Hidden protection: kidnap and

ransom insurance

Issue 06 October | November 2012I S S N 1 8 1 2 - 5 9 6 4

When life happens

AIG looks to Africa

3riskAFRICA

It’s hard to believe that this is the penultimate issue of RISKAFRICA in 2012. The year has flown by at breakneck speed and has certainly been an eventful one for the African insurance industry. In this issue we throw a spotlight on the Southern African Insurance Industry Conference that took place in Botswana in August. The conference was the first of its kind on the continent and saw delegates from the SADC region and Europe descend on Gaborone. Feedback has been positive and it’s encouraging to see so many individuals and organisations taking ownership of the future of insurance in Africa.

This month’s feature article on Namibia’s retirement fund industry was written after we

received e-mails from industry commentators that raised some serious concerns and difficult questions about the sector. As the FIM Bill’s implementation draws near, it seems that many have grown disillusioned with the protection offered to members of retirement funds in our country. This has been highlighted recently by the ongoing court case involving a prominent retirement fund and fund administrator.

In an uncertain world, the protection and provision offered by insurers for unforeseen events and future realities is invaluable. The integrity of this should be fiercely protected and we look forward to bringing you more on this story as new developments unfold. If you’d like to share your thoughts on the matter, please e-mail editor@comms.co.za.

Enjoy the read.

Andy Mark - publisherPublisher & editor in chief

Andy Mark

Managing editorNicky Mark

Copy editorMargy Beves-Gibson

Feature writersBianca Wright Hanna Barry

Nicholas Krige

Art directorGareth Grey

Design and layoutHerman Dorfling

Vicki Felix

10 Old Power Station Building Cnr of Nobel & Armstrong Street

Southern Industrial Area Windhoek Namibia

Editorial enquiriesinfo@riskafrica.com

Advertising and salesMichael Kaufmann | michaelk@comms.co.za

Tel: +2721 555 3577 | Fax: +2721 555 3569 Tel: +264 61 400 717

THE RISKAFRICA MAGAZINE PUBLISHER CC

RISKAFRICA is published by

Copyright THE RISKAFRICA MAGAZINE PUBLISHER CC 2012. All rights reserved.

Opinions expressed in this publication are those of the authors and do not necessarily reflect those of the Publisher, Cosa Communications (Pty) Ltd, COSA Media, and or THE RISKAFRICA MAGAZINE PUBLISHER CC. The mention of specific products in articles or advertisements does not imply that they are endorsed or recommended by this journal or its publishers in preference to others of a similar nature, which are not mentioned or advertised. While every effort is made to ensure accuracy of editorial content, the publishers do not accept responsibility for omissions, errors or any consequences that may arise therefrom. Reliance on any information contained in this publication is at your own risk. The publishers make no representations or warranties, express or implied, as to the correctness or suitability of the information contained and/or the products advertised in this publication. The publishers shall not be liable for any damages or loss, howsoever arising, incurred by readers of this publication or any other person/s. The publishers disclaim all responsibility and liability for any damages, including pure economic loss and any consequential damages, resulting from the use of any service or product advertised in this publication. Readers of this publication indemnify and hold harmless the publishers of this magazine, its officers, employees and servants for any demand, action, application or other proceedings made by any third party and arising out of or in connection with the use of any services and/or pro-ducts or the reliance of any information contained in this publication.

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Dear Reader

CONTENTS

Andy Mark

Vulnerable investors? Namibia’s retirement fund members

More of the same or something different?Medical schemes in the SADC region

Country profile: Mozambique

When life happens

AIG looks to Africa

Profile: Quinton van Rooyen, MD, Trustco Group Holdings

Insurers target Africa for growth and margins

Hidden protection: kidnap and ransom insurance

News

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4 riskAFRICA

• Retirement funds

Hanna Barry

Vulnerable investors?

Namibia’s retirement fund members

4 riskAFRICA

5riskAFRICA

In instances where service providers have made mistakes,

resulting in damages to members, members are

excluded from the minimum information required to assess

whether legal action is appropriate.

The Financial Institutions and Markets (FIM) Bill has received much coverage in the Namibian press over the past year or so. A revised legislative framework, the FIM Bill aims to enhance prudential standards in the financial services industry and address certain weaknesses in the current laws.

In a recent press release, the Namibia

Financial Institutions Supervisory Authority

(NAMFISA) states that, “Through these

prudential standards, NAMFISA aims to

promote prudent behaviour by financial

institutions and ensure that the risk

they take is within reasonable bounds, clearly

identified and well managed.”

The question that immediately springs to mind

is which financial institutions and sectors require

the most significant enhancement of their

prudential standards? Well, the retirement fund

industry has come under fire recently, especially

the lack of protection that exists for members

of the system. The ongoing saga of one

particular retirement fund has been reported

on in Namibia over the past few years and is

just one example of potential ill-protection.

While the jury is still out on this specific case, it

nonetheless raises some difficult questions and

dangerous possibilities.

Are members protected?

Currently engaged in forensic investigations of the

retirement fund industry, forensic investigators,

ISG Risk Services, say that a substantial lack of

member protection exists and will continue

to exist when the FIM Bill is implemented.

According to the company, the laws that restrict

members’ access to information place them at

substantial risk of not being able to look after their

own interests. As it stands, members can access

rules and financial statements only. Additional

information, such as fund performance data, is

inaccessible to members and improved access

to information will not be entrenched in the FIM

Bill. A qualified lawyer, certified financial planner

and partner at ISG, Eben de Klerk, says that

without this data, there is no way that members

can know whether their benefit calculations are

correct, therefore ensuring that their rights are

properly protected. “In instances where service

providers have made mistakes, resulting in

damages to members, members are excluded

from the minimum information required to assess

whether legal action is appropriate,” notes De

Klerk, referring to a case in which it was found

that the retirement benefits of fund members

were incorrectly calculated.

In this instance, it appears that there was an

incorrect calculation of the actuarial reserve

values (ARV), which entailed the mistaken

exclusion of fund members’ 13th cheques, when

the fund switched from a defined benefit to a

defined contribution fund in January 2000. If

proven, this error has caused the fund to suffer

damages of an estimated N$50 million. The

fund’s administrator denies the allegations and

after conducting an independent investigation,

NAMFISA was satisfied that no such mistake

occurred. However, after additional information

was provided to the regulator, it has since

undertaken to conduct further investigations.

“NAMFISA refused to provide us with its

initial report, even after we approached the

ombudsman, who subsequently requested

the report from NAMFISA. What’s more,

during the investigation, neither NAMFISA nor

the investigators made any attempt to obtain

from ISG any of the source documents or

explanations on which our calculations and

conclusions are based,” explains De Klerk.

“This reflects an obviously one-sided approach

because the investigators were provided with

information by the retirement fund or the fund

administrator only, without the complainants

or their legal practitioners, ISG, having any

opportunity to provide evidence, input or

explanations as to how we arrived at the

conclusion that members’ benefit calculations

were wrong.”

De Klerk feels that instead of assisting members,

NAMFISA has in many cases proven to be an

additional obstacle to member protection.

And he doesn’t foresee this changing under

the proposed FIM Bill. “The current section

30 (proposed section 49) of the NAMFISA Act

has in the past been interpreted by NAMFISA

as stipulating that it can provide no information

to a member of a fund, other than the rules

and financial statements. This is also based

on a misinterpretation of section five of the

Inspection of Financial Institutions Act 38 of

1984,” he notes.

Section five states that after completing

their inspection, an inspector shall submit a

report to the registrar, who will then submit

a copy to the financial institution concerned.

“NAMFISA interprets this as meaning that they

are prohibited from providing a copy to the

consumer. This is true even in cases where

members have complained and the information

in question was obtained by the regulator as

a result. NAMFISA is aware that members

are unable to make benefit calculations if not

provided with their member data. Refusing such

information disables members to look after their

own interests and enforce their own rights,

especially when the report is given to the exact

same trustees who could be infringing on these

rights. In the case of one retirement fund, the

6 riskAFRICA

members are not privy to NAMFISA’s report,

which was commissioned on the basis of their

complaints. We don’t even know what the scope

was of what was investigated, which is why we

are now taking the investigated parties to court.”

Pressure from the regulator led the fund in this

matter to eventually provide the NAMFISA

report to ISG. However, it contains none of the

data or information upon which the report’s

findings are based. And De Klerk says that

judging from the report, the scope of NAMFISA’s

investigation was not well-managed and

sufficiently focused. For instance, the conversion

values that would indicate whether a benefit

miscalculation was in fact made are not included.

This information has been refused to ISG and

NAMFISA from day one. “Despite this being a

criminal offense, NAMFISA is not taking any steps

to address this and didn’t reply to a letter we

sent them on the matter in June last year,” says

De Klerk. It is not known or understood why

the trustees would refuse even the regulator the

conversion values.

ISG is currently acting on behalf of 160 members

of this fund, who are taking the risk upon

themselves in taking this matter to court, as

they will be liable for any charges if ISG does

not win the case. The defendants have raised

numerous interlocutory applications and their

strategy is clear. “NAMFISA does not understand

the vacuum they create for consumers in

this regulatory regime. It simply does not get

involved, despite having massive investigative

powers,” remarks De Klerk. “Our concerns are

around access to information. Most people have

no financial means to enforce their constitutional

rights should they want to access information

in the hands of the institutions created for that

purpose, one of these being NAMFISA.” If it

insists on withholding information for reasons

of the protection of personal information or

intellectual property rights, De Klerk says

that it must then be accountable for errors.

However, he adds that in terms of the proposed

legislation, it cannot be. “New regulatory laws

remain futile if members are refused access

to information by funds, service providers and

NAMFISA alike, while a blind eye is turned to

possible misdealing by the regulated funds and

administrators. If it insists on claiming that it has

no locus standi in a matter, as is often the case,

then it must be established who does in fact

have locus standi and is able to resolve matters

on behalf of consumers.”

He adds that another major problem is instances

in which a fund administrator acts as both

administrator or actuary and consultant to the

fund’s trustees. This exhibits a clear conflict of

interest and could lead to smeared information

being provided to the trustees. ISG has tried

in vain to hold a meeting with the trustees of

one particular fund to discuss its findings and

explain the importance of receiving the original

figures and information from the service provider

that was responsible for the fund at the time

of conversion. In fact, one of the reasons it

asked NAMFISA to investigate was because

after approaching the trustees of the fund with

its concerns and findings, they did nothing

meaningful to protect their members.

This raises further uncomfortable questions

about the role of trustees and service providers,

and not only the regulator, in our retirement

fund industry. De Klerk is not the only person

involved in the sector who is concerned about

the protection afforded fund members. Tilman

Friedrich, managing director of Retirement Fund

Solutions (RFS), a leading Namibian pension

fund administrator, says that retirement fund

members may be worse off today than they

were before the switch from defined benefits to

defined contributions.

Compromised advice

Before the switch from defined benefit to

defined contribution funds, funds were not

required to be audited or prepare annual

financial statements and were not managed by

a board of trustees. “Those were the good old

days for insurers, who had the market wrapped

up and could do whatever they wanted without

fear of being questioned. Namibia’s impending

independence provided a convincing argument

to advisers to have the insurers’ shackles

broken,” says Friedrich.

At independence, most funds were liquidated

and members could either take their money

or transfer it into one of the new funds. These

were established as defined contribution funds,

with boards of trustees placed in charge of the

New regulatory laws remain futile if members are refused access to information by funds, service

providers and NAMFISA alike, while a blind eye is turned to possible misdealing by the regulated funds

and administrators.

22118_NAMIBIA "Good And Proper" 130x175.indd 1 2011/10/07 1:49 PM

business of their fund. “Funds had to prepare

audited annual financial statements and were

free to choose all of their service providers. The

risk of poor investment returns was transferred

from the sponsoring employer to the member,”

continues Friedrich. He is sceptical of whether

the newly appointed boards of trustees were

capable of managing the affairs of their fund, both

then and now. In fact, since many of them are so

burdened by running their own businesses, he

thinks that advisers have quietly taken control of

these funds. “Advisers have since done a great

job of continuously developing and inventing

new products and services, in an attempt to

broaden their product offering and build their

business,” he remarks. This has created an

environment prone to conflicts of interest and

dubious practices, fundamentally questioning the

integrity of the industry.

“What complicates matters is that even

the regulator has to get to grips with the

technicalities of many of these products and

services and the hidden interests of their

sponsors,” he continues. “The regulator needs to

critically assess whether practices are in the best

interests of members, but reacts by imposing

increasingly onerous requirements on the

industry, accelerating a move towards umbrella

funds.” This does not solve the issue around

the control that product providers maintain

over funds, which often leads to unnecessarily

complex arrangements in pension funds, akin

to retail arrangements. These arrangements

do not have enough of a positive impact on

members’ returns to justify the incumbent costs.

“I suspect that members today in many instances

are significantly worse off in terms of benefits

received for every Dollar invested in the system,

as the result of the self-interest of their advisers,”

concludes Friedrich.

Ombudsman the solution?

The complaints adjudicator has been removed

from the FIM Bill and renamed the Financial

Services Ombudsman. According to a statement

from NAMFISA, “The functions of the complaints

adjudicator, as an adjudicator for consumer

complaints from regulated financial institutions,

may be expanded to include complaints from

non-regulated financial institutions (other parastatals

providing financial services). The development of

the legal framework for the complaints adjudicator,

now renamed the Financial Services Ombudsman,

will be co-lead with the Bank of Namibia.” Based

on this statement it seems that the ombudsman

could provide greater regulatory rigour. However,

the industry has not yet seen the Financial Services

Ombudsman Bill.

A lack of consumer protection is a concern in

any society. And it does seem that we have

some way to go to ensuring that our retirement

fund members enjoy the protection that must

accompany affairs as serious as these. While

some of the issues raised in this article have

been posed to NAMFISA, it was unable to

respond before our print deadline. We hope to

bring you a response from the regulator in an

upcoming issue.

The regulator needs to critically assess whether practices are in the best

interests of members.

8 riskAFRICA

T he first critical illness insurance product was launched in 1983 in South Africa and is now used worldwide. Dr Marius Barnard, brother of world-renowned heart surgeon Christiaan Barnard, became frustrated watching patients’ financial struggles and designed a product that provides a lump sum payment to a

policyholder facing cancer, a heart attack, stroke and a range of other diseases that vary by contract. It can also provide the financial means to pay for the trauma counselling that so many patients face as a result of battling a critical illness.

Critical illness, such as cancer, can touch even the healthiest of people. When life happens, insurance can carry the astronomical medical costs and provide support for the aftermath. However, deciding which type of critical illness cover is most suitable for your client and ensuring that the insurance company has no grounds on which to void a claim, can prove challenging.

When life happENSAnton Pretorius and Hanna Barry

• Life

9riskAFRICA

According to the South African Depression and Anxiety Group, between 20 and 30 per cent of all cancer patients are diagnosed with depression. This makes it twice as hard to cope with performing everyday tasks. It is times like these that a risk benefit, which gives patients access to excellent medical assistance, can prove invaluable. Major expenses are an added weight on your client’s shoulders and make recovery that much harder.

Beyond the big four

Ian van der Walt, broker manager at Momentum Namibia, says that the insurer does not focus only on the ‘big four’, i.e. cancer, heart attacks, strokes and coronary artery by-pass grafts (CABG), but believes in breadth of cover.

“Our studies reveal that 40 per cent of claims in Southern Africa are outside the big four, so that is the reason why Momentum offers a broader spectrum of cover,” says Van der Walt. These include illnesses such as connective tissue disease; musculoskeletal, gastrointestinal and respiratory disorders; accidental HIV/Aids; major burns; visual impairment; and trauma.

However, figures quote the big four as making up between 70 and 90 per cent of all critical illness claims in Africa. In 2008, these illnesses made up 93 per cent of Old Mutual Namibia’s critical illness claims. Gim Victor, chief executive officer of Old Mutual Life Assurance Company in Namibia, says that the insurer’s Greenlight Care 4U risk product does not differentiate between mild and more severe illnesses, acknowledging that any critical illness needs 100 per cent cover. Accordingly, this risk product pays out 100 per cent at all severity levels for the four core illnesses.

Old Mutual’s Greenlight offers core and comprehensive options on its severe illness benefit. The severe illness (core) benefit covers the most common severe illnesses at 100 per cent of the cover amount. The severe illness (comprehensive) benefit covers the core events, plus a comprehensive list of severe illnesses at 100 per cent of the cover amount. In addition, it offers support centres that connect clients with a network of assistance.

Tiered vs. comprehensive cover

There is an ongoing debate over whether tiered or comprehensive critical illness cover is preferable. Many life insurance companies argue that it’s important to have 100 per cent cover at mild severity levels of the critical illness. If your client suffers from cancer for instance, it is often when the most aggressive chemotherapy treatment is applied to the

mildest form of the disease that the chance of survival is greatest. Comprehensive treatment of the disease in the early stages is more likely to prevent it from progressing further. However, the flipside of this is that tiered cover may be more affordable and offers at least some cover, rather than none at all.

In Old Mutual’s case, while comprehensive cover is generally preferred by clients, affordability considerations do make some customers prefer the core cover option. Both offer 100 per cent cover at all times, but the core option covers the big four only. Victor says, “It is interesting to note that the illnesses covered under the core benefit collectively account for 89 per cent of all Greenlight severe illness claims, which ensures that even under a tiered benefit, a customer is covered for most of the severe illness events.”

Rather than paying out 100 per cent of the cover on diagnosis and allowing the client to invest the money as they choose, tiered cover leaves the client’s money with the insurer. Tiered benefits typically pay between 25 and 100 per cent, depending on the severity level of the illness. For example, most tiered benefits pay 25 per cent for a level D heart attack, cancer and stroke; level D being the least severe level of illness.

Momentum’s benefits are structured as tiered. Van der Walt says that from a cost perspective, tiered cover makes more sense to both the policyholder and the insurer. “Tiered benefits mean that the claim amount paid is based on the severity of the event. Benefits do not necessarily fall away after the first critical illness claim. Multiple claims are therefore possible,” says Van der Walt.

Should your client develop an early stage of disease, a benefit commensurate with the effect on their lifestyle would be paid out, leaving the remainder of the benefit intact. Should the illness worsen, a further benefit would be payable. This allows for further claims for more serious illnesses rather than paying out the whole benefit immediately and leaving nothing should another claim arise. The remaining benefit is therefore intact and continues to grow with benefit increases every year. The upside of this is that lower pay outs for lower severity illnesses prevent an incident in which large pay outs are made for an illness from which a person may make a full recovery and therefore not require such a large lump sum on diagnosis.

However, it could be argued that comprehensive cover offers clients greater peace of mind and significant resource when they need it most.

Our studies reveal that 40 per cent of claims in Southern Africa are outside the big four, so that is the reason why Momentum offers

a broader spectrum of cover.

10 riskAFRICA

Rejected claims and the adviser’s role

To recommend the right cover, a

broker or financial adviser must assess

their client carefully, as risks vary from

consumer to consumer. If your client

has a family history of heart disease, for

instance, look at what is covered for

heart attacks. In terms of lifestyle, if your

client is overweight, a smoker and unfit,

they are at risk of heart disease and a

stroke. It is all about establishing where

your client’s main risk lies and what

cover is available for that.

When it comes to claiming, exclusion

and non-disclosure are the two primary

reasons for non-payment by insurance

companies. A client may try to claim for

a benefit that was excluded upfront at

the underwriting stage. For instance, if

the client has had cancer before taking

out critical illness cover, cancer may be

excluded in their particular policy. Advisers

must make their clients aware of this.

Illnesses causing functional impairment,

such as Parkinson’s and Alzheimer’s, can

also cause non-payment. The diagnosis

The besT of boTh worlds?

Momentum gives clients the option of elevating the

50 and 75 per cent claim event of a comprehensive

critical illness benefit to a 100 per cent payout. This

could avoid a situation where a client cannot afford

comprehensive treatment at a milder stage of an

illness’s progression, resulting in a more aggressive

form of the illness developing. While the premium is

slightly more expensive than a benefit option that does

not offer this flexibility, this does give the consumer the

choice to elevate cover, which is valuable.

of such illnesses is made only once the condition is viewed as

permanent and irreversible, which is often at an advanced stage

of the disease. The problem is that functional impairment cannot

be measured before the condition has been optimally treated

and stabilised and it can be said without doubt that no further

improvement is expected. However, many patients realise

this only at claims stage and have to wait until their functional

impairment has reached the level as defined in their particular

critical illness policy before they are paid out.

Non-disclosure is one of the most common reasons for non-

payment. A client may fail to reveal something about their medical

history or their family’s medical history. Alternatively, clients may

not think that a seemingly banal piece of information, such as that

they are taking blood pressure tablets for instance, can make a big

difference to how their potential risk is assessed. It is critical that

financial advisers ask as many of the right questions as they need

to, and ensure that clients understand the questions clearly and

answer them truthfully.

A client may fail to reveal something about their medical history or their

family’s medical history.

12 riskAFRICA

• Profile

Quintonvan Rooyen, MD

In 1992, Quinton van Rooyen bought an indebted company for N$100. He has since

transformed the company into a successful and expanding enterprise. Now managing

director of Trustco Group Holdings, Quinton shares his unique outlook on business, his passion for family and his dreams for the

future of Trustco Group Holdings.

Trustco Group Holdings

13riskAFRICA

What made you decide to buy Trustco in 1992?

I wanted to make a difference in my life and

the lives of others. As I progressed through my

education, I learnt that while it pays to work

for institutions and others, it is important to

always hold your life in your own hands. Being

independent thinkers, my family and I often

think outside conventional business models.

We bought Trustco in 1992 because we saw an

opportunity for business calling, and we were

confident that our ideas would pay off. Now, we

have to sustain that level of thinking.

You exited the legal sector shortly after completing your law studies. Have you found your law degree useful since then?

Yes, I have found my legal studies extremely

helpful in whatever I do, whether it is in my

private or formal life. Law is an intriguing field

of study. It applies to everyone and everything.

However, as I progressed through life and got

exposed to global economic interactions and

trends, I realised that there is more to life than

the legal profession. In fact, the legal profession

depends largely on economic prosperity to thrive.

Since 1992, Trustco has managed to maintain growth in difficult economic circumstances. To what would you attribute the group’s success?

Our growth has been a function of

determination, clarity of thought and hard work,

but also our capacity to invent non-conventional

methods of conducting business. For instance,

we do not believe that having huge office space,

regimenting status or staff wearing expensive

attire has any progressive bearing on the balance

sheet. We have a lean model of organisational

management that is performance driven, with

all employees subscribing to the growth of the

company by meeting targets.

This is what drives us and makes us tick: the

self-conscious capacity to understand the need

for objectives, the wisdom of setting targets

and the benefits of meeting those targets to

help the company grow. Our growth as a

company has been driven by these principles,

and all our employees understand the meaning

of targets and the relationship between targets

and predictable income at the end of the

working period.

What about your own success? You were voted Business Communicator of the Year 2003 and second Most Admired Business Personality of the Year 2007 and, have certainly built an impressive profile.

I have always appreciated what others say about

me, be it negative or positive, for I have learnt

much from this exposure. However, my ability

to leave a positive impression in the public eye

has resulted from a collective effort by fellow

travellers in the journey of building our business.

I am therefore highly indebted to all whom I have

worked with at Trustco.

Listed on the JSE Africa Board in 2009, Trustco has major plans for its Africa expansion. How has the listing aided these plans and what African countries has the group set its sights on next?

We were the first company to list on the JSE

Africa Board, and we did not regret the decision,

as it was rooted in foresight. Our move to the

JSE Main Board was the culmination of the

realisation that African companies cannot function

in isolation, but should compete with South

African and global companies on a world-class

platform, the JSE. We are proud to have made

these strides.

The listing served as a shot in the arm as we

were able to rub shoulders with the best in

business the world has to offer. This further

expanded our horizons and enhanced our

capacity to move forward with our plans to the

centre of Africa and beyond. As we speak, we

are expanding our services to African countries

like Ghana, Nigeria, Kenya and others. Africa has

its own rhythm and we must move along or lag

behind. This trend has taken root on the horizon

of new business developments and we intend to

stay on course.

At the end of March 2011, Trustco Mobile boasted 1.6 million registered customers across Zimbabwe. What are some of the challenges of distributing through mobile?

Zimbabwe was a learning curve and we regard

it as a success in terms of speed of uptake

and commercialisation aspects. The contract

expired in March 2012, at its peak with 1.8

million customers. The positive side is that our

experience in Zimbabwe lead us to modify the

product offering for simplicity.

How would you describe your management style?

I guess I would say unconventional and people-

focused. We are not managing institutions

driven by public policy manifestations, but rather

business projects driven for results. Our methods

are tailored to achieve our results as articulated

in our objectives, the targets we set and the

extent to which we reach our targets. This

unconventional model in corporate management

sustains open-mindedness in the company and

creates complex awareness among stakeholders.

Being the MD of a large company can be taxing on an individual’s personal and family life. How do you maintain a balance?

It is indeed taxing and challenging and you are

under pressure to strike a balance at all times.

We are fortunate in that this is largely a family

company and everyone feels the obligation to get

involved and understands the pressure on others.

This pulls us together as a family, and we strike a

balance by sticking together as a family. This has

been a blessing.

Do you encourage your kids to follow a career in the insurance industry?

My eldest son graduated from university and is

already sucked into the throes of the company,

being exposed inter alia to the insurance industry

and all its manifestations. Does he like it? I want

to believe that he does, because I believe that he

understands why.

If you weren’t MD of Trustco Group Holdings, what would you be doing?

I guess I would have been caught up in the

narrow confines of the corridors of the judiciary.

There are so many opportunities in Africa and the

world, more so if one can read and write. The

challenge is to be enterprising.

14 riskAFRICA

kidnap and ransom insurance

• Kidnap and ransom

Nick KrigeHiddenKidnap, ransom and extortion (KRE) insurance has become a growth industry round the world because of increasing incidents related to this field. RISKAFRICA takes a look at this intricate insurance policy and discusses the benefits it can provide.

protection

15riskAFRICA

Who needs KRE?

KRE insurance is often thought of as an

extra security measure, required only by

high-powered businessmen and people

who travel to high-risk areas. This is no

longer the case and companies are seeing

it as a necessity for all of their employees.

“Corporates are beginning to recognise

that kidnap, ransom and extortion

insurance is not a standalone nice-to-

have cover, but a component of their

comprehensive duty of care corporate

policy for employees,” says Dani Ettridge,

crisis management, Aon South Africa.

Kidnappings and extortion are not

confined to millionaires and their families,

business executives or celebrities,

although they are often targeted and

those are the most high-profile cases.

Sometimes however, it is just a case of an

ordinary person being in the wrong place,

at the wrong time. Increasing incidents of

victims being briefly held and forced to

withdraw money from an ATM, or getting

abducted by pirates while on a holiday

cruise have made kidnapping a very real

danger for everyone. Even companies

need protection from extortion. “KRE

insurance extends beyond cover for

individuals, but also protects the company

from threats by means of extortion to

their reputation or intellectual capital,”

explains Ettridge. An example of this

might be a disgruntled former employee

threatening to reveal trade secrets to an

opposition company unless their demands

are met.

The paradox

Some may have KRE insurance and

not even know it; it can often come as

part of a corporate insurance portfolio,

especially if the company operates in a

high-risk area or its employees travel

extensively. Unfortunately, a covered

employee cannot know that the cover

exists for them, or the corporation, or it

will void the policy. The reason for this is

that allowing a third party knowledge of

such a policy would open up many doors

for exploitation. “It is a firm condition

of KRE policies that the existence of the

policy cannot be revealed to a third party.

KRE is a reimbursive insurance policy,

which means the insurance company will

reimburse a policyholder after a ransom

is paid. The insurance company is not

directly involved until an insured event

occurs, so there is no reason for any

third party to be aware the policy exists,”

Ettridge explains.

Something else to consider when

preparing a kidnap and ransom policy for

a client is whether the policy coverage

will be void in circumstances in which

employees or representatives of the

company collude in the kidnapping, such

as a driver, even if the kidnapped has

no part in the collusion. So be certain

that any condition or exclusion in the

policy is clear and understood in terms

of the circumstances in which collusion

is excluded.

There is a worry that kidnap and ransom

insurance encourages the business of

kidnapping and extortion. If a kidnapper

finds out that a potential target is insured

against kidnapping, they will expect and

ask for exorbitant ransom fees, and

the insured’s company or family might

be inclined to pay whatever is asked

because of the available cover. However,

according to Ettridge, that is not the issue.

“KRE insurance does not perpetuate the

business of kidnapping and extortion,

because these are criminal acts directed

at companies, which it is believed will pay

up irrespective of an insurance policy.”

Benefits

The numerous subtleties of kidnap and ransom insurance make

it an incredibly complex cover to have, but the reason for this

is that it is susceptible to fraud. Imagine how easy a kidnapping

would be to pull off if the person being kidnapped, or the

company they work for, is involved in the plot to scam the

insurance company.

For those who can get past all the complexities and find

themselves in a position where they need KRE insurance, it can

provide valuable services and guidance in a troubling time. It is

important to consider the individual needs of the client when

negotiating what to include in the policy. Policies may include the

following cover and benefits:

Ransom reimbursement: Ransoms paid for the safe return of

a covered employee or family member in a covered event will

be reimbursed by the insurer.

Personal accident: A lump sum benefit will be paid out in

the event of a loss of limbs, loss of sight, loss of extremity,

permanent total disablement or death of the insured, solely and

directly as a result of a covered event.

KRE insurance extends beyond cover for individuals, but

also protects the company from threats by means of

extortion to their reputation or intellectual capital.

16 riskAFRICA

Loss of ransom during delivery: The

loss in transit of a ransom by confiscation,

destruction, disappearance, seizure or theft

while it is being transported.

Crisis team: Expenses related to deploying

an independent and experienced crisis

response team to help everyone involved

get through the ordeal. “KRE insurance

provides the financial security that ransom

paid following an insured event will be

reimbursed. But the real value behind

having KRE insurance is not the money.

Most KRE insurance policies provide

unlimited funding for an experienced crisis

response team to assist in dealing with an

insured incident that could lead to a claim,”

says Ettridge.

Travel expenses: Travel and

accommodation costs incurred as a direct

result of a covered incident.

Psychiatric expenses: Often people

who are kidnapped require extensive

psychiatric, medical and legal advice.

Reward payments: Rewards can be

offered by a policyholder in exchange

for information that contributes to the

resolution of the covered event.

Financial losses: Personal financial loss,

suffered by an insured person as a direct

result of being unable to attend to financial

matters because of the kidnapping.

Loss of income: The kidnapped’s gross

salary will be reimbursed for the duration

of captivity. Some policies include bonuses,

commissions and pension contributions.

Asset protection: This benefit is to cover

interest on loans taken specifically to meet

a ransom.

Security coverage: Expenses for

security guards hired for the purpose of

protecting members of the family and

crisis response team that visit the location

of the covered event.

Specialised equipment: Costs of

communication equipment, recording

equipment and advertising to help resolve

an insured event.

Rehabilitation benefit: Rest and

rehabilitation expenses that occur directly

following the release of a kidnap victim.

Funeral expenses: Cost of repatriation

of the body of the kidnap victim in the

event of death during a covered event.

This will typically include the costs of

burial or cremation.

Risk mitigation

Even if a client has kidnap and ransom insurance,

prevention is far preferable to having to go through

the ordeal of being abducted. To this end, it is vital that

clients are educated about the risks of kidnapping and

how best to avoid them.

It is important to understand the local environment

that a client is visiting or operating their business

in. Obviously, employing aggressive tactics such as

employing ex-military professionals for security or using

armoured patrols will decrease risk, but understanding

the local environment can be just as beneficial.

Most insurers that offer KRE insurance will have travel

information available for travel to high risk areas and

how to mitigate the risk of kidnapping. Some even

offer training. There are many measures that are

both simple and practical, and on the surface seem

obvious, but often do not occur to people unless

they feel threatened. “Arranging the cover further

protects people because most insurers offer safe travel

and crisis management guidelines and training for

their policyholders to make them more aware of the

risk and the practical measures that can be taken to

safeguard themselves,” explains Ettridge.

A few risk mitigation techniques to advise clients of

are: to not travel the same route every day, even

if they are going to the same destination; travelling

at different times to avoid falling into any sort of

routine that a potential extortionist could learn and

exploit; when travelling it is important that your client

doesn’t appear like a wealthy businessman, as this

immediately highlights them as a potential target and

they should avoid wearing suits and carrying business-

like briefcases. Advise clients to not take the first taxi

offered, but rather arrange transport prior to arrival

and confirm their driver’s name, and preferably car

license number, so as to be sure that they are getting

into the right vehicle.

Constantly being aware and double checking facts

and details is a great way to mitigate risk, but the

sad truth is that there is no guarantee of safety

and criminals will continue to kidnap and extort

whether KRE insurance exists or not. “Unfortunately

kidnappings will happen with or without the

existence of the cover,” concludes Ettridge.

Most KRE insurance policies provide unlimited funding for an experienced crisis response team

to assist in dealing with an insured incident that could lead to a claim.

• Health

By far the majority of the medical scheme spend

is on hospitals. It is probably accurate to say that many of the medical

scheme products on offer are hospital-based

products.

More of the same or

Bianca Wright

Medical schemes in the SADC region

somethingdifferent?

Extending outwards

Metropolitan Health Group, Medscheme, Sovereign, MSO and EOH all have

interests outside of South Africa in the SADC region. “Stringent regulations and

the relative saturation of the market in SA have prompted companies to seek

opportunities outside of South Africa,” says Heidi Kruger, head of corporate

communications at the Board of Healthcare Funders of Southern Africa, adding

that outside of SA, the private healthcare sector is relatively unregulated.

South Africa, Zimbabwe, Botswana, Namibia and Mauritius all have 10 per cent

or more of the population covered by private healthcare. In Mauritius, medical

insurance falls under general insurance.

18 riskAFRICA

Examining the South African Development Community region’s approach to medical schemes can sometimes feel like looking in a mirror of South Africa and at other times, like staring into an alien world. While there are similarities in the way medical schemes are approached and in the challenges they face, there are also differences.

Show me the money

Affordability remains the overriding challenge,

according to Kruger. In Zimbabwe, 93 per cent

of the population are either self-employed or

unemployed and 87 per cent live below the

poverty datum line.

Kruger says that the issues facing funders in SA’s

neighbouring countries are all similar. Lack of

regulated tariffs means it is difficult to contain

costs. High hospital costs are another issue, she

says. “By far the majority of the medical scheme

spend is on hospitals. It is probably accurate to

say that many of the medical scheme products

on offer are hospital-based products. Zimbabwe

reports that many people go to India and Malawi

for hospital procedures as the costs are lower.”

For instance, a hip replacement in Zimbabwe

costs US$22 000 (excluding the hospital stay),

while in India the cost is R13 000 (all inclusive,

including flights, accommodation and so on for an

accompanying person).

Non-healthcare costs are also an issue. Kruger

cites the example of Zimbabwe, where these

costs account for around 21 per cent of the total

costs, in comparison to South Africa where the

average is around 13 per cent.

Another challenge is that health IT systems are

time-dependent and real time and on-line benefit

and payment systems cause difficulties.

The case of Namibia

In Namibia, one of the challenges is the fact that

insurance companies are competing with medical

aids for business. Medical aid funds are regulated

in terms of the Medical Aid Funds Act No. 23 of

1995, while medical insurance is regulated in terms

of the Short-term Insurance Act No. 4 of 1998.

According to Hester Spangenberg, executive

director at Investmed Namibia, both are basically

short-term entities, implying that benefits are

vested annually including the general annual

increases, although during the past few years the

medical aid funds had various interim increases

during the course of the year.

Spangenberg differentiates between the two,

explaining that a medical aid scheme is legally

a not-for-profit entity, managed on behalf of

the members by a board of trustees while an

insurance company is a limited company, owned

by shareholders. “The medical aid funds are

quick to point this difference out to prospective

members and say that all the profits in the

insurance companies goes to the shareholders

and are not to the benefit of the policyholders,”

she says, but adds that what they fail to mention

is that both medical aid funds and insurance

companies are required to maintain a certain

minimum level of reserves to protect the

members or policyholders.

“For insurance companies the level of reserve

is a statutory requirement while for medical aid

funds it is specified that the scheme surpluses

belongs to the members and members could be

at risk when the funds are depleted,” she says. “It

is well-known that one of the open medical aid

funds operates at a very low solvency ratio.”

Lacking in consistency

The Medical Aid Funds Act clearly stipulates

that no portion of any surplus realised in the

fund in any financial year may be distributed to

its members, while no such restrictions exist

on insurance companies. “Thus, insurance

companies may offer roll-over benefits, no-claim

and low-claim bonuses while none of the medical

aid funds may offer any bonuses or roll-over

benefits. Some of the medical aid funds offer

certain roll-over benefits,” she says.

The act also stipulates that the dependants of a

member are entitled to the same benefits as the

member, however most of the funds restrict the

benefits of the dependants and the main members

enjoy higher benefits. An investigation into medical

insurance available in Namibia revealed that

the insurance benefits are based on the family

as a unit and that the insurance companies do

not differentiate between the benefits of the

policyholder or that of the dependants.

Medical aid funds contract with companies

operating on a for-profit basis to provide

administration services to the funds while the

insurance companies are responsible for their

own administration. Currently administrators

of medical aid funds are being paid a certain

percentage of the contributions in lieu of the

services they execute.

“In principle, this should not be a problem,

however the administrators are being paid

immaterial of their performance,” says

Spangenberg. “The fact that the functions of

the administrators are not regulated by a body

like NAMFISA, creates a problem due to the

fact that the trustees of the funds, who should

actually control and manage the administrators,

do not fulfil their functions in this regard.” She

adds that the funds and administrators are pricing

aggressively and are using the reserves of the

funds to do so; they will eventually need to

increase contributions or decrease benefits to

maintain solvency ratios.

In accordance with the Short-term Act, brokers can

be appointed to market the products of the insurance

companies. These brokers are also being regulated

in terms of the act. The Medical Aid Funds Act does

not allow for any person to market any fund although

this has become a standard practice in the industry

and it appears that NAMFISA is doing nothing about

it, according to Spangenberg. In addition, she says,

certain individual and employer groups receive

discounts on their contributions from the funds in

order to prevent such individuals or groups from

leaving one fund to join another fund or insurance

companies. Thus, based on the structure of the funds

where certain groups of members must enjoy the

same benefits for similar costs, certain individuals and

groups are being benefited by paying less, all to the

detriment of the other members.

A challenging environment

Corruption is also an issue in the SADC regions.

Recently, for example, the Zimbabwean

newspaper reported that the Harare Municipal

Medical Aid Society is facing collapse with the

14-member board being accused of massive

corruption and abuse of funds.

Despite these many challenges, however, there is

much that is attractive about the broader SADC

region in terms of medical schemes. Kruger

says, “On a personal note, I believe that there

are many opportunities that could be exploited

on a regional level. For instance, there could be

centres of excellence for the region, geo-mapping

of providers, quality standards across the region

and so on.” Understanding and being able to

leverage both the differences and similarities

and the challenges of the region will ultimately

dictate which medical schemes will prevail in an

increasingly competitive environment.

19riskAFRICA

It is well-known that one of the open medical aid

funds operates at a very low solvency ratio.

On a personal note, I believe that there are many

opportunities that could be exploited on a regional level.

20 riskAFRICA

It would be an understatement to say that AIG’s need for a $182 billion bailout from the 2008 financial crisis made headlines. Media reports have described it as “arguably the most shocking event during the financial crisis” and “the most loathed of the rescues”. Joining AIG in early 2010 to oversee finance, risk and investments, including the insurer’s money-losing credit-default-swap unit, Peter Hancock arrived with 20 years of experience at J.P. Morgan under his belt, where he served as the firm’s chief financial officer and chief risk officer.

“It was a unique opportunity. A company that is a leader in its industry, with enormous breadth and scope of operations, that needed to be refocused,” was Hancock’s cool reply to an incredulous: what were you thinking? “I hit it off with the CEO, Robert Benmosche, whom I’d not met before.” Benmosche wanted to turn the company around. The initial strategy had been to dismantle AIG under the prior CEO, Ed Liddy, but when Benmosche took over in the summer of 2009 he came on the condition that the company was not to be dismantled, but rebuilt. “The premise under which I joined was that this was a going concern; that the company was worth a lot more together than broken into pieces,” continues Hancock.

Much of his first year at AIG was spent recapitalising the company in a way that was sustainable. Some two years on, and the US Government, including the Federal Reserve Bank and the Treasury, has fully recovered its $182 billion commitment to AIG, plus a profit. Grateful to US taxpayers for their assistance, Hancock feels that AIG has fulfilled its promise, not only to repay the assistance, but to rebuild the company in

AIG LOOKS TO

Hanna Barry

• Profile

On his recent visit to South Africa, RISKAFRICA had the opportunity of interviewing Peter Hancock, CEO of Chartis, American International Group’s (AIG) property-casualty businesses. He told us about his decision to join AIG after the 2008 bailout, how the company has been successfully rebuilt and plans to rebrand Chartis under the AIG name.

Africa

21riskAFRICA

a way that is valued by the marketplace. He says that from a market practice point of view, AIG is proud of the way it treats its customers, but welcomes regulators who can validate this. “We welcome greater oversight and the transparency and rigour it brings to our operating processes. The events of 2008 are a good reminder that there needs to be a commitment to a real openness about enterprise risk. All companies of any scale and complexity need to demonstrate to all stakeholders, policyholders, investors and customers that they can deliver on their long-term promises.”

Hancock was appointed CEO of Chartis in March 2011. With operations in 90 countries, Chartis was fairly fragmented at the time and his strategy has been to unify the company culture around common themes; most notably, focusing on value over volume. “This centres on understanding our customers and what they value most about what we do for them. We are not trying to do everything for everybody, but rather focusing on those lines of business where we feel that the scale of our operations brings something significant.” A broad geographic network means that Chartis can bring particular value to clients who are looking to operate globally. It plans to target areas in which its customers have growing needs, for example, emerging economies and specialist lines of business.

Technology, data and the chief science officer

In an increasingly uncertain world, Hancock believes that the insurance industry needs to be agile and flexible, using technology to minimise fixed costs and focus on meeting clients’ needs. Technology, along with the best talent and analytical tools, are the keys to success. “In a low-interest-rate environment, the industry can no longer rely on its investments and will have to make money through excellence in underwriting. This involves underwriting discipline, but also means investing in technology to understand the risks you are taking,” he explains. In this regard, the important role that data plays cannot be overstated. “At the end of the day, insurance is all about understanding what the data can tell you about risk and the relative riskiness of different insureds.

If we are trying to grow value as opposed to volume of business, then this ability to use new technology and new sources of data provides room for plenty of adaptation and optimism. The availability of data today was unimaginable five or 10 years ago.” Hancock believes that traditional actuarial techniques have their limitation because they tend to just extrapolate the past. In fact, so passionate is he about the opportunities around understanding, analysing and integrating data into business practices, that he created the position of chief science officer at Chartis.

Appointed in January this year, Murli Buluswar reports directly to Hancock and has recruited a sizeable team in the short time he has been in this role. Hailing from a range of scientific backgrounds, including medicine, statistics, psychology and seismology, their work feeds into product design and underwriting. It also extends to understanding certain structural drivers of loss. For example, working with scientists from the John Hopkins School of Public Health to analyse over 10 million claims records, Chartis has understood some of the underlying drivers of the long-term medical costs of returning injured workers to work.

As patterns emerge, claims can be more efficiently processed, reserves more prudently set and underwriting improved. “We have one of the largest workers’ compensation insurance businesses in the US and over $20 billion in reserves set aside for future claims,” says Hancock. “We have tried to recruit individuals in the science office who have excellent listening skills and not quantitative skills only, so that they are able to work together with skilled underwriters. This produces the best outcomes, which is a blend of art and science,” he adds, quoting Mark Twain’s famous line: “History doesn’t repeat itself, but it does rhyme.”

Rebranding Chartis

Successfully rebuilt, last month The Wall Street Journal ran a story titled, ‘AIG’s record-breaking stock sale’. Having sold $38.2 billion of stock, US taxpayers have received a $15 billion positive return to date from the AIG bailout, which is being described as a success. In this light, Chartis will be rebranded AIG in October. “The Chartis brand was successful in unifying different antipodes in the property and casualty business, but as we simplified the company we believe that AIG is the right brand to operate under going forward,” says Hancock.

The decision was reached with feedback from customers, distribution partners and brokers, who jointly feel that it is the better recognised brand for Chartis’s products. Hancock is confident that the AIG brand is well-known in the African market. “Those who are knowledgeable about insurance recognise our global standing and longstanding commitment to the local markets.”

Having operated profitably in South Africa for 50 years and in Kenya and Uganda for almost as long, Chartis will continue looking at growth in the sub-Saharan region with some interest. It will be expanding its reinsurance business and exploring opportunities in the energy and construction sectors. Where appropriate local partners can be found, or where local regulations allow the company to operate as fully controlled, Chartis will consider launching further primary insurance operations on the continent.

With plans to target profitable market share and expand its African footprint, it appears this is just the beginning of AIG rising.

Those who are knowledgeable about insurance recognise our global standing and longstanding

commitment to the local markets.

22 riskAFRICA

for growth and margins

• KPMG Insurance Survey

Insurerstarget Africa

While some regard the African continent as a risky investment, KPMG’s Insurance Industry Survey 2012 revealed that Africa is on course to be a global investment sweet spot. Focus on infrastructure, direct foreign investments, improved banking supervision and policy uptakes have all resulted in Africa showing a potential GDP growth figure of $2.6 trillion by 2020.

In its annual review, the South African Insurance Industry Survey 2012, professional services company KPMG released 54 of the 164-page document for comment towards reviewing insurance in other African countries.

KPMG partner and national head of insurance

Gerdus Dixon says, “The South African life and short-term insurance markets are relatively mature, with few obvious merger and acquisition opportunities. It is also competitive, well regulated and, in all likelihood, facing ongoing challenges regarding regulation such as SAM, IFRS Phase II and Treating Customers Fairly.”

KPMG’s head of transactions and restructuring, John Geel, noted several new investments into and across Africa, especially from multi-nationals and larger listed African companies. However, an increased number of smaller companies are also investing due to the improved growth opportunities, as well as regulatory and tax regimes. “This means that companies are now

seeking out the right entity to transact with, negotiate details of collaboration and sign legal contracts,” says Geel.

African countries present insurers with new, untapped markets with massive potential customer populations and burgeoning economic growth, which was forecast by the International Monetary Fund to be 5.5 per cent this year. “Nigeria, Ghana and Angola’s growth rates are already in excess of this,” says Dixon.

He believes that referring to these African countries as the new frontier is inaccurate, as most of the major players have already flown the coop and are actively positioning themselves for dominance in Africa.

The South African life and short-term insurance markets are relatively mature, with few obvious merger and acquisition

opportunities.

2361

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2361 SSP RiskSA3.pdf 1 2012/07/11 10:15 AM

Distribution channels remain a major challenge in Africa. Insurers will have to embrace modern and alternative

models that are able to connect products with insurers in a reliable

and cost-effective manner.

Africa has appetite to thrive, but is no short-term solution

Apart from this increased appetite for

investment, KPMG has noticed a hunger

for consolidation and expansion and a rapid

improvement in the banking sector on the

continent. KPMG Africa released the Africa

Banking Survey in May to provide a better

understanding of regulatory frameworks.

Fourteen countries were analysed in the

region, providing information in several

areas including the commercial, legal and

tax and banking environments, as well as

governance and reporting issues.

However, Dixon warns insurers against

expecting African countries to provide

them with short-term growth solutions.

He says that it is essential that each African

country is understood and assessed on its

own merits and that the diversity and subtle

nuances play a critical role in unlocking the

secrets to business success.

“Africa’s gross domestic product is expected

to reach $2.6 trillion by 2020, but expanding

into African countries is not a short-term

growth fix, it will take deep pockets and

committed sustainable long-term business

plans to develop the insurance market

in these African countries, particularly

the much vaunted retail or individual life

insurance markets,” says Dixon.

He adds that it is important for

shareholders to understand the return

profile of expanding into Africa, as those

companies that do unlock the potential,

stand to benefit from improved margins on

products coming from the fastest-growing

employed population on the planet. “There

are 500 million people of working age in

Africa and the expectation is that this will

outnumber China and India by 2040.”

Despite the financial crisis of 2008, there

is now more private equity available in

Africa. Insurance giants Leapfrog, Sanlam

and Old Mutual recently announced

insurance acquisitions into African markets.

But many challenges to doing business in

Africa still exist, including the short-term

insurance market, which is spread across

55 countries, many of which do not have

large-scale business present in them. Also,

due to a surplus of industry players in

some countries (like Nigeria and Kenya),

premium is fragmented.

Distribution channels remain a major

challenge in Africa. Insurers will have to

embrace modern and alternative models that

are able to connect products with insurers in

a reliable and cost-effective manner.

The extensive African section of the

report provides some three to four pages

of detail on each of 13 African countries,

highlighted by the insurance team at

KPMG as significant to the industry.

“Exploring expansion opportunities on a

generic African template is not advisable

and will probably result in expensive

‘school fees’ for companies if they do,”

says Dixon. “Africa is simply too big

and growing too rapidly for insurers

and investor to ignore.” Naturally, the

underdeveloped formal economy and

infrastructure will demand more inventive

solutions with regard to strategy, product

design and distribution.

Experts at the sixth KPGM Africa

Conversations Series on transacting in

Africa held in Johannesburg earlier this

year reckon that discussions around the

realities of conducting business on the

African continent are now at a critical

stage and support is needed to boost

this development.

24 riskAFRICA

NEWSSocial health protection must be a focus for African governments

In an attempt to improve universal access to

health services, the East African Community

(EAC) is pushing for a social health protection

programme across all member states, the

New Times in Rwanda reported. However, the

World Health Organisation’s co-ordinator of

health financing policy, Joe Kutzin, says that

universal health coverage is a direction more

than a destination.

“What this means is that you want to move

towards universal coverage. You want to

improve access, financial protection and

quality. And in that sense, those are goals for

every country in the world,” Kutzin told over

200 participants at the opening of a three-

day regional conference on social health

protection, which took place in Kigali, Rwanda

in September. The aim of the conference was

to consider various approaches to providing

universal health coverage in Rwanda, Uganda,

Kenya and Burundi. Universal coverage is the

subject of a new study that reviewed health

systems in 12 African and Asian countries.

Kutzin alluded to the fact that African countries

have not fulfilled the Abuja Declaration, which

requires EAC members to allocate 15 per cent

of their annual budgets to the health sector.

“In order to become a middle-income

economy, a need for regional collaboration

and co-ordination of social health protection

mechanisms must be targeted.” This was

according to Ambassador Richard Sezibera,

secretary general for the EAC.

“More countries are looking for ways to develop

financing systems so everyone has equitable

and affordable access to health services. Each

country can take immediate steps toward

universal coverage despite its levels of economic

development,” Sezibera explains.

However, Kutzin adds that some finance

ministries are skeptical about disbursing such

money because health ministries have not given

full accountability of the funds. This was disputed

by Rwanda’s Minister of Health, Dr Agnes

Binagwaho, who said that “all governments are

capable of doing what Rwanda has done by giving

priority to the health sector”. Rwanda allocates 16

per cent of its national budget to the health sector.

Allegations of embezzling haunt fiS

The gloves are off between shareholders within the Financial Insurance Services (FIS),

a company that was accused by the Namibia Financial Institutions Supervisory Authority

(NAMFISA) of not paying out beneficiaries’ claims, news site allafrica.com reported.

Rob Menzel, the company’s chairperson and majority shareholder, has come under fire

after allegedly embezzling millions of Namibian Dollars. However, Menzel has denied

any wrongdoing. His lawyer, Dave Nezar, says that Menzel is prepared to co-operate

with the Anti-Corruption Commission (ACC) should an investigation be launched.

Nezar wrote to Richard Metcalfe, the lawyer of former FIS managing director Indila

Edward, saying that he may accept his client rejects these allegations with the contempt

which they deserve.

According to allegations, Menzel withdrew N$3.25 million from the company’s account

between 1 February and 15 August this year. Edward’s lawyer, Metcalfe, accused

Menzel of continuing to strip the company and its life reserve fund for his own benefit

and/or the Menzel family trust.

Erna van der Merwe, the deputy director of the Anti-Corruption Commission (ACC),

says, “It was agreed that Metcalfe would furnish us with certain documentation.

Once we are in possession of such documentation, the matter will be submitted to

the director [Paulus Noa] for a decision on whether a formal investigation should be

conducted.”

25riskAFRICA

Stakeholders need to establish Anti-Money Laundering (AML) regimes as it will help curb

crime in the industry.

ARC to manage drought risks in Africa

The African Risk Capacity (ARC), which was established in Ethiopia last month, is a project of the African Union (AU), designed to improve current responses to

drought food security emergencies and to build capacity within AU member states to manage drought risks.

While foreign aid usually takes several months to arrive, the AU says this specialised agency will develop an agreement on a pooled risk insurance facility for droughts,

floods, earthquakes and cyclones in Africa. This is according to a report by Zimbabwe’s Herald Online.

The AU also asked the African Union Commission to convene a meeting of government experts in 2013 to consider and adopt the ARC establishment agreement.

The UN International Strategy for Disaster Reduction says the ARC is a welcome development, which will speed up the distribution of aid to affected regions in Africa.

AMl regimes needed to curb insurance crime

According to The Monitor in Botswana, Africa’s insurance industry has not been

as exposed to white-collar crime as other industries, yet stakeholders are still

advised to partner with financial institutions to expose criminals and prevent the

problem from intensifying.

Speaking at the Southern African Insurance Regional Conference held in

Botswana (15 – 16 August), director of the country’s Financial Intelligence

Agency in the Ministry of Finance and Development Planning, Jackson Madzima,

said, “Stakeholders need to establish Anti-Money Laundering (AML) regimes as it

will help curb crime in the industry.”

Although money laundering is not as prevalent in the insurance industry as in

non-banking financial institutions, the risks are increasing. “Institutions that handle

value should install strong AML regimes and more effective AML sensitisation

and training critical to such institutions,” said Madzima.

Madzima highlighted that international vehicle crime is becoming a growing issue

across borders and is of major concern in the insurance market. He detailed

how cloned vehicles are smuggled between countries and registered in more

than one country.

“Between May and July this year, 25 foreign vehicles were impounded because

they were tampered with or suspected, and in some cases used, to transport

dagga,” Madzima added.

new package cover for low-income earners

Following the launch of a triple package insurance cover by

CIC Insurance Group, Kenyans living in fire-prone informal

settlements (slums) can now insure their household goods

for as little as KES480 (Kenyan Shilling). The product,

known as Nuru ya Jamii, is the country’s first policy targeting

low-income earners, combining property insurance and life

assurance as a package. This was according to a report on

the allAfrica.com website.

The policy has three benefits, which include cover for

household goods in the event of fire, family disability due to

death and family life. CIC Insurance Group CEO, Nelson

Kuria, says the policy would spread insurance awareness and

services to low-income earners who have been locked out

by conventional insurance products.

26 riskAFRICA

Only handful of insurance firms known to nigerian public

Only 15 insurance companies out of 50 firms operating in Nigeria are known

to the public, according to a study conducted by German agency for sustainable

development, GIZ and Riskguard Africa Limited, reports allAfrica.com. The

survey shows that the few insurers known to Nigerians are Aiico Insurance, PLC,

Niger Insurance, Industrial and General Insurance (IGI), Leadway Assurance,

NICON, LASACO, Oasis, Mutual Benefits, Royal Exchange and Crusader. Other

companies identified as underwriting firms include Savana Insurance, Gateway

Insurance, Quality Insurance, Liberty Insurance, CBN Agric Insurance Limited

and Access Insurance.

Concerned by this development, commissioner of insurance Fola Daniel says

the national insurance commission in Nigeria developed a draft guideline for

the entrenchment and development of insurance at grassroots. He says the

guideline on microinsurance is being exposed to the industry, experts and other

stakeholders before a final draft will be released to the market. He adds that the

commission intends on collaborating with other relevant regulatory agencies in

implementing the plan.

MauritiusAfrica’s insurance market still vibrant and growing, hears AiO

With the focus on insurance and reinsurance

in Africa over the next decade, the 18th

annual Reinsurance Forum of the African

Insurance Organisation (AIO) was a good

networking platform for key players within the

insurance arena to unearth opportunities on

the African continent. Five hundred delegates,

representing insurers, reinsurers and brokers

from 65 countries gathered at the picturesque

Intercontinental Hotel and Resort in Balaclava,

Mauritius for the annual event, which coincided

with the AIO’s 40th anniversary. The forum,

held from 30 September to 3 October, was

concluded with an awards presentation.

In his formal address to the delegates, Hassan

El Sayed Mohammed, the president of the AIO,

stated, “The massive attendance at this dual event

is a clear manifestation of the firm commitment to

support the growth of a vibrant insurance industry

on the African continent, capable of facing the

challenges provoked by economic mutations from

outside Africa.” Speaking about the evolution

of the African insurance sector, Martin Ziguele,

manager of Exact Conseil, said, “Africa’s insurance

industry is making small steps, despite historical

issues that were not necessarily inherent only to

this continent. With a production of $50 billion in

2006 to $67 billion in 2010, it showed a growth

of 34 per cent in five years.”

At the awards presentation, accolades were

given to Africa Re in the category for best

insurance organisation while UNCTAD

claimed top honours in the category for

international organisation. In the individual

category, Albert Nduna received the award for

his efforts in establishing the first reinsurance

company in Zimbabwe.

27riskAFRICA

Candidate attorney, Siba Jonas, and associate,

Lauren Kent, from Norton Rose South Africa,

provide us with microinsurance lessons from Africa.

Market overview

• TheAfricanmicroinsurancemarketis

largely untapped. The International Labour

Organisation (ILO) reports that 14.7 million

lives were microinsured, out of a potential

700 million, representing 2.6 per cent of

the target population.

• Thecombinedannualincomeoflow-

income African households is around

$500 billion, according to the World Bank,

meaning there is significant potential

for growth.

Health insurance

• Healthinsurance,arguablythemost

needed cover in Africa, has been taken

up by a mere 0.3 per cent of the market.

Healthcare is financed by individuals in

countries like Guinea, Burundi, Cameroon,

Cote d’Ivoire and Nigeria. In Nigeria,

63 per cent of healthcare needs come from

individuals’ pockets. In Guinea, out-of-

pocket expenditure accounts for up to

88 per cent.

Consumer education

• Asuccessfulmicroinsuranceregime

requires clear communication. The ILO

found that the microinsured often claim

their premiums if the product was not

needed, signifying a fundamental lack of

understanding of the product.

• InGhana,anawarenesscampaignbacked

by government and private institutions

has been rolled out, together with

various industry workshops and training

programmes. A policy paper is being

developed as a result.

• InEgypt,UgandaandWestAfrica,national

and regional workshops have been held as

an introductory step.

• InEthiopiaandZambia,governmentsare

developing microinsurance strategies to

encourage wider deliberation and capacity-

building initiatives.

Premium collection and payment

• InBurkinaFaso,agentswhocollect

premiums are recruited and trained from

the local community, lending credibility

and trust. While this is costly and time-

consuming, with potential for fraud, issuing

the insureds with smart cards and agents

with handheld computers at the collection

points is helping mitigate these risks.

• Usingexistingretailers’infrastructureand

customer loyalty to distribute products

and collect premiums is successful in South

Africa. In Kenya, mobile technology is used

to pay for anything from taxi to insurance

premiums, which is deducted from

available airtime.

• Toovercomechallengesofaffordability,

insurance mistrust, poor delivery

infrastructure and insufficient regulations,

one insurer introduced a comprehensive

product for low-income Kenyan families.

In conjunction with the National Health

Insurance Fund, the family insurance

product provided cover to a policyholder,

spouse and all dependants for hospital

expenses, loss of income, disability benefits,

accidental death and funeral expenses for

an annual premium of $50.

Challenges

• Lackofunderstandingandtrustin

microinsurers and their products.

• Lackoffinancialmeanstopaypremiums

regularly, on time, or at all.

• Difficultieswithtechnologicalinfrastructure,

which hinder insurers in their development

and rolling out of products.

• Highadministrativecosts,especiallyin

remote rural areas where transportation

and communication channels are limited.

• Lackofsuitablyqualifiedstafftodevelop

and market products and administer

processes.

• Religiousandculturalconsiderations

may limit the demand for traditional

insurance products, particularly in North

Africa, where Islam, the predominant

religion, considers commercial insurance

objectionable.

• Difficultieswithpremiumpaymentand

collection.

• Thedesperateneedforconsumer

education to impart basic reading

and mathematical skills, as well as an

understanding of microinsurance.

While opportunities abound, insurers should

study their chosen African market(s) carefully

before committing to significant investment.

OppORTuNiTiES RifE fOR miCROiNSuRaNCE

• Microinsurance in Africa

in AfricAMillions of Africans find themselves trapped in dire

circumstances due to short-term strategies used to eke out an existence. Microinsurance is set to effect real change on the

continent. Through knowing the market, developing innovative products and educating consumers, insurers can capitalise on

the opportunities presented in the African market.

28 riskAFRICA

Molefe Phirinyane, policy analyst, Botswana Institute of Development Policy Analysis.

Above from left: Riana Gous, Insurance Institute of Namibia; Ndjoura Tjozongoro, CEO of National Special Risks Insurance Association; Debbie Donaldson, general manager: Strategy and Planning for the South African Insurance Association.

Thembi Langa, senior programme officer, SADC, addresses delegates.

Regional confeRence tackles industRy issuesThe Southern African insurance industry held its first regional conference in Gaborone from 15 to 16 August. Opening up new market possibilities, improving communication among industry bodies and the role of the insurance industry in sustainable economic development were all topics on the agenda.

• Events

The conference, hosted by Sisco and the SADC (Southern African Development Community) Secretariat saw delegates from almost every SADC country convene at the Gaborone Sun Hotel in Botswana. Delegates from Switzerland and the United Kingdom were present, too. It was the first of its kind on the African continent. Delegates included representatives of insurance associations, institutes and regulators from each country.

Conference co-ordinator, Tshepiso Mphahlane, says the event provided a platform for insurance bodies and supervisors to interact at regional level. He adds that it provided an opportunity for the SADC’s Committee of Insurance, Security and Non-Banking Financial Authorities (CISNA) to give feedback to the industry regarding the harmonisation of insurance laws of SADC member states.

The move towards making cross-border insurance trade possible through enabling legislation opens up new

market opportunities.

29riskAFRICA

Building relationships between bodies

CISNA is part of the Trade, Industry, Finance

and Investment Directorate of SADC and

reports to the Committee of Ministers of

Finance and Investment. CISNA’s vision is to

facilitate the development of a harmonised,

risk-based regulatory framework for SADC

member states. “The move towards making

cross-border insurance trade possible through

enabling legislation opens up new market

opportunities,” said speaker Marcelina !Gaoses,

managing director of Mutual & Federal Namibia.

At the conference, it was agreed that dialogue

between the insurance industry and SADC

should improve. In light of the request, SADC’s

Directorate of Trade, Industry, Finance and

Investment informed delegates that SADC will

establish a business desk which will facilitate

communication between SADC committees

and the regional insurance industry.

Delegates acknowledged that regional

economic integration also calls for improved

communication among industry bodies.

Delegates welcomed the South African

Insurance Association’s (SAIA) plans to establish

a communication hub to facilitate information

sharing. The conference also requested the SAIA

to facilitate the development of a framework for

collaboration of insurance associations.

Sustainable insurance limits risk

Chief executive officer of the Insurance Institute

of South Africa (IISA) David Harpur’s paper,

‘The Importance of a Common Framework for

Insurance Educational Standards’, proposes the

development of education standards and products

that can be transportable across borders. The

paper covered the common approach to

continuous professional development and the

establishment of common standards of local value

with international acceptability.

The conference discussed the role of the

insurance industry in sustainable economic

development. Programme leader at United

Nations’ environmental initiative, Butch Bacani,

told delegates that the insurance industry, with

world premium volume of $4.5 trillion, was

uniquely positioned to tackle environmental,

social and governance issues.

“Sustainable insurance is about reducing

risk, developing innovative solutions and

improving business performance with a view

to contributing to environmental, social and

economic sustainability,” says Bacani.

General manager of strategy and planning at the

SAIA, Debbie Donaldson, told delegates that

the South African insurance industry has indeed

responded to some of these sustainability issues,

in particular energy security (home owners’

insurance), food security (agriculture insurance)

and community risk management (community

risk insurance). “It is important for the short-

term industry to offer products and solutions

that will promote our industry and not harm our

environment and communities.”

Overall consensus at the conference was that

Gaborone hosted a successful event. President

of the Insurance Institute of Mauritius, Sansjiv

C. Nuckchady commented, saying it was well-

organised and of a high standard.

Marcelina !Gaoses, MD of Mutual & Federal Namibia discussed cross-border insurance.

Tshepiso Mphahlane, conference co-ordinator and CEO of Sisco Corporate Advisors.

Regional confeRence tackles industRy issues It is important for the short-

term industry to offer products and solutions that will promote our industry and not harm our environment and communities.

30 riskAFRICA

Asia

AIR opens Singapore office to expand in Asia-Pacific

AIR Worldwide, provider of risk modelling software and consulting services, is opening a new office in Singapore to meet the expanding needs of clients in the Asian insurance market. “AIR has kept pace with the fast-growing markets and our equally fast-growing client base in Asia by opening offices in India (2000), China (2005) and Japan (2008),” explains Uday Virkud, executive vice-president at AIR Worldwide. “The new office in Singapore ensures our ability to maintain and indeed enhance the high quality of service our clients in the region have come to expect from AIR.”

europe

EU insurers’ capital charges may be cut to boost loans

Reuters recently reported that capital charges for insurers in the European Union could be cut to encourage lending for long-term projects and help boost the flagging economy. The news agency was reporting on an announcement by the bloc’s executive body in a high-profile policy shift.

The European Commission has written to the European Insurance and Occupational Pensions Authority (EIOPA) to look at cutting the amount of capital that insurers

must set aside to cover some types of investments. “European insurers are a potentially powerful financing channel for long-term investment in growth- and job-enhancing areas,” says Jonathan Faull, head of the commission’s internal market unit in a letter published on the executive body’s website.

Banks welcomed the review, saying lower capital charges for insurers would help kick-start securitisation. Cash-strapped governments have pinned their hopes on the insurance sector to fund long-term economic development, as banks curtail their lending for big projects in response to tighter bank capital rules.

France still property investment hot spot

According to the latest overseas property hot spot report, compiled by Conti Financial Services, France is still the number one choice for Britons buying property abroad. Investmentinternational.com reported that for the fourth consecutive year, France has topped the list, accounting for 45 per cent of mortgage enquiries received so far this year. This is the country’s biggest share achieved to date, compared to the 39 per cent last year, and just 15 per cent back in 2008. Spain came in second with 33 per cent of enquiries, thanks to excellent buying conditions and signs that the market is starting to bottom out.

Portugal, accounting for 10 per cent of enquiries, is in third position for the second year running. Although

its share is down by two per cent on last year, interest has picked up again over the past three months as falling property prices entice buyers back. Turkey, Italy, USA, Australia, Canada, New Zealand and Ireland make up the rest of the top 10 list.

Clare Nessling, Conti’s operations director, says, “Buyers have increasingly been sticking to locations they know and trust, which is why France and Spain are out on their own at the moment and Portugal is starting to rise in popularity again, too.”

United Kingdom

Business bank on the cards for Britain

British business minister Vince Cable has launched plans to inject £1 billion ($1.6 billion) into a new business bank in a bid to cut borrowing costs for firms. Cable announced the initiative at the annual conference of junior coalition partners, the Liberal Democrats, reported Finance24.

“We need a British business bank with a clean balance sheet and a mandate to expand lending rapidly and we are now going to get it,” Cable said at the conference in Brighton on the coast of southeast England. “Alongside the private sector, the bank will get the market lending to manufacturers, exporters and growth companies that so desperately need support.”

Cable says the new wholesale bank will open up about £10 billion ($16

billion) of finance for small and medium-sized British companies that are struggling to get access to credit. The new bank will lend the cash via existing financial institutions and start within 12 to 18 months. It will be funded from existing budgets and not require any additional state borrowing. The Conservative-led government hopes that it will attract more than £1 billion of capital from the private sector.

UsA

Berkshire invests millions in Torus

Looking to fund its ongoing expansion efforts, Torus Insurance Holdings Ltd received a capital infusion of $100 million from Berkshire Hathaway Inc. The specialty insurer says that it has received funding from National Indemnity Co., a commercial insurance unit of Nebraska-based Berkshire Hathaway, according to Businessinsurance.com.

The Berkshire outlay coincided with an additional round of funding provided by existing shareholders and private equity firms, First Reserve Corp. and Corsair Capital LLC, a Torus spokeswoman says. While terms of the transaction were not released, sources confirmed that the Berkshire infusion ranged from $80 million to $100 million. Torus began operations in 2008 with $720 million in equity funding from First Reserve.

“We are delighted that Berkshire Hathaway has invested in Torus,”

31riskAFRICA

Group CEO Clive Tobin said in a statement. “This is part of an expanding relationship with one of the most respected companies in our industry.” He adds the investment affirmed the specialty insurer and reinsurer’s global development goal.

Torus has substantially repositioned its business in the past two years. In September 2011, Torus said it would acquire Lloyd’s of London syndicate 1301, which underwrites direct and facultative property, accident and health business. In December 2011, Torus acquired the renewal rights to CV Starr & Co.’s continental European business. Torus also sold its renewal rights of its property catastrophe reinsurance book of business and entered the US surety market during 2011.

US CEO confidence lowest in three years

Finance24 reports that US chief executives’ view of the economy deteriorated sharply in the third quarter and is now as bleak as it was in the immediate aftermath of the last recession, with more planning to cut jobs over the next six months, according to a survey released by the Business Roundtable.

The group’s CEO Economic Outlook Index tumbled to 66 per cent in the third quarter from 89.1 per cent in the second, in the sharpest drop recorded in the survey’s decade-long history. Confidence fell to its lowest point since the third quarter of 2009,

when the US had just emerged from its worst recession in 80 years, but remained above the 50 mark, separating growth from decline.

Among US CEOs, 34 per cent expect to cut jobs in the United States over the next six months, up from 20 per cent a quarter ago. Thirty per cent plan to raise capital spending, down from 43 per cent. Over that time period, 58 per cent expect their sales to rise 34 per cent, down from the previous survey’s 75 per cent.

The survey comes less than two months ahead of the US presidential election, in which the weak economy and stubbornly high unemployment are shaping up to be key elements in voters’ choice between incumbent Democratic President Barack Obama and Republican challenger Mitt Romney.

Investors will get a more detailed look at corporate confidence next month when top US companies including Alcoa, JPMorgan Chase and General Electric report quarterly results. The survey of 138 CEOs was conducted from 30 August to 14 September.

The weak economy and stubbornly high unemployment are shaping up to be

key elements in voters’ choice between incumbent Democratic President Barack Obama and Republican

challenger Mitt Romney.

32 riskAFRICA

• Mozambique

inside mozambiqueMozambique is quickly gaining recognition as an attractive investment destination for insurers from neighbouring countries. According to Jaco Moritz of the website, How We Made It in Africa, “Mozambique has transformed from a basket case to one of the world’s most rapidly expanding economies, with growth expected to average around eight per cent a year between 2012 and 2016.” The stable political and economic conditions in the former Portuguese colony have made it a possible idyll for insurers looking to expand. South Africa already has a foothold in the region and is starting to compete with the already established local and Portuguese industry. According to Marsh Africa, there are 10 major insurers operating in Mozambique with the top four being EMOSE, IMPAR, Global Alliance and Hollard. There is one reinsurer, Mozambique Re and growing interest from a variety of insurers in the region.

Bianca Wright

Absa wants to recreate the insurance and financial services offers it has in South Africa in

other markets in Africa, and the Mozambique purchase is in line

with that goal.

33riskAFRICA

Reflecting the past

Mozambique’s insurance industry reflects

its colonial history. In 1987, insurance

was monopolised by the State through

the establishment of (EMOSE) Empresa

Moçambicana de Seguros; but in 1991, this

monopoly was broken and the market was

liberalised. IMPAR and Global Alliance were

founded in 1992. IMPAR is now Seguradora

Internacional de Moçambique and Global

Alliance is the new name of Companhia Geral

de Seguros de Moçambique, which was recently

bought out by Absa.

The regulatory environment has evolved

over time. Decree No. 42/99 of July 1999

established the (IGS) Inspecção Geral de

Seguros (the Inspector General of Insurance)

or the Commissioner of Insurance which

controls insurance activities on behalf of the

Ministry of Finance in Mozambique. George

Mathonsi, managing director of Alexander

Forbes Moçambique, says that following this

decree, in 2003 Law No.3/2003 set new

parameters for the conduct of insurance

business in Mozambique. Decree 41/2003

went on to provide the regulations in support of

Law No. 3/2003 and the Decree No. 42/2003

established the new requirements in respect of

technical reserves and solvency margins.

Mathonsi adds that it is fairly easy to enter the

insurance industry in Mozambique provided the

investor complies with specific requirements

as per the Insurance Decree-law No. 1 /2010

of 31 December. The decree is essentially the

main legislation regulating the operation of the

insurance sector. This law sets the parameters

for the conduct of insurance business in

Mozambique. Issues dealt with include licensing

of insurance sector organisations, restrictions

on non-admitted insurance, operating

requirements, supervision levy, operating criteria

for intermediaries and the penalties for non-

compliance with the act.

Similar to the South African environment,

insurance-related laws are drafted by the IGS.

The draft law is submitted to the Ministry

of Finance for approval and, on approval, is

forwarded to the cabinet. If the draft law meets

with the consent of the cabinet it is placed before

parliament. If it is found to be acceptable it is

signed off by the president and published in the

government gazette. These similarities make it an

attractive option for insurers in other countries.

Creating the future

The interest in the region from South African

insurers was perhaps best highlighted by Absa’s

recent acquisition of Mozambique’s Global

Alliance Seguras, which, in 2010, generated

income of over $25 million, according to the

Absa Group. Absa already has a presence in the

country through its majority stake in Barclays

Bank Mozambique. The bank is majority owned

by Barclays PLC (BCS). Absa CEO Willie

Lategan told Dow Jones Newswires, “Absa

wants to recreate the insurance and financial

services offers it has in South Africa in other

markets in Africa, and the Mozambique purchase

is in line with that goal.” It is not alone; there are

other SA insurers already active in the market

and still others are eyeing the possibilities.

According to Mathonsi, Mozambique’s non-life

market continues to grow at a good rate with

an annual growth in US Dollars of more than

12.5 per cent from 2007. The non-life sector,

he adds, is dominated by the motor insurance

class, accounting for about 46.5 per cent

gross premium written. “The growth of the

insurance industry remains inextricably linked

with economic performance. All indications are

that if political and macroeconomic stability is

maintained, the non-life market will continue

to grow well.” Seguradora Internacional de

Moçambique SA (Impar), one of the largest

private insurance companies in Mozambique

has a market share of 34 per cent. In December

2010, its total premium income reached around

Meticais 1.218 million (equivalent to US$37

million) on life and non-life businesses.

In terms of loss ratio performance,

Mozambique’s non-life sector has had a ratio

of not more than 38.7 per cent for a number

of years, incurred claims to net premiums

earned. “The return on capital for the industry

as a whole is around 13.6 per cent with the

three top companies reporting rates of return

in excess of 25 per cent in 2008 and 2009,”

he says.

The growth of the insurance industry remains inextricably

linked with economic performance. All indications are that if political

and macroeconomic stability is maintained, the non-life market

will continue to grow well.

Meticais 1.218 million

total premium income reached in December 2010

34 riskAFRICA

A growing market

The market size is valued at approximately

US$ 95 million, ranked as follows:

Composite insurers

1. 28.4 per cent – Impar

2. 26.1 per cent – Emose – State insurer

3. 21.9 per cent – Hollard

4. 19.40 per cent – Global Alliance

Non-life

5. 02.5 per cent – MCS

6. 01.7 per cent – Austral Seguros

7. 00.0 per cent – Real Seguros – started 1

August 2010

The only reinsurer registered in the country

is Moz Re, a subsidiary of the ZimRe. “Local

insurers cede a substantial amount of facultative

business to the South African market, principally

Munich Re and Swiss Re. Business is also placed

with regional reinsurers, for example Africa Re,

Kenya Re and PTA Re,” Mathonsi says. “Specialist

markets are used for particular classes or risks;

the aviation sector, tourist lodges, liabilities and

the London market is often used for the specialist

facilities it can provide. There is no single insurer

writing life business or life insurance companies in

the market. Life and non-life business is written

by composite insurers and the life business is very

insignificant accounting for approximately 2.5 per

cent of GPI.”

South African-owned Absa bought the Global

Alliance insurance company and Alexander Forbes

Insurance Brokers. Both have majority direct

foreign investments and are very successful.

Mathonsi adds: “There is no Namibian investment

in the insurance industry but countries like Kenya,

Malawi and Zimbabwe also have successful

insurance investment in Mozambique.”

In another interview with the How we made

it in Africa website, Lategan says, “If you look

at the Mozambican market, it is still very lightly

penetrated with insurance, although it has been

growing in significant double-digits over the

last three to five years. We think this growth is

going to continue, and we want to participate

in that growth.” He adds that Global Alliance

is the number three player in the Mozambican

landscape. “The top four players are all

significant players in the Mozambican context,

and then there are a number of smaller players.

Competition is heating up, but the overall

insurance penetration is still less than one per

cent of GDP.” Absa does not intend to rebrand

Global Alliance as the company already enjoys a

good foothold in the market and has very good

relationships with the brokers.

As a percentage of GDP and expenditure on

a per capita basis expressed in USD in the

year 2008, life represents 0.11 per cent; and

non-life represents 0.69 per cent. “Most of

Mozambique’s population works in the informal

sector, a substantial amount of which comprises

of subsistence farming. These people have no

involvement at all with the insurance sector and

an improvement in insurance penetration hinges

on the growth of formal sector employment and

the economy in general,” Mathonsi says.

Diversifying options

There are currently 33 insurance brokers

licensed in Mozambique, a number of these

with Portuguese or South African shareholders.

The largest insurance brokers according to IGS

statistics released in 2008 are:

•26.5percent–Aon

•21.3percent–AlexanderForbes

•15.7percent–Nationalbrokers

•12.1percent–PoliSeguros

•11.3percent–MSeguros

•13.1percent–Allotherbrokers

Although no official statistics are available,

brokers are now believed to be the most

important distribution channel in the

Mozambique market, certainly in terms of the

business-related insurances with more than 50

per cent market share.

Increasingly insurers are diversifying product

offerings to keep in line with client needs. In

August, for example, Hollard Mozambique

announced its new travel insurance product.

Henri Mittermayer, managing director of

Hollard Mozambique, says: “We are delighted

to announce the launch of the Hollard

travel insurance product in a move that will

revolutionise travel insurance in Mozambique.

Until now, travel insurance in this market

wasn’t necessarily an appealing proposition.

Hollard Travel Insurance will redefine the

travel insurance landscape by providing

consumers with an innovative, affordable and

convenient solution.”

Mozambique remains a relatively untapped

market for insurers and South African and

Namibian insurers are set to take advantage of

the possibilities and leverage the experiences

they have had in their own markets to extend

into this growing target market.