

RGA wants to be of service to those in

need within the proximity of our offices
and bring change to the community.
All staff from all levels within the
organisation who were able to join in
on the day were in attendance, others
serviced there time with preparation of
gifts and donations in office. RGA also
partnered with a service provider to
cater lunch for the day.

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 Hollard helped
Stop Hunger Now
Imagine a tower of food over
three metres tall!

For Nelson Mandela Day Hollardites

ran their Tower Power Challenge
for 67 minutes during lunch time.
Teams around the Hollard Campus
competed to see who could build the
largest tower of food. The food was
then donated to the children who are
looked after by St Peters. The winning
tower was over three metres tall, and
the donated food took up around 20
boxes.

The main event of the day, however,

was when 60 volunteers from Hollard
went to the Sandton Convention
Centre for the Stop Hunger Now mass
meal packaging event.

The Stop Hunger Now hunger

eradication programme started in South
Africa in 2009, and involves donors,
volunteers and beneficiaries who come
together to pack highly nutritious
meals.
The meals are aimed especially
at Early Childhood Development
(ECD) and the purpose is to combat
malnutrition by including rice,
soya, dehydrated vegetables and a
fortification pack of 23 vitamins and
minerals.
To find out how you can help go to
www.stophungernowsa.org

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 CORPORATE SOCIAL INVESTMENT
MiHeart Project feeding
healthy minds on Mandela Day
Not only did 18 July 2014 mark
Nelson Mandela International
Day, but it was also the first
without the great man. With its
commitment to keeping Madibas
legacy alive, MiWay sought to
make a change through small
change by asking for the coins
in the wallets of its employees.

Employees donated a minimum of

R6,70 a collection which went
towards the soup kitchen of one of
the MiHeart Project schools, Moletsane
Secondary School in Soweto. The soup
kitchen feeds hundreds of learners
on a daily basis and helps nourish
young minds. During school holidays,
Moletsane Secondary School conducted
extra lessons for the Grade 12 learners. 12 leaners, parents and teachers of a great opportunity to give back to
The MiHeart Project collected over Moletsane Secondary School. Non- the community of Moletsane. We
R7000 and a number of MiHeart perishable goods were also donated enjoyed taking over their kitchen for
volunteers braved the cold morning to to the schools soup kitchen for their the day and spoilt the youngsters with
ensure that a hearty lunch was served regular lunch programme. lunch and special treats. The MiHeart
on time. Not only did they prepare a Volunteers are inspired by the Zulu
Nthabiseng Moloi, Head of Marketing saying, Umuntu ngumuntu ngabantu
meal, they also served it to the Grade and Brand at MiWay said, It was the African philosophy of kindness.

84 COVER SEPTEMBER 2014

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 Pension Funds Adjudicator
Retirement fund ordered to explain
investment management fee
A retirement annuity fund has
been ordered by the Pension
Funds Adjudicator to explain in
detail how a 1% management
fee was calculated for an
investment.
Muvhango Lukhaimane directed that
Lifestyle Retirement Annuity Fund (first
respondent) and Liberty Group Limited
(second respondent) must produce a
breakdown of the management fees
levied on a complainants investments
despite their insistence that it was 1%
of the investments.
In her complaint, Ms E Herzfeld alleged
that maladministration on the part of
the first respondent and the charging
of excessive fees by the respondents
on her retirement annuity fund had
resulted in the poor performance of her
investments.
The complainant said she joined the
first respondent, a retirement annuity
fund administered and underwritten
by the second respondent, on 1 June
1996 with the intention of remaining a
member until 1 June 2022, a period of
26 years.
The first respondent purchased a policy
on the complainants behalf with the
second respondent. The complainant
COVER SEPTEMBER 2014
Sep 14.indd 85
paid a single upfront contribution of
R22 329,19. As at October 2013, the
complainants fund credit with the first
respondent was R44 173.
The complainant was aggrieved by the
poor returns earned on her retirement
annuity. She submitted that after
turning age 55, she decided to review
her policy and was appalled to see
that her investment of R22 329,19 had
only achieved growth of R44 173 as
at October 2013. She attributed the
poor performance to the excessive fees
levied by the respondents.
THE COMPLAINANT WAS
AGGRIEVED BY THE POOR
RETURNS EARNED ON HER
RETIREMENT ANNUITY.
The respondents denied the allegation
of excessive fees and submitted that
the fees levied on the complainants
investments were the 1% investment
guarantee charge of R223,48 charged
when the policy was acquired and the
monthly management fee charged
at 1% of the investments. They
submitted that the complainants total
management fees since 1 June 1996
when the policy commenced amounted
to R5 220,92.
The respondents said reason for the
poor performance of the investments
was the portfolios in which the
complainant was invested. They
submitted that during the tenure of her
investment, the complainant invested
in three portfolios, the Equity portfolio
of which the overall performance over
a period of four years was a negative
1,64%, the global portfolio of which
the performance over a period of 13
years was 4,83% and the variable
portfolio which over a period of two
years performed at the rate of 12,90%.
The respondents submitted that the
complainant was briefed annually on
the performance of each portfolio and
was informed of the option to switch to
portfolios that suited her risk profile, an
option which she exercised twice.
In her ruling Lukhaimane said her
Tribunal was satisfied that the cause
of the complainants poor returns
was not due to excessive fees. The
management fees of R5 220,92
charged over a period of 17 years on
an initial investment of R22 105,71 did
not appear excessive. Her investment
return was determined in accordance
with her selected investment portfolios
and the market performance in her
selected portfolios.
The respondents duly communicated
the necessary information about the
performance of the investments to the
complainant annually and they invested
her funds as per her instructions.
The complainant is reminded that
when one decides to invest in the
markets, more so when the member
has a choice to elect where her funds
should be invested, she should be
ready to bear any positive and negative
returns inherent in the swing of the
markets.
In the event, this Tribunal is not
convinced that the complainant has
been able to establish that the loss
incurred in her investments was
as a result the first respondents
maladministration or due to excessive
fees charged by the respondents, said
Lukhaimane.
However, she noted with concern
the submission by the respondents
that they were unable to produce a
breakdown of costs (management
fees).
This admission by the respondents
falls short of the openness required
by the treating customers fairly (TCF)
initiative with which the respondents
associate themselves.
As a result, this Tribunal orders
the first respondent to provide the
complainant with a breakdown which
shows how it quantified the 1%
management fee that was levied on
the complainants investments, said
Ms Lukhaimane.
85
2014/08/21 10:28 PM
Untitled-1 1 2014/08/22 12:39 AM
Untitled-1 2 2014/08/22 12:39 AM
 Short-term
A potential nightmare
Delictual claims for pure economic loss
The first of two articles
BY BRIAN MARTIN,
Executive Director, Renasa
Claims for pure economic loss
suffered as a result of the
wrongful actions of others are
always particularly problematic
for insurers. These claims arise
where the established wrongful
conduct of a party causes
another to suffer economic loss
without this being directly linked
to damage or harm to persons or
their property.
Our courts in the past, whilst
recognising that in certain
circumstances a wrong doer may be
liable for economic loss occasioned
by their wrongful action, have been
slow to expand the ambit of the
dictum for fear of creating an area
of undetermined liability and with
potentially large damages becoming
payable to a Plaintiff. This could have
serious consequences for defendants
and their insurers.
This complex area of legal liability
recently came in to sharp focus before
the Supreme Court of Appeal in the
case of the Minister for Safety and
Security vs Scott [2014] ZASA 84. In
this case the Plaintiff and his company
sued for damages following upon the
first Plaintiffs unlawful arrest after he
had become involved in a brawl. When
the dispute came up for determination
in the High Court, the first Plaintiff was
awarded an amount of R75 000.00
for general damages in respect for the
arrest and detention and an amount of
R577 610.00 for wasted advertisement
costs. His company was awarded a
further amount of R49 268 289.00 in
respect of lost income which was in
fact the loss of contractual income and
profits which would have been earned
had the first Plaintiff not been arrested
and unlawfully detained.
88
Sep 14.indd 88
The background to the matter was that
the first Plaintiff was a professional
hunter and a registered licence holder
for big game hunting activities in
South Africa. He has placed a series of
advertisements in a USA magazine for
hunting safaris and an agreement had
subsequently been concluded with the
publishers of the magazine that they
would bring 50 of their top clients to
the first Plaintiffs ranch for hunting
safaris. This arrangement would last for
a period of five years.
Following upon the first Plaintiffs
arrest, the contract was cancelled
by the USA partner. The evidence at
the trial was that the decision of the
magazine to terminate the relationship
with the first Plaintiff was based solely
upon the incident which led to the first
Plaintiffs arrest.
The claim of the two Plaintiffs was
based upon the premise that the
proposed hunting trips arranged
through the magazine in the USA
could not take place due to the
first Plaintiffs unlawful arrest and
detention. The inability of the first
Plaintiff to host the proposed trips as
well as the adverse publicity which
the incident received had caused the
Plaintiff to suffer a loss of income and
profit, which the parties agreed was in
the nature of pure economic loss.
The court noted that the term pure
economic loss in the context of the
Plaintiffs case, related to financial
loss which does not arise directly from
damage to the Plaintiffs personal
property, but arose as a result of
a negligent act itself. This included
matters such as a loss of profit,
being put to extra expense, or the
diminution in the value of property
(see Telematrix (Pty) Ltd t/a Matrix
Vehicle Tracking versus Advertising
Standards Authority (SA) 2006 (1)
SA461). The court had regard to
the principles set out in a published
work, Law of Delict by Neethling
who, in relation to claims based on
an interference with a contractual
relationship, stated:
Interference with a contractual
relationship is present where a
third partys conduct is such that a
contracting party does not obtain the
performance to which he is entitled ex
contractu, or where a contracting partys
contractual obligations are increased.
The learned author,, noted that this
exposition of principle is subject to the
general rule in South African Law that
only the intentional interference with
the contractual relationship of another
in principle constitutes an independent
delictual cause of action. However,
South African courts have, as a general
rule, refused to extend delictual
liability for negligent interference
with a contractual relationship beyond
historically justified instances such as:
- the delictual action of the master
for injury to his domestic servant
( now abrogated by disuse); and
- the right of a person who is in
possession of property in terms of
a contract with the owner, to the
extent that he has a direct interest
in the economic value of the thing,
to institute an action against a third
party who damages that property.
The court noted that the Appeal Court
had on previous occasions stated that
the law takes a conservative view on
the subject of the expansion of the
Aquillan remedy beyond what the
authorities have recognised in the past.
This reflects the continuing concern of
courts to guard against the spectre of
indeterminate liability. In the present
case, so the court noted, the police
however, had no knowledge of the
contract or its terms, as relied upon by
the Plaintiffs. There could be no talk
of an intentional interference in the
Plaintiffs contractual relationship with
a third party.
The kind of liability which the Plaintiff
sought to impose on the Defendant did
not fall within the historically recognised
instances of liability. On this basis the
claim of the company should fail.
COVER SEPTEMBER 2014
2014/08/21 10:28 PM
 EVENTS
Centriq entertains their clients
From suits to cycling pants,
Centriq knows how to entertain
their clients. In June, Centriq
treated their clients to good
food and good comedy, at Katys
Palace in Johannesburg.

In July, they managed to single-

handedly organise a Tour de
Conference, which saw fifteen cyclists
hit the pavement from Johannesburg to
Sun City.

COVER would like to thank Centriq for

their unique and well-organised client
bonding events.

COVER SEPTEMBER 2014 89

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 EVENTS

Beyond the horizon

On the 18th of July, the
Cruywagen-IRMSA Risk
Foundation Risk Lab hosted
an event in Johannesburg
to look at the issue of risk
management in South Africa.

Issues addressed were the risks within

politics and the economy, regulation
in South Africa in mitigating risks, and
risks associated with the cyber and
social media sphere. The conference
closed in asking what lies beyond the
horizon for South Africa, and how can
the insurance industry, for example,
alleviate some of the risky business
within our country?

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 COVER SEPTEMBER 2014 91

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 Market Cover
Ctrack and Glasfit
signs partnership
Vehicle tracking and fleet management company,
Ctrack is proud to announce their partnership with
Glasfit. This unique partnership gives customers
easier access to GPS/GSM based vehicle tracking
products and will speed up service and turnaround
times.
The addition of the Glasfit network will mean that Ctracks
footprint will increase from 40 outlets to more than 160
nationally once all fitment centres become trained and
accredited. Pierre Bruwer, Ctrack Managing Director says,
Customers will enjoy faster appointment scheduling and
vehicle technical support and will now have the convenience
of receiving quality service at their nearest Glasfit fitment
centre. Installations will be executed within 48 hours at all
accredited fitment centres.
Symbility mobile claims now
available for ipad, iphone and android
EASY AND ACCURATE ON-SITE LOSS ESTIMATING
ANYTIME AND ANYWHERE.
Digicall Solutions (Pty) Ltd. together with Symbility
Solutions Inc., provider of cloud based claims technology
for the property and casualty insurance industry, is proud
to announce that the Symbility Mobile Claims application
is now available as a free download in the Apple iTunes
Store as well as GooglePlay for Android compatability.
Mobile Claims is an estimating tool that is accessible from
any personal computer and designed to improve efficiency,
customer service and speed during the estimation process.
This iOS/ Android compatible version of the tool replicates
and extends the user experience across devices, giving our
customers additional speed, flexibility and accuracy in the
process of adjudicating a property claim, with no additional
training required.
The release of the Symbility Mobile Claims on iOS and
Android devices is an important milestone in bringing the
Symbility platform to the African continent. The current iOS/
Android functionality has some great features which allow
92
Sep 14.indd 92
Digicall Solutions, also a strategic supplier to Glasfit, is a
premium business specialising in claims administration, with
the objective of delivering innovative technological solutions
through leading in- and outbound contact centre facilities.
Glasfits Managing Director, Ruben Moggee says, With
over 120 fitment centres in our network, this partnership
will increase the existing services offered by Glasfit and
provide customers with a convenient range of services
which includes pre-insurance vehicle inspections, installation
of tracking devices and the repair or replacement of
automotive glass.
In line with their continued efforts to forge strategic
partnerships with OEMs, dealer groups and franchises, this
demonstrates Ctracks commitment to partnering with the
right companies to bring the latest trends in consumer and
insurance telematics to the South African market. Vehicle
tracking has helped to provide a new layer of security for
our customers and their families, Bruwer concluded.
Extra products will be available to customers at all Glasfit
franchise fitment centres, providing customers with a
premium range of products that meet their most vital
needs. Moggee explains, the market is slowly coming to
understand the importance of having a reputable company
looking after their family and assets, and will continue to
educate the market while delivering on this core value.
users to easily set an accurate scope of work and costing.
stated Johan Erasmus, Head of Digicall Symbility.
Adding our solution to the iPad, iPhone and Android
puts the full power of adjudicating a property claim into
the hands of our users wherever a claim takes them.
Our customers will experience even more control, speed,
flexibility, visibility, and accuracy than previously possible,
resulting in a faster and better claims experienc
ABOUT DIGICALL SYMBILITY
The Digicall Group is a preferred service partner that
provides a complete range of reliable resources, proven
expertise, cutting-edge technology and sound advice to the
South African financial services and insurance industries.
Digicall Solutions (Pty) Ltd is the sole distributor of Symbility
Solutions in South Africa.
COVER SEPTEMBER 2014
2014/08/21 10:28 PM
 #artMOVESme debuts with Hollard
A new campaign designed to capture the role of
the arts in peoples lives is making its debut at the
17th Annual Business Day BASA Awards, partnered
with Hollard.
An initiative of Business and Arts South Africa,
#artMOVESme seeks to explore the value of the arts for
both business and broader society, and will be ongoing after
the awards take place on August 25th 2014.
Were very excited about launching #artMOVESme
campaign, says BASA CEO, Michelle Constant.
The campaign is based on the understanding that the arts
provide real value to everyone in society. It provides social
capital, EQ, economic growth and social cohesion but,
more than that, it plays a vital and often powerful role in
the lives of everyone.
#artMOVESme takes the form of a dynamic, growing and
open collection of digital images and texts, contributed by
a diverse and broad section of individuals, organisations,
businesses, institutions and more.
The first part of the #artMOVESme campaign is a graffiti
hoarding featuring the work of artist Sindiso Nyoni aka
R!OT, a self-developed artist, activist, multi-disciplinary
designer and illustrator.
As a project of the 17th Annual Business Day BASA Awards,
partnered with Hollard, the #artMOVESme graffiti hoarding
will make its initial appearance at Hollards Johannesburg
offices on August 13th. There, staff and visitors will be able
to engage with Nyonis images, using the pink Post-Its that
are part of the hoarding to write about or illustrate how the
arts impacts on their world.
Although our involvement started with the deep passion
of our founders, it has become clear to us over time that
the arts is another avenue that helps us to be catalysts for
positive and enduring change in South African society, says
Heidi Brauer Hollard Chief Marketing Officer.
The #artMOVESme graffiti hoarding will then move to the
Market Theatre where this years 17th Annual Business Day
BASA Awards, supported by Hollard will take place.
At the end of the awards, the hoarding will move to various
public venues, marking the start of what is #artMOVESmes
ongoing aim: to enable everyone to have their say about
the role that the arts plays in their lives.
Share your responses on #artMOVESme
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Tony van Niekerk

COVER Publications COVER Publications

Editor

Sub_190x125_09-13.indd 1 2014/08/22 1:41 AM

COVER SEPTEMBER 2014 93

Sep 14.indd 93 2014/08/22 1:41 AM

 Product Development

Assupol innovates for life!

Being a century-old life insurer,
Assupol certainly has the
beauty of hindsight and the
wisdom of the future. Using
their knowledge and experience,
Assupol identified a gap in the
funeral and life products market,
and during July they launched a
revolutionary value-add benefit
called the On-Call Plus benefit.

When a loved one dies, one can often

feel overwhelmed, not only by the
emotional turmoil of the loss, but also
with the myriad of needs that suddenly
exist in that situation. On-Call Plus
is an optional benefit that allows the benefit could be used to provide 6 000 individuals were already covered
beneficiaries to spend on goods and for the purchase of fuel, bus, train or with the On-Call Plus benefit.
services that are crucial in the days after taxi fares in which case cash will be
paid directly into the beneficiarys bank We are very happy about how well
a loved one has died, and includes four
aspects: instantGroceries, airtime, account. this benefit has been received in the
electricity, and transport. market. It is important to understand
The great thing about the On-Call Plus what people need, in situations
The instantGroceries benefit is a benefit is that it is very flexible, as any like a funeral, for example, and the
market first an entire infrastructure of the four aspects of the benefit can opportunity for innovation comes from
was built behind it to truly deliver a be used in any combination, until the solving those kinds of problems, said
seamless solution to clients. Within R2 500 benefit amount is depleted. Bridget Mokwena-Halala, CEO of
minutes after a valid claim has been The On-Call Plus benefit is available Assupol Life.
registered, the instantGroceries on new as well as existing Assupol
benefit is paid to the beneficiarys funeral and life policies, costing a mere
cellphone using USSD technology R10 per month, per life insured.
to deliver an electronic voucher, or
wiCode. This voucher can be used at
the following participating retailers
countrywide: Boxer, Checkers, Pick
n Pay and Shoprite, to purchase
additional groceries in preparation
for the funeral as well as to cater for
visiting family members arriving prior to
the funeral.

The airtime and electricity benefits

work in a similar way, providing
convenience because airtime across
all mobile networks, and pre-paid
electricity meter vouchers are sent
directly to the beneficiarys cellphone.
This airtime feature could be used to
allow the bereaved to notify family
members and friends of the loss and
to make arrangements for the funeral.
Especially in situations where the
breadwinner has died, having access
to electricity adds to the convenience
factor.
The transport benefit allows for vehicle
rental at discounted rates, there is no
need for a credit card. Alternatively,
Jurie Nel, Assupols Head of Product
Development and Actuarial Support
is proud of the new product, and said
that, at Assupol we have the best
interests of our clients at heart, and
this new benefit is proof of how we
strive to make our benefits relevant
and our claims process as easy as
possible.
The On-Call Plus benefit has attracted
the attention of an unprecedented
amount of people, and as of 1 August
2014 - in the space of one month since
the products launch more than
We are certainly no strangers to
innovation, having previously developed
the 4Sure 100% Cashback benefit
for our life cover products in December
2010, which allowed for all premiums
to be returned at the end of every 10
claim-free years, and is now a common
feature in the industry, she continued.
The future of the South African
insurance industry lies in its ability to
transform and innovate. And Assupol -
specialising in funeral, life, savings, and
retirement annuity products in the low
to middle income segment - has done
just that with On-Call Plus.

94 COVER SEPTEMBER 2014

Sep 14.indd 94 2014/08/21 10:28 PM

 Monitoring my driving
from Joburg CBD to Benoni
To say Im an overachiever is
putting it mildly. When it comes
to high scores and performance
points Im worse than a Korean
kid at a Starcraft convention.
Driving is a sore point for me. Growing
up in the Karoo I never saw the point
of learning to drive. Everything is
within walking distance. So when I
moved to Joburg at the tender age
of 25 I suddenly had to get a car and
learn to drive (on highways nogal!) and
being bad at something doesnt sit
well with me.
ENTER THE TRACKER APP
Tracker has developed a highly
customisable iOS and Android-
optimised driver behaviour application
that transforms smartphones into
mobile and cost-effective Telematics
devices.
I GOT TO TEST IT OUT FOR MYSELF
To get started I had to activate my GPS
and make sure I was connected to the
internet on my phone (a Samsung S4).
In the guise that I downloaded the
application, the feedback follows the
same pattern as traffic lights: A green
dot means good, orange means good
with room for improvement and red
means areas to improve. Im sad to
report I have quite a few red dots!
My app measures speed, familiarity and
smoothness, but I am informed that
this can be customised to the insurers
specifications. Speed measures whether
you stuck to the speed limit (all green
dots) and familiarity means how often
COVER SEPTEMBER 2014
Sep 14.indd 95
BY ANNETJIE VAN WYNEGAARD
you drive on the same road (in my line
of work, not often). Smoothness refers
to the way you accelerate and apply
the brakes, which indicates whether
you anticipate potential hazardous
situations. Smoothness is important,
because if you can anticipate speed
bumps, potholes, a driver swerving into
your lane without indicating, or a stop
street, I not only save on the wear and
tear on my vehicle, but save fuel too.
The app is able to measure several
factors that insurers may find valuable
to assist clients in improving their
breakdown, or reach out for roadside
driving. These could include the
time of day, the roads used, and the
speed driven, phone usage, the speed
relevant to other road users and more.
accustomed to today.
and drivers over time is something Ill
The app recorded my journeys for self-
reflection. Since Ive installed the app
Ive been trying to get those red dots
to go green. As I use the app over time
it calculates a score for my driving,
which is another useful way I can track
my improvements.
Gamification is a buzz word in the
industry at the moment. The Tracker
app has a functionality called Leagues
where you can add your friends or
colleagues to your leagues (as easy
as adding a friend on Facebook), and
see who has the highest score. Each
trips detail can be marked to exclude
specific trips and modes of transport
used, when I was not driving at the
time.
The app also provides assist
functionality. As an insurer you can
elect to receive the messages directly
or link this to your service provider in
order to report an incident, a theft,
assistance.
The app is available to any insurer
who wishes to improve the safety
of their drivers, collect behavioural
data, improve driver behaviour and to
connect to their customers in a more
convenient and interactive manner.
The app can be customised to each
insurers look and feel, and contain the
features that the insurer wants in the
app.
What makes this app so interesting is
that SA insurers are able to put highly
customised data into customers hands
according to the needs of each insurer
and customer. The engaging features
and interactive functionality match
what even non-tech savvy users are
So, if just one journey from Jozi to
Benoni could have an impact on my
driving, the potential for insurers, fleets
be watching with interest.
95
2014/08/21 10:28 PM
 Norton Rose Fulbright Norton Rose Fulbright
Metropolitan Retail
KHANYI NZUKUMA KEITH MUKAMI ELANA ROSS
CEO Corporate and International
Director: Johannesburg Tax Consultant

JSE Executive Discovery Business Connexion

DONNA OOSTHUYSE DR SHREY VIRANNA ISAAC MOPHATLANE
Director: Capital Markets CEO: Vitality CEO

POTM_sep.indd 1 2014/08/22 12:40 AM

A&G_A4_Print_sails.indd 1 2012/12/12 3:54 PM

Untitled-1 1 2014/09/05 3:19 PM

 KINGJAMES 30239

ITS WORTH
DOING
INSURANCE.
GOOD AND
PROPER.
A lot goes into doing things properly. Thats why we value being voted
South Africas number one commercial and corporate insurer by the FIA,
even more. Then again, the right way is the only way we know how.
Thank you for your vote of confidence. Santam. Insurance good and proper.

For more information visit www.santam.co.za

Santam is an authorised financial services provider (licence number 3416).

Untitled-1 1 2014/09/05 3:20 PM

 INSURANCE CONFERENCE
Southern Africa 2014

RENDEZVOUS 2014
The business of
insurance is insurance

cover
Industry intelligence to financial professionals

COVER PUBLICATIONS CONFERENCE MAGAZINE

All the highlights, double the fun

OFC_conf mag14.indd 1 2014/08/26 11:54 AM

Untitled-1 1 2014/09/03 12:17 PM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Dual approach to Twin peaks
This years conference content had a strong focus
on regulation, with various speakers and panels
addressing and discussing current and proposed
regulatory issues.
I still hold the belief that the focus of our regulators should be
more balanced. The aim of the Regulator should not just be
about protecting the customer by getting companies to follow
certain set of rules, be they prudential or market conduct. On
page 10 of this magazine Jonathan Dixon is quoted as saying
the following during his presentation: Through this vision
customers can have confidence and trust that they are dealing
with firms that will keep their promises and treat them fairly.
On the same page Treasurys Ismail Momoniat said: National
Treasurys goal is to make the financial services sector safer to
serve customers better.
This customer-focussed approach, without a fair amount
of promotion of the benefits awarded to customers by a
healthy, strong insurance and investment industry speaks to
an underlying relationship based on policing and distrust.
Certainly there should be a good set of rules to ensure
customers are treated fairly and protected, and yes, there
should be good policing to bring rogue players into line. The
industry has always been eager to push those aims.
However, I would like to suggest that the regulator follows a
dual approach to their own Twin Peaks:
Approach one creating an environment where customers can
safely and with confidence address their financial needs and,
INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 1
Approach two - creating an environment where business has
the opportunity to grow and thrive.
A strong healthy insurance and investment industry will be
best equipped to provide consumers with appropriate value at
an appropriate price. Growing their customer bases is essential
for the economic, social and political future of our country.
I would like to urge Treasury and the FSB to also focus on the
second approach, acknowledging the value added by the
Insurance and Investment industries and working towards a
regulatory environment that promotes growth and vibrancy in
our industry.
Successful conference
As you will see when paging through this magazine, COVER has
again played a big role at the 2014 conference and we would
like to thank the IISA and in particular, Pat Hunter, David Harpur
and Angela Harpur for allowing us the privilege of participating
on so many levels.
I believe our presence made a difference to the success of the
conference and we will continue to strive towards that.
I would also like to thank our various partners and sponsors
at the event for their support in making the event a success:
Genasys Technologies and Oakhurst Insurance for the Flip
Im in a Fliek initiative, Zurich Insurance for the conference
interviews, Allianz for the COVER Awards Dinner and Fulcrum
for the filming of the conference presentations. Without you
guys we would not have been able to do it.
We look forward to an even more exciting 2015 conference!
Tony
1
2014/09/03 12:36 PM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014

CONTENTS
A World Class Event
Welcome to the 2014 International Insurance Conference Magazine, brought to you by COVER Publications.

Introductions
Two approaches to Twin Peaks Tony Van Niekerk 1
World Class Education David Harpur 4
Debating critical issues Justus Van Pletzen 6
Expectations and concerns Barry Scott 7
SAIAs plan of action Themba Gamedze 8

Presentation Summaries
Tomorrows risks Sheralee Morland 9
The end goal - Jonathan Dixon 10
To regulate, or not to Ismail Momoniat 10
Intermediary trends David Davidson 12
All about human behavior Adrian Gore 13
Changing driver behavior Anton Ossip 14
Dont empower, emancipate Bonang Mohale 16
Economic disaster for the industry Hugo van Zyl 17
Clients real problems Stephen Cross 18
Africas time Giles Ward 19
Prepare to be best Mike Pritula 22
Africa open for insurance business Corneille Karekezi 23
Reacting to market needs Paul Jardine 24
Fair advice, fair pay Panel discussion 26
Africas sustained growth Allianz panel discussion 28

Conference fun
Exhibitors strut their stuff 30
Rocking the haunted mansion 32
COVER and Allianz awarding the maestros 34
AIG welcomes you to the conference 36
Hollard take a break from business 38
COVER was everywhere! 42
AIGs Academy 44

2 INSURANCE CONFERENCE 2014

Conf_mag_sep14.indd 2 2014/09/03 12:36 PM

 EMPLOYEE MOTOR FLEET
AND RISK RISK FINANCE INSURANCE CAR HIRE
BENEFITS SOLUTIONS Paladin INSURANCE
Blue Diamond
Centriq BrokerserV
Manwood

NON-STANDARD OWNER DRIVER

LIFE INSURANCE INSURANCE
AllLife
HCV Hambe Kahle
INSURANCE
IUM

MARINE AVIATION
INSURANCE
INSURANCE Azriel Aero
Nautical Aviation

EVENTS AND
ENTERTAINMENT
KEU Xelus, Total Risk
Administrators

EXCESS BUYDOWN
INSURANCE MOTOR
STAND ALONE IUM, Paladin,
Beyonda Group SAU Paradigm,
Ad Ultimum

WHY LOOK ANYWHERE ELSE?

Were all different. We think, work and live differently. At Centriq, we see insurance in the same way differently. Its this way of looking
at you and your clients that makes us a partner you can trust and turn to, whatever your clients insurance needs, from assets to
liabilities to people. Over the years, weve built relationships with leading UMA business partners in our industry that position us to offer
each insurance broker and their clients unique solutions provided by dedicated and competent people thats the Centriq difference.

Untitled-1 1 2014/09/03 11:55 AM

 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
World class education
for a world class industry
David Harpur, CEO Insurance Institute of South Africa
What a thrill it has been to once again host the
41st annual insurance conference at Sun City
under the banner:
The business of insurance is insurance
This has now been the fourth successful partnership of the
iiSA, FIA and SAIA in planning and executing the conference.
We endeavoured to provide a blend of new thinking with
some of the important industry challenges that must be
handled on a day to day basis.
The event has assumed a high degree of status in the industry
and the ever-growing number of local and international
attendees attests to this fact.
While cost is always an important consideration, every effort
was made this year to contain delegate costs and this was
aided by the strong sponsorship support we obtained plus
4 INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 4
the tremendous exhibitor stands that were so quickly taken
up. Many regular exhibitors continued their loyal support and
there were numerous new participants who have realised the
great benefits they receive from exposure to our important
delegates.
Our speaker panel was of a high standard
with both local and international speakers
of outstanding calibre sharing their
experience with an attentive audience.
At last count we had over 1100 attendees from 314
companies and 23 countries in attendance with 43 exhibitors
and many very supportive sponsors.
We again tried to flex the conference programme to stimulate
interest with panel discussions as well as the first launch of
a mini Lloyds underwriting room for business negotiations
with some of the leading Lloyds syndicates out of London.
Our speaker panel was of a high standard with both local and
international speakers of outstanding calibre sharing their
experience with an attentive audience.
The opening cocktail party sponsored by AIG was another
good networking opportunity that set the tone for the
conference. The usual tracker party was a great success and
the awards dinner sponsored by Allianz was intended to
maintain the high standards of a dignified occasion when
various awards were made to students and industry members
for their significant contribution to the short-term industry in a
range of roles.
We take this opportunity to thank our great sponsors for their
support and interest in this important industry event that sees
the coming together of the various industry bodies as well
as so many insurers, reinsurers, intermediaries, underwriting
managers together with INSETA, the FSB and National Treasury.
Also included are the many suppliers to various components
of the industry from it to motor glass.
Despite the onerous challenges facing the industry we have
the people and skills to deal with all scenarios and keep this
great industry on track to deliver quality products and services
to our consumers. Also important are the careers for a host of
employees which are so vital for job creation and retention
in South Africa as our society continues down the road of
transformation in this rainbow nation.
We at the IISA enjoy our small part in making this event the
best on the insurance calendar and will strive to deliver an
even better event next year. We look forward to your ongoing
support as we make every effort to offer world class education
for a world class industry.
2014/09/03 12:36 PM
Untitled-1 1 2014/02/18 9:40 PM
Untitled-1 1 2014/09/03 11:56 AM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Global stakeholders gather to debate
critical insurance issues at TICSA 2014
Justus van Pletzen, CEO, Financial Intermediaries Association of Southern Africa (FIA)
The Financial Intermediaries Association of
Southern Africa (FIA) would like to congratulate
its partners the IISA and SAIA on another
successful insurance conference. We would
also like to thank the 1150-plus delegates who
confirmed their faith in the insurance sector by
attending TICSA 2014.
The conference provided an excellent platform from which
industry stakeholders could share their views on the prospects
and challenges in the broader financial services industry.
This years programme accommodated experts from leading
insurers, reinsurers, trade associations and underwriters as
well as representatives of the Financial Services Board and
National Treasury.
6 INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 6
As the largest association representing South Africas risk
and financial advisors we took an active interest in the panel
discussion on topical insurance market issues, held Monday,
28 August. FIA Vice President, Jay Ramsunder, shared his views
on the challenges and opportunities in this highly competitive
market with Peter Todd (IISA) and Themba Gamedze
(Chairperson of SAIA).
New data requirements could, for
example, encourage fresh investments in
information technology that significantly
improve a brokerages operational ability.
His overarching message was that insurance brokers could
make their practise more profitable by carefully planning
their responses to the various challenges. New data
requirements could, for example, encourage fresh investments
in information technology that significantly improve a
brokerages operational ability.
As FIA CEO I was privileged to participate in a panel
discussion on the Retail Distribution Review (RDR) process
with Caroline da Silva of the FSB, Peter Dempsey of ASISA
and Michael Blain of Altrisk. This was a no-holds-barred
discussion where the FIA reiterated the need to avoid the
mistakes made in offshore markets, particularly where
broker remuneration is concerned.The good news is that
the FSB again reiterated its belief in the value of financial
advice and undertook to ensure the sustainability of
brokerages as part of this review.
Panel discussions present opportunities for both panel
participants and attendees to think broadly about industry
issues. They offer an informal platform for organisations such
as the FIA to share our position on matters that will have
wide impact on, for example, the future of the intermediated
distribution model.
TICSA presents one of the best networking opportunities
on the South African calendar and is an opportunity for
industry stakeholders, whether big or small, to engage with
thought leaders and global brands. The industry invests
agreat deal of resource into the event and it is important
that all participants capitalise on this investment by
nurturing the business relationships that they establish
there.
The FIA will certainly build on the new friendships that we
initiated this year, and look forward to seeing you again at
TICSA 2015.
2014/09/03 12:36 PM
 Expectations, concerns and what
the industry can look forward to
Barry Scott, SAIA Chief Executive

The 2014 International Insurance Conference

broke all previous records, with 1,163 delegates
attending, representing 24 countries and 379
companies. In doing so, this conference clearly
established itself as the premier event on the
insurance calendar. I mean, where else can you
get more than 1,000 insurance leaders together
in one place at one time?

Together with the insurance leaders, we had a sold-out

exhibition area, with the most significant suppliers and service
providers showcasing their wares.
Inside the conference hall the panel of speakers provided an
insight into issues currently on the top of the agenda, both
from an international and local perspective. We were also able
to hear representatives from government give their views on
the end goal of the current regulatory reforms.
Delegates were treated to some outstanding social events, with
a good opportunity to network, or just to party the night away.
We are extremely thankful to our sponsors, without their
contribution we could not have put on an event of such a
scale, and been able to keep it within affordable limits. Intermediaries Association in order to host such a prestigious
event.
The SAIA is exceptionally proud to have been able to partner
with the Insurance Institute of South Africa and the Financial The question remains, how do we top this next year?

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 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
SAIAs plan of action
through partnerships
By Themba Gamedze, SAIA
When identifying the major current topical
insurance issues, from a short-term insurers
perspective, one does not need to look further
that the activities currently on the SAIA agenda.
Sustainability of motor insurance
Major stakeholder groupings came together under the
leadership of the SAIA to deal with vehicle crime in the 1990s
called Business Against Crime South Africa.
Today claims in motor insurance business come from motor
accidents and the cost of vehicle repairs. Through the
suggestion of the SAIA, Business Against Crime is developing a
strategy to deal with road safety.
We need to engage with government to re-introduce a system
of compulsory third party property insurance.
We need to put in place an enterprise development initiative
to assist the growth of small black owned panel shops and
address the issue of alternative parts and the impact of motor
warranties on this.
Industry transformation
There is a sense of frustration at the slow progress of
transformation in the sector. The much awaited Financial
Sector Code (FSC), gazetted in 2012, is now in force. The
standards have been finalised, and the training for the industry
is complete. Much needs to be done to achieve the objectives
of the Code.
As an industry we need to embrace transformation, to
enhance the level of relevance that our industry can have in
communities that currently do not have access to insurance.
Insurance is a necessity, not a luxury and the more people are
brought into the protective net of insurance, the more cost-
effective that cover can become.
8 INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 8
The areas of critical importance include work place
transformation, skills development, and provision of enhanced
access to products and services, and consumer education.
Governance risks, legislation and regulation
South Africa is a member of the G20 group of nations and of
the BRICS grouping, despite not being one of the largest five
emerging markets. Lawmakers need to harmonise our financial
regulation with that of the largest economies in the world.
We regularly undergo Financial Sector Assessment Programme
reviews, performed by the World Bank/IMF. Our Financial
Services Board is on the executive of the International
Association of Insurance Supervisors, which has 26 Insurance
Core Principles with which regulators must comply.
We will focus our attention during the year arise on:
SAM: Solvency Assessment and Management
TCF: Treating Customers Fairly
Twin Peaks, with the concomitant challenges to Who
regulates what?
Retail Distribution Review
Policyholder Protection Scheme, which will see a fund being
developed in order to protect consumers in the event of the
failure of an insurer
Third party Cell Captive Review
Ongoing binder regulation issue
A review of the ombudsman landscape
National development plan
SAIA has acknowledged the importance of the National
Development Plan and our Board has made it a priority on the
SAIA agenda. A group of CEOs are responsible for developing a
strategy for SAIA.
Many of the outcomes expected from the NDP will not happen
if risks are not taken into account as part of the engagement
between government and potential investors.
An investor looking to set up a factory in the country will
not do so if basic quality infrastructure is not in place thus
hindering job creation.
Climate change
We are engaging with government about the need to expand
the reach of agricultural insurance to emerging farmers, yet at
the same time multi-peril crop insurance is under threat.
The SAIA has started to engage on these matters through the
industry Strategic Risk Forum, but clearly more needs to be
done, particularly in terms of the long-term threats these
issues pose to ensuring food security.
2014/09/03 12:36 PM
 The Risks of Tomorrow
Sheralee Morland, IRMSA, delivered her
presentation at the International Insurance
Conference on the risks of tomorrow. She
introduced her topic, It is difficult to predict the
future, but although that is the case, we should
not be deterred from preparing for it.
Morland used the anagram FUTURE to illustrate how we can
anticipate tomorrow.
Forgotten/past
Understand/underpin
Today
Uncertainty
Relevant
Emerging/Future
Forgotten/past
Morland said we must use the past as a predictor of the future.
She explained with examples of historical innovation how
individuals and organisations can learn from past mistakes to
improve the future.
Understand/underpin
Morland quoted, What you do today can improve all your
tomorrows. What risks do we know today? She cited climate
change, extreme weather related risks, terrorism, war,
urbanisation, growing populations and catastrophic events as
known risks in 2014.
She also spoke about the risks posed by emerging markets,
tougher regulation, and integration of technology. With the rise
INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 9
What you do
today can
improve all your
tomorrows.
of technology come various risks like cyber crime and fraud.
She asked, Does increased use of technology create shifting
consumer preferences and new risks to insure? She spoke
about the possible impacts of social media on reputation risks
and protection of personal information.
Today
Morland quoted science fiction writer Ursula K. Leguin: The
only thing that makes life possible is permanent, intolerable
uncertainty; not knowing what comes next. Morland said
unfortunately the question of uncertainty generates more
questions, rather than answers.
Relevant
Morland said the secret to success is staying relevant, and
finding solutions to the risks mentioned that we face today
and may impact tomorrow, such as: climate change and
extreme weather events; catastrophes, terrorism and war;
demographic shifts in core markets; emerging markets; cyber
crime; fraud; social media; people risks; client centricity;
insufficient infrastructure and unemployment, to name a few.
Emerging/Future
She said, We must do what we can now to anticipate the risks
of the future.
Morland concluded: Short-term personal lines insurers
have their challenges and need to address these promptly
to ensure they remain relevant. She said that, in predicting
the future the customer has expectations, and is top of mind
for regulators. Technology has resulted in consumers and
businesses wanting simplicity, transparency, quick and timely
transacting and value for money.
She said that you cannot predict the risks of tomorrow, but
you can be better prepared. Morland ended with a quote by
Steve Jobs, Lets go invent tomorrow rather than worrying
about what happened yesterday.
9
2014/09/03 12:36 PM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Regulatory reforms: the end goal
Jonathan Dixon addressed delegates at the
International Insurance Conference 2014 with the
view of the Financial Services Board on the long-
term objectives of current regulatory changes.
Dixon said regulation needs a paradigm shift. At the moment
regulation is backward looking, compliance-based, one size
fits all and follows the silo approach. We need to move
towards a forward looking approach that is proactive and
pre-emptive, outcomes-based, risk-based and proportionate.
This new regulatory paradigm should be comprehensive and
consistent, intensive and intrusive.
The end goal is better protection of policyholders, said
Dixon. To do this we must align regulatory requirements
To regulate, or not to regulate
That is not the question
Ismail Momoniat, DDG of Tax and financial sector
policy at National Treasury, spoke about the end
objections of regulating the financial services
sector.
Momoniat said National Treasurys goal is to make the financial
services sector safer to serve customers better. This is not an
end goal, he emphasised, but a continual objective.
Momoniat said the government regulates the financial
services sector prudentially, to ensure companies are
healthy financially and able to deliver on their current and
future promises; and through market conduct to ensure that
companies conduct their business ethically and in a way that is
fair to customers and protects consumers.
Momoniat asked, what are the strengths and weaknesses of
the short-term insurance industry? How can we build on the
strengths and improve the weaknesses?
10
Conf_mag_sep14.indd 10
with the underlying risk. Enhanced risk monitoring and risk
management tools are essential to both financial risks (SAM)
and conduct risks (TCF). In the end we must help maintain the
financial stability of policyholders.
There is a bigger emphasis on M.I. and systems capability, he
said. The proper management of information is very important
to governance and risk management, under both SAM and TCF.
Enhanced systems are particularly important in intermediated
or outsourced models.
Destination 2016
The aim of the FSB is to have Twin Peaks, SAM, TCF, and RDR all
implemented by 2016. Through this vision customers can have
confidence and trust that they are dealing with firms that will
keep their promises and treat them fairly, said Dixon.
Market conduct focus
Regulatory reforms will have a close look at the market
conduct of companies. Regulation will assess culture and
governance, product value, unfair contract terms, misleading
advertising and marketing, ineffective disclosure, conflicted
advice, poor claims handling, poor complaints handling, and
empowered customers.
Dixon stressed that an outcomes based approach should
test the outcomes of regulation, and not only be a tick
box approach to compliance. He said regulation is meant
to rebalance responsibilities by scrutinising the way firms
develop products and to keep an eye on product provider
oversight of chosen distribution channel.
Dixon concluded that fair outcomes can be achieved in
different ways, through emphasising different TCF elements.
Move away from futile debates
Momoniat said the industry needs to move away from futile
debates on whether to regulate or not, or whether it is
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Untitled-1 1 2014/09/03 11:56 AM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
constitutional or not? It is constitutional, he said, and the
industry will die if it was left free from all law.
Momoniat said the 2008 financial crisis had caused the
international focus to shift towards strengthening macro-
prudential and micro-prudential measures. The G20 has
also adopted principles on consumer protection and on
innovative financial inclusion, he said. These principles rest
on the three pillars of protection, access and education.
Financial inclusion
The government wants to promote better access to the
financial services industry for all members of society,
said Momoniat. To do this we need to ask, are the current
products appropriate for the lower income market?
In addition to a safe and stable financial sector, the
government wants to see fair treatment of consumers,
and an inclusive financial sector that is well governed and
efficient.
Targets for insurance
The Financial Sector Charter has set targets for the
insurance industry. The industry has undertaken to make
available appropriate and affordable products to the poor
and underserved.
The short-term insurance industry and the government
need to engage on the following challenges:
How can the short-term industry grow faster in South Africa
and into the rest of Africa? How can the industry provide
more and better products to consumers, get better coverage
for all consumers, and help reduce the costs of the current
expensive model?
Beyond Africa, what are the opportunities? He said we need
to look at how the government can help expand to the
Intermediary trends and challenges
David Davidson, Assistant FAIS Ombudsman
Treating Customers Fairly (TCF)
I came across an old office presentation conducted by the late
Charles Pillai in 2006.
What does the consumer seek:
Fair treatment as part of the corporate culture;
Products that have been designed to meet their needs and
targeted appropriately;
Clear information and appropriate communication both
before and after the sale;
Suitable advice that takes care of their needs and
circumstances;
Product performance and service levels that they have been
led to expect from firms that they are dealing with;
No unreasonable post sale barriers imposed on them when it
came to claims etc.
Section 16 of the FAIS Act holds the principles of market
conduct regulation. Section 2 of the Code states that a
12
Conf_mag_sep14.indd 12
rest of Africa, and identify the constraints to growth on the
continent.
Know your customer
Do insurers know who their customers are and what their
obligations are towards them? Current challenges facing
the short-term industry are poor risk management practices,
weak internal controls, and lack of policyholder data.
Momoniat said insurers need to demonstrate greater
ownership of policyholder data and improve risk
management practices. He said the industry also needs to
strengthen the current Ombud framework.
Insurance sector reforms focus on strengthening insurers
capital, better risk management and governance, enhanced
reporting and disclosure, and ensuring fair treatment
of customers. This will be enabled by regulation on
binder rules to improve governance over intermediaries,
demarcation regulation over health related products like
gap cover, and consumer credit insurance.
According to FinScope 2013 the use of short-term insurance
products in South Africa is low. Momoniat said National
Treasury is concerned about the poor market conduct in the
industry.
In conclusion, Momoniat said South Africa has a strong
short-term insurance industry, with great potential for
innovation. He said the industry has made good progress
with prudential requirements, but more work is needed
in market conduct and financial inclusion. He said that
more can be done in developing more appropriate products
for the low- to middle-income market, and more must be
done to lower costs. He called for greater engagement
between the industry and National Treasury to meet these
challenges.
provider must at all times render financial services honestly,
fairly, with due skill, care and diligence, and in the interests of
clients and the integrity of the financial services industry.
If you apply the letter and spirit of the FAIS Act you are already
TCF compliant.
INSURANCE CONFERENCE 2014
2014/09/03 12:36 PM
 Ongoing advice fees and clean pricing
Customers have always complained about fees, and in the past
had good reason to do so. Fees have improved and the move
to clean pricing will benefit consumers further.
Complainants are particularly aggrieved at ongoing fees,
particularly in instances where they have never seen or heard
from an advisor in years.
Some complainants frequently learn that the original advisor
left the business years ago.
Appropriate advice
There is a misconception that the FAIS Ombud pushes
advisors to be overly cautious when selecting funds. This is a
misrepresentation of the basic principles of the FAIS Act.
Suitability: Section 8 of the Code talks about appropriate
advice based on available information regarding the
clients financial situation, financial product experience and
objectives.
Make sure advice can be backed up by the facts as established
at the information gathering stage.
Due diligence: Trust, but verify
Those who forget the lessons of the past are doomed to
repeat them. We continue to see Ponzi schemes sold by
registered advisors who should know better.
In 2010 the office issued a number of determinations against
Orange Insurance Limited, a registered short-term insurer.
When the claims came in there was nothing to back them up.
Unless you are dealing with a company with a proper long-
terms record and a listing on the JSE, rather do a proper due
diligence.
Record keeping and short-term insurance
Record keeping an ongoing concern seems particularly
Its all about human behaviour
Adrian Gore, CEO of the Discovery Group, spoke
about the application of behavioural science in
insurance.
INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 13
problematic in the short-term insurance industry.
Complainants know that advisors must comply with a code.
Many complainants are not made aware of the material terms,
or even offered a proper needs analysis to establish the
appropriate product.
Products sold years before are not adequately reviewed at
the anniversary date, resulting in items that should have been
covered being excluded.
Replacements
Churning is possibly the primary motivator for replacements.
Weve seen many life policies being replaced, only for an
event to occur that was not covered in the new policy. For
example, a suicide within the new policy exclusion period
can exacerbate the family trauma when hearing that the life
policy will not pay out.
Poor or non-existent replacement policy advice records
fail to explain why, instead of a simple unit trust switch,
the entire policy is replaced. In many instances the existing
policy should have been retained or supplemented where
necessary.
Lessons learnt
Even experts underestimate risks. Putting all your clients
eggs in one basket magnifies this risk. Diversification is an
important and useful tool. Record keeping is vital.
If a client has not saved sufficiently for retirement its not your
role to gamble on speculative investments in unlisted shares
or such ventures.
Manage your clients expectations they are guided by you as
the expert. Dont be pressurised into making decisions against
your better judgment. The FAIS Act talks about appropriate
advice; it doesnt require best advice as determined with the
benefit of hindsight.
Gore identified five forces that are creating a disruption
within the health and life insurance industries: shared value,
materiality, technology, risk, and behavioural economics. He
also spoke about how Discovery Insures core purpose and
business model responds to these disruptive forces, both
within the health and life industries, as well as the short-term
motor insurance industry.
Shared value
Societies are expecting more from its institutions, said Gore.
He cited Time Magazine as saying that millennials are more
tech savvy, and more value and socially conscious.
Gore said, Shared value is created when both social and
business issues are addressed, connecting a companys
success with social progress.
Materiality
Health and life insurance industries are important to society,
said Gore. South Africas health expenditure is 8,8% of our
GDP. Health expenditure becomes a massive burden on
society.
13
2014/09/03 12:36 PM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Technology
Gore said technology is a powerful enabler. He showed
examples of how technology can make the automotive
industry and driving safer.
Risk
The underlying nature of risk is changing and increasingly
based on behavioural factors, said Gore. He said that 80% of
the global disease burden is due to lifestyle choices, and 50%
of all global deaths are caused by three poor human choices.
When it comes to health insurance, wellness behaviour has
become an appropriate rating factor, and new rating methods
are needed to predict risk based on behaviour better.
Behavioural economics
People are inherently irrational, said Gore. He defined
hyperbolic discounting as the tendency to discount future
rewards for present ones. Gore explained he healthcare
Changing driver behaviour
Anton Ossip, CEO of Discovery Insure, addressed
the topic: Telematics in short-term insurance.
Ossip defined telematics as, technology used to
measure how vehicles are driven.
To do this telematics requires a communication component,
GPS functionality, and telemetry sensors. Telematics measures
actual driver behaviour, and provides feedback to improve
driving ability.
Ossip stated the following facts about driving in South Africa.
All drivers are irrationally optimistic about their driving
abilities;
Traditional pricing is not fair;
Cost drivers are causing benefit reductions and premium
increases; and
More consumers are buying motor insurance direct.
Ossip said that through the Discovery Insure driving challenge,
they have observed how awareness shifts behaviour.
Telematics can show even the most optimistic driver where
they can improve, for example when it comes to acceleration,
braking, cornering, speeding or using your cellphone while
driving.
Ossip said traditional pricing is not fair, and is determined by
rating factors like gender and age. Telematics brings the pricing
curve close to perfect pricing, as it enables positive selection
by good drivers. Good drivers get good rewards, regardless of
age or gender.
Cost drivers of premiums are accidents, theft, hijacking,
weather events, etc. Telematics shows the cars normal
behaviour versus abnormal behaviour, and can warn the
insurance company when something out of the ordinary, like a
hijacking, might be taking place.
Ossip rejected the perception that technology replaces the
14
Conf_mag_sep14.indd 14
paradox. Healthcare is over consumed, as benefits are
immediate, but price is hidden; whereas wellness is
under consumed, with the benefits hidden, but the price
immediate.
Gore contended that life and health companies need to
rethink their business models, making both life and health
industries a platform to measure, price and improve member
behaviour.
Gore continued to illustrate how the five forces have been
helped create shared value within Discoverys behaviour
based insurance model to make people better drivers.
By observing peoples health and driving behaviours, the
societal benefits are enormous. It helps reduce the disease
burden and health care costs due to lifestyle diseases; reduce
the mortality risk due to lifestyle diseases; and reduce driver
fatalities due to poor driver behaviour.
need for advice. Speaking from experience, he said broker
clients have a higher Vitality Drive status than direct clients,
resulting in better drivers and fewer accidents. The financial
advisor becomes a risk coach, said Ossip, who helps the client
improve rewards.
Telematics puts the client in control, with the benefits
and service of the financial advisor as risk coach, thereby
enhancing the advice offering.
Ossip concluded: Telematics is not the future, its the now. He
circled back to the four facts of driving behaviour to show how
telematics can change them.
All drivers are irrationally optimistic about their driving
abilities;
Creates awareness and ability to improve driver behaviour
Traditional pricing is not fair;
Assessment of actual driving risk when determining
price
Cost drivers are causing benefit reductions and premium
increases;
Innovation antidote to cost drivers enables life saving
benefit features
More consumers are buying motor insurance direct
Enable the financial advisor as a risk coach.
INSURANCE CONFERENCE 2014
2014/09/03 12:36 PM
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Untitled-1 1 2 2014/07/31
2014/09/03 11:57 AM 2:04 PM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Dont empower, emancipate!
A conversation about leadership
Bonang Mohale, Shell and BMF, lead the
discussion on leadership with his presentation
entitled, My country our future. How do you
play your role?
Mohale said the earth is faced with five challenges.
The earth is finite, while we think we have infinite resources,
we do not. In addition to that we are experiencing a shift in
power, changing demographics, financial repression, and
technological challenges.
Mohale said it is Shells vision to build resilience for health,
happiness and performance.
He said resilience is a learned capacity to bounce back from
adversity through toughness and recovery skills; to thrive on
challenges through active engagement and optimism; to have
a positive impact on others through empathy and compassion;
and to reach full potential by exercising our talents in a
meaningful way.
Mohale explained the four paradigms of creating synergy
within the workspace.
First, I see myself. Then, I see you. Thirdly, I seek you out, and
lastly, I synergise with you.
He said companies need to use these paradigms to make a
shift from a leader-follower model to a leader-leader model.
The leader to leader model consists of three mechanisms:
control, competence, and clarity.
Control mechanisms
Mohale discussed the various control mechanisms that
companies can employ to help a follower turn into a leader:
Find the genetic code for control and rewrite it.
Act your way to new thinking.
Short early conversations make efficient work.
16
Conf_mag_sep14.indd 16
Use I intend to to turn passive followers into active
leaders.
Resist the urge to provide solutions.
Eliminate top-down monitoring systems.
Think out loud (both superiors and subordinates).
Embrace the inspectors.
The earth is finite, while
we think we have infinite
resources, we do not.
Competence mechanisms
Take deliberate action.
We learn (everywhere, all the time).
Dont brief, certify.
Continuously and consistently repeat the message.
Specify goals, not methods.
Clarity mechanisms
Achieve excellence, dont just avoid errors.
Build trust and take care of your people.
Use your legacy for inspiration.
Use guiding principles for decision criteria.
Use immediate recognition to reinforce desired behaviors.
Begin with the end in mind.
Encourage a questioning attitude over blind obedience.
Mohale concluded his discussion with the statement, Dont
just empower, emancipate!
Within a leader to leader interaction, conversations are
important. Mohale said, avoid giving orders, and when you do
give orders leave room for questions. He advocated a mentor
programme with low repetition, high quality training. A
leader to leader model focuses on people, and thinks about
the long term goals. Such a structure should urge employees
to be curious, and should eliminate steps and processes that
dont add value.
INSURANCE CONFERENCE 2014
2014/09/03 12:36 PM
 Vehicle crime and fraud
An economic disaster for the insurance industry
By Hugo van Zyl, Chief
Operating Officer of SAICB
The South African Insurance Crime Bureau is a
non-profit company incorporated in 2008. It
is the only entity mandated by the short-term
insurance industry to enable collaboration and
facilitation in addressing organised crime and
fraud prevention on behalf of the industry.
The SAICB strives to have an impact on organised crime
through a zero tolerance approach to fraud; the employment
of leading industry specialists; the application of best
practice fraud prevention systems and processes; well-
drafted economic-crime prevention policies; and through
a confidential whistle-blowing platform the Insurance
Fraudline.
The SAICBs vision is to be the fusion centre and leading
authority on fighting organised crime in the insurance
and assurance industries. The SAICB will achieve its vision
through the consolidation of multiple data sources and the
deployment of relevant and specialised skills, together with
the unique technology solutions that will provide industry
intelligence, promote collaboration, and address prevention
and detection, to obtain convictions and recovery.
The SAICB has a long list of members and stakeholders that,
along with government agencies, collaborate in the fight
against organised crime.
Data is the key to success
Law enforcement agencies work in silos, while criminals work
together.
The separation of information makes data sharing and the
quality of data a challenge. We need to share data across
boundaries. Quality data and sharing of data leads to
identification of cross carrier and organised fraud and crime.
INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 17
Current vehicle fraud trends and patterns
The following trends in organised crime have been identified
by the SAICB:
Theft and hijacking of vehicles, trucks, trailers, cargo and
yellow metal
A new trend in house robberies
A huge increase in accident staging with phantom passengers
Cloned vehicles
Service provider fraud
Staff dishonesty
Jamming devices
Ladies of the night
Dealerships and ABRs
Social Media
Third party claims versus phantom passengers
False licence and roadworthy certificates
False international drivers licence and false passports and ID
documents
Cross border crime: Mozambique
The SAICBs vision is to be the
fusion centre and leading authority
on fighting organised crime in the
insurance and assurance industries.
The SAICBs success stories
The SAICB has seen 16 cases go to court with a 100%
conviction rate. The SAICB has 18 cases in court to the
value of R46,2 million. There are currently 30 cases under
investigation to the value of R58 million, and 10 projects
under investigation to the value of R74,5 million. The SAICB
has up to date saved R114 million for member companies, and
the total saved for uninsured companies is R70 million.
Collaboration within the insurance industry has proved
successful in mature insurance markets. The South African
insurance market must drive towards this in the coming years
to combat insurance crime effectively. The SAICB will continue
to collate data, improve the knowledge base and consistently
add to the sustainability of the insurance industry.
We will progress from not knowing to knowing, from reacting
to preventing, and always, evolving.
17
2014/09/03 12:36 PM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
We are not solving our
clients real problems
Stephen Cross, Chairman of Aon Global Risk
Consulting and Chief Innovation Officer at
Aon Risk Solutions, spoke at the International
Insurance Conference about, Broking in the 21st
Century, Risks, Reward and Opportunity.
Product versus Solutions
Cross said that the industry both insurers and brokers have
had a tendency to be providers of product and not necessarily
of solutions. He presented evidence from The Aon Global
Risk Management Survey 2013. The survey is a ranking of the
top 50 risks identified by over 1,400 of Aons clients around
the world. He said: As an industry, we are not providing the
solutions to our clients real problems. If we dont start to
address these unplaced risks we will find ourselves displaced
and no longer relevant.
However, when someone, broker or insurer breaks the mould
and does something different and new, the whole industry will
move in lock step with the innovation.
What will shape broking in the future?
Cross discussed five factors that will influence the future:
Big Data
Cross quoted Albert Einstein: Information is not Knowledge
Cross said it is Aons belief that information and analytics is
the way to complement and supplement the knowledge base
of brokers and account executives, and to help clients directly
with their understanding of risk and risk exposure.
He said, We need to think and act differently, and that is why
we have started to employ data scientists in our innovation
centres.
18
Conf_mag_sep14.indd 18
Buying behaviours and access to information
Cross looked to his own teenagers for evidence of how the
younger generation buys things. He said his children tend to
trust websites like Trip Advisor, where people write reviews
of restaurants, airlines, and even insurance. Young people
rely on the anonymous consensus of the internet; they
gather information online, and then buy with their credit
cards.
Why on earth could we believe that they will not want
to buy insurance in the same way? asked Cross. What
will they seek when they are the risk manager or the
underwriter at a company?
Data privacy is a thing of the past
We voluntarily give up the right to privacy in so many ways,
said Cross. We share personal data every day; no one is off
the grid. During his travels to South Africa information was
gathered based on his phones GPS, credit card records,
books and music downloads, making phone calls, LinkedIn,
room preference, and much more.
Cyber is new Asbestos
Understanding, quantifying and mitigating new world risks
are essential, said Cross. Cyber is the new Asbestos when it
comes to insurance. Every company with a website or smart
phone has global exposure to cyber attacks. Total cyber
premiums in the insurance market last year were estimated
at $2b.
Cross said social media has converted traditional
operational risk into reputational risk. Little happens now
that isnt caught on a cell phone and uploaded and gone
viral within minutes of happening, he said.
Our clients in the future will need our professional help
more than ever, but it is likely to be as a partner than just a
transactional relationship.
Globalisation and interconnectivity
The proliferation of mobile devices is creating a rapidly
expanding network of new connections between
individuals, groups and things. The challenge is to
understand the new risks and opportunities that come with
this interconnectivity.
Predictions for broking in the 21st Century
Cross predicted that even if we ignore the changes and go
with the flow, there will be disruptive innovation in both the
underwriting and broking world. These changes will lead to
displacement.
If we crudely call insurance capital and brokerage
distribution we seriously have to consider our competitors
to be the likes of Amazon, Facebook, and LinkedIn who are
in the distribution space and can crowd source capital.
Cross concluded: Are we building a black swan for the
future?
INSURANCE CONFERENCE 2014
2014/09/03 12:36 PM
 Africas time for ACE
Giles Ward, ACE Group UK, presented at the
2014 International Insurance Conference. This
is an extract from his speech, An Underwriters
Thoughts.
At ACE, we never stand still. Less than three months ago, we
launched a new region within our company, Eurasia and Africa.
The businesses we have built up across the Middle East, Africa,
Turkey and Russia have reached an inflection point. Due to
their growing importance to ACE, and the opportunity we see
ahead, we decided the time was right to give them additional
management attention and to allow them stand on their own
feet.
Africa is very much at the heart of our new region. We believe
that the next several years will be Africas time and it is
Africas time for ACE.
In purely economic growth terms, Africa offers great
potential. Africa has expanded at a rate of about 5% a year
for the past decade. According to the World Bank, its growth
should outpace every other continent over the next five
years.
Investor sentiment about Africa has radically improved. Africa
is now the second-most attractive investment destination in
the world, behind North America[i].
The African consumer is coming of age. The number of
middle class Africans has tripled over the last 30 years to 313
million; more than a third of the continents population[ii] and
growth will increasingly come from domestic sources.
We believe that, in this next stage of the economic cycle,
the African insurance market is set to grow at a rate ahead
of GDP. According to new figures from AXCO, African written
premiums grew by 7,3% in 2012. This compares with closer
to 4% for the economy overall[iii].
INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 19
There are also signs of growing risk awareness in Africa.
Recently, Commercial Risk Africa interviewed a number of
risk managers for its first Global Risk Frontiers Africa survey,
a project which ACE sponsored. Risk managers across the
region said that they believe they are gaining an increasingly
high profile within their businesses. This is important as it is
encouraging.
Africa is very much at the
heart of our new region.
Challenges, of course, do remain. Risk management discipline
still has a long way to go in Africa. Underwriting discipline,
too, can be difficult to achieve here, not least given increasing
international capacity and a lack of risk information in some
cases. Meanwhile, Africas policymakers face many challenges
in achieving greater cross-border co-operation on regulation.
Nevertheless we can take some comfort from the fact that
Africas challenges are not so very different from those
elsewhere.
If the market opportunities and challenges are clear, so is
ACEs vision for Africa.Our approach is not about building
market share for market shares sake. Nor, in fact, is it that
we want necessarily to be present in every sector of the
market. Rather, it is about building a well-thought-out
plan for the region, taking a long-term view. In particular,
we will continue to invest steadily in our South African
business as we have been doing. We will build on our
expansion in North Africas insurance and reinsurance
markets. And we will make Sub-Saharan Africa a pillar of
our future growth strategy for the region. The good news
is that, as a company, we have a strong track record of
building out our business in emerging regions and we will
certainly deploy all the skills and experience we have to
guide us here in Africa.
[i]
E&Y, Africa attractiveness survey, 15 May 2014
African Development Bank (AfDB), 10 May 2011http://www.
[ii]
afdb.org/en/news-and-events/article/africas-middle-class-triples-
to-more-than-310m-over-past-30-years-due-to-economic-
growth-and-rising-job-culture-reports-afdb-7986/
Excluding Libya, where swings in oil production skew the
[iii]
figures over recent years. Africa Development Bank, African
Economic Outlook 2014 and AXCO, Africa report, 2014. Even
including Libya, the insurance market grew faster than the
economy overall, however.
19
2014/09/03 12:36 PM
 Euro DPS
INNOVATION IS AT THE HEART OF EVERYTHING WE DO AND OUR
For thirty years, Europ Assistance SA has been bring-
ing pioneering care and convenience to South
African consumers. We will never stop exploring new
ways to ensure our services remain relevant through-
out all of lifes circumstances. Its why we are so proud
to be the winner of the Most Innovative Stand at the
20
Conf_mag_sep14.indd 20
2014 IISA Conference. Our inventive fun fair theme,
combined games and social media interaction to
ensured visitors were engaged and entertained. Our
stand also presented an original platform to show-
case some of our latest products innovations. On
The House and Roadside Advanced are just two of
INSURANCE CONFERENCE 2014
2014/09/03 12:36 PM
 2014 WINNER OF THE IISA CONFERENCE
MOST INNOVATIVE STAND

Euro DPS

RECENT PRODUCT LAUNCHES SHOWCASES JUST THAT

a selection of new services we have launched as part
of our 30 year milestone celebration. We offer valua-
ble assisted care services across four key care areas -
Home and Family, Automotive, Health, Medical and
Travel as well as Professional & Outsourcing. To find
out how you can benefit from our innovative product
INSURANCE CONFERENCE 2014
solutions, contact our Head of Business Development
on magdelk@europassistance.co.za.
For information on product launches and CSI activa-
tions, visit us on our Facebook, Twitter/CEO Twitter,
Youtube and Pinterest pages.
21

Conf_mag_sep14.indd 21 2014/09/03 12:36 PM

 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Are you prepared
to be the best?
Mike Pritula, from McKinsey & Company,
delivered a talk on Globalisation, Science and
Customer Orientation in the Industry.
In his speech Pritula addressed three themes:
You are competing against the best in the world. Do you
know what they are doing, and can you compete with them?
The industry is becoming more scientific and data driven. Can
you keep up?
Customers expectations and risk profiles are changing. Do
you understand your customers?
Global competitors
Pritula said half of the largest 40 short-term insurers are
multinational. Local South African competitors need to be
more aware of global companies, he said. Global companies
are becoming more global, and competition with these
institutions is on the rise.
Global companies are also expanding more into emerging
markets. Africa is as important a short-term market in terms of
premium growth as Western Europe, said Pritula. He showed
how domestic revenue has declined by almost 30% between
the 1950s and 2013, making way for international revenue.
Where will we be in 2023?
You will compete against the rest of the world, he said.
Science in the industry
Pritula defined advance analytics as:
The techniques used in complex analysis of large amounts of
data, both structured and unstructured, that lead to improved
decision-making, changes to business practices, improved
value to customers, and new revenue sources and new
22
Conf_mag_sep14.indd 22
half of the largest 40 short-term
insurers are multinational.
businesses. These techniques primarily encompass descriptive
and predictive modeling, data-mining, and location and sensor
analysis.
Pritula said South Africa has a sophisticated market in terms
of data but will grow more so. But what is different? Hasnt
analytics always been core to the industry?
A massive wave of new sources of data is coming online, he
said. The growth of the internet, social media, and use of
mobile devices are all coming to the fore. Every year were
creating a few centuries worth of data, he said.
Data is also different now, because of new vendors those
who collect and aggregate data. The cost of transmitting and
storing data is close to zero, he said. The technology to deliver
data insights to the frontline is constantly improving, and
carriers are investing in data technology.
Analytics are being used in every corner of the industry, and
it is important to ask, to whom does your chief data officer
respond? How does your management team address the
topic of data? Savvy management teams should spend time
on where the sources can be used. Companies need a data
acquisition strategy to create a digital eco-system within the
business.
Science and data is here, and it will determine the winners
and the losers in the industry, said Pritula. Managers need to
understand and implement data. So what should management
do?
Identify source of value;
Specify the data;
Build the models;
Embed the data and models in existing processes; and
Promote adoption.
Customer centricity
How carefully thought-through is your customer strategy? How
well do you know your customers? Companies need to adjust
their processes to deliver better service. To do so, they need to
answer the following questions:
Are you aware of all the factors that drive customer loyalty
and consumer retention?
Are you taking advantage of opportunities to bring better
products to your customers?
In conclusion, Pritula said: We need to modernise our
processes. We need to do much better in customer centricity.
INSURANCE CONFERENCE 2014
2014/09/03 12:36 PM
 Africa is open for the
business of insurance
An extract from the presentation of Corneille
Karekezi, Group Managing Director/Chief
Executive Office, African Reinsurance
Corporation, at the 2014 International Insurance
Conference. All presentations are available from
the iiSA.
Since the beginning of the 21st century, the African economy
has been growing in leaps and bounds. Net Foreign Direct
Investment in the continent in 2013 was USD 43 billion.
Around the same time, insurance regulators began to
modify the laws governing insurance to create stronger and
better managed companies operating in a well regulated
environment. Thus todays insurance industry is prepared
to benefit from the insurances of the many massive
infrastructural projects and oil and gas discoveries dotting
Africa.
The development of the insurance business in Africa
requires both individual and collective actions from all
stakeholders irrespective of the sector of the industry they
belong. Opening Africa for the business of insurance is one
key action point.
African Reinsurance Corporation, by virtue of its establishment
agreement, is charged with the responsibilities of fostering
the development of the insurance and reinsurance industry in
Africa, promoting the growth of the national, regional and sub-
regional underwriting and retention capacities and supporting
African economic development. I am pleased to say that Africa
Re, through its diverse foot-print across the continent, has
been able to and will continue to fulfil these responsibilities.
INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 23
It will no
longer be
business as
usual.
However, we must add that the African industry needs the
support of non-African companies (insurers and others)
who will also enrich the insurance climate with their capital,
know-how, experience and innovations. To attract more
foreign investors, Africa must continue to improve its business
environment and build a more inclusive insurance industry.
As this distinguished audience knows, the business of
insurance offers many unique value propositions to discerning
investors either directly or indirectly in the quest for superior
yields and overall accelerated economic growth. Africa as a
continent is currently experiencing impressive growth that
indicates room for significant growth in its insurance sector off
its currently low base (other than South Africa and Mauritius).
Even the regulatory and macro-economic landscape is
improving to facilitate trade and investment and though
opportunities for insurance development and growth abound
in Africa, only the innovative, creative, forward-looking and
customer-centric organisations would survive the impending
competition. It will no longer be business as usual.
In the past, African players seem to have taken a back seat in
the many new investment initiatives. To date, cross-border
investment in insurance is on the rise and should take the
front seat. I can only use this forum to call for a rethink and,
indeed, positive steps to sustain and deepen this trend. I count
on you all to rise up to the challenge and tap into the many
opportunities opening up to discerning investors across the
continent.
This call for action, in a challenging and exciting Africa,
should not be driven only by financial returns but more
importantly by the call of duty to lift millions of people out of
poverty. This is what Africa Re has been established for and
shall continue to pursue.
23
2014/09/03 12:36 PM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Reacting to market needs
Paul Jardine, Deputy Chairperson at Lloyds
of London, kicked off the 2014 International
Insurance Conference with his speech entitled,
Today and Tomorrow our reaction to market
needs.
Jardine identified three global challenges that have an
impact on the local insurance industry.
1. Underwriting should be at the heart of your business.
2. We need to combat underinsurance globally.
3. We need to stay relevant to policyholders and respond to
risks as they unfold.
Jardine said: We have a duty to our brokers to have fair
policies. But, we need to respond to challenges.
The key here is innovation. Jardine articulated the Vision
2025 of Lloyds of London: You cant sit in London and
expect business to come through your doors, he said. We
have to be out there and provide a local service.
Im an African nut
Jardine said Africa promises a huge amount of
opportunities. Im an African nut, he said. The International
Monetary Fund has predicted that the GDP growth in Africa
will grow between 5% and 6%. Jardine said Africa has seen
and will continue to experience robust and sustainable
growth.
This is an exciting time for Africa and the global insurance
industry.
Fast growing doesnt mean easy
However, Jardine cautioned that fast growing doesnt mean
easy. He emphasised the impact that political risks have on
foreign direct investment.
24
Conf_mag_sep14.indd 24
Global underinsurance
There is a difference between economic losses and insured
losses, said Jardine, in reference to the natural catastrophe
pay outs in recent years. We need to do more to get
insurance exposure up globally. Egypt and Nigeria, for
example, are at the same level of underinsurance as China
and India.
South African results showed
that natural disasters and
urbanisation were at the
bottom of their list of fears.
Lloyds Risk Index
The Lloyds Risk Index provides an indication of global
fears of insurers. What is interesting, said Jardine, is that
the South African results showed that natural disasters and
urbanisation were at the bottom of their list of fears. Are
businesses fully prepared for natural disasters? asked
Jardine. Africas urbanisation will soon outstrip that of
Asia, and a range of risks and challenges will ensue. Im
surprised urbanisation is so far down on the list.
Globally there is a fundamental state of ignorance of the
risks of urbanisation. In South Africa the top five risks
are loss of customers, fraud and corruption, currency
fluctuation, strikes and industrial action, and inflation.
The issue of relevance
We need to listen to our customers to stay relevant. We
need to change our products as our client base changes.
We also need to find products to cover the risks that are
difficult to insure.
Promise to pay
Insurance is an intangible product, said Jardine. We
sell a promise to pay. Jardine said speed of payment is
important, especially for small businesses that need to start
operating as soon as possible.
A South African broker told me, its about trust and
relationship. You dont build a relationship on Twitter or
over the phone.
Our job is to provide a solution at the right price.
INSURANCE CONFERENCE 2014
2014/09/03 12:36 PM
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 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Fair advice fair pay
During the second day of the conference Caroline
da Silva (FSB), Michael Blain (Altrisk), Justus
van Pletzen (FIA), and Peter Dempsey (ASISA)
engaged in a panel discussion on the proposed
Retail Distribution Review, set to be released in
August 2014.
Is the FSB going to ban commission?
This is the first question we get asked, said Caroline da Silva.
The answer is no. Were not going to do what other countries
did.
26
Conf_mag_sep14.indd 26
We dont propose to cap the advice fee, she said.
The paper on RDR is set to come out in August, and the paper
will make proposals on the following:
Capped commission;
Uncapped advice fee; and
Binder fees
In making our decisions, we have three options, said Da Silva.
The first is to prohibit outsourcing to brokers; the second is to
carry on as we are with the FSB as the first line of defence; and
the third is to commensuration.
The problem with the third option is that everyone has
different ways to calculate the fees. This will be complex for
the FSB to manage, and could open the door for data issues
and oversight.
FAIS introduced a level of disclosure about who the advisor
works with, and which percentage of work is done, said Da
Silva. However, thats not enough for the customer who need
to understand the nature of the relationship between insurer
and intermediary.
Even though youre independent, many of you only deal
with one or two insurers, especially those with binder
relationship, she said. The consumer needs to understand
this relationship and how it affects the products that they
purchase.
Why does RDR trigger so much anxiety, anger and
fear?
Michael Blain said, Its time to call a spade a spade, as an
industry we need to engage about regulation and work
through it.
We also need to ask the question, Is commission too low?
Blain said, as an industry, we are too addicted to upfront
commission; we need to build more sustainability in the fees
structure.
Wed like to see competition that adds value, not just
competition on price. We want to rewards winners, those
companies that get it right.
Blain highlighted the desired outcomes of RDR
RDR is a framework which strives to:
Promote the value of advice with choice of channels;
Increase value for consumers;
Create transparency in terms of pricing and conflicts of
interest;
Enable competition and innovation;
Hold consequences for the unethical; and
Ensure survival of independent intermediaries.
We are all part of the process
Justus van Pletzen, CEO of the FIA, stood in for Barry Taylor
during the panel discussion.
INSURANCE CONFERENCE 2014
2014/09/03 12:36 PM
 Van Pletzen debunked the myth that regulation is what
happens to the industry: We are a part of the decision making
process, same as with TCF.
RDR not just about intermediation distribution, but includes
the total structure.
We believe that remuneration should be relative to value
added for advice and services, and it should create a
competitive leveling of playing fields between different
business models.
The FIA is guided by the following principles as set out by the
World Federation of Insurance Intermediaries:
Intermediaries have the right to be remunerated fairly.
Market agreements and limiting or imposing means of
remuneration are an infringement of basic free market
principles.
Intermediaries should be allowed to charge fees in addition
to commission with agreement of both parties.
Van Pletzen said it is important that the definition of role
players can be clearly defined. What is advice and what makes
it different from intermediation? What is an independent
service compared to a tied service?
Continued engagement and debate with regulators is
essential, he said. Communication is important to ensure
regulators and insurers do not tar all intermediaries with the
same brush, and vice versa.
Critical success factors
In order for the FSBs Retail Distribution Review to be
successful, the sustainability of the intermediated model
advice, innovation and great service will be indispensible.
Business models need to be adapted to offer efficient and fair
delivery. We need to enhance skills and professionalism within
the industry. Human capital development is the life blood
of our profession. Intermediaries and insurers need to take
accountability for fair play. This is where Treating Customers
Fairly (TCF) plays an important role. We need to ensure that we
dont do away with the principle of free market enterprise.
Positives of RDR
Improving of quality, understanding and value of advice.
Encouraging the adopting of more consumer centric business
models.
Refinement of product offering to meet needs of consumer
and not advisor.
Activity based remuneration model equivalence of reward.
Structured and fair remuneration strengthens the
professionalism of the intermediary.
Negatives of RDR
Exit of skilled practitioners.
Moving from advisors to the direct or tick box models without
advice element.
Fear that prescribed revenues may kill innovation and full
advisory services.
Creation of a further tranche of reporting/controls increased
costs and less focus.
Threat to the common law freedom to contract (advice/value
added fees).
INSURANCE CONFERENCE 2014
Conf_mag_sep14.indd 27
Van Pletzen quoted Adrian Gore, who said: Without great
financial planning, without great financial planners and
without brilliant financial advice, people will fail in their
financial affairs.
The advantages of RDR will see fair remuneration for
activities performed and value added. Those playing outside
of the field will have to align to best practice, and RDR will
allow for a fair and transparent regimen of cost and charge
structures.
The challenges will be to design a model to cater for diverse
activities, because as we have seen, one size does not fit
all. RDR holds a potential threat to consumer where service
delivery is compromised by prescribed remuneration.
The biggest challenge would be to prevent a mass exodus of
knowledge and experience, as weve seen happening in the
UK:
25% of firms exiting the market, with a 50% decline in the
number of advisors;
50% took tick box approach to compliance;
25% capitalised on RDR as an opportunity; and
There was a 30% increase in direct to consumer platforms.
RDR will affect everyone in the value chain
Peter Dempsey, Deputy CEO of ASISA, asked, Why dont
people save?
Its easier to borrow money.
Some people live off the financial grid.
Dempsey said a lot of people live off the financial grid and
therefore dont save or not in the way we think they save.
There are 800 000 stokvels in SA, so dont assume people are
not saving, he said.
Some people dont see the future or care about future self. A
lot of people have a low life expectancy.
Do it yourself financial plans dont work.
Saving is an attitude; people dont want to defer
consumption.
Its more difficult for people to save with a plethora of choice,
said Dempsey.
Dempseys second question was: why dont people buy
insurance?
Insurance is not a legal requirement, and there is no current
benefit to it. People have an inherent fear of death and loss,
said Dempsey. People misunderstand and misprice the
risks, he said, and this calls attention to the issue of complex
products.
We live in an information age, said Dempsey. Facts are not
enough to change behaviour.
Dempsey said that the left brain is used to think, communicate
and to know, whereas the right brain is used to feel, connect,
and believe.
Sound decision making needs an integration of left and right
brain, he said. The advisors role is important in integration
and encouraging people to think about the softer side of why
you should save.
27
2014/09/03 12:36 PM
 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Striving towards Africas
sustained growth together
A.M. Best has released a report in March 2014
entitled, Africas insurance markets: Gearing
up for sustained growth. The report was the
starting point for an animated Round Table
discussion during the 2014 International
Insurance Conference, hosted and facilitated by
Allianz Global Corporate & Specialty Africa.
Delphine Maidou, Allianz Global Corporate & Specialty Africa,
represented the insurers point of view; Corneille Karekezi,
Africa Reinsurance Corporation, provided a reinsurers
perspective; and Simon Chikumbu, Aon Benfield, spoke from
the brokers experience.
Maidou said that Allianz has been working closely with Africa
Re and Aon Benfield to build Africa through team work and
partnerships. This is our perspective of whats happening on
the continent, she said.
African empowerment through partnerships
Chikumbu said the growth as highlighted by the A.M. Best
report is partly fuelled by the economic boom, brought
about by the discovery of oil and gas. Kenya is the centre for
advancement; in West Africa Nigeria is a major player, he said.
Yet, despite the continents increased growth, most big risks
tend to go overseas. We need more knowledge to underwrite
special risks, he said, especially in areas where foreign
markets tend to dominate, such as aviation and cyber crime.
He elaborated on Africas challenge. The lenders who provide
money for the building of much needed infrastructure tend to
prescribe how insurance is done. This is detrimental to local
business, said Chikumbu. The risk is African, but the insurer is
European. China is also very active in Africa, and lending and
insurance are arranged in China.
Karekezitold the tale of how Africa Re was created in 1976 by
36 state governments signing an agreement to support each
other. The African Development Bank envisioned a reinsurer
that would cover the entire continent and retain maximum
28
Conf_mag_sep14.indd 28
premiums on the continent. At the time Europe laughed at the
undertaking: What do you know about insurance? Today more
than 100 insurance companies from 41 member states form
part of the organisation.
Nothing can stop the train, he said in reference to the growth
in Nigeria. Nigeria has money in oil, youth, education, health
systems and infrastructure. In Angola, all factors point to
sustainable, long lasting growth. Innovation doesnt just come
from Europe, he said.
African empowerment is very important, said Karekezi.
To enable this empowerment we need knowledge and the
retention of expertise and know how.
Learning and growing together
Maidourecognised the support their respective companies
have received from one another in their day to day business.
We could not have done it without this partnership, she said.
Weve heard a lot of top down views at this conference. We
are the ones on the ground, digging.
There are cultural differences within countries, said Karekezi.
We should develop another model of dealing with individual
cases within different countries.
We need to work together to keep the premiums here, to get
and keep the technical knowledge here, said Maidou.
We need more people like Allianz, said Chikumbu. Theyve
set up businesses in Africa, and we are learning from each
other. Together we can use the knowledge and expertise
garnered from Asia, Europe, and Africa.
There are so many things we can do together, said Karekezi.
Maidou concluded that it is important to partner with people
who understand local business. Its important to build
relationships in Africa, she said. You cant run Africa from
South Africa you have to go there.
INSURANCE CONFERENCE 2014
2014/09/03 12:36 PM
 Were evolving.
Making things better,

for you.

We are proud to announce our brand new logo, which

has been redesigned to represent the latest updates in
our technology, and to visually convey what Genasys
Technologies is all about. Your Partner in Insurance Software

Developing and supporting world class software

www.genasys.co.za Genasystech @genasystech for the Insurance Industry.

Untitled-1 1 2014/09/03 12:16 PM

 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014

Exhibitors strut their stuff

The industry put its best foot forward, with strong
contenders for the coveted title of best exhibition
at the International Insurance Conference 2014.

The most innovative exhibition was Europ Assistance,

where the fun was never to be missed, especially not by the
more athletic COVER employees. Congratulations to Europ
Assistance on their big win, and for setting the bar high for
next years exhibitors.
Mutual & Federal was by far the most interactive exhibition
at the conference, and was crowned as such by the industry.
During the two days the M&F stand was teeming with
delegates going in and out for delicious coffee and cocktails,
or signing up for a personalised cellphone cover.
The highlight of the second day was having your selfie drawn
by South African illustrator Martinus van Tee, who is also
responsible for our front page art. Thank you, Martinus and
Mutual & Federal!
We cant wait to see what the industry will come up with next
year!

30 INSURANCE CONFERENCE 2014

Conf_mag_sep14.indd 30 2014/09/03 12:36 PM

 INSURANCE CONFERENCE 2014 31

Conf_mag_sep14.indd 31 2014/09/03 12:36 PM

 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014

Haunted mansion
rocks the conference
You get parties, and then you get Tracker parties.
The Monday evening saw all kinds of creatures of
the night come together for a fabulous time!

32 INSURANCE CONFERENCE 2014

Conf_mag_sep14.indd 32 2014/09/03 12:37 PM

 INSURANCE CONFERENCE 2014 33

Conf_mag_sep14.indd 33 2014/09/03 12:37 PM

 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
COVER and Allianz
award industry maestros
On the final evening during the stunning
Allianz Gala and COVER Awards dinner, COVER
announced the truly worthy recipients of our
annual COVER EXCELLENCE Awards.
The COVER EXCELLENCE Awards recognise individuals for their
extra-ordinary effort and dedication to an industry aimed at
improving the financial security of the person at the heart of
our operations: the client.
These awards acknowledge individuals who have made a
significant contribution to the effectiveness and reputation of
our industry.
The winners of the 2014 COVER EXCELLENCE Awards
Rene Otto 2014 Lifetime Award for excellence in service to
Short-term Insurance
Suzette Olivier 2014 Award for recent excellence in service
to Short-term Insurance
Adrian Gore 2014 Lifetime Award for excellence in service to
Life Risk
Peter Atkinson 2014 Award for recent excellence in service
to Life Risk
Louis Fivaz 2014 Lifetime Award for excellence in service to
Underwriting Management
34
Conf_mag_sep14.indd 34
Mitch Marescia 2014 Award for recent excellence in service
to Underwriting Management
Willem Theron 2014 Lifetime Award for excellence in
service to the Intermediary Environment
Gavin Came 2014 Award for recent excellence in service to
the Intermediary Environment
Junior Ngulube 2014 Lifetime award for excellence in
service to the Reinsurance Industry
Congratulations to all the winners and thank you for your
important contribution to our industry. Find out more about
the recipients and their dedication in the August issue of
COVER.
Thank you to the Insurance Institute of South Africa for
hosting yet another magnificent International Insurance
Conference.
As Delphine Maidou (Allianz), Corneille Karekezi (Africa Re)
and Simon Chikumbu (Aon Benfield Africa) emphasised
during the much anticipated Allianz Round Table yesterday,
to be a sustainable industry we need to share knowledge and
pool expertise, and we did just that once again this year. Read
more about this fascinating discussion on Africas sustained
growth in the COVER Conference Magazine.
Finally, thank you to every single person who makes our
industry great. We hope to see you again next year.
INSURANCE CONFERENCE 2014
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 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014

Welcome to the conference!

Delegates made themselves right at home on the
Sunday night during the AIG cocktail evening.
Food and wine, games and song, the first evening
started out strong!

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 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014

Taking a break from business

The business of
insurance is insurance,
but we also made time
for fun.

On the Sunday before the

official opening of the
conference, industry golfers
tested their handicap on the
Gary Player Golf Course and at
the Lost City Country Club.
The golf day was sponsored by
Hollard Insurance.
Avid cyclist braved the wind
and peddled to Sun City for
Centriqs Tour de Confrence.
The distances travelled were
81 km and 169 km. COVERs
own Taryn Kerr accepted the
challenge, and still had energy
for the remaining two days of
work.
Heres to a game well played
and a job well done!

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 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014

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42 INSURANCE CONFERENCE 2014

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 INTERNATIONAL INSURANCE CONFERENCE SOUTH AFRICA 2014
Training for success
How AIG creates insurance value
Author and speaker Malcolm Gladwell said
it takes 10 000 hours of practice to become
proficient at any given task. Training is an
essential component of success and thats a
maxim AIG takes to heart and puts into practice
with the AIG Academy.
AIGs Academy is designed to share AIG knowledge, skills
and insights with brokers and business partners, said Wayne
Abraham, managing director of AIG Africa.
We are acutely aware of the skills shortage in South Africa
and more particularly in Africa as a whole and offer an
annual curriculum which provides technical skills training,
covering topics from key products, legal, regulatory issues
and administration issues, and on to advanced skills, such as
management and entrepreneurship, Abraham explained.
Pointing out that insurance value is more than the products
which offer risk mitigation across a wide range of assets and
situations, he said the ability for brokers and partners to
work with their customers to deliver appropriate solutions is
essential.
Thats where training to impart the necessary skills is
indispensable. When products are combined with the skill of
individuals, customers benefit from insurance which protects
them from the changes of the modern world.
44
Conf_mag_sep14.indd 44
Abraham said there is no one size fits all for training in the
insurance market, as partners and brokers are a diverse group
with differing skills levels and different requirements. Training
is tailored to the needs of individual business partners and
supported by summaries reinforcing the learning points and
providing future reference material, he said.
The content of the curricula provides specific insurance
product training, as well as general skills like sales
and entrepreneurship, negotiation skills, constructive
communication and presentation skills. Modules deal with the
legal and regulatory frameworks applicable to the insurance
industry.
All training is validated by course certificates, and in South
Africa attendees are awarded CPD points by the IISA (Insurance
Institute of South Africa) for each of these courses. The AIG
Academy is a proven international concept, with established
best practices resulting from our experience in delivering
quality training throughout Europe and Africa, said Abraham.
By providing training for individuals, the broker and partner
network has access to quality learning which helps create
the much needed skills which are essential to working
constructively with customers to gauge the risks they face, and
deliver the appropriate insurance solutions to mitigate those
risks. The idea behind the AIG Academies is to support our
partners in going beyond insurance to delivering insights and
knowledge. When insurance brokers can engage with clients
on this basis, it provides the ability to strengthen competitive
positioning to win and retain more business, he concluded.
INSURANCE CONFERENCE 2014
2014/09/03 12:37 PM
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Untitled-1 1 2014/09/03 12:18 PM

 ZURICH INSURANCE COMPANY SOUTH AFRICA LIMITED

15 Marshall Street, Ferreirasdorp, Johannesburg, 2001

PO Box 61489, Marshalltown, 2107

Registration No. 1965/006764/06

Authorised Financial Services Provider No. 17703

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