APRIL 2014

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

N C E
U R A
N S
I es!
E S S r si s s i

U SI NN o t fo
B PRAGMATIC PRAVIN
Election budget

BINDER REGULATION
An insurers perspective

COMMERCIAL INSURANCE
Competing in a changing arena

OFC_portrait.indd 1 2014/04/07 3:16 PM

 Renasas highly personal service is underpinned by advanced claims
and underwriting technology. We give our brokers state of the art
tools that provide a sustainable competitive advantage without inter-

Scuba.indd
Untitled-1 11 2013/03/02
2014/04/07 11:04 AM
3:25 PM
 fering with their existing processes and systems, or compromising their
independence. Want the best of both worlds? Contact Renasa today on
0860-RENASA or visit www.renasa.co.za.

Scuba.indd 2 2013/03/02 11:04 AM

Renasa DPS template.indd 2 2014/04/08 10:18 AM

 25 YEARS OF INDUSTRY INTELLIGENCE

CONTENTS
COVER APRIL 2014

18
APRIL 2014

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

SHORT-TERM
Covering cycling fanatics 25
Fired up for IFSEC SA 26
Finance for non-financial mangers 27

NC E
U R A
S I NsisSsies! FINANCIAL PLANNING

I NENot for S Understanding the GEPF 46

BU S PRAGMATIC PRAVIN
Election budget
Alter ego trust trap
The force of regulation
48
50
BINDER REGULATION
An insurers perspective
Allocating your assets 54
Living annuities low down 55
COMMERCIAL INSURANCE
Competing in a changing arena
Seven financial mistakes 56
Executor for your will 57
An equi-weighted approach 60

ON THE COVER
OFC_portrait.indd 1 2014/04/07 3:16 PM

HEALTHCARE
BRAVING BUSINESS INSURANCE 8
SMMEs are the life-blood of our economy. COVER Tips for my client 93
spoke to insurers, financial planners, intermediaries Medical scheme vs. insurance cover 94
and legal experts about the provision of business Healthcare 3.0 96
insurance to these powerhouses in small packages. SMarTer than we think 97

COMPETITIVE COMMERCIAL INSURANCE 18

WORKING WITH WHEELS
The commercial landscape in South Africa has Outlook: Smooth rides ahead 28
changed. The focus has shifted towards construction Vehicle insurance landscape 30
and engineering; freight; liability and retail. COVER Volkswagen and WesBank unite 32
explored this competitive environment.

IN A BIND, OR FREE TO RULE? 62

RISK MANAGEMENT
The survival of UMAs has been questioned recently, The silo effect 86
yet COVER readers are optimistic about their From qualitative to quantitative 87
sustainability in the face of binder regulations. Warning: Risky investments 88
Transactional risk insurance 89

PRAGMATIC PRAVIN 73
South Africa is in the midst of our sixth election year. LEGAL
With this in mind, a passive and pragmatic budget
speech was to be expected. COVER asked industry Asking the right questions 80
experts how they interpreted the 2014 budget speech, POPI and social media 82
and whether the devil was in the detail. Dont rule from the grave 82

The views expressed in this magazine do not necessarily represent those of its
owners, publishers or editorial staff. Editorial contributions sent to COVER are
Subscription rate: R470 per annum in South Africa. subject to editorial change to suit the style of the magazine. All manuscripts,
Other rates on application. photographs and other similar matter are accepted on the understanding that no
loss or damage is borne by the publisher, the editor or their personnel.
2 COVER APRIL 2014

April 14.indd 2 2014/04/08 9:16 AM

 Tired of Drawing Straws ?

Reduce your risk with Dynamic Salvage Managements

Streamlined Salvage Solutions
With 10 years in the industry, Dynamic Salvage Management
offers you a code of ethics that guarantees you:
A tailored solution for your motor salvage disposal
Professional expertise and personalised service to enhance efficiencies in
your claims department
Competitive salvage percentages to improve loss ratios
Prompt payment backed by financial guarantees
Bond stock comprehensively insured
A web-based stock management system for maximum efficiency
A national branch infrastructure with branches strategically positioned
Contact:
Shane Lotter
Tel: (011) 493 5101
Email: shane@dsm.co.za
mobile.dsm.co.za
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Untitled-1 1 2014/03/11 1:40 PM

 62 73

ASSOCIATIONS EDITOR
Tony van Niekerk
iiSA liability insurance forum 68 tony@cover.co.za
PFA: Death benefits deconstructed 101
EDITORIAL
Annetjie van Wynegaard
annetjie@cover.co.za

Taryn Kerr
GOVERNANCE taryn@cover.co.za

ADVERTISING & MARKETING

Towards the final frontier 98
Hermione Ballinger
FSB cracks down on compliance 99 hermione@cover.co.za
Global cost of compliance 100
EDITORIAL, ADVERTISING & MARKETING
Thenjiwe Roda
thenjiwe@cover.co.za
TECHNOLOGY ADMIN & SUBS
Brent Munnik
Redefining SAs insurance sector 90 brent@cover.co.za
Mobile strategies in review 91
Challenges of mobility 92 LAYOUT & GRAPHIC DESIGN
Wesley Chipps
wesley@cover.co.za

Publisher
COVER Publications
AFRICA RISING
Street address
Infrastructure in Africa 34 80 Devilliers Way,
Glencairn, Cape Town
Can the continent make it? 35
African aviation 38
Postal address
Investing in Africa 40 P O Box 2030
Oil in Uganda 42 Sun Valley, 7985
COVER reaches into Africa 43
Telephone (083) 567-0757
Fax (086) 642 6263
E-mail: info@cover.co.za
Website: www.cover.co.za
REGULAR Images: 123rf.com; istockphoto.com
& shutterstock.com
Editorial 6
Coffee with COVER 84 Editorial Board
Events 102 Peter Atkinson, Seamus Casserly,
Market cover 106 Mike Duncan, Ronald Gordon, Mark Haken,
Jonty Kirkman, Baravand Madhav,
Product Development 109 Rod Pearson, Colin Travers.
People on the move 112
Advisory Committee
Carel Nolte, Viviene Pearson, Kalim Rajab

The Editorial Board serves in a voluntary and

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

See our Facebook page

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

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

April 14.indd 4 2014/04/08 9:16 AM

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

To know more about our range of short-term

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

30373 MF_ 1Broker Integrated_Cover Mag.indd 1

Untitled-1 2014/03/20
2014/04/07 11:50 AM
3:02 PM
 Editorial

Tonys thoughts
Small, Medium and Micro
Enterprises (SMMEs) have always
been the great stabiliser in the
South African economy. These
small businesses are the fall
back for many individuals who
cannot find employment, are
retrenched, have disabilities
that make it difficult for them
to go to work, and for those
with entrepreneurial talents and
innovative ideas.

The SMME segment of our economy

is therefore an essential part of
employment creation and should be
nurtured, grown and protected. This
month, in our Business and Commercial
Insurance features, we look at both
the short-term as well as the financial
planning side of business insurance.

In my experience, the short-term

needs of SMMEs are currently being
addressed more frequently than the
financial planning side. The reason
for this is probably not singular, but I
would venture a guess that its two-
fold. Many SMME assets will be linked
to finance agreements, and these will
almost always require insuring the
financed items.
However, the picture is not the same
for financial planners. SMME business
people usually have shorter term
visions and will spend their money on
initiatives that can provide the best
return in the shortest time. No wonder
that life insurance is not something for
which they will pick up the phone.
When it comes to business and
commercial insurance, there needs to
be a holistic approach by any advisor
or broker for the financial wellbeing
of their collective client. Many short-
term brokers already have referral
arrangements in place and these will
increase significantly as we see the
pressure on commissions mount.
For many years the industry has been
working hard at increasing the skills
of the short-term brokers and the
financial advisors. However, the take-
up still seems to be a bit slow. Our
commentators this month provide us
with their thoughts on how we should
address the challenge and realise the
opportunity.
INTO AFRICA
I am freshly back from a round
trip through East and West Africa.
On the back of COVERs very
successful Insurance Distribution and
Bancassurance Conference, now in its
fourth year, I went to Kenya and Ghana
to host our first Insurance Distribution
Seminar in both these countries.
The reception was fantastic and the
delegates at both seminars participated
comprehensively. Insurance penetration
in Africa sits at about 2%, indicating
significant opportunity.
Various executives have presented at
our conference and now the seminars
over the past few years, sharing their
innovations and successes. The amount
of brilliant initiatives that surface as a
result of collaboration and sharing of
ideas is significant, making participation
rewarding and incentivising sharing in
return.
Read all about this initiative on page
43 and make sure you register for
the main conference on 10, 11 and 12
August in Cape Town. With 16 African
countries participating, if you are in any
way interested in insurance distribution,
you will find inspiring sharing at this
event. Visit our website for all the
detail and registration:
http://www.cover.co.za/event/
african-insurance-distribution-
bancassurance-conference
I hope you enjoy this months packed
issue!
Tony

6 COVER APRIL 2014

April 14.indd 6 2014/04/07 12:26 PM

Untitled-1 1 2014/04/07 3:02 PM
 Business insurance is
not for sissies
A large percentage
of SMMEs have no
- or inappropriate
- nancial plans
other than short-
term. Is it because
we know there is
no specialist focus?
COVER asked key
role-players in the
business insurance
sector insurers,
nancial planners,
intermediaries,
and legal experts
for their diverse
thoughts on
provision of
business insurance
services to,
especially, Small,
Medium and
Micro Enterprises
(SMMEs).

8 COVER APRIL 2014

April 14.indd 8 2014/04/04 2:32 PM

 Business Insurance
Financial Planning:
Supporting the SME
How can financial planners
and the industry help Small
and Medium Enterprises?
Lets look at the scenario of
Logan Lundell, founder of a
relatively successful SME. SMEs
are generally established and
run by entrepreneurs; Logans
main challenge is creating a
profitable business and paying
salaries and bills.
THE PREDICAMENT
As the business grows, Logan will hire
more staff. Some will come from large
corporates, where they would have
enjoyed employee benefits as part
of their remuneration package. SMEs
often do not have embedded benefits.
To attract or keep valuable employees
who have previously enjoyed such
benefits, or expect them, Logan will be
compelled to convert their benefits into
take-home pay.
Employees may be content with more
income and are not obliged to use
that additional amount to invest in
YOUNGER EMPLOYEES MAY NOT SEE THE NEED FOR MEDICAL
AID COVER, AND RETIREMENT IS A LONG WAY AWAY.
a pension scheme or medical aid.
Younger employees may not see
the need for medical aid cover, and
retirement is a long way away.
Now the SME grows, the employees
are older and wiser, and new personnel
are hired. The employees are more
experienced and have seen that
their counterparts at corporates have
provision made for their retirement
and medical needs through a company
scheme. Logans employees recognise
their own need for cover, and want to
know what benefits they are entitled
COVER APRIL 2014
April 14.indd 9
to. Logan realises that he will be
approached by his employees for cover,
and he will have to have a strategy in
place to meet their needs. He will have
to have access to accurate information
on what is available. The need for a
qualified advisor becomes clear.
THE UNDERCURRENT DICTATES
The communal voice is saying, We
want benefits.
Logan has to assess the viability of
setting up a group employee benefits
scheme. If he has five employees he
will choose not to implement such a
scheme. But, when he reaches scale,
from about twenty employees upwards,
he may find it worth investigating
the options for employee benefits:
retirement savings and ancillary risk
benefits group life, disability, funeral
benefits and healthcare through the
group.
PRACTICALLY, HOW WILL HE DO
THIS?
Contact an independent employee
benefits consultancy, which would
advise on an appropriate benefit
structure. In terms of the Income Tax
Act, when you set up a retirement fund,
all employees have the option to join or
not within the first year (they may have
their own provisions already, so you
cant unilaterally enforce membership
as this may lower their take-home
pay). From the date of inception of the
retirement fund, all new employees
who are eligible to participate in the
retirement funds (in terms of the rules)
have to join the fund, as prescribed by
the Income Tax Act.
RISK BENEFITS
On the insurance side, when Logan has
decided on the risk benefit structure,
TREVOR TAYLOR
Managing Director
Chartered Employee Benefits
he will go to market and request
the advisor to conduct a market
comparison based on benefits and
cost, and based on that Logan can
implement appropriate insurance for his
employees.
The power of the group, economies
of scale, different ages, and the
principle of cross-subsidisation could
lead to better benefits and medical
underwriting in the employees
favour. The same advisor will request
quotations for the administration of the
scheme and investment providers to
the retirement fund. The advisor will do
a comparison and present the findings
to Logan. SMEs are not compelled to
set up retirement schemes; this is the
right thing to do in the interests of the
staff and to attract quality staff.
BENEFITS PLAY A BIG ROLE
Once implemented, Logan must work
in tandem with the advisor to ensure
that members are educated on their
benefits, appreciate them and own
them. For the benefits to be attractive
to the employees, they must have
some knowledge of what cover they
have. At Chartered Employee Benefits,
we facilitate workshops at employer
premises to assist financial literacy and
understanding.
9
2014/04/04 2:32 PM
 Business Insurance

Getting down to business

South Africas entrepreneurs
face unique challenges and
contradictions. A recent report1
on entrepreneurship found
that our nations attitudes
to individual enterprise are
strongly positive and supportive.
Compared to other fast-growing
economies, the costs of starting
a business in South Africa
are fairly low. But low levels
of education, poor access to
funding, and relatively high
costs of hiring and firing present
obstacles to success.
POINTS TO CONSIDER WITH
RESPECT TO BUSINESS
ASSURANCE NEEDS:
AFFORDABILITY
In the early stages of a business,
entrepreneurs have to juggle the
conflicting demands of large capital
expenditure, a significant debt liability
and limited cash-flow. Its vital that
premiums are as low as possible,
while delivering the required level of
protection. By matching the duration
and behaviour of cover exactly to that
of the underlying need, cover is more
efficient. We find that this efficient SCHALK MALAN
structure saves clients an average of Executive Director:
BrightRock
30% on their premiums from day one.

In such an unpredictable environment,
entrepreneurs have their work cut out
for them. Their business assurance
must provide a high degree of flexibility
to maximise both the relevance and
affordability of their risk cover as their
businesses grow and develop. We
believe there are both the opportunity
and the demand for product providers
to introduce more efficient product
structures that address entrepreneurs
changing needs better.
Traditional product structures
whether providing protection for
keyman, contingent liability or a
buy-and-sell do so via a single
capitalised lump-sum that is priced for
the maximum term and usually set to
grow over time. This is generally at
odds with the nature of the business
assurance needs themselves (see points
to consider).
The ability to tailor cover to match the
underlying financial need is the central
tenet of the needs-matched insurance
structure BrightRock introduced to
the market in 2012. Financial advisors
have welcomed this ability to meet
the needs of their business assurance
clients. While we launched with the
intention of initially focusing purely
on individual cover, the demand for
business assurance was immediately
clear and weve been pleased with
the volumes of business written in this
category.
WE FIND THAT THIS
EFFICIENT STRUCTURE
SAVES CLIENTS AN
AVERAGE OF 30% ON THEIR
PREMIUMS FROM DAY ONE.
RELEVANCE
Once a debt liability has been met,
theres no longer a requirement to
provide cover for it. Similarly, as
a business evolves, its reliance on
specific key individuals is likely to
change or lessen and eventually end,
impacting on the nature and extent of
the keyman cover required.
Reduction in need for Key Person cover
over time
Many of these future changes in need
can be anticipated with a fair amount
of certainty. Business assurance
products should offer the ability to
structure cover taking these future
changes into account from the outset.
For example, a business owner may
know that his vehicle fleet will be
replaced every four years and wish
to structure his businesss debt cover
to increase in line with inflation
every four years. BrightRock offers
unique features that allow this level of
flexibility.
Access: While its possible to anticipate
certain future developments such as
the date that a debt will have been
paid off its also very likely that
new needs will arise or the businesss
growth will play out differently than
expected. Future insurability and access
to cover with minimum friction is a
critical requirement. While BrightRock
prices cover for the appropriate need to
maximise efficiency, we underwrite a
clients premiums for life. This means,
should their needs change in future,
business owners have the ability to
redirect their premiums to different
needs and insurance events (even to
personal cover) anytime their needs
change, free of medical underwriting.
They also have the ability to buy up
cover with limited medical underwriting
(HIV test only).
1
Ernst & Young G20 Entrepreneurship
Barometer, October 2013.

10 COVER APRIL 2014

April 14.indd 10 2014/04/04 2:32 PM

 JHB 45778
Together we can
grab Worry by
the scruff of its neck,
poke it in the eye
and give it
a good old wedgie.
Oh, and we can also sell insurance together.

Were super proud of the lasting partnerships were building with

each and every one of you, our brokers. When we work with
people like you, forehead veins dont throb, swear words arent hurled,
and everyones lives become a lot less worrisome.

personal commercial corporate investments Hollard Short-term, Hollard Life and Hollard Investments are Authorised Financial Services Providers.

Untitled-1 1 2014/04/07 3:02 PM

 Business Insurance
Sanlams approach
to the SME market
The local SME sector is growing
steadily. More and more business
owners are developing and
managing successful businesses.
They have a keen understanding
of their industry, but many still
do not fully understand the
financial implications of not
having the necessary business
insurance cover in place.
Business assurance is a specialised
field and financial planners are often
hesitant to offer this service. One of
the barriers to entering this market
is a lack of understanding of the tax
implications associated with business
insurance, i.e. income tax, estate
duty and capital gains tax. This is a
crucial element in the advice giving
WE ESTIMATE THAT BUSINESS ASSURANCE GENERALLY
CONSTITUTES 10% TO 15% OF A FINANCIAL ADVISORS RISK BOOK.
12
April 14.indd 12
process. Financial planners therefore
tend to lean towards personal financial
advice rather than addressing business
assurance needs. We estimate
that business assurance generally
constitutes 10% to 15% of a financial
advisors risk book.
Sanlam has intensified its focus on the
SME market over the past few years.
With Financial Solutions for Business
Owners, Sanlam is giving the financial
planner a consolidated view of the
Sanlam value proposition for business
owners. We support financial planners
from a business insurance perspective,
offering tools, efficient business
processes and specialised support
material, such as business assurance
podcasts for contingent liability, buy
and sell arrangements, key person
insurance and sickness benefits for
key persons, to make it easy for the
liability and we aim to address every
an electronic Contingent Liability
DEON THEUNIS
Sanlam
financial planner to engage this market
with confidence. A recent addition is a
series of legal flash facts that discuss in
laymans terms all the tax implications
pertaining to business insurance.
In 2014 we are focusing on contingent
aspect of financial planning with
Briefcase. The reality is that most
businesses have debt and most
business owners have not secured
that debt. We therefore want to equip
financial planners to interact with
any business owner regarding the
implications of signing surety on behalf
of the business.
The 1-2-3 of Business is Sanlams
flagship business insurance analysis
instrument and is used by around
2 000 financial planners. Not only
addressing the pertinent business
insurance needs of the business owner,
it also ensures that the loop is closed
by generating the relevant business
insurance agreements, ready for the
clients signature, a pre-populated
application form, an online quoting
facility and so much more. The
phenomenal take-up since its launch
in 2008 indicates an absolute vote of
confidence from financial planners and
business owner clients alike.
COVER APRIL 2014
2014/04/04 2:32 PM
 The value of advice
Advisors play a vital role in
ensuring business continuity at
South Africas SMMEs
Business Assurance is designed to
perform in the event a director,
partner or key employee at an SME
dies or becomes disabled. This
category of insurance allows business
owners and decision makers at small
companies with assistance from a
suitably qualified financial advisor to
put in place structures and monetary
arrangements to protect the SME
following such events.
The most common covers are Key
Person Insurance and Buy and Sell
Agreements. Key Person cover pays a
cash lump sum to enable a business
to survive in the period immediately
following the death of a key person.
The life insured is the key person
while the company is the beneficiary
of the plan and pays the premiums.
A Buy and Sell Agreement provides
funds in the event of a partners
death to purchase a portion of the
deceaseds business interest. It is
a policy bought over the life of a
director or partner by another, though
in the case of a sole proprietorship a
key employee is usually named as the
buyer/successor.
THE LIFE INSURED IS THE KEY
PERSON WHILE THE COMPANY IS
THE BENEFICIARY OF THE PLAN
AND PAYS THE PREMIUMS.
Business Assurance is an important
component of any holistic business
protection plan. We expect
professional risk and financial advisors
to consider such covers as part of
the comprehensive financial needs
analysis that they would conduct for
small businesses and their owners.
How do small businesses transact for
Business Assurance? It appears that
many SMEs access covers through
their personal financial planning
contacts, often as an extension
COVER APRIL 2014
April 14.indd 13
ON THE
LOOSE!
GARETH STOKES
Communications Manager,
Financial Intermediaries
Association of Southern Africa (FIA)
of their personal risk portfolios.
As companies grow in size the
transaction is more likely initiated
by a senior employee or financial
manager by contacting an insurer
which in turn recommends a financial
advisor. There is also evidence that
financial advisors linked to the small
business departments of major banks
are active in this space.
One of the risks in the SME
environment is that business owners
underestimate the role they play
in the continued success of the
operation. They are quick to put in
place short-term insurance covers for
plants and machinery, motor vehicles,
property, building contents and
even complex risks such as business
interruption covers; but hesitate to
insure their own lives.
Although Business Insurance falls in
the financial planning remit the FIA
is aware that many of its members
operate in multiple financial services
disciplines. We are confident that our
short-term broker members would
suggest to business owners that
they consider the impact of the loss
of a key person in their overall risk
consideration.
The next step for small business
owners is for them to arrange a
meeting with a financial planning
professional to ensure that covers
such as Key Person Insurance and Buy
and Sell Agreements are in place.
13
2014/04/04 2:32 PM
 Business Insurance
Managing emotions for
a family-owned SMME
Within the short-term industry
there is a differentiation between
personal and commercial
insurance solutions, with further
specialisation in the agricultural
and engineering industries.
Specialist industries such as
mechanical engineering or wine
farming highlight the importance
of a personalised offering, and
that a one size fits all approach
could lead to potential shortfalls
and gaps in risk cover.
Within the long-term industry too
there is a differentiation between
personal and business financial
planning. However, there is a specific
need for financial planners to focus on
the specialised area of family-owned
businesses.
The definition of a family business is
that the majority of the shares (e.g.
51%) must be in the hands of the
family; the family must have the
intention to take the business to the
MORE THAN 80% OF ALL
BUSINESSES IN SOUTH
AFRICA ARE FAMILY-OWNED.
next generation; and the family must
be in charge of the strategic direction
of the business.
More than 80% of all businesses in
South Africa are family-owned, but
the sad reality is that only a third
of family businesses survive to the
second generation, and less than
4% to the third generation. So how
can a financial planner assist these
businesses to tackle the challenges of
succession planning and continuity, and
help them to survive in a competitive
14
April 14.indd 14
environment? If the dream of a family-
owned business manager is to leave a
legacy for his or her children, how can
the financial planner assist?
When emotions run high, intelligence
runs low, and where there is family
involved, financial planners need to
ensure that uncontrolled emotions are
managed proactively. How does one
ensure that the family does not make
emotional business decisions in favour
of the family that undermine the future
sustainability of the business?
Specific non-insurance strategies like
conflict resolution agreements and
drafting a family constitution can
complement traditional succession
planning strategies. If there are no
clear ground rules on, for example,
remuneration or a formal policy if a
family member needs to be disciplined
due to bad work performance,
the business could face premature
extinction.
Business owners can get so entangled
with the short-term daily operational
issues that they tend not to take time
out to plan for strategic issues to help
to be the mouthpiece for family
business consultants and financial
future-proof the business. Traditionally,
financial planners ask what will happen
in the event that ownership needs to
be transferred in the case of death or
disability.
It should be asked if there is a plan in
place if someone in the family should
want to take over the reins. Is there an
exit strategy should the current owner-
manager want to hand over or retire?
Will the successor need to fund the
transfer, or does the successor have
to buy into the business? What about
JACO GOUWS
Product Actuary
Old Mutual
children who are not actively involved
in the business?
Family members are often not able
to deal with the emotional issues of
a family-owned business. Through
intelligent, proactive planning an
external third party like a financial
planner could facilitate the process
along with a family business consultant
to ensure that the family business can
still prosper when emotions runs high.
Old Mutual supports FABASA (Family
Business Association of South Africa),
a non-profit organisation that strives
businesses in South Africa. Family
businesses can join FABASA at no cost
and get access to accredited family
planners.
Accredited family business consultants
can assist family businesses with
succession planning, a family
constitution and more to help the
family business move successfully
from one generation to the next. The
Nelson Mandela Metropolitan University
(NMMU) is the learning partner of
FABASA. If you are interested in
becoming a family business consultant,
you can enrol in a short learning
programme at NMMU.
For more information visit FABASAs
website at www.fabasa.co.za
COVER APRIL 2014
2014/04/04 2:33 PM
 Your business can now
afford to be compliant
Legislative risks small, medium
and micro business owners
of South Africa face as they
grapple with the almost daily
tasks of ensuring compliance
to regulatory requirements,
adherence to labour laws
and consumer protectorate
directives, in addition to trying
to grow market share in a
challenging economy.
Being the master of your own
destiny is appealing to a budding
entrepreneur, but its certainly not
for the faint-hearted. Preparedness
is half the battle won.
Ever-changing regulatory legislation
could see an entrepreneur crippled
by a simple labour or client dispute.
Businesses are exposed and this
exposure seems to be increasing
as our country and economy
develop. SMMEs are required to
comply with a myriad of legislation
covering a vast number of areas,
and professional legal assistance
is necessary in order to become,
and stay, compliant, but the cost of
having access to legal representation
and advice is so high that most
SMME owners simply cannot afford
to be compliant.
This leaves businesses wide open to
risks when confronted with labour
disputes with employees, contractual
disagreements with suppliers, service
providers or clients, potential liability
claims, unrecoverable debt and
ultimately, costly litigation. These
risks have a negative impact on the
overall morale and sustainability
of SMMEs, which is the opposite
of what we want to achieve in
economic growth and job creation in
South Africa.
The value of commercial legal
protection insurance for SMMEs
is that business owners have
access to legal advice, support and
infrastructure to ensure compliance
COVER APRIL 2014
April 14.indd 15
SUNETTE ANSARA
SO HOLD
Divisional Head:
Infiniti Legal Sense
YOUR
on all levels, without breaking the
bank. It frees business owners to
focus on business activities, without
BREATH
having to waste their time trying
to resolve legal problems and
challenges when it could be better
spent on production and revenue
generating opportunities, says
Sharon Paterson, CEO of Infiniti
Insurance.
The fairy godmother to small
Well be
business comes in the form of
select South African legal insurance
unmasking
underwriters who are playing a
pivotal role in putting affordable
legal services within the reach of
all SMME business owners in South
African. the killer at
EXAMPLES OF COMMON
DISPUTES ARE: our roadshow.
A supplier who doesnt supply
the correct service or goods and
your business suffers as a result;
A business partnership or trading
relationship goes sour and
matters need to be settled;
A customer does not pay for your
services or products and it is too
expensive, or you do not have
the legal expertise at hand, to
recover the money owed to you;
An employee committing fraud
or giving bad service under
your companys name;
An employee stealing your
customer base or breaching the
terms of their contract and taking
business away from your company;
Debtors not paying you,
which means taking legal
action against them; and
An employee takes your company
to the CCMA for unfair dismissal.
15
2014/04/04 2:33 PM
 Business Insurance
Financial planning and
business assurance
The word Business Assurance
evokes one of two emotions
in most financial planners:
either apprehension because
of the perceived complexities
of the topic, or glee for the
potential income that can be
earned in this arena. Although
there are a number of financial
planners whose income is mainly
generated by their focus on
Business Assurance, and even a
few practices that specialise in
dealing with business owners,
there are probably not sufficient
numbers to call it a trend.
Some of the reasons why planners
dont specialise more in business
assurance might be because of the
increased risk to a planner in giving
advice on business assurance matters:
The additional layer of legislation
which applies to business assurance
and which could affect the quality of
advice offered by financial planners is
a risk. For example, any planner who
advises on business assurance should
be an expert on the specific Income
Tax and Estate Duty stipulations that
rule on the deductibility of premiums
and the taxability of proceeds. As
16
April 14.indd 16
these paragraphs in the Income Tax
act are some of the most changed
in recent tax legislation, a cursory
knowledge of it would only add to
the planners risk in advising clients
on their business assurance needs.
Another example is the correlation
between the stipulations of the
new Companies Act with regard to
the Memorandum of Incorporation
and the buy and sell agreement.
A planner specialising in business
assurance also need to be an expert
in estate planning. Business assurance
planners cannot continue to ignore
the effect the business advice will
have on a clients personal estate
and we foresee that inappropriate
advice in this regard might in
future be the base for personal
claims from executors and spouses
who have been harmed by the
incorrect implementation of business
assurance agreements and policies.
The minefield that is advising on the
disability cover component of buy and
sell agreements, where the wrong
advice could leave a still reasonably
able business owner with some
capital but without his business.
We have not yet seen many claims
against financial planners in the area
of risk cover advice as the majority
of FAIS ombud claims are aimed
at investment advice. However,
HESTA VAN DER WESTHUIZEN
CFP, Chairperson of the Financial
Planning Institutes Risk ISG
this could change in future. Due
to the complexities involved in the
Business Assurance market, financial
planners who want to work in this
area need to equip themselves with
the knowledge and expertise to give
appropriate advice on all matters
involved in managing the risks for
business owners in transferring the
ownership and covering liabilities in
the event of death and disability.
As an industry we have the moral
obligation to ensure that we are
equipped to provide business owners,
especially in the SMME market, which
might not always be as profitable as big
business, with the tools to protect their
capital input and accumulated wealth
for dependents.
COVER APRIL 2014
2014/04/04 2:33 PM
 Brokers and insurers:
The valuable market of
SME business insurance
Providing business solutions
to the dynamic SME market
allows insurers to demonstrate
their versatility. Quick to
market response and superior
service delivery are two
priorities. In this price sensitive
sector the role of the broker
is crucial in helping the
client understand their own
insurance needs and also how
to mitigate risk of loss.
Providing insurance solutions to SME
companies can be a challenge as
often business owners are not aware
of all the risks to their business and
as such dont necessarily feel the
FLEXIBLE OFFERINGS
PROVIDE BROKERS THE
ABILITY TO DELIVER
UNIQUE SOLUTIONS.
need to insure. Insurers offer various
solutions and often have special risk
management requirements for varied
client business occupations. Unlike
large businesses, SMEs do not have
in-house risk managers, who would
normally identify the necessary cover
for the business. This highlights
the need for a brokers advice to
find appropriate solutions for the
client. Brokers play a crucial role in
highlighting the consequences of a
loss; even fairly moderate impacts
can imperil the companys ability to
maintain its operations.
The SME insurance market is
characterised by price sensitivity;
nevertheless its the full value
proposition that counts. Thats where
COVER APRIL 2014
April 14.indd 17
COMING
THIS
MAY
VILONA MOODLEY
SME Profit Centre Manager
Africa at AIG
to a venue
having the right insurer matters
and in the event of a claim, clients
need to know that it will be handled
correctly and quickly. near you.
As for having the appropriate
solution, flexibility is essential.
Brokers need to have various options
from the underwriter, including
specialist solutions that go beyond
the usual fire, theft and liability
cover. For example, AIGs solution
includes Image Protector, which
addresses accidental injury and
property loss cover for visitors to
the premises without acceptance of
liability by the insured, and kidnap
and wrongful detention protection
(Consultants Costs) in the event of
kidnap, ransom, wrongful detention
or hijacking.
Features like these differentiate
insurers in the market and provide
greater choice when packaged for
individual clients. Flexible offerings
provide brokers the ability to deliver
unique solutions.
In alignment with the governments
focus on development of the SME
sector, insurers and brokers give
high priority to this sector in both
their short and long term plans.
Altrisk is a division of Hollard Life Assurance, an17authorised
financial services provider (FSP 17697).
2014/04/04 2:33 PM
 Commercial
COMPETING IN THE
COMMERCIAL ARENA
The commercial environment in South Africa has changed. Competition has increased
significantly, and the SMME (Small Medium and Micro Enterprises) market is being looked to as a
main driver of the economy. As the commercial environment shifts its focus towards construction
and engineering, freight, liability and retail a different approach needs to be adopted. COVER
spoke to industry leaders on how they are tackling the commerical insurance market.
Regulation, volatility
and transparency
Todays business executives face
a very different set of risks from
that of their predecessors.
New risks continue to emerge
ranging from cyber crime and security
breaches, through to the risks that are
associated with meeting increasingly
complex regulatory and compliance
requirements. Many executives will
have to find a balance between making
tough and multifaceted decisions
while operating in a challenging global
environment.
All businesses, whether a small SMME
or a listed corporate company, have to
contend with a seemingly endless list
of requirements for better transparency,
disclosure, accountability and
governance, to name a few. It inevitably
brings about a barrage of responsibilities
that directors and officers (D&Os)
need to comply with, not to mention
keeping abreast of various enactments,
corporate codes and best practices.
D&Os ultimately need to illustrate to
various stakeholders that they are
running their organisations efficiently
and profitably.
The personal risks for executives and
the reputational risks for corporates
themselves are significant. In extreme
cases directors and officers may even
be forced to surrender personal assets
due to circumstances beyond their
control.
18
April 14.indd 18
Negligent acts that one could be held
liable for can however be mitigated
through a correctly structured D&O
liability insurance policy. The main
purpose of a D&O policy is to offer
financial protection for todays
executives in addition to providing legal
coverage in the event of a claim.
The cover that a D&O liability insurance
policy provides is an absolute necessity
when it comes to the protection of the
personal interests of directors, officers
and other employees that are charged
with supervisory and managerial
responsibilities, and who can be held
liable for wrongful acts which may
occur in their day to day management
activities.
A claim is normally lodged by a third
party who has a relationship with or
an interest in the company and who
alleges that a director or officer has
acted wrongfully. In some cases this
results in financial loss to a third party.
The third party has the right to litigate
against the company as well as the
individual directors and officers, which
involves substantial legal costs and in
some instances, civil damages.
A wrongful act is typically defined as an
actual or alleged breach of duty, breach
of trust, neglect, error, misstatement,
misleading statement, omission, breach
of warranty or authority or any other
act.
GILLIAN WOLMAN,
Account Manager
Aon
An analysis of claims that have been
lodged in South African certainly
underscores the need for the cover that
a D&O liability insurance policy provides.
In many instances these claims have
led to the demise of large corporate
companies due to claims that arose
as a result of mismanagement by key
executives, or the failure of accounting
and auditing firms to unveil financial
irregularities to mention two examples.
Another example could include
extensive press coverage of directors
faults, including alleged irregularities.
Ultimately a programme of this nature
must encourage a corporate culture
that supports ethical and responsible
behaviour in addition to reducing the
frequency and severity of possible
claims against directors and officers.
D&O liability cover remains reasonably
inexpensive in South Africa, while
the insurance market continues to be
relatively soft at the moment, and
therefore makes it the ideal time to
purchase and review existing covers
Finally, there is a view that the
New Companies Act may see the
development of renewed litigation that
could potentially have an adverse effect
on the cost of the cover. In addition
to this, there is also a perspective that
the promulgation of the Protection of
Personal Information Bill (POPI) could
see the emergence of additional claims
in the corporate arena.
COVER APRIL 2014
2014/04/04 2:34 PM
 Construction losses
caused by rain and storms
With the recent rains and
storms in the country there
will be many Construction All
Risk (CAR) losses as storm is
one of the perils covered under
CAR policies. However many
contractors may not have the 72
hours clause on the CAR policy
and this may pose an additional
exposure to them regarding how
many excesses are to apply.
Question is: What can the
Principal/Property Owner do?
In the event of a storm claim, the
contractor may well be indemnified
for the losses that may have occurred.
The contractor may, depending on the
contract conditions in place between
principle and contractor, ask for an
extension in time, as natural events
would normally be seen as those to
qualify for time extensions.
Chaotic weather challenged
film guarantee specialist
The unpredictable weather
patterns are causing chaos
with the shooting schedules
of local film productions. This
is where expertise is essential
in providing Film Guarantees
which financially protect the
investors in a film. We see it
as part of our service to consult
and advise film production
teams when they hit snags
which threaten production
deadlines.
COVER APRIL 2014
April 14.indd 19
BUT WHAT ABOUT THE PRINCIPAL
OR OWNER?
A question exists regarding the
principal or owner of the property
concerned. What if there is now a
loss of income or a delay in taking
occupation or renting out the building?
As protection the principal can take out
ALOP (Advance Loss of Profits) or DSU
(Delay in Start Up) cover, designed to
protect the interest of the principle.
This type of cover provides for loss of
income/rent due to a delay in start-up
or commissioning following an insured
event, such as the recent storm damage
from rains. This type of cover can only
be taken out with an underlying CAR or
Erection All Risks (EAR) type policy.
In the case of large projects where finance
was obtained it would be wise to make
sure this cover is in place to cater for the
delay in commissioning the project. This
would protect the principal/owner for
some of the financial losses that may be
incurred during the period of insurance.
Its not just the fact that it rains, but its
the severity of the recent weather that
has added to the logistical nightmares.
In these circumstances insurers need to
work with the producers to minimise
the potential budget overruns.
For instance, recent rains have forced
film production teams to move inside
much more often than usual when
the plan was to shoot exteriors. This
complicates the availability of actors,
bookings of specialised equipment
and location arrangements including
security people. All this has a domino
effect on the entire logistical process,
right down to where lunch will be
served!
FRANSCOIS ENGELS
Divisional Director Construction &
Engineering Hollard Broker Markets
WHAT IS ALOP ADVANCE LOSS
OF PROFITS?
The basis of ALOP is a once off policy,
following the underlying CAR or EAR
policy. It is project specific and is
only for the principal. It covers for
all standing charges including wages
salaries and net profit and can also
be extended to cater for Increased
Cost of Working (ICOW) to minimise a
potential large loss.
The sum insured is for the gross profit
obtained from the turnover for the
goods manufactured, rentals achieved
or services rendered. There is an
indemnity period and a time excess but
these are dependent on the type of
project and complexity.
PAUL RALEIGH
Head of Hollard Film Guarantors,
Hollard Broker Markets (and Oscar
award winning producer of Tsotsi)
And because we believe in going the
extra mile, the challenges to us have
been extreme. We use our expertise
to brainstorm options and overcome
obstacles. We are very hands on
and receive regular reports from film
production crews so we can monitor
progress and hold regular meetings.
19
2014/04/04 2:34 PM
 Commercial
Surrounding the
SMME market
APPROACHING THE SMME MARKET
South Africa is a largely SMME-driven
economy and very often, smaller firms
are unaware of the totality of risks they
face, especially in the regulatory and
increasingly more litigious environment
that is South Africa. Usually having
less resources at their disposal, SMMEs
are focused on running their business
and all too often, fail to consider the
ramifications of having no risk cover
in most instances they are even
unaware of the risks at all. One such
risk is those associated with employee
liability.
Bodies such as the Commission for
Conciliation, Mediation and Arbitration
(CCMA), provide a free and easy forum
for employees to take their employers
for allegations of unfair labour
practices, such as sexual harassment,
discrimination and failure to employ.
20
April 14.indd 20
As there is no precedent at the CCMA,
we have found that the employer has a
50% chance of winning the case, with
the average award being four months
of the employees salary, should the
case be lost. Another big risk areas is
commercial crime where employees
are involved, or a third-party computer
hacking, which could result in losses
that run into the millions. Management
may not have even regarded such
exposures as being key business risks
but they have the potential to close the
doors of even the most stable small
business.
In response to the needs of the
market, we are consistently developing
innovative products and searching for
JUSTIN KEEVY
ways to provide SMMEs with pioneering Commercial Crime Underwriter
risk management solutions that meet Camargue
the requirements of an ever evolving
risk landscape. One of the many ways
in which we do this, is by establishing
various schemes specifically
designed to provide affordable and
comprehensive coverage for smaller
firms.
THE MARKET, THE BROKERS, AND
EVERYTHING IN BETWEEN
In our experience, commercial liability
and the specialist risks market is
significantly undersold. There is also
a trend that points towards under
insurance; even when a business has
the correct policy to address a defined
exposure, the limit of indemnity or
sum insured is insufficient to address
the extent of the exposure. Exposures
like a catastrophe loss or a number of
smaller losses during a certain period.
This results in a highly undersold and
underinsured market.
Its bad business for SMMEs to
ignore their industry and business
specific risks, as its unlikely such an
operation has the balance sheet to
absorb unforeseen losses like larger
corporates. This will threaten them as
a going concern. The dynamic nature
of risk poses opportunities to cunning
COVER APRIL 2014
2014/04/04 2:34 PM
 insurance brokers who are able to
up skill themselves sufficiently to the
point where they can sell products
not previously sold. In so doing, they
can address key business risks faced
by clients while attracting new and
retaining and growing their current
book of business.
TAKING ADVANTAGE OF
OPPORTUNITIES IN THE SMME
COMMERCIAL INSURANCE MARKET
Camargue differentiates itself from
competitive offerings through a highly
skilled, professional and knowledgeable
team. This coupled with prompt
turnaround times, as well as having an
array of comprehensive risk solution
products to address key threats facing
businesses ensures a distinctive edge
for the brand. We are conscious of the
fact that not all risks can be migrated
to an insurance carrier, and as such,
we provide tailor made complementary
risk management services to policy
holders, to holistically mitigate and
manage key business risks. This
enables intermediaries to provide
their clients with comprehensive risk
management solutions to the risks they
face, which is beneficial to the Insured
but also aids in strengthening the
relationship.
It is often challenging for small
business to compete with big business.
It is pertinent that businesses partner
with service providers that will offer
useful advice to assist them on a
continual basis. As we believe that
COVER APRIL 2014
April 14.indd 21
an insurance policy is the last link in advice is provided, as well as ensure
the risk management chain, whereby that adequate insurance is placed in
the loss occurs and is migrated to relation to the clients exposure, which
the insurer. Our proactive approach we believe may prove challenging in
attempts to manage and mitigate the direct market.
AS THERE IS NO PRECEDENT
AT THE CCMA, WE HAVE FOUND
THAT THE EMPLOYER HAS A 50%
CHANCE OF WINNING THE CASE.
Our complementary risk management
business risk from the outset, thus
services are specifically designed to
providing smaller firms with direct
empower businesses by managing and
access to legal, compliance and other
mitigating uninsurable risks; forming
useful services which they may not
an integral part of a firms ongoing
otherwise have access to.
operational efficiency as they progress
through the business lifecycle.
ADDED VALUE
Attaching to various offerings,
We distinguish ourselves from direct
such services include contract and
players through our expertise in the
disclaimer vetting to ensure that
products and services we provide,
policy holders are compliant with
as well as our in-depth knowledge
the Consumer Protection Act, free
of the key business risks facing firms
telephonic legal advice, memberships
and industries today. Due to the
to the Institute of Directors in
complexity and mystique attached
Southern Africa, membership to an
to liability products, coupled with a
employers organisation to assist in
vast and dynamic risk and regulatory
labour dispute resolution, as well as
environment, it is imperative that
a whistle blowing hotline to report
intermediaries and businesses attain
suspicious activity in the workplace, to
the best advice from specialists in the
name a few.
field. By partnering with intermediaries,
we are able to put the client first and
work together to ensure the correct
21
2014/04/04 2:34 PM
 Commercial
SAs vibrant segment
Being a vibrant segment, the
South African SMME market is
on everyones growth agenda.
Having created a dedicated focus
on this segment as far back
as 1988 we have developed
an intricate understanding of
their unique risk and service
needs, which has driven the
development of our competitive
and effective solutions without
compromising on quality.
SMME MARKET LANDSCAPE
The uniqueness of SMMEs stems from
the nature of entrepreneurs, who tend
to be focused on their operations and
issues like sales, cash-flow, stock and
people management. With the diverse
issues they deal with on a day-to-
day basis, they dont often have the
luxury to concentrate on the broader
context of risk, such as operational
or strategic risk and more specifically
how these will impact on their long
COMMENTS ON THE COMMERCIAL
The current commercial
insurance landscape is evolving
and becoming increasingly
competitive. Here are a number
of trends we can expect to see
in this particular segment:
More and more direct players will
aim to get into commercial lines
of business. Products are more
complex in this sector and often
bespoke solutions are required by
brokers for their clients.
Brokers will continue to play a
pivotal role. Ultimately, it is up
to customers to ensure that the
broker they use is reputable and
understands the markets and
industries they need cover for.
Using a broker also allows clients to
assess policy offers from multiple
insurance players, ensuring that
they choose the solution that best
suits them. Transparency is key
clients must be transparent and give
22
April 14.indd 22
term sustainability. These risks are
often driven by regulatory change or
perhaps global market trends, which
is where we can bring our know how
to bear.
As a broker, one needs to direct the
conversation with clients to uncover
those needs, providing suitable advice
and promoting quality informed
decisions around risk. Our growth in
this area has largely been attributable
to referrals from existing clients, who
have experienced the value we provide
through our approach.
THE BROKER LANDSCAPE
As risks become more complex, it
becomes increasingly difficult to
provide comprehensive advice using a
virtual distribution model; so with the
diversity risks businesses are exposed
to quality advice and support is sought
after by prudent businesses.
Consider the advice and support
required when considering liability,
export, cyber and/or directors and
officers exposures for businesses
National Head of Sales & Distribution at Zurich
full disclosure, so that they receive
full coverage and dont risk having
claims turned down.
Competition will increase, however
rates will need to be sustainable.
There is a need to evaluate
premiums and see what is fair to
charge for the client, broker and
insurer. If clients have to pay too
much, they may not be able to
meet costs and may choose options
with inadequate cover. In addition,
the broker needs to make a fair
commission and the insurer needs to
generate sufcient revenue to cover
claims, costs and remain protable.
Cross-border solutions will become
a requirement and an opportunity.
Choosing a partner that has
experience in, and knowledge
about, particular markets will be
critical to success.
CAREL VAN DER MERWE
Managing Director
Marsh Commercial Practise
versus house owners, householders,
personal all risks and other personal
risks.
Brokers tend to focus on the provision
of advice and objectivity as a
differentiator. Having the ability to
consider multiple suppliers products
and services as options for clients also
enables brokers to provide solutions
that meet clients needs, whereas
the direct markets will punt only their
product. Having choice also impacts on
competitiveness and objectivity; so the
client benefits all-round.
Through our extensive global footprint,
we bring international know-how to
the solutions we put together and we
are confident they provide a holistic
and client-centric solution. We do
so in a collaborative way with our
insurer partners, to find long term and
sustainable solutions that work to the
advantage of all the stakeholders.
WILLIAM SURMON
Niche lines of business will continue
to be important. Here, small players
may have a slight disadvantage as
they may not have lines of business
that big carriers have.
Compliance and governance will be
major factors. Upcoming regulation
could potentially affect the way
commercial products are sold and
serviced.
Flexibility will be everything.
Insurers will need to be able to
offer clients the right solution for
their businesses from the start
and as these businesses grow
and change over the years, be
able to alter the product offering
accordingly. In this instance, global
insurers with global competencies,
diverse product offerings and
strong corporate divisions have an
advantage.
COVER APRIL 2014
2014/04/04 2:34 PM
 Underneath the
underwriting
HIC has historically adopted
an inclusive approach towards
Small, Medium and Micro
Enterprises in the Hospitality,
Commercial and Industrial
sectors. Our focus has never
just been on the big corporate
clients.
SMMEs make up a large proportion of
our portfolio, the majority of which
have been loyal to us for more than
seven years. Our product range caters
for both the established and emerging
entrepreneurs in hospitality, tourism,
retail, manufacturing and other
segments. We have been geared up for
several years now to provide standard
insurances covers or more importantly
tailor made risk solutions for SMMEs.
In the last three years we have
experienced significant growth in policy
units in respect of SMMEs. Some have
seen sustainable growth year on year
and others have unfortunately fallen
victim to tough economic conditions.
The threat of direct players has
never really phased HIC, as we are
COVER APRIL 2014
April 14.indd 23
confident in our core capability
of being able to underwrite risks
correctly. We make every effort to
ensure that the premiums we quote
are risk commensurate and within
the parameters of our risk appetite.
We do not believe in broad brush risk
assessment. Each risk is treated on
its own merits. In our opinion direct NEVIN SANDRA
Underwriting Technical Specialist
players appeal to the price sensitive at HICSA
clients who unfortunately often treat
their risk transfer needs and the need
for adequate insurance protection with
secondary importance. These clients 1) Identifying their risk transfer needs;
often have rude awakenings when their
claims are repudiated due to one or 2) Shopping around and negotiating
more of several special cover conditions for the coverage that best meets the
not being met. They unfortunately clients needs;
learn the hard way that cheaper
3) Negotiating more competitive but
premium, does not equal adequate
risk commensurate premiums;
insurance coverage.
4) Risk improvements to make the
Unless key decision makers at
risk more acceptable to Insurers; and
SMMEs have the time, capacity
providing
and technical insurance knowledge,
they should be appointing a broker 5) Advice on whether a claim is
and leaving insurance matters in indemnifiable or not.
the his/ her capable hands. Brokers
have the knowledge and established At HIC we will continue to assist our
relationships with Insurers to assist brokers in dealing with these and other
them with among other services: services.
23
2014/04/04 2:35 PM
 Commercial
Insuring the exotic Madame
Zingaraon the move
The IIG held its annual
Inauguration Dinner at Madame
Zingara, currently located at
Montecasino in Johannesburg.
With its unusual travelling
business model and exotic
structure, insuring it while
travelling demands engineering
expertise and unusual skills from
all concerned. After attending
the fabulous IIG Dinner, COVER
asked Hollard Broker Markets
Anthony Jones from Hollard
Construction, Engineering and
Guarantees for input about the
insurance challenges.
Financially protecting the movement
of the magnificent and unique 80
year old Mirror Tent housing the
extraordinarily successful Madame
Zingara is one of our most unusual
business insurance challenges because
it moves between Cape Town, Durban
and Johannesburg on a regular basis,
said Anthony Jones, qualified engineer
and insurer within Hollard Construction,
Engineering and Guarantees a
division of the newly created Hollard
Broker Markets.
Transporting this exotic wining, dining
and entertainment venue, including
catering facilities, to between main
centres during the year required
engineering expertise to evaluate
and effectively protect the structure
and business from the multiplicity
of unusual risks that face this rare
business model.
Anyone in the industry who has
experienced the magnificent beauty
of the Madame Zingara velvet big
top with its delicate glass dcor and
beautiful woodwork, can imagine and
appreciate the multiple challenges
involved in effectively insuring and risk
managing its movement. It requires
12 containers to move it to new
cities at least three times a year. The
latest move was from Cape Town
24
April 14.indd 24
to Johannesburg, re-opening mid-
February in time for booked events
and Valentines Day at Monte Casino.
Fortunately luck was with us the
re-erection dodged the nightmare
rain storms which followed and have
plagued the area in late February and
March.
THE BASICS: The antique mirrored tent
is almost 25m wide x 33m long x 8,6m
high with a seating capacity of 420. It
takes three to five days to dismantle
and the same time to erect at the new
venue. The structure is steel and wood
which supports the aluminium roof and
tent pieces which in a high wind can
act as a huge sail on a very large boat,
or a parachute, so wind is an important
risk factor that has to be managed,
said Jones. The external greening
and setting up the interior dcor of
decorative glass, carved wood and
exotic fabric takes 14 days.
According to Madame Zingaras
broker, Brett Jacobs of Glacier Asset
Protection in Cape Town: Madame
Zingara is a very special client to me
and the expert engineering knowledge
of Anthony was vital because the
clients business model requires that
the entire risk moves on a regular
basis. We needed to find a partner in
the industry that understands all the
associated risks to this unusual business
insurance challenge. The construction
of the Madame Zingara venue is far
from standard and replacements are
not freely available in South Africa.
But with his engineering qualifications
Anthony understood the underwriting
risks which are generally perceived as
way outside the norm.
Jones said his engineering skills
are usually applied to less exotic
constructions. Accurately insuring all
the risks involved in the dismantling,
transit, and re-erection process is
certainly a highlight of my insurance
career.
PROTECTING THE GRAND MADAME
THE PRACTICAL SIDE
Jones explains that the moving process
includes every conceivable type of risk
including loss or damage to virtually
the irreplaceable tent, its fittings and
dcor during dismantling, packing and
loading into vehicles and 12 containers,
the transit and then off-loading and re-
erection at the new venue.
The risks that the insureds business
could face during the moving process
can also include:
public liability while dismantling,
transporting and re-erection - such as
damage to a nearby shopping centres
underground cables or a passer-
by getting hurt by a falling item;
loss of future profit if the
insureds items are damaged;
damage to property not being part
of the contract, such as a vehicle
or large storage container;
potential losses could also emanate
from theft, malicious damage,
tearing or collapse of structure,
faulty workmanship or materials,
employers liability, fire perils including
lightening, explosion, storm, wind,
water, hail or snow or even an
aircraft and other aerial devices or
articles dropping from the sky; and
high winds can cause large tent
pieces to turn into dangerous
parachute type structures or sails
that drive large sailing boats.
This is just a digest of the many
types of risks we need to be aware
of. Our priority as underwriters is to
provide correct and complete cover to
our business policyholders according
to obvious as well as hidden risks
which have the potential to damage
their operation as a highly successful
business, Jones concluded.
COVER APRIL 2014
2014/04/04 2:35 PM
 Short-term
Insurance cover
for cycling fanatics
Cycling is taking South Africa by
storm with enthusiasts taking
to the streets and participating
in events that are growing in
popularity like the Cape Argus
Cycle Tour (35 000 participants)
and the 94.7 Cycle Challenge
(30 000 participants). Many
cyclists however underestimate
the financial implications
of having to replace lost or
damaged peddle cycles and gear
with top of the range cycles
costing as much as R75k.
COVER APRIL 2014
April 14.indd 25
Once you take your bicycle out of
the house, it needs to be specified
under the All Risks section of your
insurance policy. Household contents
are restricted to the four walls of your
home and anything you take out of
your front door needs to be specified.
Under an unspecified all risks section of
cover, certain types of risks are limited
with pedal cycles generally restricted
to not more than R5000. If your high
performance bicycle is unspecified
under the All Risks section of your
insurance policy, it wont be adequately
covered for any loss or damage, leaving
you seriously out of pocket.
There are a few questions to check
with your broker to ensure that your
high performance, peddle cycle is
specified and insured correctly:
MANDY BARRETT
Marketing and Sales Manager:
Personal Product Solutions
Aon South Africa
Is your peddle cycle covered in
transit? This would be an ideal
question to ask if you are travelling
to various locations to participate
in races, even flying to Cape Town
for the Argus for example.
Is your peddle cycle covered
for damage while in use?
Is your peddle cycle covered
for professional racing?
Is your racing gear, such as sunglasses
and helmets, specified and covered?
Accessories costs can add up quickly.
What exclusions exist on my policy?
Cycling enthusiasts should discuss
the cover of their peddle cycle with
their broker. The brokers role is to
examine your circumstances in detail
and impartially recommend covers to
meet those needs. Choice, simplicity of
wording and customisation will ensure
that your bicycle is covered correctly.
Not only does it provide you with the
peace of mind of competing without
having to worry about the unforeseen,
but a brokers expertise will also ensure
prompt and fair settlement of any
claims so you can get back to doing
what you like best without delay.
25
2014/04/04 2:35 PM
 Short-term
Exhibitors fired up
for IFSEC SA 2014
Loss of property and life, as
a result of fire, is devastating
both financially and emotionally.
While insurance can replace
like for like, it cannot replace
a life, original documents
or personal items that have
sentimental value. The solution
is to implement the use of
fire detection and suppression
equipment to ensure that fires
are recognised and stopped
before they can cause damage.
Finding the right equipment for a
specific application can be a minefield
and with most people pressed for time,
the need to reach a buying decision
quickly and expeditiously is critical.
The continents largest fire and security
exhibition IFSEC SA is being held
at Gallagher Convention Centre in
Midrand from 13 to 15 May 2014. Show
organisers UBM Montgomery report
that at the close of the business year
in December 2013, 2 259m2 of the
available stand space for 2014 had
already been reserved, with enquiries
coming in daily.
26
April 14.indd 26
UBM Montgomery was recently
presented with the best Trade Show
(6 001m2 12 000m2 in extent) award
by the Exhibition and Event Association
of Southern Africa (EXSA) for IFSEC SA
for the second consecutive year. This
IFSEC SA, NOW IN ITS 21ST YEAR,
PROVIDES EXHIBITORS WITH AN
IDEAL LAUNCH PAD FOR THEIR
PRODUCTS AND SERVICES.
is a market acknowledgement of the
high levels of professionalism exhibited
by IFSEC SA. In addition, the exhibition
was ranked in 12th place in South
Africa in BizTradeShows.coms recently
released list of the biggest trade shows
around the world.
impact of fire both within the industry
IFSEC SA, now in its 21st year, provides
exhibitors with an ideal launch pad for
their products and services. Visitors to
the show represent the decision makers
in the various industries serviced by
the exhibitors so this is a perfect
opportunity to reduce the cost of a sale
by attracting a large, captive audience.
CHARLENE HEFER
IFSEC SA Event Director at show
organiser UBM Montgomery
Similarly, visitors to the show are able
to access a wide range of products
and services pertinent to their
specific interest areas in one common
venue. This substantially reduces
the prolonged process of identifying
suitable suppliers and the time spent
interviewing each supplier on their
available range.
IFSEC SA is endorsed by the Fire
Protection Association of South Africa
(FPASA). Through FPASAs InFIReS,
it is able to make a contribution
to reducing the impact of fire in
the insured environment through
meaningful research, projects and
representation. InFIReS also helps to
ensure that the short-term insurance
industry continues to be provided with
a recognised and credible fire safety
voice and mechanism to demonstrate
their commitment and contribution to
improving fire safety and to reduce the
and to society.
Anyone with an interest in reducing fire
risk can visit www.ifsecsa.com to pre-
register for the exhibition.
COVER APRIL 2014
2014/04/04 2:35 PM
 Wider financial education
could help stem financial losses
The recently announced R2
billion worth of wasteful
expenditure by government
entities is a prime example of
the need for wider financial
training in an organisation, says
head of accounting at UCT,
Professor Mark Graham.
South African auditor general
Thembekile Kimi Makwetu announced
on Wednesday 5 February that
government entities racked up more
than R2 billion in wasteful expenditure
in the past financial year, incurring
another R26,4 billion in irregular
spending.
COVER APRIL 2014
April 14.indd 27
Such results often occur because non-
financial personnel, for the most part,
do not understand financial statements
and financial jargon sufficiently to spot
the irregularities.
Whether its a government
organisation, a major corporation, or a
small business, if more staff, other than
the Finance Director and Accountant,
had even basic financial knowledge,
such situations could be reduced.
Finance is the language of any business
and youre not going to understand
your business unless you understand
what the numbers are telling you.
No matter what sector youre in,
you need to be able to examine the
financial health of the organisation,
identify problems and inefficiencies and
contribute towards improving financial
performance.
Many entrepreneurs, small business
owners, and members of larger
organisations are holding themselves
and their organisations back because
they fail to understand this. For all
organisations especially government
the complexity of the current market
means that non-financial managers
need to be aware of every financial
nuance in order to ensure their
organisation stays financially healthy.
Even basic financial literacy can
help identify improve performance
or identify possible red flags in a
companys financial situation. If you
want to know why your income
statement shows a profit, but all you
have to show for it is an overdrawn
bank account, you need to empower
yourself by understanding some basic
financial principles.
The Finance for Non-Financial
Managers Executive Education
programme at the GSB runs 24 to 27
March at the UCT Graduate School
of Business. For more information,
contact (021) 406 1238 or email:
celeste.wilson@gsb.uct.ac.za.
27
2014/04/04 2:35 PM
 Working with
WHEELS
CEOs see smooth
rides ahead
PwC recently interviewed 87 automotive
CEOs in 34 countries across the world,
as part of its 17th Annual Global CEO
Survey.
South Africas CEOs cited similar issues
as their global counterparts: over-
regulation, exchange rate volatility and
the slowdown in high-growth markets
as barriers to business growth. Political
and economic threats, and an increasing
tax burden, are looming. Three-quarters
of automotive CEOs say they are
concerned about government responses
to fiscal deficit and debt burdens.
Automotive CEOs are looking to expand
in mature and emerging markets. China
is rated as the top growth market,
followed by the US.
60% of CEOs are concerned about
the availability of skills, more than last
years 49%.
GLOBAL MEGATRENDS DRIVING
THE AUTOMOTIVE INDUSTRY
There are five macroeconomic
megatrends that have implications for
the automotive industry: accelerating
urbanisation, demographic shifts,
climate change and resource scarcity,
shifts in economic power, and
technological breakthroughs.
By 2025 over 500 million people will
be living in just 30 major cities.
Regulation covering energy efficiency,
emissions and safety will drive the
28
April 14.indd 28
need for connected devices to ensure
compliance and provide monitoring
and reporting. Traditional internal
combustion engines will have to
become more fuel-efficient.
Global assembly is forecasted to
increase from 82,5 million units in
2013 to 87,4 million units in 2014,
representing a 5,8% year-over-year
increase, according to Autofacts,
PwCs automotive analyst group. The
top contributing markets (China, US,
Thailand, Indonesia, Malaysia) are
expected to add 3,7 million units to the
top-line, accounting for 76% of total
global growth in 2014.
Chinas sales, assembly and capacity
investment have reached record highs.
The US will continue to benefit from
pent up demand and positive economic
news, and Thailand, Indonesia and
Malaysia will see increased volume for
both local demand and export.
Emerging markets account for more
light vehicle assembly than mature
markets.
According to Autofacts, the top 10
automotive manufacturing alliance
groups accounted for 79,6% of global
light vehicle assembly in 2013, projected
to decrease slightly to 77,3% in 2020.
The remaining 60 alliance groups
accounted for 16,9 million units of
assembly in 2013 and are expected
to contribute 24,5 million units to the
global top-line in 2020.
Automotive CEOs globally
are more optimistic about the
economy this year although
they see other threats on the
horizon, says PwC study.
CHALLENGES AND OPPORTUNITIES
FACING SOUTH AFRICAS
AUTOMOTIVE INDUSTRY
Strikes in 2013 affected the industrys
production and the credibility of the
country as a reliable supplier of exports.
Labour has signed a three-year wage
deal, which is expected to result in
some stability in the industry. Motor
vehicle manufacturers employ 35,000
people in South Africa.
While global sales in 2013, South
African sales were up only 2,8%. This,
after the market had a compound
annual growth rate (CAGR) of just over
17% from 2009 to 2012.
Interest rate hikes, subdued consumer
confidence, slow economic growth,
pressured household income and the
weakening of the rand will limit local
sales in 2014.
The Automotive Production and
Development Programme (APDP)
has replaced the old Motor Industry
Development Programme (MIPD) from
January 2013. Approximately R15-billion
worth of capital investment has been
invested in South Africas automotive
industry by companies.
South African light vehicle assembly is
forecasted to reach 732k units in 2020.
Among the major OEMs, Japanese
manufacturers are forecast to grow the
fastest from a production perspective,
followed by the US and German OEMs.
COVER APRIL 2014
2014/04/04 2:36 PM
 SHAPING UNIQUE
SOLUTIONS
THAT SHINE
Emerald Risk Transfer is currently
the largest Corporate Property and
affiliated Engineering Underwriter in
South Africa, and underwrites business
throughout the African Continent.
Untitled-1 1
The solution orientated approach of the Emerald
team to create sustainable, quality products is
part of their culture. This flexible approach,
coupled with the support of their excellent
Reinsurer panel, allows Emerald to be truly
innovative.
The aim of the company is to offer quality
capacity and be the best lead market by utilising
their niche expertise and skill.
Emerald writes business into the insurance licence
of Santam Limited. Santam has a Standard &
Poors rating of A- with a stable outlook.
For more information on our products and how
Emerald can assist your Corporate clients, visit
our website or call us.
T +27 11 658 8200
W www.emeraldsa.co.za
E info@emeraldsa.co.za
FSB FSP No. 13893
An Authorised Financial Services Provider
Find us on Facebook www.facebook.com/
emeraldrisktransfer
Or follow us on Twitter www.twitter.com/
emeraldrisk
2014/04/07 3:02 PM
 Short-term
The vehicle insurance
landscape in South Africa
Each month Santam unpacks an insurance topic with research derived from exclusive Santam
client surveys. This month the insurer focuses on vehicle insurance and good driving behaviour.
THE INSURED AND THE
UNINSURED
The majority of respondents to a recent
monthly survey conducted by Santam
cried foul to the fact that 65% of cars
on South Africas roads are uninsured,
as they believe they are in effect
subsidising other drivers.
Given that between 70% and 80%
of the short-term insurance industrys
claims are accident related, the concern
expressed is warranted. Such a large
volume of claims is a burden to
insurers as it leads to increased costs
and losses. Those who bear the brunt
in the end are the policyholders.
Santam confirms that the disproportion
in the number of insured compared to
the uninsured is not ideal. Together
with the South African Insurance
Association, Santam is currently calling
for mandatory third-party vehicle
insurance. If enacted into law, third-
party insurance would spread the risks
more evenly and provide all drivers
with basic protection.
65% OF CARS
ON SOUTH
AFRICAS
ROADS ARE
UNINSURED
30
April 14.indd 30
Having a situation where 35% of
drivers are subsidising the remaining
65% is not sustainable. It is also a
worry that the number of insured
drivers may decrease, says Attie
Blaauw, Head of Personal Lines at
Santam.
An overwhelming majority (87%) of
survey respondents supported the call
for mandatory third-party insurance,
but there were a few who still prefer
for greater choice among consumers
about whether or not to insure their
vehicles.
THE COST OF VEHICLE INSURANCE
Despite the unfavourable vehicle
insurance landscape, most of the
survey respondents believed that
good driving behaviour should be
incentivised, and that they would
consider installing a driving monitoring
device (telematics) if it could save
them money on their car premiums.
In the end, the cost of premiums
in South Africa reflects the high
number of claims stemming from road
accidents, resulting in massive repair
costs. While the cost of your vehicle
depreciates, the cost of repairs goes
up, says Blaauw.
He adds, In light of the depreciating
rand, continuous fuel price hikes,
climbing energy and food prices and
increased weather-related claims,
premium increases are inevitable.
However, despite the financial strain
on clients, Santam will continue to
manage premium increases selectively.
Segmented increases mean good-
risk clients will attract lower premium
increases.
THE ROLE OF THE INTERMEDIARY
The majority of the survey respondents
do make use of an intermediary and
confirmed that their broker keeps them
informed about how driving behaviour
can affect ones premium.
Insurance after all, is about being
there when your client needs you
most, without complication and
unnecessary delay. It is our view that
consumers will always appreciate good,
personal, professional and valuable
assistance from intermediaries. The
real value in any insurance business is
dependent on its trusted relationship
with its policyholders and being seen
as their partner, and intermediaries
play a crucial role in building those
relationships with clients, concludes
Blaauw.
COVER APRIL 2014
2014/04/04 2:36 PM
 Weve again come out on top in the national PMR.africa survey
of the insurance industry

New National Assurance and AC&E- proud to be

the best engineering underwriters in SA

| SAs oldest black insurer | An A rated company | FSP 2603 | www.nnac.co.za

Untitled-1 1 2014/04/07 3:03 PM

 Working with
WHEELS
Volkswagen Financial Services AG and
WesBank embark on joint venture
Volkswagen Financial Services
South Africa (PTY) Limited,
a joint venture between
Volkswagen Financial Services
AG and WesBank, was launched
on 1 March 2014.
German Volkswagen Financial Services
AG owns 51% of the shares of the new
finance provider. Through its business
division WesBank, which operates
within the vehicle and asset finance
business, FirstRand Limited holds 49%.
The range of products and services
provided by Volkswagen Financial
Services South Africa includes:
traditional instalment sale finance;
leasing;
dealer funding;
automotive insurance; and
fleet management (forthcoming).
Entering the South African market is
consistent with Volkswagen Financial
Services pursuit of international growth,
said Frank Witter, CEO of Volkswagen
Financial Services AG. With WesBank,
specialists in the field of vehicle and
asset financing, we are pleased to have a
partner at our side with so many years of
experience and knowledge of the South
African market.
The parent company has similar ventures
in 49 countries, with more ideas for
growth in the future, in especially South
Asia and Northern Europe.
Chris de Kock, CEO of WesBank, said
the new alliance is combining local
expertise with international experience.
The joint venture is a further
development of the cooperation
32
April 14.indd 32
model with WesBank that has been
in place up to now, and strengthens
the link between the manufacturer
and financial service provider through
a closer and more intensive form of
collaboration.
We aim to promote the sales of
Group brands by offering attractive
products and services and to increase
our current finance penetration rate.
We will also reinforce the relationship
between the dealer and customer,
explained Patrik Riese, Managing
Director of Volkswagen Financial
Services South Africa with responsibility
for Sales and Marketing.
He added: A first step in this direction
is our offer of fully comprehensive
cover in the form of a unit price
insurance policy (flat-rate insurance)
for selected Audi and Volkswagen
models. The flat rate model provides a
fixed insurance rate irrespective of the
drivers risk rating or claims history.
Riese said insurance has been an
integrated part of their strategy, and
they have set up good co-operations
with local insurance companies. He
said there is enormous growth potential
for comprehensive insurance cover in
the South African automotive market,
and they will be creating a cell captive
to facilitate the insurance programme.
Within South Africa, the Volkswagen
Group SA deals with Volkswagen
Passenger Cars, Volkswagen
Commercial Vehicles and the Audi
brand. A total of 111,722 units in the
total vehicle market were sold during
the 2013 calendar year. This makes
South Africa one of the top 20 sales
markets globally for the Volkswagen
Group.
Witter said South Africa has always
been on their wish list, and in this joint
venture, the pond together will be
much bigger.
Photographs by Marc Siedler,
marc.siedler@vwfs.com
COVER APRIL 2014
2014/04/04 2:36 PM
Untitled-1 1 2014/04/07 3:03 PM
 Africa Rising

focus on
INFRASTRUCTURE
in africa
In his budget speech for 2014 Finance Minister Pravin Gordhan announced a renewed
emphasis on infrastructure in South Africa. At the Liberty Lounge budget discussion,
speakers Kevin Lings, Chief Economist from STANLIB, and Chris Beneke, Director of
Financial Services Taxation for Deloitte & Touche, analysed the budget content, and
elaborated on the type of infrastructure needed. The following stories provide a snapshot
of the development of infrastructure in South Africa and other African countries.
34 COVER APRIL 2014

April 14.indd 34 2014/04/04 2:36 PM

 Can the continent
make it?
Without strong industries to
create jobs and add value to
raw materials, African countries
risk remaining shackled by
joblessness and poverty.
Cte dIvoire and Ghana produce
53% of the worlds cocoa. But the
supermarket shelves in Abidjan and
Accra, their respective capitals, are
stacked with chocolates imported from
Switzerland and the UK, countries that
do not farm cocoa.
This scenario is repeated throughout
the continent.
Nigeria, the worlds sixth-largest
producer of crude oil, exports more
than 80% of its oil, but cannot refine
Protecting
your
reputation
TELEPHONE: +27 11 459 1640
Professional Indemnity
Stuart Sinclair
stuart@leppard.co.za
Underwritten on behalf of Lombard Insurance Company Limited (FSP no. 1596)
COVER APRIL 2014
April 14.indd 35
enough for local consumption. In 2013
it spent about $6 billion subsidising
fuel imports, estimated Finance
Minister Ngozi Okonjo-Iweala late last
year.
In such apparently baffling scenarios
lies one of Africas greatest challenges
and manipulate the prices of these
and opportunities. The continent
possesses 12% of the worlds oil
reserves, 40% of its gold and between
80% and 90% of its chromium and
platinum, according to a 2013 report
from the UN Conference on Trade
and Development (UNCTAD). It is
also home to 60% of the worlds
underused arable land and has vast
timber resources. Yet together, African
countries account for just 1% of global
manufacturing, according to the
report.
FACSIMILE: +27 11 268 5887 WWW.LEPPARD.CO.ZA
General Liability Insurance Chartered Accountants
Caroline MacNair Sherelle Horsfield
caroline@leppard.co.za sherelle@leppard.co.za
RONAK GOPALDAS
Sovereign Risk Analyst
Rand Merchant Bank
This dismal state of affairs creates
a cycle of perpetual dependency,
leaving African countries reliant on the
export of raw products and exposed
to exogenous shocks, like falling
European demand. Without strong
industries in Africa to add value to raw
materials, foreign buyers can dictate
materials to the great disadvantage of
Africas economies and people.
Industrialisation cannot be considered
a luxury, but a necessity for the
continents development, said South
Africas Nkosazana Dlamini-Zuma
shortly after she became chair of the
African Union in 2013.
This economic transformation can
happen by addressing certain priority
areas across the continent.
GENERAL LIABILITY INSURANCE
AGRICHEM LIABILITY
BROADFORM LIABILITY
COMMERCIAL LIABILITY TOP-UP
EVENTS LIABILITY
EXCESS LAYERS AND UMBRELLA COVERS
GENERAL PUBLIC LIABILITY
MOTOR FLEET THIRD PARTY LIABILITY
PERSONAL LIABILITY TOP-UP (XOL AND UMBRELLA)
PRODUCTS LIABILITY
WAREHOUSEMENS AND CARRIERS LIABILITY
PROFESSIONAL INDEMNITY
ARCHITECTS
ATTORNEYS
BUILT ENVIRONMENT PROFESSIONALS
CHARTERED ACCOUNTANTS
COMPUTER INDUSTRY
DESIGN & CONSTRUCT
ESTATE AGENTS
FREIGHT FORWARDERS
INSURANCE BROKERS
LAND SURVEYORS
PROJECT MANAGERS
QUANTITY SURVEYORS
UNDERWRITING MANAGERS
FSP NO IS 274
35
2014/04/04 2:36 PM
 Africa Rising
First, African governments, individually
and collectively, must develop
supportive policy and investment
guidelines. Clearly-defined rules
and regulations in the legal and tax
domains, contract transparency, sound
communication, predictable policy
environments, and currency and
macroeconomic stability are essential
to attract long-term investors.
Incentives like tax rebates to
multinational companies that
provide skills training alongside their
commercial investments will help local
economies grow and diversify. Each
industrial policy should be tailored
to maximise a countrys comparative
sector-specific advantages.
Mauritius, one of Africas most
prosperous and stable countries,
provides important lessons for other
African countries. In 1961 Mauritius
was reliant on a single crop, sugar,
which was subject to weather
and price fluctuations. Few job
opportunities and yawning income
inequality divided the nation. This led
to conflict between the Creole and
Indian communities, which clashed
often at election time, when the rising
fortunes of the latter became most
apparent.
From 1979 the Mauritian government
took practical steps to invest in its
people. Realising that it was not
36
April 14.indd 36
blessed with a diversity of natural
resources, it prioritised education.
Schooling became the critical factor
in raising skills and smoothing
the lingering religious, ethnic and
political fractures remaining since
independence from Britain in 1968.
Strong governance, a sound legal
system, low levels of bureaucracy
and regulation, and investor-friendly
policies reinforced the countrys
institutions.
Under a series of coalition
governments, the nation moved
from agriculture to manufacturing.
It implemented trade policies that
boosted exports. When outside shocks
hit loss of trade preferences in 2005,
and overwhelming competition from
Chinese textiles in the last 15 years
it was able to adapt with business-
friendly policies.
From being a mono-economy reliant
on sugar, the island nation is now
diversified through tourism, textiles,
financial services and high-end
technology, averaging growth rates
in excess of 5% per year for three
decades. Its per capita income rose
from $1,920 to $6,496 between 1976
and 2012, according to the World Bank.
Public-private partnerships (PPPs)
should be developed to stimulate
massive investments in infrastructure,
which could have a multiplier effect
on economic growth. Tony Elumelu,
chairman of Nigerian-based investment
company Heirs Holdings, and Carlos
Lopes, the executive secretary of the
United Nations Economic Commission
for Africa, advocate what they call
Africapitalism, a private sector-led
partnership focused on the continents
development. Private-sector business
leaders must do more to tackle poverty
and drive social progress by ensuring
that long-term value additions and
short-term gains are built into their
business model, they wrote in a joint
article for CNN in November 2013.
Next, African countries must pursue
beneficial economic strategies with
their neighbours. Regional integration
would help reduce the regulatory
burden facing African industries by
harmonising policies and restraining
unfavourable domestic programmes.
It would boost inter- and intra-African
trade and accelerate industrialisation.
The right recipe for regional integration
requires countries to concentrate on
commodities in which they have a
competitive advantage. For example,
Benin and Egypt could concentrate
on cotton, Togo on cocoa, Zambia on
sugar each country trading in bigger
regional markets.
Agriculture, which employs over
65% of the continents population,
according to the World Bank, could
become a springboard towards
industrialisation. It can provide raw
materials for other industries, and
promote backward integration, in
which a company connects with a
supplier further back in the process,
such as a food manufacturer merging
with a farm.
This is already under way in Nigeria.
The diversified BUA Group will process
10m tonnes of cane to produce 1m
tonnes of refined sugar annually,
according to Chimaobi Madukwe, the
companys chief operating officer.
Sustained investment and
improvements in infrastructure are
needed throughout the continent.
Developing industries require
sustained electricity supply, smooth
transportation and other very basic
infrastructure facilities, which at
present are still not enough to ensure
operations, said Xue Xiaoming, vice-
chairman of the Nigerian Chinese
Chamber of Commerce and Industry.
COVER APRIL 2014
2014/04/04 2:36 PM
 Africas poor roads, railways and
other transport networks, faulty
communications, and unreliable and
insufficient energy result in high
production and transaction costs. It takes
28 days to move a 40-foot container
from the port of Shanghai, China to
Mombasa, Kenya at a cost of $600,
while it takes 40 days for the same
container to reach Bujumbura, Burundi,
from Mombasa at a cost of $8,000,
explained Rosemary Mburu, a consultant
at the Institute of Trade Development in
Nairobi. This represents double the time
at 13 times the cost.
Finally, without education the continent
cannot succeed in its drive towards
industrialisation. PPPs should be
pursued in this arena too, because
governments often lack the skills and
finances to carry out technical training.
Private sector companies would benefit
from a skilled and competent workforce.
The country would benefit from a
stronger economy blessed with less
unemployment and higher incomes.
Historically, countries have succeeded
by focusing on education in science
and technology and promoting
research. For example, in the 1960s
and 1970s South Korea like
Singapore, Taiwan and Hong Kong
reformed its education system and
made elementary and high school
compulsory. From an adult literacy rate
of less than 30% in the late 1930s,
South Korea now boasts a literacy rate
of nearly 100% and has one of the
highest levels of education anywhere
in the world, according to UNESCO,
the UNs education agency. Its highly-
skilled population has helped South
Korea to become one of the worlds
foremost exporters of high-tech goods.
Africa, the worlds youngest continent,
is currently undergoing a powerful
demographic transition. Its working age
population, which is currently 54% of
the continents total, will climb to 62%
by 2050. In contrast, Europes 15 to
64-year-olds will shrink from 63% in
2010 to 58%. During this time, Africas
labour force will surpass Chinas and
will potentially play a huge role in
global consumption and production.
Unlike other regions, Africa will neither
face a shortage in domestic labour nor
worry about the economic burden of
an increasingly ageing population for
most of the 21st century.
This demographic dividend can be
cashed in to stimulate industrial
production. An influx of new workers
from rural areas into the cities, if
harnessed correctly and complemented
with the appropriate educational and
institutional structures and reforms,
could lead to a major productivity
boom. This would then increase
savings and investment rates, spike per
capita GDP, and prompt skills transfers.
Reduced dependency levels would
then free up resources for economic
development and investment.
Without effective policies, however,
African countries risk high youth
unemployment, which may spark
This story first
appeared in Africa in
Fact, the journal of
Good Governance Africa
http://gga.org/
publications/africa-
in-fact-march-2014-
industrialisation-can-
africa-make-it
rising crime rates, riots and political
instability. Rather than stimulating a
virtuous cycle of growth, the continent
could remain trapped in a vicious circle
of violence and poverty.
The continents youth represent a huge
potential comparative advantage and
a chance to enjoy sustained catch-up
growth. Or they could remain shackled
in joblessness and become a major
liability.
Africa is ripe for industrialisation. A
strong and positive growth trajectory,
rapid urbanisation, stable and
improving economic and political
environments have opened a window
of opportunity for Africa to achieve
economic transformation.

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COVER APRIL 2014 37

April 14.indd 37 2014/04/04 2:36 PM

 Africa Rising
African aviation a blue sky
approach to standardised regulation
Across many industries,
businesses in Africa are
encountering a greater need
for benchmarks to ensure
a level playing field which
ensures certain standards are
upheld. While surface transport
systems and the high cost of
infrastructure remain a challenge,
air travel offers an effective
alternative for the movement of
goods and services from country
to country.
It is the nature of this movement
and the scope of these countries and
their consequent spread in terms of
regulatory and legislative frameworks
that starkly highlights the need
for world class solutions to ensure
standards are met in terms of industry
best practice across the continent.
These world class solutions are
particularly applicable when considering
aviation insurance in Africa. The sector
requires the need for intelligent, on
the ground monitoring of industry
trends, creativity in the management of
risk and working closely with lessors,
lenders and operators on programme
design and costing.
Challenges in skills, technical expertise
and local language variations, require
specialist expertise to maintain a
consistent level of support. The
responsibility falls on brokers to operate
THESE WORLD CLASS SOLUTIONS
ARE PARTICULARLY APPLICABLE WHEN
CONSIDERING AVIATION INSURANCE IN AFRICA.
38
April 14.indd 38
in line with regulator standards and to
be on point with the rules for clients;
choosing the right partner is imperative
to making sure all bases are covered.
When dealing with challenges in Africa,
the key to success is a deep knowledge
of local economies and legislation
which is proof tested by the best brains
in the industry. It is therefore critical
to find a partner with experience in
dealing with global standards and
tried and tested methods where best
practice can and has been applied.
Airlines across Africa are collaborating
to instil best practice in a growing
industry and associations like the
African Airlines Association (AFRAA).
AFRAA are leading the charge to bring
the industry together to formulate
CHALLENGES IN SKILLS, TECHNICAL
EXPERTISE AND LOCAL LANGUAGE
VARIATIONS, REQUIRE SPECIALIST
EXPERTISE TO MAINTAIN A
CONSISTENT LEVEL OF SUPPORT.
benchmarks that incorporate areas
such as safety and security and human
capital development, both areas
which could pose a significant risk to
businesses and require specialist insight
in terms of managing their risk.
MICHAEL MORAN
Regional Head, Africa Aviation &
Aerospace for Marsh Africa
Marshs partnership with AFRAA has a
focus on safety, which intrinsically links
with the aviation insurance broking and
underwriting. However, the industry is
making strides in dealing with these
challenges. In fact, many African
airlines have impeccable safety records
and in some cases are setting the
standard for world class sophistication
in their approach to how they do
business.
Jean Paul Nyirubutama, Deputy CEO
and COO for African airline Rwandair,
said that growth in the aviation sector
in Africa is a given with a growing
middle class and increased mobility to
enable sectors like trade, healthcare,
education and tourism. As we see the
industry go from strength to strength,
the need for better regulations
for safety and security which are
harmonised across the board becomes
more apparent. In our experience to
ensure a safe, reliable, world-class
operation you need to deal with
partners with the right experience who
can guide you through the pitfalls and
carry you through the risks. Working
with Marsh has been a win-win
situation for Rwandair, he said.
COVER APRIL 2014
2014/04/04 2:36 PM
Untitled-1 1 2014/04/07 3:04 PM
 Africa Rising
The case for
investing in Africa
Africa as an investment
destination has been receiving
attention as international
investors scan the globe in
search of yield.
More accommodative monetary policies
have created large amounts of liquidity
in global financial markets. In the low
interest rate environment in developed
markets, investors are forced into
a risk-on mind set to generate real
returns. Africa with its higher economic
growth and potential for higher
investment returns has captured the
attention of money managers.
ECONOMIC GROWTH
Structural and economic reforms across
Africa have improved government
budget deficits, advanced in controlling
inflation and created foreign currency
reserves. Many African countries are
on an impressive growth trajectory
which is expected to continue as they
cultivate sustainable domestic demand.
Economic growth has outpaced global
growth, as seen in the chart above.
The International Monetary Fund (IMF)
found that Africa is the second fastest
growing region after Asia, and is set to
take the lead. Sub-Saharan economic
growth is expected to be in excess of
6% in the short term, and to exceed
the average global growth for years
to come. Africa contributes to 3% of
global GDP, but accounts for almost
14% of the global population.
Industrialisation and economic
diversification have contributed to
higher growth rates, as countries are
moving away from overdependence
on agriculture and resources. This has
led to the emergence of the middle
classes, as GDP per capita increased.
Nigerias GDP per capita has been
rising since the return to democratic
rule in 1999. The countrys GDP per
capita averaged 0,1% between 1990
40
April 14.indd 40
and 1999, with a jump to 13% between
1999 and 2011. The IMF estimated a
per capita GDP growth of 5,3% over
the next five years with a $2,000 GDP
per capita by 2016.
Higher levels of GDP per capita
translate into higher levels of
discretionary income, increasing
demand for goods and services driving
robust, internally generated growth.
As per capita consumption increases
there will be a corresponding top line
growth for companies positioned to
take advantage of this trend. Nigerias
low consumption of basic food items
and commodities like flour, sugar and
beer will continue to underpin growth
for the consumer goods sector.
African countries produce high levels of
GDP growth with relatively low levels
of government debt. The presence of
debt relief combined with sustained
fiscal improvement have halved Africas
debt-to-GDP ratio from around 70% in
1990 to 30% today.
POPULATION GROWTH
Africas population could triple to
3,6 billion by the end of the century,
according to a United Nations report. If
current demographic trends persist, the
population will increase to 1,4 billion
in 2025 and 1,9 billion in 2050. One
in every three children in the world
will be born in Sub-Saharan Africa.
This rapid population growth brings
opportunities and challenges.
In 2010, 34% of Africans were aged
between 25 and 59 about 353
million people. By 2050 this number is
expected to reach 892 million people,
representing 45% of the population.
Africa is likely to replace China as
the biggest contributor to the global
workforce.
According to the United Nations World
Population Prospects 2012, the average
age in Africa is 18 years. Africans below
the age of 14 years make up 40%, or
JOHAN STEYN
Portfolio Manager & Analyst
Prescient Investment Management
416 million people. Mortality rates are
decreasing due to improvements in
health facilities, vaccination campaigns
and policies to combat HIV and Malaria.
Slowing fertility, combined with lower
mortality rates, will result in positive
impact of improved dependency ratios.
Governments must absorb large
numbers of working age population into
productive employment. A young and
relatively cheaper workforce in Africa
could persuade foreign companies to
move their businesses to Africa.
URBANISATION
Africa is as urbanised as China in terms
of rural-urban split, and has as many
cities of a million people as Europe.
Nigerias rural-urban split is estimated
at 50/50 with an urbanisation rate of
3,8% or 3 million people per annum.
The urban population in West Africa
before 1950 was less than 7,5% of
the total population (OECD report). By
2000 this figure had risen to over 30%
of the total population, making their
rapid urbanisation one of the fastest in
the world. West African farmers have
been developing more sophisticated
methods of farming, increasing
production to cope with population
COVER APRIL 2014
2014/04/04 2:37 PM

growth. This includes the development
of peri-urban farms specialising in food
production for the urban population.
Urbanisation drives consumption
growth as people move from rural
areas and subsistence living, to urban
AFRICA IS AS URBANISED AS CHINA
IN TERMS OF RURAL-URBAN SPLIT.
areas where they contribute to the
formal economy. Urban areas have
better education, health facilities and
job opportunities. As societies become
urbanised, productivity increases. Rapid
urbanisation often brings challenges,
especially in areas where lack of
urban planning causes overcrowding
and housing shortages, and puts
pressure on existing infrastructure like
sanitation, water and electricity.
CONNECTIVITY
African mobile connections have
increased from about 17 million to over
906 million, with a compound annual
COVER APRIL 2014
April 14.indd 41
growth rate of over 30%. According to
the GSMA Africa Mobile Observatory,
mobile penetration rate in Africa has
grown from about 2% in 2000 to
80% in 2013. The penetration rate is
forecast to reach 85% by 2015.
In Kenya, 15 million of the 41 million
people use Safaricoms M-Pesa
mobile money platform. About 80
billion Kenyan shillings are transacted
between customers per month
an eye-watering 31% of GDP. This
innovation has deepened financial
inclusion in Kenya and opened the
door to further product innovations like
MShwari, which allows customers to
take out short-term loans or deposit
money into a savings account using
mobile phone. This move away from
a cash based economy to a less
cash intensive economy increases
transparency and the reduction of
fraud, corruption and tax evasion.
Low cash usage creates more money
inside the formal economy, increasing
the effectiveness of monetary policy
in managing inflation and encouraging
economic growth.
INCREASED PRIVATISATION AND
ELECTRIFICATION
Sub-Saharan Africa generates the
same amount of power as Spain,
although there are 20 times as
many people. Countries like Nigeria
have addressed this shortage. After
instigating a number of reforms,
Nigeria has launched a privatisation
drive that privatised 10 electricity
generation and five distribution
companies in October 2012, and
another 10 privatised state power
plants are planned for middle 2014.
By transferring the responsibility
of power generation to the private
sector, the government is hoping to
provide sustainable electricity to 75%
of the population in 13 years. The
government is hoping to boost the
industrialisation drive and diversify the
economy away from a dependence
on oil. A more consistent ubiquitous
power supply will create jobs and
lower unemployment.
POLITICAL RISK
African countries are often perceived as
politically unstable and undemocratic.
Countries have moved from autocracy
to semi-democracy and from semi-
democracy to democracy. According
to NKC Independent Economists
there were 36 autocracies and four
democracies in Africa in 1972. In
2012 there were five autocracies, 24
democracies and 22 countries that can
be considered partial democracies.
Empirical evidence shows a link
between demographic transitions and
GDP growth and capital market returns.
Of the five autocracies left in Africa
the despots are old with few workable
succession plans in place.
People are demanding higher levels
of accountability from political leaders
and are encouraged by democratic
freedoms enjoyed in newly democratic
African countries. Kenya has proven it
possible to conduct peaceful and fair
elections, and implement constitutional
reforms successfully.
Africa is subject to higher volatility than
more developed markets and should
be approached with a long term view
through short term fluctuations and
instability.
41
2014/04/04 2:37 PM
 Africa Rising
Uganda races against time
on oil infrastructure plan
IMARA AFRICA REPORT
Ugandas oil industry is in a race
against time to put in place the
infrastructure needed before
the first barrel of oil can be
produced.
In an article by The Observer, the
Ugandan government revealed its
five year infrastructure plan which
puts emphasis on the oil refinery
and the pipeline. In a presentation,
Dozith Abeinomugisha, a principal
geologist in the Petroleum Exploration
and Production department (PEPD),
discussed key infrastructure needed to
feed the refinery. They consist of three
internal crude oil pipelines to be built
as follows; a 9 km northern pipeline
from Nwoya and Buliisa oil fields, a
50km pipeline from Kingfisher [Buhuka,
Kyangwali sub-county], Hoima district
and another pipeline from Kaiso-Tonya.
In addition to the pipelines,
Abeinomugisha said, the country will
need three central processing facilities
(CPFs). A CPF is basically the first
refinery, where oil is stabilised before
it becomes tradable crude. From the
underground, oil is mixed with sand,
water, gasses and other impurities, so
the CPF is where these impurities are
removed from the oil.
According to Abeinomugisha, Uganda
will need one CPF in Buliisa for
the northern fields, another CPF at
Kaiso-Tonya, and a third one near the
Kingfisher field. Before the process of
refining starts, the country will also
have to construct a storage facility in
Buloba, off Mityana road, in Wakiso
district. This is important because
once production starts, any excess
crude can be stored at Buloba for any
eventualities such as maintenance
shut-downs.
42
April 14.indd 42
He added that the recent MoU
between the government and oil
firms to develop an export pipeline to
the East African coast was important
because it took in consideration a
broad harmonised development plan as
opposed to each operator developing a
field independently. This has resulted in
the formulation of three crude export
pipeline proposals. The first proposal is
for a 1,380 km northern crude pipeline
that runs from Hoima via Karamoja-
Lokichar basin in Turkana [northern
Kenya] to Lamu, with a possibility of
linking at Lokichar with another crude
pipeline from South Sudan.
THE SECOND PROPOSAL IS
THE 1,300 KM CENTRAL ROUTE
EXPORT PIPELINE THAT WILL
GO THROUGH NAIROBI TO THE
COASTAL PORT OF MOMBASA.
The second proposal is the 1,300
km central route export pipeline that
will go through Nairobi to the coastal
port of Mombasa. The third being the
1,950 km southern route that will go
through Tanzania to Dar es Salaam.
But the actual designs and details
of the export pipeline will be done
later, Abeinomugisha said. Most of the
infrastructure is expected to be largely
funded by oil companies and other
independent investors.
With regards to the refinery, according
to the MoU, government is to construct
an optimal size refinery of 60,000
bpd, of which there are also proposals
for expanding the capacity with time.
After we have started producing
60,000 bpd, we shall still study the
market and see if there is a need
to expand it. If the market is still
available, we shall expand it, he said.
Adding to this, Abeinomugisha said the
country currently spends approximately
USD 1,0bn in imports and consumes
just about 30,000 barrels of petroleum
products per day. But the consumption
rate is increasing at a rate of 7%
annually, and therefore with time, the
country will expand the refinery to
meet the increasing demand.
We hope that the Ugandan
government has learnt from the
mistakes of other African countries that
have refineries that are lying idle or
are run inefficiently, and continue to
import petroleum products.
COVER APRIL 2014
2014/04/04 2:37 PM
 COVER e x t e n d s
its African reach
Over the past four years COVER
has been steadily extending its
reach into Africa.

In 2010 we decided that there is scope

for an African Bancassurance and
Alternative Distribution Conference, to
unpack insurance distribution models
on the continent and to get continental
networking going. Since then we have
held three conferences with average
attendance of 140 senior executives
from 16 different countries spending
three days networking and discussing
possible partnerships.

This event has become highly popular

and has led to us deciding to venture
north. The first adventure was the
2012 African Insurance Organisation
Main Assembly in Sudan, where we
partnered with Alexander Forbes
to spend some time with clients in
Khartoum. Networking with 600
delegates from all over Africa set the
scene for things to come.

The second step, on invitation of The

Association of Kenyan Insurers (AKI),
was facilitating a one-day workshop
with the Kenya Financial Services
Regulator and AKI, which cemented
relationships between COVER and the
local industry in Kenya.

From here we decided to set up the

first two networking seminars in Ghana
and Kenya. In March 2014 I travelled
to Nairobi and Accra with CaseJohnson
and RGA to host two seminars on
insurance distribution.

RGA, our main sponsor for the past

three years, again sponsored the
seminars, in conjunction with SSP
and Starlife of Ghana. The main
theme of both seminars was Insurance
Distribution and the Data Revolution,
covering the following topics:

Impact of data on strategy (George

Addison, MD of Starlife);

COVER APRIL 2014 43

April 14.indd 43 2014/04/04 2:37 PM

 Financial Planning
Impact of data on channel diversity
(Bruce Sahd, MD of CaseJohnson); and
Impact of data on product and
pricing (Johann Van Niekerk, Head
of Strategic Marketing at RGA).
RGA also hosted a session on Micro-
insurance, led by RGAs Research and
Development specialist, Ola Oyekan.
Originally from Nigeria, she did a PhD
in Micro-insurance, and shared her
research on the profitability of Micro-
insurance in Nigeria and South Africa
with the delegates at both venues.
44
April 14.indd 44
KEY FINDINGS FROM HER
RESEARCH:
Micro-insurance products can be
profitable for commercial insurers
average profitability at 10% for
South Africa and 8% for Nigeria;
Differences in profitability drivers
for the two countries one
size fits all strategies should
be applied with caution;
Cost efficiency is the largest driver
of profitability in both countries;
Reinsurance and ownership form
are also drivers of profitability;
Firm-specific factors firm size,
product mix, and age are also
important considerations for
micro-insurance providers; and
The growth in middle class
population and low penetration
of insurance indicates big
opportunity for micro-insurance.
Overall we had a fantastic time in
both countries where we were well
received. The main aim of the seminars
was to share knowledge and learn
from each other, which all delegates
agreed was well achieved. The early
evening networking sessions around
the swimming pools went on way
longer than expected and everyone
departed with a little more knowledge
of each other and the opportunities
that partnerships can provide. Based on
the feedback we will definitely be back
again next year.
COVER APRIL 2014
2014/04/07 2:36 PM
 The next big event for the year will be the main conference in
August in Cape Town where we will have 12 or more speakers
exploring innovative insurance distribution models and sharing their
different successes and failures. Visit our website, www.cover.co.za,
for details on this exciting event and our special Early Bird discount.

African Insurance
Distribution &
th
4 Bancassurance
Conference
10 to 12 August 2014
Westin Hotel, Cape Town
A conference - www.cover.co.za

COVER APRIL 2014 45

April 14.indd 45 2014/04/07 2:19 PM

 Financial Planning
Understanding the GEPF
Recent reports have noted that
the Government Employees
Pension Fund (GEPF) is
underfunded by more than
R400bn. The fact that it
remains a defined benefit
pension scheme, not a defined
contribution scheme, as has
been the trend with pension
funds within the private sector,
means this liability lays squarely
at the foot of the government.
Nick Hibbit, Head of Business
Development at Liberty
Corporate Intelligent Insurance,
spoke to COVERs Annetjie van
Wynegaard about the GEPF.
WHAT IS THE DIFFERENCE
BETWEEN DEFINED BENEFIT AND
DEFINED CONTRIBUTION FUNDS?
WHAT EFFECT HAS THIS HAD
ON FUND PERFORMANCE AND
RETIREMENT READINESS OVER THE
PAST DECADE?
Theres been a philosophy change
in the market to a liability-driven
investment. In a defined benefit fund
the fund manager tries to manage
the portfolio to hit returns that are
slightly better than inflation in a more
conservative investment portfolio, and
trustees make all the decisions and
carry all risks. In a defined contribution
fund, the employee takes on the risk
of growth of the pension, and often
gets an investment choice between a
conservative and aggressive investment
portfolio. Trustees have started to
realise you cant generate good returns
with your assets only; there are
many factors that influence how your
liabilities move. Low yields can cause a
funding gap the difference between
assets and liabilities. Funds are
moving away from a pure asset-based
strategy, to managing more risks in the
investment strategy, so that assets and
liabilities move together.
WHAT OPTIONS ARE AVAILABLE TO
FUNDS THAT HAVE SIGNIFICANT
FUNDING LIABILITIES?
The first option is a Liability Driven
46
April 14.indd 46
Investment (LDI) where you invest in
instruments that mimic the movement
of the yield curve.
The second option is a cash flow match
guaranteeing a set of cash flows for
the future by a bank or an insurer. All
your inflation increases are built into
those cash flow profiles, and youve
transferred a little more risk. Cash
flows move every day though, as death
is difficult to predict.
A third option is to transfer liabilities to
another entity, for example an insurer.
The fund can buy an annuity in its
name, or in the name of the pensioner,
which is called a buy-out.
In DB funds you have pensioners and
actives these solutions are relative to
pensioners. When it comes to actives,
some companies transfer the liability to
a defined contribution fund.
The GEPF has more liabilities than
assets. In this case the government
(the employer) has to make good
the difference between the assets and
liability.
HOW WOULD TRANSFERRING A
LIABILITY AFFECT THE FUND?
Two big risks in a DB fund are
longevity and interest rates/inflation. When youre close to retirement youre
You can transfer just the inflation risk, moving out of equities into cash and
or both, by giving that risk to another bonds the aim is to protect capital.
party. There is still a timing risk, a risk that
you dont select the right portfolio, or
If the GEPF wanted to transfer the that equity markets dont perform. You
longevity risk, it could only transfer might also live a long time and dont
it to a life insurer. If they wanted to have enough money.
transfer the investment risk, they
can go into LDI structures and cash WHAT ARE YOUR VIEWS ON
DEFINED BENEFIT FUNDS IN THE
flow matches, or run it off their own
balance sheets. SOUTH AFRICAN CONTEXT?
From the employees perspective, I
WHAT ARE THE POTENTIAL RISKS think those whove remained in DB
CURRENTLY FACING EMPLOYEES funds are smiling, because they know
RETIREMENT SAVINGS? exactly how much pension they will
DB fund: will the entity behind the get, its guaranteed and will increase by
pension fund be able to meet their inflation every year. Theyre on a good
obligations? If theres a big shortfall you wicket.
wont get your increases every year.
For the employer the trend in the
DC funds: you risk going into the market is to exit these funds that
wrong investment strategy, or you tells you they cant afford it. Its really
might retire when the market is at a only the government that still has DB
downturn. The industry is putting in pension funds. In the private sector
place less risky portfolios as you get most people are now on DC pension
closer to retirement, called life staging. funds.
COVER APRIL 2014
2014/04/04 2:38 PM
 WHAT ROLE DO BROKERS HAVE TO PLAY IN THE

MONTHLY LIFESTYLE
CURRENT ENVIRONMENT, ESPECIALLY WITH
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should definitely put passives on the table.

WILL INVESTORS POTENTIALLY BE GOING INTO

A FUND WITH R400BN DEFICIT? HOW DOES THIS
CHALLENGE FACING THE GEPF POTENTIALLY
INFLUENCE THE NATIONAL SAVINGS SCHEME?
The GEPF investors are employees that are part of this
fund. The deficit will only impact the employees if the
government falls over. Without an entity to make up that
shortfall employees could suffer some financial loss.

Somehow the government has to raise money to fund that

deficit, either through taxes or in the market by issuing
bonds.

Generally the taxpayer will at some point have to make up

part of that R400bn deficit. Government could increase or
redirect taxes, but theres no requirement that the deficit
is made up tomorrow or the next day. The only time this BOOK YOUR HOLIDAY NOW!
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gap. Government might argue this is an open scheme,
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The big question is: will the government address the

shortfall, and if they do, how are they going to do it,
because where are they going to get the funds? This will
definitely impact the economy.

The GEPF is one of the biggest pension funds in the

world, so R400bn might not be a material funding gap.

HOW DOES THE GEPF GET OUT OF THIS DIFFICULT

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COVER APRIL 2014 47

April 14.indd 47 2014/04/04 2:38 PM

 Financial Planning

Beware the alter ego trust

Recently a story made news
in South Africa about a South
African who emigrated to
Australia in 2002, leaving his
estate here neatly bundled up.
Prior to arriving in Australia, he
stopped over in Lichtenstein
where he established a series of
trusts and companies registered
in the British Virgin Islands.
The benefits and revenue from
the South African estate were
ceded to flow through the
BVI companies and eventually
be received by his family in
Australia with positive tax
consequences.

However, over the years, the emigrant

wheeled and dealed with the funds,
acquiring and disposing of assets and
directing the revenue flow as he saw
fit; ignoring the previous cessions and
established structures as if the funds
were his own to do with as he pleased.
He even borrowed funds abroad on the
strength of his local assets.

The Australian Tax Office became

aware of the revenue flowing directly
to the emigrant and sought to tax this.
Obviously the emigrant was not happy
to settle what he believed to be a tax
free income stream. This interest by
the Australian Tax authorities no doubt
assisted the emigrant in his decision to
return to South Africa some 17 months
ago, with the tax bill unpaid.
The Australian Tax Office, joined by
the South African Revenue Services
have been successful in attaching
the original funds left here to the
tune of some R300 million to cover
the outstanding Australian tax bill
(one should be aware that many
tax jurisdictions have reciprocal
arrangements around the world to
snare tax evaders).
David Knott, a Fiduciary Expert
from Private Client Trust, a division
of Private Client Holdings, advises
that many trusts continue to be
administered by the funder, as the
above was, without complying with
the terms of the trust deed. It is only
when circumstances change, a divorce
or insolvency or when SARS becomes
interested that the alto ego or sham
trust is found out and the protection or
ring-fencing that a trust should provide
is found wanting.
A highlighted example where a 2005
Court decision found that a man
had settled assets upon a trust and
that inherited assets had also been
incorporated into this trust, enabling
his family to lead a comfortable life.
Until that is, the marriage turned and
this mans wife demanded her share
of the trust as well as a share of the
joint assets. The Court pierced the
corporate veil finding that this man
had intermingled trust assets with his
own when seeking overdraft facilities,
had ignored the other trustees and in
short, had dealt with the trust as if the
assets were his sole property.
The wife was successful in substantially
enhancing her divorce settlement.
The lesson here is that once a trust
has been established and assets
settled upon that trust, the funder
loses ownership and also control of
the asset. All dealings and transactions
must only flow in terms of the trust
deed and the trustees must take all
decisions collectively.
A funder ignoring the strict terms of
the trust deed does so at his peril.

48 COVER APRIL 2014

April 14.indd 48 2014/04/04 2:38 PM

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Untitled-1 1 2014/04/07 3:04 PM
 Financial Planning
Regulatory changes force
financial institutions to specialise
An increasingly complex and
onerous global regulatory
environment, combined with
difficult market conditions,
is compelling banks to make
tough strategic decisions that
could reshape the industry and
disrupt service delivery in certain
markets.
The South African financial services
sector will not be able to avoid being
impacted by regulatory changes such as
the Basel III, inspired capital provisions.
While yet to be fully implemented,
these higher capital requirements and
more stringent risk-weighting rules have
forced banks to make choices about
areas in which they compete.
Additional effect of regulations, like
the International Financial Reporting
Standard 9 (IFRS 9) on the impairment
of financial assets will have an
influence locally on the banking sector.
Globally, these and other regulations
have led to banks shrinking balance
sheets, re-evaluating existing and
potential foreign operations and closing
business units, with many financial
institutions becoming more specialised,
concentrating on reducing their number
of product offerings and divesting from
certain classes of assets.
As the profitability of products and
services has come under the corporate
microscope, so have different classes
of customers. Is it necessary, or wise,
given the costs involved to continue
offering services that are marginal or
even unprofitable, when the costs of
holding statutory required provisions is
considered?
AS THE PROFITABILITY OF PRODUCTS AND SERVICES
HAS COME UNDER THE CORPORATE MICROSCOPE,
SO HAVE DIFFERENT CLASSES OF CUSTOMERS.
50
April 14.indd 50
South African banks, said Dirk Kotze,
Banking Industry Advisory Lead at
Deloitte, are presently all things
financial to all people, with broad
client bases and offering products and
services that extend from day-to-day
banking products through to short- and
long-term insurance needs.
The benefit of this approach is that
multi-product, multi-segment banks
can generally ride downturns in specific
sectors. When income from one area
is negatively impacted on, this is
compensated for by activity in other
spheres.
Darren Shipp, Banking Industry
Advisory Lead at Deloitte, said, The
potential specialisation of banks
caused by the regulatory environment
would seem to be in conflict with the
socio-political role played by the South
African banks in providing access to
financial services to all the people
of South Africa. Consequently South
African banks would have to balance
the objectives of profitability and their
social responsibility.
The danger of specialisation is that
as soon as products are withdrawn
the concentrated exposure within a
specific area increases markedly with
potentially serious consequences if that
market becomes volatile.
Within an African and South African
context, one of the major dangers of
regulation induced specialisation is the
size of market segments. This has to
be considered carefully by financial
institutions that turn to specialisation
as part of a push to provide higher
levels of service and delivery within
defined segments as part of a
customer-centric strategy.
ROGER VERSTER
FSI Consulting Leader
Deloitte
AFRICA AND SOUTH
AFRICA MUST BE
GUARDED AGAINST
THE UNINTENDED
CONSEQUENCES OF
REGULATIONS AND
LEGISLATION.
Investment banking is one example.
European or American investment
banks operate in a sphere where there
are thousands of potential clients.
In South Africa and Africa, market
opportunities are considerably smaller.
Regional African banks and those with
a Pan-African presence can therefore
be expected to continue in their
present multi-product, multi-service
format for many years to come as this
model meets the demands of a diverse
customer base.
Africa and South Africa must be
guarded against the unintended
consequences of regulations and
legislation.
Being forced by regulation to reconsider
the positioning of products and services
could, for example, see institutions
restricting product offerings designed
to ease the entry of unbanked people
into the formal banking sector.
These sorts of changes would,
however, have to be balanced against
the need to offer services that offer
long-term benefits, even though they
may appear costly and hard to sustain
in the short-term.
COVER APRIL 2014
2014/04/04 2:38 PM
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Untitled-1 1 2014/04/07 3:04 PM

 Financial Planning

The Nedbank Insurance Funeral Plan

FUNERAL COVER FOR ALL THOSE YOU CARE FOR
Planning for a funeral is the hardest thing in the world. After
all, the person you love dearly has just passed on. But, as
important as the person was to you during his or her life, If you are lucky to be
you want to honour and respect him or her with a dignified
funeral. That is why you need to partner with someone who employed, you will have to
understands the importance of this by providing you with dig deep into your pocket
relevant benefits and services that are cost effective as well.
The Nedbank Insurance Funeral Plan has been designed with each time someone close to
this in mind, providing you and your family with essential
cover at an affordable premium.
you passes on.
At Nedbank Insurance we understand that, with rising This can become a financial
unemployment in South Africa, it is common for those who
work to have more responsibilities, providing for the needs strain after a few times.
of their immediate families and parents, as well as for many
other relatives and community members. In other words, You can avoid this situation
what used to be called an extended family has now been
extended even further. by buying the Nedbank
We understand the dynamics when a death occurs and only
Insurance Funeral Plan.
a few family members are in a position to contribute to
the funeral expenses. We also understand that everyone
deserves a dignified funeral. The best solution to such
circumstances is the Nedbank Insurance Funeral Plan.
The main member can earn bonuses on the plan.
WHY YOU SHOULD CHOOSE THE NEDBANK
For every 11 months you pay your premiums you
INSURANCE FUNERAL PLAN
will enjoy a premium holiday in the 12th month.
The plan caters for the typical South African
family and covers up to 30 people, including The main member can restart a lapsed policy at any
your extended family. This is inclusive of: time by starting to pay the premiums again. All the
insured lives must still be within the qualifying maximum
you, the main member/policy owner, spouse/partner,
entry ages when the policy is restarted. The waiting
children, parents, parents-in-law, grandparents,
period will restart when the policy is reactivated.
grandparents-in-law, brothers and sisters, uncles and
aunts, nephews and nieces, cousins and domestic workers. WHY NEDBANK INSURANCE IS A LEADER IN THIS
FIELD
To manage the rising cost of funerals cover of up to
We cover children for life, not until a specified age.
R50 000 can be taken out for yourself
This means that the main member can cover grown-
and your spouse/partner.
up children, whether they are employed or not.
Cover for the rest of the family is limited to a
Our unique no-lapse benefit ensures you do not
percentage of the main members cover. This percentage
lose your policy if you cant afford the premium in
varies between 30% and 100%, depending on the
a particular month. It means you can pay less than
insured lifes relationship to the main member.
the premium, provided you pay a minimum of R20.
There is a waiting period of six (6) months for the main We will average your cover in line with premiums
member and a spouse/partner, his or her children and a paid, without any impact on the waiting period.
domestic worker, and 12 months for the rest of the family.
We offer cover for up to five (5) domestic workers.
The plan can be customised to suit the needs
Premiums can be paid at selected retail stores,
of the family at an affordable premium.
such as Pick n Pay, Boxer, Shoprite and Spar.
The main member can use funds available now to
Regular communication with clients by SMS ensures they
pay for future cover, by paying the premiums in
know exactly what the status is of their policy at any time.
advance. If 10 premiums are paid in advance, we will
automatically credit you with the 11th premium. We recognise customary relationships as part of the
overall product design, meaning that those you love
The policy premiums can be paid in cash, at
and care for can be covered under the same policy.
a participating retail store, or by debit order,
or a combination of these can be used.

The main member can even pay the premium For further information please contact the
in instalments during the month, provided a Nedbank Contact Centre on 0860 555 111.
minimum amount of R20 is paid at one time.

52 COVER APRIL 2014

April 14.indd 52 2014/04/04 2:38 PM

 MAKE

FLEXIBLE
FUNERAL PLANNING
HAPPEN

Our funeral plans fit in with your life, so you can make memories that last.

Get individual cover of R10 000 for only R32,50 a month.

Cover up to 29 members of your immediate and extended family.
Even if you cant make the full monthly payment, your policy wont lapse as long as you pay a minimum of R20.
We pay one premium on your behalf after 11 months.
Get access to funeral support service benefits such as transportation of the deceased to the funeral home of his or her choice.

To find out more visit your nearest Nedbank branch, call us on 0860 555 111 or visit nedgrouplife.co.za.

NEDBANK INSURANCE FUNERAL PLAN

This product is underwritten by Nedgroup Life Assurance Company Limited Reg No 1993/001022/06, First floor, Ridgeside Campus, 2 Ncondo Place, Umhlanga Rocks, 4320. We support
resolution for unresolved disputes via the Ombudsman for Long-term Insurance. We are an authorised financial services provider (licence number 40915). We are a registered credit provider
in terms of the National Credit Act (NCR Reg No NCRCP61).

8924 Nedbank Funeral Mag Ads A4 Final.indd 1 2014/03/17 5:07 PM

Untitled-1 1 2014/04/07 3:05 PM
 Financial Planning
Where should your
investment money go?
In the face of volatile global equity markets and structural economic challenges, there is much
debate around what investors can expect going forward. Investment has always been about taking
risk in the face of uncertainty and diversification is the cornerstone of a sound investment strategy.
IN TERMS OF ASSET ALLOCATION,
SANLAM INVESTMENTS PREFERS:
Developed world equity
markets, specifically Europe;
International listed property; and
South African bonds.
In SA and globally there has been a
bull run in equities for the last five
years, and property has done well. The
start of US Federal Reserve tapering
triggered a net outflow of capital from
emerging markets last year, especially
in the so-called Fragile Five countries
Turkey, Indonesia, India, Brazil
and SA facing structural economic
challenges like large fiscal and current
account deficits. This has gathered
pace into the New Year and spread to
other emerging markets with structural
challenges.
Given the extended valuations of most
asset classes, the focus has shifted
from growth to stability and capital
preservation.
The local equity market has become
expensive relative to its own history,
other emerging markets, and the world
developed markets.
The SA market is now trading at a
16,5 price-to-earnings ratio (PE),
compared to an average of 12 over the
last 50 years. Our valuation of the JSE
shows that the market is overvalued
54
April 14.indd 54
the highest it has been since 2007.
Whereas resources are fairly valued,
industrials in particular are definitely
overvalued they are currently at
the highest PE in 50 years, and there
is a real possibility of capital losses
in this sector. The stock market has
Sanlam Investments uses a long-
experienced a pull-back recently but
it is still trading at relatively high PEs.
Now is not the time to be passive
about investments, on both an asset
allocation and a stock selection level.
Global equities, on the other hand,
are trading closer to their long-term
PE. Whereas US equities are relatively
expensive, on a price-to-book basis
Europe and the UK are trading at a
discount to global equities in general
and these markets therefore remain
attractive.
Local bonds are starting to show some
value, especially in the wake of the
recent rate hike. Over the long term
they should produce nominal returns
of around 7,25%. The real return on
offer is attractive relative to alternative
asset classes in SA. Inflation-linked
bonds offer real returns of about 2%,
which is slightly above our long-run
required return of 1,5%. We believe
conventional bonds offer more value.
Global bonds remain expensive and,
due to structural issues such as high
government debt levels and austerity
measures, long bond rates globally are
likely to remain low.
PHILIP LIEBENBERG
Head of Absolute Return
Sanlam Investments
When valuing property stocks,
run distribution growth rate of about
2% below inflation in the light of
property companies inflation-adjusted
rental income, and their required
refurbishments. Property dividend
yields remain below our long-run
required yields. Property is currently
trading at a yield premium of almost
2% to bonds, so we prefer nominal
bonds over property at this stage. We
do, however, like global listed property,
where we are getting an average
dividend yield of above 6%.
Despite the rand-dollar exchange
rate depreciating by close to 20% on
mounting current account and fiscal
deficit concerns during 2013 the
biggest annual decline since its almost
40% decimation in 2008 we dont
recommend investing large sums of
money offshore. No one can predict
what will happen to our currency
over the next year, but we do believe
the rand is undervalued. While it is
always a good idea to invest some
funds offshore on a monthly rand-cost
averaging basis, it is probably not wise
to commit a large sum offshore at the
moment.
COVER APRIL 2014
2014/04/04 2:38 PM
 What you dont need to know
about living annuities hopefully!
The other day I spoke to clients
who had, sadly, decided to
get divorced. Rob and Judy
(for the purposes of my story)
were quite determined to split
their assets straight down the
middle a good thing since they
were married in community of
property! But who would have
thought that a simple decision
like that would be fraught with
difficulties!
The problem, you see, was that 75% of
the so-called joint assets were held in
a Living Annuity with Rob as the sole
and inalterable owner of the policy, and
could not be split! (Living Annuities
are investments that provide a monthly
pension once a person retires from
a Retirement Fund Pension Funds,
Provident Funds and Retirement
Annuities.)
Now the real irony here is that
Retirement Funds (a Pension Fund in
Robs case), from which he retired,
COVER APRIL 2014
April 14.indd 55
SARS IS NOT AT ALL INTERESTED IN
THE EVENT OF A DIVORCE, IN LOSING
REVENUE FROM THE SPLITTING OF
INCOME BETWEEN PARTNERS.
specific clause in the divorce order to
the contrary, to determine, at any time,
who would receive the benefits (the
beneficiaries of the income and/or the
lump-sums) of the Living Annuity on
his death an alarming consideration
in any divorce, not to mention an
acrimonious one.
In Rob and Judys case, the clause that
was wisely inserted into the divorce
order prevented Rob from nominating
new beneficiaries entirely at his own
discretion. Judy (and failing her, her
children) had to remain at least a 50%
beneficiary on the Living Annuity!
could have been split in the event of
divorce, had he not yet retired! Its
I believe this was an unacceptable
scary to wonder just how many people
resolution to an uncomplicated divorce
know they lose this right when their
and a tenuous position for Judy to
partner retires.
find herself in. Its high time that SARS
The answer to why such a discrepancy fixed the problem, just as they had
exists between a Retirement Fund and to do in the past, by allowing Living
Annuities to be split, on divorce, in
a Living Annuity lies in the fact that
Living Annuities are governed by the the same way that Retirement Funds
(that create them in the first place) are
Income Tax Act and not by the Pension
Fund Act. So, as you can imagine, allowed to be split today.
SARS is not at all interested in the
event of a divorce, in losing revenue
from the splitting of income between
partners. This reminds me of the spate
of divorces entered into a few decades
ago, purely for tax-planning purposes,
when SARS used to tax the combined
income of both spouses, in the hands
of only the husband!
Despite the intention by Rob and
Judy to keep their divorce simple
and fair, the Living Annuity remains
invested in Robs name and, as such,
he controls the investment strategy
despite Judys now completely different
financial situation. Furthermore, Rob
BARCLAY HOAR
as the owner of the Living Annuity, Director
would have had the right, without a Chartered Wealth Solutions
55
2014/04/04 2:39 PM
 Financial Planning
Upon entering the workplace,
many young professionals are
faced with the challenge of
being responsible for their own
financial affairs but have little
knowledge on where to start and
often make decisions that place
their long term financial stability
at risk.
John Marsden, National Sales Director
at PPS, says while attempting to
survive and succeed in the working
world, personal finances often fall
to the bottom of the priority list. As
a result, it is imperative that those
entering the workplace are able
to educate themselves or can find
professional help on how to create
a solid financial plan to avoid future
repercussions.
Some common misperceptions young
professionals have about their financial
affairs:
1. I DONT EARN ENOUGH TO SAVE
The bottom line is everyone should try
and save money. Begin by calculating
exactly how much money comes in
and where it is spent to determine a
realistic amount to save each month.
It is extremely important to track all
expenses to see where overspending
occurs and try to cut back on
unnecessary costs, which usually
include eating out or entertainment.
Young professionals are advised to set
an automatic monthly transfer from a
56
April 14.indd 56
financial mistakes
for young
professionals to avoid
current account into a savings account
as soon their salary gets paid no
matter how little the amount. The
principle is to pay yourself first and use
the power of compound interest.
2. I AM YOUNG AND HEALTHY AND
DONT NEED INSURANCE
Many young professionals make the
mistake of not taking out medical
aid or income protection when they
begin working as they feel they are in
their prime and nothing can happen
to them. Unfortunately, it does not
matter how young or healthy someone
is, if they are involved in an accident
and become permanently disabled it
could be the end of their career before
it has really started. In the same vein,
if they are badly injured their medical
costs could end up placing them
under severe financial strain. Taking
out appropriate cover can make a big
difference in the quality of ones life
following a major incident. It will also
prevent placing a massive financial
burden on those whom they become
dependent on.
3. RETIREMENT IS FOR OLD PEOPLE
Professionals should start saving for
retirement as soon as they receive their
first pay check. Money saved from age
20 will have a 40 year growth period,
whereas savings from age 30 onwards
will only have a 30 year growth period.
It is also easier to contribute money
towards retirement when one is still
young with no dependents as opposed
to trying to save for retirement while
raising a child. Using the tax benefits
of a proper retirement place means
that the Receiver of Revenue is directly
helping your save.
4. I WILL PAY OFF MY STUDENT
LOAN AT A LATER STAGE
All loans compound interest over years,
which means the longer it takes to pay
off the debt, the bigger the amount
of interest. Rather choose a payment
plan that works with your income and
start paying it off to avoid drowning in
interest at a later stage.
5. I NEED TO SAVE FOR MY
CHILDRENS EDUCATION
Saving for childrens schooling fees
should not be a top priority at this
stage. Before contemplating this,
it is vital to build a solid financial
foundation first. This means having an
emergency fund equal to six months
expenses, no credit card debt and
sufficient savings for retirement.
6. I ONLY NEED TO THINK ABOUT
FINANCE WHEN I HAVE KIDS AND
MORTGAGE
The beginning of ones career provides
the perfect time to analyse and
manage finances. Personal finances
can get increasingly complicated
with age, as one has to deal with
mortgages, children, medical bills etc.
By examining income and expenses on
a regular basis, one can make small
changes to financial behaviour in order
to have solid habits in place when
finances do become complicated.
7. IT IS NOT A BIG DEAL TO SKIP A
FEW CREDIT CARD PAYMENTS
The easiest way of losing control over
finances is by letting credit card debt
pile up. Once a payment is skipped, the
cardholder will be charged significant
additional interest on the amount,
which will increase the monthly
payment amount. This negligent
behaviour can lead to severe financial
distress and will seriously affect ones
crediting rating, meaning you may not
be granted loans in the future.
While young professionals may not be
earning high salaries yet, it is crucial for
this group to create a sound financial
plan in order to foster good financial
habits and ensure better financial
security in the long term. When you
get future salary increases always put
10 percent of it away before you spend
it on anything else.
COVER APRIL 2014
2014/04/04 2:39 PM
 WHEN WE SAY WE
SHARE OUR SUCCESS,
WE MEAN IT.
PPS SHARES 100% OF ITS PROFITS
WITH MEMBERS. ALL R4.2 BILLION.
At PPS, we believe in sharing. Thats why our members* share in our success and our prots
via allocations to their PPS Prot-Share Accounts. Given that these prots reached a record
high of R4.2 billion in respect of 2013, thats quite a big deal. Allocations to members PPS
Prot-Share Accounts were on average 40% of the value of premiums paid by members in respect of
2013. Over the past ten years, weve shared R19.6 billion with our members and achieved a record
level of assets in respect of 2013, making PPS the largest and most successful mutual company in South
Africa. So if youre a qualied professional, ask yourself, shouldnt you be sharing in our success?

Visit www.pps.co.za to view the increase in your PPS Prot-Share Account.

HAVASWW-D63104/E
R8,8 BN R10.8 BN R12,4 BN R15,4 BN R19,6 BN

2004 - 2009 2010 2011 2012 2013

CUMULATIVE ALLOCATIONS 2004 - 2013

THE KEY TO SUCCESS LIES IN SHARING IT

Consult a PPS product-accredited nancial adviser or visit www.pps.co.za
PPS is an authorised Financial Services Provider. *PPS members with qualifying products share all the prots of PPS.

Untitled-1 1 2014/04/07 3:09 PM

 Financial Planning
An independent
executor and your will
Your last will and testament
may well be the most important
document you ever draft and
sign. It sets out how the assets
you accumulated during your
lifetime should be distributed
when you die, giving financial
peace of mind to the loved ones
you leave behind. Few people
realise, however, how important
it is to nominate a well-qualified,
independent executor to make
crucial financial decisions and
wind up their estate.
Bheki Khenisa, Chief Executive
Officer of Sanlam Trust, talks about
nominating an executor without
the necessary expertise or not
nominating one at all could lead to
much valuable time being lost before
your loved ones can receive their
inheritance.
People often appoint a family member
or a community leader as the executor
of their estate. This is not advisable,
since winding up the affairs of a
deceased person and ensuring that the
stipulations in the will are carried out
can be a highly technical and complex
process. Appointing your spouse, for
example, is not usually a good idea,
since he or she could be emotionally
incapable of taking important financial
58
April 14.indd 58
decisions. Your spouse may not know
where to get the best advice or
service, or may be exposed to people
serving their own interests.
Not nominating an executor in
your will can also lead to avoidable
complications. An executor can only
officially begin to administer an estate
after the Master of the High Court has
been notified and has issued a letter
of executorship. When an executor is
appointed by the Master in terms of a
nomination in a will, the process will
normally run smoothly. If no one has
been nominated in the will, the major
beneficiaries of the deceased must
propose an executor, who may or may
not be approved by the Master. This
process could become drawn out and
cause valuable time to elapse, to the
detriment of creditors and heirs.
THE DUTIES OF AN EXECUTOR
INCLUDE:
Collecting all the assets of the
deceased, such as fixed properties,
furniture, firearms, vehicles,
shares, proceeds of insurance
policies, outstanding debts, cash
assets and other interests
Collecting all debts against the
estate and settling them after their
validity has been investigated
Dividing the balance of the
assets among the rightful
heirs after all debts against
the estate have been paid.
The entire process could take anything
between six to thirteen months,
depending on the complexity of the
estate. Successful administration of
an estate depends on the service
from external institutions such as the
SA Revenue Service, the Masters
office, insurance companies and many
more. If the deceased was involved in
litigation before his or her death, or
died of unnatural causes, this could
also slow down the process.
THE ADVANTAGES OF
APPROACHING A REPUTABLE
COMPANY, WHICH SPECIALISES
IN WILLS, ESTATES AND TRUSTS,
WHEN NOMINATING AN
EXECUTOR INCLUDE:
You will enjoy the benefit of
specialised experience and knowledge
The estate will be handled deftly
and professionally and you are
ensured of objective advice
You enjoy complete security through
internal quality control systems
Sophisticated computer systems
ensure top-quality service.
Nominating an executor to look after
your affairs after your death is a big
responsibility. For your loved ones,
being in mourning is difficult enough
dont add to their anxiety by not having
chosen an experienced and impartial
executor who can wrap up your estate
as timeously as possible.
COVER APRIL 2014
2014/04/07 3:09 PM
 Risk credibility

Capital credibility

Street credibility

Face any challenge with a partner who

knows the way around.

Word on the street is we know risks. In complex times, it is important to partner with a
reliable expert who has all risks in view. As a global reinsurer, we work together with you
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Find out how at www.munichre.com

NOT IF, BUT HOW

Munich_RE_Campaign_RZ_05.indd 1 08.08.12 09:16

Untitled-1 1 2014/04/07 3:05 PM
 Financial Planning

Following an equi-weighted approach

Cannon Asset Managers recently unveiled the Since inception, the Equi-weighted Portfolio has achieved
a cumulative return of 118.95% versus the benchmark of
new-look Cannon Flexible Fund that follows
109.82%. This return has also been achieved with low
the successful equi-weighted approach. This volatility. Chart 2 below shows the historical drawdowns
approach was first proposed by free market relative to the individual asset classes held from inception of
investment analyst Harry Browne in the 1980s the portfolio:
and refined in the mid-1990s. The fund aims to CHART 2 CANNON EQUI-WEIGHTED PORTFOLIO
provide the highest return with the lowest risk HISTORICAL DRAWDOWNS FROM APRIL 2006 (INCEPTION) TO
END JANUARY 2014
by diversifying in equal weights between the four This is also
major asset classes being equities, bonds, listed interesting to
property and cash. see in table
format in
The investment process allows for tactical asset allocation Table 1 below:
changes to take advantage of market conditions and will
provide a high and growing yield with robust capital growth.
Identifying securities that are of high quality and trading at
attractive prices, along with applying tactical asset allocation
tilts to the asset classes mentioned above, will aid in
achieving the above objectives.
TABLE 1 CANNON EQUI-WEIGHTED PORTFOLIO HISTORICAL
The Cannon Flexible Fund has aimed to provide investors DRAWDOWNS FROM APRIL 2006 (INCEPTION) TO END
with capital growth over time but with reduced volatility. JANUARY 2014
The fund was managed using asset allocation rules that
guided allocation between cash and equities in the
portfolio. This approach, while historically being equity-
centric, was also designed to offer smoother returns than
equities. Reassessing how to achieve the funds objectives, TABLE 2 CANNON EQUI-WEIGHTED PORTFOLIO LARGEST
it was decided that the dual objective of lower volatility and MONTHLY GAIN AND LOSS FROM APRIL 2006 (INCEPTION) TO
capital growth could be better met by introducing listed END JANUARY 2014
property and bond investments into the fund, allowing
for the use of asset allocation tools across all four of the
major asset classes, and giving investors diversification
beyond just cash and equities. Apart from better volatility
CHART 3 CANNON EQUI-WEIGHTED PORTFOLIO
management, the new strategy also allows for a raised PERFORMANCE HISTORY RELATIVE TO CPI TO END JANUARY
yield in the fund which benefits those investors who draw 2014
income. Looking at this
performance
CHART 1: CANNON EQUI-WEIGHTED PORTFOLIO
PERFORMANCE FROM APRIL 2006 (INCEPTION) TO END relative to
JANUARY 2014 unit trust
Cannon peers, the
Flexible Fund equi-weighted
adopted the strategy would
investment have ranked
strategy of in the top
the Cannon quartile in the
Equi-weighted South African Low Equity category over five years to end
Portfolio from January 2014.
June 2013.
The investment approach in the Cannon Flexible Fund
As a result,
complies with Regulation 28 of the Pension Funds Act, which
the longer-
will allow investors to use the fund in their financial planning
term performance of the Cannon Flexible Fund is not
both leading up to and during retirement via retirement
representative of the above. The Index line in the chart
annuities, preservation funds, living annuity portfolios as well
represents the static equi-weighting of the asset classes
as in non-retirement savings. There has been no change in
which was the benchmark of the Equi-weighted Portfolio.
the cost to investors to access this fund.

60 COVER APRIL 2014

April 14.indd 60 2014/04/04 5:47 PM

 Choice Elements - CMYK

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Untitled-1 1 2014/04/07 3:06 PM

 UMA Feature

In a bind, or free to rule?

The pressure on margins, current state of the economy and increased
regulatory pressures have some commentators saying that many UMAs will
not survive. However, in COVERs January Industry Outlook, insurers and
UMAs expressed the view that the UMA model will survive and is well suited
to current industry changes. What is your opinion on this? What has changed,
if any, due to the Binder Regulation requirements?

UMAs committed to spearhead innovation

UMAs have been around in
some form or another since the
start of insurance. Throughout
the decades, more and more
recognition (especially abroad)
was given to this very important
link in the insurance chain.
Intensifying regulation like
the new Binder Regulation,
persistent slow economic growth
and a price-driven market, have
brought the sustainability of
UMAs under question; more
specifically where they trade
in perceived commoditised
insurance classes and products.
We believe it is exactly these factors
and circumstances that once again
highlight the invaluable role a UMA
plays in the Financial Services sector.
The Binder Regulation acknowledged
the functions of the UMA, its role and
position in the insurance value chain.
The financial implications of the change
in remuneration structures and charges
have shifted the playing field and
challenged traditional UMA structures.
However, its the same challenges
that once again highlighted the UMAs
value proposition, the entrepreneurial
focus and their contribution to the
sustainability and growth of insurance.
The Binder Regulation created the
opportunity for insurance business
owners to re-evaluate their product
offering and value proposition, and
together with their Insurer Principals,
re-emphasise the UMAs skill,
knowledge and experience that are
invaluable in the insurance industry.
Regrettably though, many entities also
chose to take on the form of the
UMA structure and business model in
order to take advantage of additional
remuneration. It is SAUMAs belief that
such entities lack the fundamentals
of a pure UMA and will not be
sustainable.
A TRUE UMA IS A BUSINESS
THAT IS UNIQUE, SPECIALISED
AND CONSTANTLY EVOLVING.
A true UMA is a business that is
unique, specialised and constantly
evolving as technology, the economy
and market dynamics around it change.
A UMA is a business that creates
unique, innovative products and has
the expertise and experience to price
these products sustainably to protect
the consumer.
There are a number of UMAs that had
to change their company structures
and operations and possibly considered
mergers with competitors, to maintain
financial viability, but also to remain
relevant to their Insurer Principals and
reinsurers, while still offering unique
personalised service delivery to their
customers.
The UMA model makes sense to the
insurer that recognises the opportunity
to have a business partner that focuses
on new developments and niche
TERSIA DAVEY
Chief Executive Officer
SAUMA
product solutions, added to which, their
strong entrepreneurial ethos achieves
cost efficiency. With regulation putting
so much emphasis on compliance and
treating customers fairly, the UMA
is best positioned to fulfil the very
crucial role of providing proper advice
by disclosing material information and
assisting in training and up-skilling the
broker, something thats important
during this time of skill shortages
and as the older generations exit the
industry.
There are definite opportunities for the
UMA in the South African insurance
environment, however specialisation,
product innovation and pricing, will
be crucial for the UMAs sustainability
and growth. There are so many cross
border and Sub-Saharan opportunities
for the niche UMAs that will help with
future growth and sustainability due
to the lack of new business growth in
South Africa.
It is our role and vision as SAUMA to
be the recognised, responsible voice
for the underwriting fraternity. We
are committed to our members and
our responsibility to protect them, to
engage continually with the legislators
and industry partners and other
associations, and to make sure we
build a solid, sustainable and profitable
short term insurance sector; one that
is aligned with the political, economic
and environmental landscapes in South
Africa.

62 COVER APRIL 2014

April 14.indd 62 2014/04/04 5:48 PM

 The impact of Binder ANDREW COUTTS
Head of National Brokers

Regulations on the UMA market and Portfolio Management

Santam

The South African regulatory
environment remains dynamic
with a number of very important
developments in progress, one
being the Binder Regulations. The
regulatory approach and guidance
on the application of Binder
Regulations remains ongoing for
the insurance sector.
Since its implementation the biggest
change this regulation has introduced is
the freedom for underwriting managers to
deal with more than one insurer per type
or kind of policy, whereas previously they
could only deal with one insurer.
This has in many ways opened the UMA
market and has resulted in the emergence
of UMA administrators who offer brokers
multiple product offerings from multiple
insurers in the same market segment
whilst still earning profit shares.
This new type of UMA offers
value to brokers in its multi-quote
solutions and is likely to continue
to grow as it also provides insurers
with the opportunity to outsource
administration while retaining
alignment to underlying insurer
underwriting objectives through profit
shares.
The more traditional specialist UMAs
such as those in liability, engineering,
marine or aviation, remain largely
unaffected in their operations and
through common shareholding
relationships with insurers, continue to
offer specialist solutions typically on
the licence of only one insurer.
That said though, the most significant
implication of the Binder Regulations
facing insurers now is the regulators
proposed standardisation of binder fees
in 2014.
This could possibly lead to UMAs in the
market consolidating a bit more around
fees in order to remain competitive in a
strongly regulated environment.
If the fees are set too low, the UMAs
will not be able to perform their
activities efficiently and work will be
pushed back to the insurer. If set too
high, the higher costs of the channel
for the insurer will ultimately be
passed on to end consumers, making
the distribution model potentially less
attractive for customers. The agreed
fee should match the level of activities
performed by their UMAs, the nature of
the specialist underwriting undertaken.
This has an added benefit of requiring
the UMA to run as a sustainable
business.
Santam is confident that their UMA
binder holder agreements are compliant
with the regulations.

Beyond
Insurance
Camargue is more than a policy. Camargue is more than a product.
Camargue is a concept.

The Camargue concept is driven by an inherent desire to keep challenging

what is possible in the world of specialised liability management. Bringing
risk management solutions and risk management services to an ever-
increasing range of clients - with ever-increasing impact on business, society
& beyond.

The Camargue concept acknowledges people as the proponents of

knowledge, making successful & sustainable business a reality. A concept
dedicated to seeing the power of knowledge change the world - One
business. One challenge. One victory at a time.
THE POWER OF KNOWLEDGE

AUTHORISED FINANCIAL SERVICES PROVIDER, LICENSE NUMBER: 6344. APPROVED LLOYDS COVERHOLDER PIN: 107824DRW
Camargue Underwriting Managers (Pty) Ltd. Co. Reg. No. 2000/028098/07. DIRECTORS: MG Marescia (Managing), V Hayter, A Mullins, GJ de Bruin
33 Glenhove Road, Melrose Estate, Rosebank, 2196, Johannesburg. Postnet Suite 250, Private Bag X4, Bedfordview 2008, Johannesburg
Telephone: 011 778 9140, Facsimile: 011 778 9199, E-mail: camargue@camargueum.co.za, Website: www.camargueum.co.za

125x190_FA.indd 1 2014/03/13 11:29 AM

COVER APRIL 2014 63

April 14.indd 63 2014/04/04 5:48 PM

 UMA Feature
Binder Regulation
in the UMA market
If you are an underwriting
manager and, more specifically,
if youre an underwriting
manager writing largely
commoditised lines of business
like general property and motor
classes, then there is a good
chance that you have been
impacted by the introduction of
the Binder Regulation introduced
in 2012.
The reason for this is probably due
to the fact that the Binder Regulation
effectively outlawed the ability of the
underwriting manager to charge any
above the line fees (by stipulating that
underwriting managers could only be
remunerated by the underlying insurer
and not by the client/insured), the
majority of which were related to charges
or fees (as a percentage of premium)
charged on monthly business, specifically
if the business written was personal lines
or small to medium commercial business.
While there were differences across
the market with respect to the extent
of these above the line fees charged
by underwriting managers, the general
level of these fees ranged between 5%
64
April 14.indd 64
and 10% of the underlying premium.
In contrast to this, and given the
commoditised nature of most of the
business affected which tended to
perform within market related loss ratio
ranges of between the upper 50% to
upper 60% on a consolidated basis,
the average commoditised underwriting
managers base administration fee
would have been in the region of
10% of the underlying premium
(with or without certain other profit
commissions etc. applying).
The underwriting manager therefore
relied on a total revenue stream equating
to their underlying administration fee
(say 10%) plus an element of above the
line fee (say between 5% and 10%) in
order to survive.
The loss of a fee component which
was easily contributing prior to the new
Binder Regulation of between 33% and
50% to the underwriting managers
income stream was a major blow,
effectively wiping out a substantial part
of their income stream overnight and
placing many of them under extreme
financial pressure.
Sympathetic insurers like Centriq
have tried to assist their affected
underwriting managers as much
MARTIN LE ROUX
Managing Executive
Centriq Insurance
THE GENERAL LEVEL OF THESE
FEES RANGED BETWEEN 5% AND
10% OF THE UNDERLYING PREMIUM.
as possible through re-negotiating
underwriting contracts as far as
practical (including with reinsurers
where required) such that it is able to
replace as much as possible of the lost
income stream through an increase
in their base administration fee
(including through the use of different
profit commission arrangements
bearing in mind that these are bona
fide underwriting management
arrangements).
While the above solution has and does
work, it is not without its complexities.
The fact remains that there are only
100 cents in every R1, and to the
extent that the insurer agrees to
increase the underwriting managers
base administration fee they need
to be satisfied that this additional
element of fee will not simply erode
the underwriting margin required to
support the insurers profit and capital
servicing requirements.
This has entailed an intense focus
by underwriting managers who have
had their contracts and reinsurance
structures changed to this new
regime to have a laser beam focus on
profitable underwriting.
COVER APRIL 2014
2014/04/04 5:50 PM
 Underwriting managers
What have we lost?
Underwriting managers emerged
because they offered special
skills which were not always
readily available in-house to
every insurer.
Expertise in specialised insurance
fields such as marine, engineering,
professional indemnity and other
insurance is not always found among
the staff of insurance companies with
the continuity and client connection
and specialisation it requires.
When these special skills were offered
by independent intermediaries to
insurers only, the insurers were happy
and policyholders got good service.
The regulator was happy as long as
the underwriting manager did not sell
policies directly to the public. The
reasoning is that the policyholders
must not be misled into thinking that
the underwriting manager is a broker
representing their interests in the
insurance sale transaction.
But the Binder Regulation changed
all that. Anybody performing
binder functions could become an
underwriting manager in order to get
a profit share as long as they were
not selling policies to the public. Many
contrived arrangements to sell the
policies indirectly were devised and the
rationale for underwriting managers
was undercut. Anyone could perform
binder functions on behalf of the
insurer only and sign up the policies
through a tame broker. Many expert
underwriting managers have survived
but many have been lost.
Many, overcome by over-regulation,
have been absorbed into the insurers.
One of the main reasons for their
absorption into insurance companies
COVER APRIL 2014
April 14.indd 65
PATRICK BRACHER
Director
Norton Rose Fulbright
is that on their own they cannot
exploit their strong client
connection and sell policies to
policyholders who have confidence
dealing with their specialised fields.
ON THEIR OWN THEY
CANNOT EXPLOIT THEIR
STRONG CLIENT CONNECTION
What we need in order to make
insurers and policyholders the
winners in this situation is to give
the registrar the same power of
exemption that the registrar has in
relation to underwriting managers
and non-mandated intermediaries
in the same group as the insurer
(regulation 6.5(2)).
These exemptions can be conditional
and only be given in relation to
specifically skilled underwriting
managers who deal with a specific
industry or specific sector of the
public. We need to preserve these
skills in the insurance industry in the
interests of everyone.
65
2014/04/04 5:51 PM
 UMA Feature
Binder Regulation
an investors perspective
The trading and regulatory
environments in the insurance
industry continue to be a
challenge for most players and
are keeping business leaders
extremely busy. The economic
indicators point to even tougher
trading and operating conditions
in the short to medium term and
this has added further strain on
the operating margins of most
businesses.
Margins are under pressure due to a
combination of slow growth, lower
rates and significant claims due to
weather related events, combined
with the costs of servicing claims and
running businessesthat continue to
increase sharply. Economic pressures
are intensifying at a time that
businesses are also dealing with a
number of regulatory changes which
have required businesses to spend time
and money to address them.
Some of these regulatory requirements
have resulted in significant changes
in business models, income streams
and expense structures. One of
the most talked about of these
66
April 14.indd 66
regulatory changes has been on binder
agreements which appear from the
outside to have been received and
adopted differently across the market.
This has noticeably altered who does
what for the insurer and the insured
and what they get for it.
Opportunities have been created for
some businesses due to these changes,
whereas for some it threatens their
future growth and sustainability.
While we believe that the market
will continue to adjust to Binder
Regulation as the FSB refines them, it
would be foolish not to acknowledge
the significant impact that Binder
Regulation could have on the future
of some smaller independent brokers
and underwriting managers, and on the
cost of delivery which could be passed
on to the consumer.
In the 25 years that Lireas has
been investing in UMAs, we have
experienced numerous changes and
cycles together with our partners.
The current basket of challenges does
however require a different approach
and strategy to deal with them.
However we are so far satisfied
with the solutions that we have
implemented together with our
partners. Pound for pound, it is true
ISAAC CHINDOTANA
Portfolio Manager
Lireas
that UMAs generally have fewer
resources to deal with challenges as
they arise. However, smaller, agile
and more nimble businesses respond
quicker and more effectively to
challenges when compared to bigger
entities. The group and family
environment that Lireas enjoys with
its partners allows us to benefit from
a big ship environment, while at the
same time enjoying the autonomy and
agility that makes UMAs what they are.
The UMA model will continue to
provide many benefits to consumers
that other models would not provide
as efficiently and quickly as UMAs do,
but a different set of gymnastic skills
is required to maintain this edge into
the future.
COVER APRIL 2014
2014/04/04 5:51 PM
Untitled-1 1 2014/04/07 3:06 PM
 IISA Insurance Forum
Are you liable?
In February the IISA hosted a superb breakfast forum on liability with presentations from
speakers Eric Dom (AIG), Donald Dinnie (Norton Rose Fulbright), Caroline Yeo (Camargue) and
Stefan Terblanche (African Adjusting Firm). Annetjie van Wynegaard of COVER, reports.
Directors and officers liability insurance
Yeos presentation looked at the
core issues surrounding D&O
insurance and its developments to
give non-experts an overview of
corporate risk management.
D&O Liability Insurance is one of the
most discussed but least understood
products. It has experienced rapid growth
over the last 30 years, originating in the
USA and spreading to other markets.
It currently has a global Gross Written
Premium (GWP) of USD$10bn. It is
essential to bring as much clarity as
possible on the subject of D&O Liability
to contribute to well found public
discussion.
WHY DO COMPANIES BUY D&O
COVER?
Managers can make mistakes, and are
often held legally liable for them in
their personal capacity. Managers make
tough, complex decisions, and operate
within a multinational or international
environment with multiple worldwide
jurisdictions. Its vital to monitor your
market, and keep up with compliance
regulations, government bodies, auditors
opinions, King III, risk management, etc.
Increasing corporate governance has led
to increased D&O exposure.
WHAT IS COVERED?
The policy provides financial protection
for managers against the consequences
of actual or alleged wrongful acts
in the scope of their managerial
duties. Wrongful acts include errors,
misstatements, misleading statements,
acts, omissions, negligence, or breach
of duty actually or allegedly committed
or attempted by an insured person,
individually or otherwise. The D&O policy
will pay for defence costs and financial
losses.
WHAT IS NOT COVERED?
Fraudulent, criminal or intentional non-
compliant acts are not covered, but
68
April 14.indd 68
innocent directors remain fully covered
if they are co-defendants, even if their
colleagues acts were intentional or
fraudulent. Also excluded are illegal
remuneration or personal profit,
and all activities covered by a more
specific insurance policies, for example
Professional Indemnity, death and bodily
injury.
WHO IS COVERED?
All past, present and future D&Os of a
company and its subsidiaries are covered,
including non-executives. For securities
claims, the policy is extended to cover
claims against the company.
WHERE DO CLAIMS COME FROM?
Internal claims arise from the company,
other insured individuals (D&Os),
subsidiaries, and from bankruptcy or
insolvency. External claims come from
creditors, stockholders, customers,
suppliers, competitors, tax authorities,
social security and employees.
COSTS OF D&O
Premiums are calculated on the basis of
estimated claims frequency and severity.
Financial institutions or companies with
local and abroad listings are calculated
individually. Rate per mille can be as
high as R100,000 or more.
THE COMMON RISK FACTORS
AFFECTING PRICING ARE:
Domicile and international activity
(especially US exposure);
Claims record;
Industry sector (e.g. FI, Pharmaceuticals
considered a higher risk);
Stock exchange listing;
Market capitalisation;
M&A activity; and
Professional CVs of the management.
PRESENTED BY CAROLINE YEO
Fiduciary Senior Underwriter
Camargue
CLAIMS
Most claims against directors are settled
out of court which has led to the
perception that claims against directors
are unsuccessful. This has changed in
recent years with high profile cases
and enquiries against directors being
reported in the press. In the past seven
months, six new claims were reported in
excess of R10m each. Claims specifically
regarding misrepresentations and
non-disclosure occur during mergers,
take-overs and disinvestment when
the attention of existing and new
shareholders, employees and labour
organisations, suppliers, customers
and regulators focus more closely on
the entity. When a company is going
through liquidation claims resulting from
company failure can become lengthy,
complex and expensive to defend.
Share issues can also result in claims,
when representations are made in public
or private share issue documents or
prospectus documents and road shows.
Three typical examples of claims include
minority shareholders alleging that
directors have abused their position to
favour certain dominant shareholders;
competitors alleging that the defendant
director (former employee) has
misappropriated trade secrets and
confidential information; and a class
action complaint from outside investors
stating that directors failed to disclose
material information, which could have
affected their decision to invest in the
company.
Dont miss Stefan Terblanches discussion
on product liability, inefficiency claims,
and defective workmanship and products
in our next issue.
COVER APRIL 2014
2014/04/04 5:52 PM
 Paddle faster, I hear banjos!
On challenges for liability insurers
Dinnie borrowed the title
of his presentation, Paddle
faster, I hear banjos! from
the 1972 flick Deliverance.
This exclamation is often used
as a warning that hillbillies
are not far off. During his
presentation Dinnie engaged
the audience by placing the
ball of responsibility in their
hands. Dinnie discussed the
following five elements of
liability in South Africa:
Disclaimers and indemnities;
The Consumer Protection Act;
Protection of Personal Information;
Class actions; and
Privilege.
FOLLOWING IS A SYNOPSIS OF
HIS PRESENTATION ON EACH OF
THE FIVE POINTS.
DISCLAIMERS AND INDEMNITIES
Dinnie coerced a member of the
audience to read a disclaimer by which
the audience agreed that they have
entered the premises of Norton Rose
Fulbright at their own risk and the
host company and its employees are
not responsible for any liability should
an injury or destruction of property
occur.
The Consumer Protection Act (CPA)
does not forbid the use of disclaimers
and indemnities, but assists
consumers in challenging the use of
all disclaimers and indemnities in their
substance and form. For example,
one may not enter into a contract
or waive ones rights if the terms
are unfair, unreasonable or unjust.
Terms are unreasonable when they
are excessively one-sided in favour of
any person other than the consumer
or, the terms of the transaction
or agreement, are adverse and
inequitable to the consumer.
COVER APRIL 2014
April 14.indd 69
The Act will not kill off the successful
use of disclaimers or indemnity clauses
or notices, but will make the successful
reliance on such clauses and notices
more difficult.
Insurers who have previously
underwritten risks taking comfort
in representations from insureds
should take steps to ensure that the
insured complies appropriately with
the Consumer Protection Act in that
regard.
THE CONSUMER PROTECTION ACT
Section 61 of the Consumer Protection
Act provides for liability for damage
caused wholly or partly as a result of,
among other things, a defect in any
goods. Dinnie used the example of the PRESENTED BY DONALD DINNIE
recent appeal judgment of the Munich Head of Norton Rose Fulbright
higher regional court in a product South Africa Disputes Practice
liability case involving an exploding
sparkling wine bottle to provide insight
It is therefore critical that producers
into likely developments of SA product
and importers have in place liability
liability law. A shard of glass injured
cover which indemnified them in
someones eye, and the German court
the circumstances of the increased
decreed that a product is defective
product liability risks under the Act.
if it doesnt comply with reasonably
See sections 48, 49, 60 and 61 of the
expected safety standards, and that
Consumer Protection Act.
consumers expect glass bottles to
be safe, even if the damage was PROTECTION OF PERSONAL
unobserved with the naked eye. INFORMATION
A rose by any other name would be
The CPA does not contain an identical
called a POPI, said Dinnie. Not to be
definition of defect but is in effect
confused with the State Secrecy Bill,
similar. The Act defined defect to POPI is intended to protect personal
include a material imperfection in the information from processing without
manufacture of goods or components consent by public and private bodies;
that render the goods less acceptable while the Secrecy Bill aims to provide
than a person would be reasonably for the protection of sensitive State
entitled to expect in the circumstances. information.
The Acts test of reasonable POPI is a spider web that is applied to
entitlement of expectation is an most relationships in an organisation,
objective test, and any claimant would and personal information is defined
have to start by providing the material broadly. POPI will affect not only how
imperfection in the manufacture of insurers deal with their insureds but
the goods before doing the test of how they deal with service providers of
reasonable expectations. The producer all kinds, including brokers and binder
has a few useful defences he can holders, loss adjusters, administrators,
escape liability if the defect did not reinsurers and other service providers,
exist in the goods at the time it was and employees.
supplied to another person. The onus
would be on the producer to prove Once POPI is signed into law by the
that goods were not defective at the president, any person subject to the
time it left the producers premises. obligations which will include every
69
2014/04/07 10:53 PM
 IISA Insurance Forum
entity in the insurance industry will
have one year to get all processing of
information to conform to the Act.
POPI will create significant civil and
criminal law exposure in the case of
a breach. All parties in the insurance
chain should review their exposure
under the law to civil, criminal and
administrative liability and implement
necessary precautionary measures.
Insurers should review their liability
wordings, and consider appropriate
amendments to operative clauses and
exclusions. Proposal forms, policy
documents and claim forms need to
contain appropriate consents which
must be voluntary, specific and
informed expression in terms of which
permission is given for the processing
of personal information.
CLASS ACTIONS
The Constitution permits class actions
in cases of breaches of constitutional
rights. The Companies Act, Consumer
Protection Act and the National
70
April 14.indd 70
Environmental Management Act
provide for class actions in respect of
rights and obligations dealt with by that
legislation. The Mukaddam judgments
now recognise the use of class actions
in other cases where it is the most
appropriate means of litigating a
claim of members of the class. The
judgments confirm that class actions
are permitted where there has been a
breach of common law rights.
The nature of a class action leads to the
possibility that a number of insurance
policies may be triggered, either to
defend or indemnify because, policies
will be triggered where the allegations,
injury or damages span a number of
years. Depending on the nature of the
policy and its interpretation, allegations
might trigger the policy if the injury or
damage was caused during the policy
period, it was ongoing during the policy
period, it manifested itself during the
policy period or the claim related to
damage or injury presented during the
policy period.
DIFFERENT TYPES OF INSURANCE
POLICIES MAY BE TRIGGERED. THERE
ARE THREE TYPES OF INSURANCE
POLICIES MOST LIKELY TO RESPOND
TO A CLASS ACTION:
General liability policies;
Directors and officers liability
insurance; and
Professional liability insurance.
More than one layer of insurance may
be triggered, where there is primary,
excess and umbrella coverage.
A significant aspect of class action
litigation is the defence costs, and
insurers need to be alert to both the
risks of providing an indemnity in
respect of class actions and defence
costs, and the marketing opportunities
which are presented. An insured and
insurer may have different interests
and concerns when it comes to settling
or defending class actions.
PRIVILEGE
Privilege is a right in common law
for a client to be able to consult a
legal advisor or lawyer in confidence
without fear of having to disclose those
communications at a later date.
Privilege ensures a clients ability
to speak freely and frankly with
his or her legal advisor in order to
obtain appropriate legal advice and
ensure complete fairness in legal
proceedings.
There are two types of privilege
legal professional privilege and
without prejudice communication. The
first type consists of two sub-types
legal advice privilege and litigation
privilege.
Privilege extends to in-house lawyers
or legal advisors, as long as they
comply with the requirements for
privilege (communications made in a
professional capacity for the purposes
of obtaining or giving legal advice, or in
contemplation of litigation).
Communications with in-house lawyers
not relating to the provision of legal
advice (e.g. executive, commercial or
managerial advice) may not attract
privilege.
In-house lawyers should be scrupulous
in making a distinction of when they
are acting in an independent legal
capacity and when they are performing
other functions.
COVER APRIL 2014
2014/04/04 5:52 PM
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Untitled-1 1 2014/04/07 3:06 PM

 IISA Insurance Forum
Liabilities
An underwriters perspective
Understanding liability depends
on working back from the end-
user of the product (such as a
consumer), all the way through
the entire manufacturing chain,
to the source of raw materials.
The Consumer Protection Act (CPA)
places the onus on the supply chain
to disprove liability, thus moving the
burden of proof (and costs) away from
the consumer. The entire supply chain
incurs costs in defending its position,
or in moving the liability as far back as
possible, sometimes right the way to
the supplier of raw materials.
End users, whether consumers or
other trading partners, are crucial in
managing liability risks. It is in this
regard that contract management is of
utmost importance.
Increased regulation, locally and
elsewhere, has made the liability
landscape more onerous than ever.
In addition, local companies are
addressing educated markets (made
up of investors and insured entities/
persons), often in areas where they
have not previously traded.
These factors necessitate new
approaches to underwriting liability
risk. Policies covering these increased
exposures require much broader wording
and thinking and care is necessary in
determining indemnity limits, with an
insureds net profit multiplied by 10 as
a potential starting point, however you
should always obtain advise from an
experienced broker.
72
April 14.indd 72
Increasingly, much larger General and
Products liability limits are purchased,
as international markets and lenders
are demanding covers which are
at least equivalent to what can be
purchased in Europe and elsewhere.
Awards and settlements arising from
product liability claims in USA, Europe
and Australia have been substantial;
as a consequence, South African
insured parties are exposed to an
unprecedented global liability scenario.
In the event of a claim, costs and
expenses can easily erode a policy
limit, especially if costs and expenses
are not in addition to these indemnity
limits, and if limits are too low.
Trends seen in General Liability are
PRESENTED BY ERIC DOM
increases in the frequency of so- Liabilities Underwriting Manager,
called Slips and Trips, while the Global Casualty, AIG
size of claims is trending upwards. A
further trend is the frequency of claims
emanating from wrongful arrest and
countries (and in many occasions, that
defamation, which historically has been
company may be very well resourced).
at very low limits. As a consequence,
As a result, it is necessary to take this
no longer should limits of R5,000,000
into account when providing liability
be sold for R500 in order to fill a
insurance for those trading in Africa.
schedule. Instead, it is necessary to
understand your clients products and Liability risks can be successfully
the market they are addressing. managed by way of liability loss
control, as alluded to earlier, and
Africa is the new frontier for all things
understanding and working with
financial and large foreign companies,
the insured to gain insight into
private equity and government
manufacturing processes, markets and
investments are the order of the day.
quality control.
African markets may be incorrectly
perceived as low risk in terms of Large companies include liability
litigation, but a South African client loss control as part of their Risk
may cross swords with an international Management programmes; smaller
company in any of these African companies can also benefit from loss
control by working with brokers and
insurers.
Working through all the steps in the
formula, and maintaining accurate and
complete records of all processes (and
changes), serve as a sound defense in
the event of a liability claim.
It is said that reputations are built over
years, but destroyed in minutes: by
having appropriate processes in place,
underpinned by sound liability insurance,
this never has to happen to you.
COVER APRIL 2014
2014/04/04 5:52 PM
 PRAGMATIC PRAVIN
HOW THE 2014 BUDGET SPEECH AFFECTS YOU AND YOUR CLIENT

2014 is not only an election year, but also a year for South Africans to celebrate 20
years of democracy. It was no surprise that Finance Minister, Pravin Gordhan, took a
more pragmatic stance when it came to his 2014 Budget Speech. Focusing heavily on
the National Development Plan, people have had mixed reactions as to whether the
budget addresses all the relevant issues in SA. COVER asked industry leaders what
their view of the budget was, and how it may affect the industry.

COVER APRIL 2014 73

April 14.indd 73 2014/04/04 5:53 PM

 Tax
Walking the tightrope
BACKDROP: THE UNFRIENDLY
CLIMATE
In what was the 20th Budget of the
democratic era, Finance Minister Pravin
Gordhan faced a massive challenge.
It was rumoured to have been his last
Budget Speech, and it is hard to blame
him. The reality is that everybody
taxpayers, citizens, local and global
investors, corporates, ratings agencies
and fellow Cabinet ministers all have
high expectations of what the Finance
Minister should deliver. He cannot
please everyone, and that makes him
very unpopular at times.
When Trevor Manuel was Finance
Minister, a booming economy and
increased efficiency in tax collection
meant there was scope to expand
welfare spending, while cutting corporate
and individual tax rates. But now the
economy is stuck in second gear.
Five years ago, emerging markets such
as South Africa were praised for having
smaller deficits and lower debt ratios
than the developed economies. This
situation has changed. South Africas
deficit is now comparatively larger as a
percentage of gross domestic product
(GDP) than the USs deficit, and the
markets leniency towards emerging
74
April 14.indd 74
economies with deficits has come to
an end.
Capital that was once freely available
to emerging markets with large
external funding needs, such as
South Africa, is now scarce. This
caused several key emerging markets
currencies to slump and bond yields
to spike. The increase in bond yields
over the past year means that any
future borrowing, including rolling over
existing debt, will be done at higher
interest rates. Already, Government
expects to spend R121 billion in this
fiscal year on servicing debt (compared
with R144 billion on social welfare).
ECONOMIC OUTLOOK
UNINSPIRING
The performance of the economy is
the starting point for understanding the
Budget, as it is the economy that has to
deliver the tax revenue that Government
spends. How Government spends its
money also impacts how the economy
performs. The real economic growth
outlook has been downgraded to 2.7%
in 2014 and 3.2% in 2015. Inflation is
estimated at 6.2% in 2014 and 5.9% in
2015. Household consumption growth is
expected to be sluggish at 2.8% in 2014
and 3.2% in 2015.
TAX REVENUE GROWING FASTER
THAN THE ECONOMY
Despite the sluggish economy (real
growth of only 2% in 2013), tax
revenues have been relatively buoyant,
and Government expects to have
collected R1 billion more in the 2013/14
fiscal year compared to what was
expected. Companies tax came in
ahead of target by R7.1 billion, more
than offsetting value added tax (VAT)
that came in below target by R3.7
billion. The Budget projects revenue to
grow by 8.6% in 2014/15 and 9.9% in
2014.
Tax revenue is expected to grow faster
than the economy over the medium
term, meaning the total tax burden
on the economy will rise: Tax revenue
as a percentage of GDP will rise from
a low of 24.4% in 2009 to 26.5% in
2016/17.
Good news for taxpayers is that R9.3
billion in income tax relief has been
granted to compensate for the impact
of inflation (fiscal drag). This will be
offset by R4.7 billion increases in
indirect taxes. As is the case every
year, sin taxes will rise. A can of
beer will cost 9c more, a packet of
cigarettes 68c more, and a bottle
of spirits R4.80 per bottle more.
Conscious of the fact that motorists
are battling with high petrol prices,
the increases in the fuel levy and Road
Accident Fund levy have been kept
in line with inflation to 12c/l and 8c/l
respectively.
Once the work of the Davis
Commission is completed towards the
end of the year, one might expect
more changes in terms of tax rates and
tax types.
BRAKES PLACED ON SPENDING
Government non-interest expenditure
is expected to be R1.05 trillion in
2013/14, rising to R1.31 trillion in
2016/17. Having grown sharply over
the past decade, spending is projected
to only grow on average 1.9% per year
above inflation over the next three
years, slightly lower than what was
announced in the October mini-budget.
Spending will be about R3 billion lower
than what the Minister said he would
spend three years ago. Spending will
COVER APRIL 2014
2014/04/04 5:53 PM
 also be slower than overall economic
growth, meaning that Government
will be a drag on the performance
of the economy over the medium
term. However, over the longer term,
getting spending under control is
crucial for maintaining the sustainability
of Governments finances and for
maintaining credibility in the eyes
of the market and ratings agencies.
Importantly, spending on infrastructure
will grow at 4% above inflation over the
budget period, suggesting an important
shift from current to capital spending.
To further signify commitment to
sound finances, Government has drawn
a line in the sand by introducing an
expenditure ceiling. This means
government non-interest spending
cannot breach R1.03 trillion in 2014/15,
R1.11 trillion in 2015/16 and R1.18
trillion in 2016/17. Any new spending
plans introduced will have to be offset
by cuts in other areas.
Governments wage bill is projected to
grow by 6.8% over the next fiscal year,
and 6.6% the year after. Social grants
will also grow slightly above inflation
over the next year.
DEFICITS AND DEBT TO STABILISE
Putting the tax revenue and spending
numbers together, the budget deficit is
projected to be 4% of gross domestic
product (GDP) in the 2014/15 fiscal
year. This is lower than the October
mini-budget forecast. The deficit is
expected to fall to 3.6% in the next
fiscal year and 2.8% in 2016/17. The
ratio of total government debt to GDP
is expected to peak at 45%, up from
29% in 2009.
GOOD BUT NOT OUTSTANDING
The Minister spoke at length about
the National Development Plan, but
it will be implemented by the next
administration. The speech was thus
devoid of detail on economic reforms, DAVE MOHR
Chief Investment Strategist
even as the Minister stressed the
Old Mutual Wealth
need to get the economy growing
and specifically to get small business
growing. But the Budget was also
devoid of populist rhetoric in an on the rand and interest rates in time.
election year. It also creates longer-term space for
Government to respond to future
All in all, it was a credible but economic crises. The hard work is
unexciting Budget. The Minister had now to get the various government
no choice but to reduce the budget departments and agencies to spend
deficit, and he delivered. The lower their allocations effectively and to cut
projected deficits should ease pressure waste and corruption.

Boosting retirement savings

NICK BATTERSBY
Chief Executive
PPS Investments
BOOST YOUR TAX RETURN
A portion of the total contribution you
make towards your RA in any given
tax year is tax deductible. This means
that when submitting your income tax
return, you can claim back a portion
of the money you have contributed
towards your RA without impacting the
value of your investment.
If you choose to invest the money that
you are able to reclaim, you are further
able to add to your retirement savings
without any additional outlay.
BENEFIT FROM FURTHER TAX
ADVANTAGES
Returns generated within RAs are not
subject to income tax, Capital Gains
Tax (levied on profits resulting from the
sale of assets such as property or units
in a unit trust) or Dividend Withholding
Tax (tax levied on dividends received).
RAs therefore offer a welcome tax
break from the outset.
DISCIPLINED INVESTING, WITH
FLEXIBILITY
National Treasury estimates that only
10% of South Africans are able to
maintain their pre-retirement level
of consumption after retirement. To
prepare yourself financially for the day
you stop working, you need to make
sure that you are saving enough and
that you stay invested for as long as
you can.
A regular debit order into a unit trust
based RA will ensure that you save in
a disciplined and structured manner.
However, these investments still offer
the flexibility for you to change or
cease your monthly contributions or to
transfer to a different product provider
without penalty should your personal
circumstances unexpectedly change.
HOW YOU CAN MAXIMISE YOUR
TAX DEDUCTION FOR 2013/14:
RA contributions for the tax year
ending 28 February are tax deductible
for the greater of:
15% of non-retirement funding
taxable income (income not already
being used for contributions to
a pension or provident fund);
R3,500 less current pension
fund contributions; or
R1,750 with any excess being
carried forward to the following
year of assessment.
If you do not expect your RA
contributions for the current tax year
to reach your maximum tax deductible
amount by the end of the month, it
may be worth considering an additional
RA contribution to do so.

COVER APRIL 2014 75

April 14.indd 75 2014/04/04 5:53 PM

 Tax
2014 Budget in review
Minister Pravin Gordhan
delivered a tough Budget bang
in line with the Medium Term
Budget Policy Statement he
read in October last year.
In recent years, the Minister has stuck
closely to his expenditure budgets,
while the revenue overrun in 2013/14
allowed the him to show a smaller
Budget deficit for 2013/14 (4.0% of
GDP versus the 4.2% projected in
October last year). The main budget
deficit narrows to 2.8% of GDP by
2016/17. Concomitantly, the primary
budget balance (revenue less non-
interest spending) narrows from -1.8%
of GDP in 2013/14 to -0.3% in 2016/17
enough to stabilise the gross loan
debt ratio at 48.3% of GDP.
The numbers, importantly, rely on
continued expenditure restraint, with
real non-interest spending increasing
at just 1.9% per year over the medium
term. Expenditure declines relative to
GDP over the period failing which
the debt ratio is likely to continue
rising. Also, we need a sustained firm
business cycle upswing to support
revenue (else we are likely to get
higher taxes).
Note, the level of debt is projected
to increase close to the previous
high recorded in the mid-1990s and
leaves Government with no room
to manoeuvre in the event of any
unexpected downturn in the economy.
76
April 14.indd 76
Similar to Trevor Manuel, who was
Minister of Finance from 1996 to 2009,
Minister Gordhan will need to not only
stabilise, but also lower the debt level
in time to create fiscal space.
Trevor Manuel reduced the gross loan
debt ratio from 50% of GDP in mid-
1997 to below 30% of GDP by mid-
2008. He achieved this by, initially,
applying material expenditure restraint,
notably by constraining the wage bill.
Consolidated spending by Government
and the provinces on compensation
declined from close to 13% of GDP in
the mid-1990s to less than 10% of GDP
by early 2007.
Once the debt ratio had been reduced,
which lowered the interest burden and
freed up resources, Minister Manuel
accelerated Government expenditure.
But, Trevor Manuel operated in
a buoyant growth environment
especially from 2000 (although it is
important to note his prudent policies
contributed to a favourable investment
environment and GDP growth). Indeed,
following modest economic growth
from 1997 to 1999, real GDP growth
averaged more than 4% from 2000
to 2008. Growth was driven by strong
fixed investment spending (especially
from 2003) amidst robust productivity
gains.
The current business cycle upswing,
however, has been based on
consumption spending (including
Government consumption, which is at
its highest level
in history at
more than 22%
of GDP). Also,
productivity
growth is
moderate.
Meanwhile,
the marginal
rate of return
on capital is
too low to
ignite a robust
private sector
investment
upswing. This is
ARTHUR KAMP
Investment Economist
Sanlam
not an environment in which we should
anticipate a robust, sustained economic
upswing with any degree of confidence.
Still, the Minister has delivered what he
can through a Budget that focuses on
expenditure restraint (including wage
growth restraint). The limited room to
manoeuvre is painfully visible in social
grants spending, where the Minister
shows no real growth in expenditure
especially considering inflation rates
tend to be higher for the poor when
food prices are rising.
The emphasis on measures to boost
small business development is
especially welcome. The small business
sector is, after all, South Africas
best shot at boosting much-needed
employment growth. This includes
support for venture capital companies
by easing the rules pertaining to
accessing foreign capital. Economies
grow through a process of creative
destruction. Venture capital companies
can put new ideas into practice in
support of this.
Overall, the bottom line is that
an economy where the currency
has depreciated sharply against
the backdrop of a relatively wide
government budget deficit, reflected
in a large current account deficit, must
tighten policy. Thats what the Minister
has aimed to do with this Budget.
COVER APRIL 2014
2014/04/04 5:53 PM
 Tax-free retirement
For the retirement industry, one
of the core positive take outs
from the 2014 Budget address by
Finance Minister Pravin Gordhan
is the announcement of an
increase in the tax-free lump-
sum amount to be paid out of
retirement funds at retirement.
The increase in the tax free amount,
from R315 000 to R500 000, is a
significant and positive move. This
will have a positive effect of bringing
tax relief to lower income members
who did not benefit from deductible
contributions. Many people retiring
from funds today are experiencing
a drop in their income. A bit of tax
relief on the lump-sum helps them to
receive an improved benefit to make
adjustments to their lifestyle, such as
paying off debt.
Governments commitment to seek
improved coverage and preservation
of retirement funds, and lower costs
associated with these measures is a
positive step for the industry. While
government was firm in its intention to
move towards a compulsory retirement
system for all employed workers not
part of an employee retirement fund,
we need to see detailed plans in
order to understand how this can help
towards South Africans saving more.
Although strongly emphasising
governments commitment to
accelerated retirement reform and
collaboration with the retirement
industry, todays speech has not
provided more clarity on the proposals
introduced in 2013.
The retirement industry has eagerly
awaited progress on these proposals
in order to understand how they will
CRAIG AITCHISON
GM Corporate Solutions
Old Mutual Corporate
impact the various stakeholders in the
industry.
More work needs to be done to
encourage a savings culture in South
Africa, especially through the Small to
Medium Enterprise engine (SME).
While it is positive that government
expressed its commitment to
increase the support and tax relief for
entrepreneurs and small businesses,
a focussed plan needs to now be
implemented on how this is to be
done. We look forward to further
proposals on this issue in the future
in order to clarify a supportive plan
of action for this important engine of
growth.

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COVER APRIL 2014 77

April 14.indd 77 2014/04/04 5:53 PM

 Tax
Impacting the financial plan
WILL I SAVE TAX THIS YEAR?
There was the usual inflationary
adjustment to the tax tables to reduce
the effect of the so called bracket
creep, which effectively means that an
inflationary linked salary increase will
not push your income into the next tax
bracket, which would increase your tax
payable.
The tax relief will be seen in your end
of March payslip, and whilst it may
not be a lot of money, this is money
that you never had before so make
sure that it is put to good use. For
someone under age 65, earning R 40
000 per month, the personal tax relief
amounts to roughly R 250 per month.
Use it to increase your payment to
short term debts, allowing you to
settle them quicker and reduce the
impact of compound interest. Another
good alternative is to use the amount
to increase your contributions to your
retirement annuity. A small contribution
now can make a big difference over
time.
MAKING SURE YOUR RETIREMENT
IS ON TRACK
On 1 March 2015, we will see the
distinction between pension and
provident funds fall away. The new
tax regime which will apply to all
retirement funds (pension, provident
and retirement annuity funds) will be
effective, providing a deduction of
27.5% on the greater of remuneration
and taxable income.
This also means that on retirement,
pension and provident funds will be
treated in the same manner and a
78
April 14.indd 78
maximum of one-third from both of
these funds may be taken as a lump
sum, with the balance being used to
fund an annuity.
The Minister, in his speech, has once
again reassured the public that vested
rights will be protected and if you are
already age 55 or older, you will still be
able to access your full provident fund
on retirement.
In you are not age 55 by 1 March
2015 but considering retirement in the
next few years, it is vital to assess the
impact that these changes may have
on your liquidity at retirement.
The Budget further increases the tax-
free amount on retirement fund lump
sums from R 315 000 to R 500 000.
The aim is to benefit lower income
earners who did not benefit from
the tax deduction of saving into a
retirement fund.
Retirement is a process and planning in
advance will make sure that your post
retirement plan meets your needs.
WITHDRAWAL FROM A PENSION
OR PROVIDENT FUND PRIOR TO
RETIREMENT
In certain circumstances it may be
necessary for you to withdraw prior
to retirement age. As an example
this could be a withdrawal from a
preservation fund, an award in terms
of a divorce order or accessing pension
or provident funds in the event of
change in employment. The tax-free
portion in the withdrawal tax table has
been increased from R 22 500 R 25
000 and the tax brackets have been
increased by 10%, providing slightly
greater tax relief. However you must
remember that any amount taken
as a withdrawal prior to retirement
will impact your tax free portion on
retirement.
SAVING FOR A RAINY DAY
For some time now, there has been
talk of a tax preferred savings vehicle.
This will be launched in this tax year.
You will be able to contribute R 30
000 per annum (subject to a lifetime
max of R 500 000 per individual)
to this investment and all growth as
well as proceeds will be tax-free. The
interest exemption will remain in place
although we will more than likely not
see this increase as it has in the past.
The value of a diversified portfolio
should not be underestimated. Not
only will you have a balanced portfolio
in terms of your appetite for risk, but
also use any tax breaks to maximum
advantage.
PROTECTING YOUR WEALTH
From 1 March 2015, the premiums
for income protection policies which
are designed to replace income in the
event of your temporary or permanent
disability will no longer be tax
deductible. However this will mean that
when you claim, these proceeds will be
paid tax-free. The added bonus is that
this legislation will not be backdated
so if you previously claimed a tax
deduction on these premiums, you will
still receive the proceeds free of tax.
MICHELLE DUBOIS
Legal Marketing Specialist
Liberty
COVER APRIL 2014
2014/04/04 5:53 PM
 www.genric.co.za

I
I N
E N I N A S S
M U N T P S P U
P A R T N E R S H I P
O L T R O G O U E R P
WL U U V R T R L EO
E Y R S A I E E P R
R E T T T C T
E Y T
Whether you are a direct client, broker, underwriting agency or administrator,
you can rely on us to offer innovation and flexibility in dealing with you,
your product and your customers.

Insurance. Intelligence. Integrity

BUILDING 3, MIDRAND OFFICE PARK, 563 OLD PRETORIA MAIN ROAD, MIDRAND, GAUTENG
GENRIC Insurance Company Ltd is an Authorised Financial Service Provider. FSP Number 43638
GENRIC Insurance Company Ltd is a registered Short Term Insurer

Untitled-1 1 2014/04/07 3:07 PM

 Legal
Insurers must ask
the right questions
Can an insurer be estopped
from asserting that there was
a non-disclosure at the time of
proposal?
An insurer has the right to avoid a
contract of insurance not only if a
proposer has misrepresented a material
fact, but also where the proposer failed
to disclose one. The burden of proving
materiality, of course, rests upon the
party alleging the misrepresentation1.
This right is not unconditional. Section
53 of the Short Term Insurance Act
53 of 1998 defines what constitutes
a material misrepresentation or
nondisclosure as one which is likely
to have materially affected the
assessment of the risk under the
policy at the time of its issue or at
the time of any renewal or variation.
A representation or non-disclosure is
regarded as material if a reasonable,
prudent person would consider that
80
April 14.indd 80
the particular information should
have been correctly disclosed to the
insurer so that the insurer could form
its own view as to the effect of such
information on the assessment of the
relevant risk (sections 53 (1)(a)(111)
and 53 (1)(b)). This is an objective
test. The matter is judged not from the
perspective of either the insurer or the
insured, but rather the point of view of
the notional, reasonable and prudent
person2.
Less well understood is the application
of the doctrine of estoppel in cases
of alleged misrepresentation or non-
disclosure. Estoppel is a defence which
may be raised precluding a party from
asserting or relying upon a state of
affairs where the conduct of the first
party led the other party to act to
their detriment as a result of reliance BRIAN MARTIN
upon this conduct. This issue came Executive Director Legal
Renasa Insurance
up for determination in the case of
Company Limited
Kings Property Development (Pty) Former Ombudsman for
Ltd vs. Regent Insurance Co Ltd Case Short-Term Insurance
COVER APRIL 2014
2014/04/04 5:53 PM
 No 71146/10 NGHC. In this case the
plaintiffs premises situated in Crown
Mines, Johannesburg, were destroyed
in a fire. The insurer sought to avoid
the policy and hence liability for the
resultant damage by alleging that the
insured had failed to disclose when the
policy was taken out that the premises
were let by the insured to a tenant
who operated a fibreglass operating
plant. The insurer contended that it
was under the impression that the
premises were occupied by the insured
and were used as an administrative
office. Had it known the true situation
it would have declined the proposal.
The insured denied that there had been
any non-disclosure and alternatively
argued that if there had been a non-
disclosure then the insurer by virtue of
its conduct should be estopped from
relying upon this defence.
THE BURDEN OF PROVING
MATERIALITY, OF COURSE, RESTS
UPON THE PARTY ALLEGING THE
MISREPRESENTATION
The evidence was that the insured
had been represented by a broker at
the time of the proposal for cover.
The broker had contacted the insurer
to add the premises to an existing
policy. In fact the broker had sought
a quote from the insurer for three
properties, two in Sandton and an
office/warehouse in Crown Mines.
This property had originally been added
to a buildings combined section of an
existing policy but was later removed.
At an early stage in the negotiations
the insurer had written to the broker
stating that it will not be able to go on
risk until both buildings are surveyed.
On the same day as the broker later
accepted the insurers quotation for
cover he wrote an email to the insurer
requesting that the premises be
urgently surveyed for determination of
the relevant insurance risks pertaining
to the premises. No survey was ever
conducted. The insurer admitted that
it had received this request and had
passed it on to another department
but maintained that it drew no link
between the premises to be insured
in terms of the brokers letter and the
existing policy.
COVER APRIL 2014
April 14.indd 81
The insured argued that the insurer had
led the broker to believe that an urgent
survey would be done on the premises
and had not reverted to say that the
survey would no longer be conducted.
The insurers conduct lulled the broker
into a false sense of security that cover
for the premises was in place. Had the
broker been advised that the survey
would not be conducted urgently, or
at all, he could have placed the risk
elsewhere before the fire took place.
The court accepted that the fact
that the premises were occupied by
a tenant who was using them as a
fibreglass manufacturing facility was
material information that the insurer
would have required to access the risk.
However, the conduct of the insurer
needed to be examined to determine
whether it did enough before providing
cover, in the light of the facts and
knowledge that it had at its disposal.
The court noted that the broker and
the insurer had been negotiating cover
for some time and that, when cover
was sought, the broker had requested
that the insurer conduct an urgent
survey to determine the risk.
The court found that there were far too
many similarities in the correspondence
between the parties and the premises
for which cover was required. Any
reasonable person would have made
the link between the two. The
insurer also had the prior history of
the premises on its records. The fact
that the insurer did not revert to the
broker on the question of the survey
nor inform him that an urgent survey
would not be conducted had led the
broker into believing that the survey
had been conducted and that insurance
cover was in place. These assurances
were misleading, and had the insured
been advised that no survey would be
done either urgently or at all, it could
have insured the premises elsewhere
before the fire took place. The court
accordingly upheld the plaintiffs plea
for estoppel and ordered the insurer
to indemnify the insured for the loss
suffered as a result of the fire.
This case illustrates the need for proper
communication between the parties
during negotiations for cover and
the need for care to be exercised by
insurers in their dealings with brokers
or policyholders. Insurers must ensure
that they ask the relevant questions
regarding the risk sought to be covered
and do not lead the insured or their
broker into a false sense of security
through their conduct.
1
See Clifford v Commercial Union
Insurance Co of SA Ltd 1998 (4) SA 150
(SCA).
2
Mahadeo v Dial Direct Insurance Co
Ltd 2008 (4) SA (SGHC)
81
2014/04/04 5:54 PM
 Legal

POPI and Social Media:

What companies should know
The Protection of Personal
Information Act (POPI) was
signed into law in November
2013 and will commence on
a date to be published in the
Government Gazette.

This Act is forcing many companies

to rethink the way they collect, store
and use personal information of their
customers, prospects and employees.
Of course, no medium has greater
access to personal information than
social media. But how do the rules of
POPI apply to companies making use of
Twitter, Facebook and other platforms
as part of their business operations?

It is important to understand that POPI

does not only apply to customers
information. The data subject is
as the Act refers to the persons
whose personal information is being
processed. Also, for example, includes
what is called a prospect, the person
who is not your customer yet, but may
become your customer in future the
one that you want to market to. Social
media platforms like Facebook and
Twitter have their own rules of use
that apply. Information collected via
social media channels are not as a rule
exempt from the rules of POPI, says
Jana Van Zyl, of Dommisse Attorneys.
This information will still need to be
handled and obtained in a responsible
manner as you would, had you
gathered the information via email or
fax or in person.
There is an exception to the rule that
both consumers and companies should
be made aware of, however. The
general rule of POPI is that information
must be collected from the data
subject directly, says Van Zyl. This
means that if you want to process
my information, you should collect it
directly from me. However, there is
an exception to this rule saying that
you do not need to collect information
directly from a person if the person
has made the information publically
available and accessible. This doesnt
mean that the rules of POPI wont
apply to the information once its been
collected. Our advice would still be
to secure the information as part of
usual security measures implemented
for information received through non-
public sources , especially bearing in
mind that in terms of POPI, should
information be lost or should a security
breach occur, they will be required to
notify both the data subject and the
Regulator.
Van Zyl acknowledges that the Act
does not define security breaches
as such. Some forms of security
breaches are obvious. A stolen laptop
containing customer information is a
clear security breach. But what about
something like a bounced email? I
have heard someone viewing this as
a security breach. Or what about an
email addressed to the incorrect Jana
for example? This may be somewhat
more of a grey area can we say for
certain that its cause for alarm? POPI
states that companies must protect
the confidentiality and integrity of
personal information. However, there
is no tick list of the requirements per
se, and so in this regard we advise
companies to do so in the spirit of
that rule. Companies should consider
acceptable industry standards. It may
also be advisable for responsible
parties to define security breaches and
train employees on the required action,
should a security breach occur.
Van Zyl also advises companies
that POPI is not the only legislation
pertinent to social media. Lets say
that a company collects information
via a competition on Facebook. The
rules of the competition will come into
play, also the contractual agreement

82 COVER APRIL 2014

April 14.indd 82 2014/04/04 5:54 PM

 between the company and the social
media platform, as well as the laws
of the country that the social media
platform operates from. POPI, for
instance, may require that companies
destroy information collected for a
specific purpose (e.g. notifying the
winner of the competition) once
that purpose has been achieved. But
on the other hand the Consumer
Protection Act (CPA) may require the
company to store that information for
three years, and POPI wont override
existing legislation in this regard.
When a law requires information
to be retained for a specific period,
that retention period still needs to
be implemented. So there are many
different rules at play that companies
should be aware of.
It is also important to understand
that individuals do have the right to
Dont try and rule from the grave
For most people when drafting
a Will there is the obvious
desire to control the allocation
of their assets after their demise
hence the need for a Will in
the first place. However, it is
possible to be too controlling
in a Will and to create a legacy
that is inflexible, unrealistic and
frustrating for your heirs.
David Knott of Private Client Trust
says that the fiduciary services
division of Private Client Holdings,
testators are often inclined to have
very definite ideas as to what should
happen to their hard earned estate
after they have passed away and the
Will would therefore be constructed in
very precise terms dealing with each
of the major assets spelling out how
and when this is to be disposed of, or
retained for future generations.
The education and career paths of
children would be decreed; along with
where and what they are to study and
at what stages of life should capital be
released to them from trusts. A parent
is often hesitant to let a child have
access to capital too early in life as he
COVER APRIL 2014
April 14.indd 83
receive a record of the information
that a company holds on them this
could include the source from where
the information was obtained from,
with whom it has been shared, and of
course details of the contact details.
Of course, social media platforms
arent fail-proof in terms of security.
Facebook, Twitter and most recently,
Snapchat, have all been subject
to hacking, revealing millions of
consumers personal information. Van
Zyl says, in a case of hacking, it does
not mean that companies are free to
collect information that people may
otherwise not have made publicly
available. In terms of POPI information
must be collected in a lawful manner, I
would certainly advise that information
obtained due to any form of hacking
should not constitute lawful
processing under POPI.
might have struggled financially and
feels that the child could squander or
become lazy if capital comes too easily.
IT IS FOR THESE AND MANY OTHER
REASONS THAT A WILL MUST BE AS
FLEXIBLE AS POSSIBLE.
All these inclinations are sound in
logic as the parent is only wishing for
the best for his or her family, but we
cannot predict the future and the rule
from the grave instructions cannot
anticipate how circumstances will
change after the death of the testator.
Van Zyl advises any company that
wishes to start collecting information
via social media to familiarise
themselves with both the POPI Act
and the platform rules before using
the information or launching any
campaigns through the platforms.
Read the terms and conditions of the
platform very carefully, and compare
that to the requirements that POPI
has set out. Always make sure that
all the bases are covered and are on
the side of caution when it comes to
protecting your customers (or other
data subjects, such as prospects)
personal information once it has been
collected.
And when you are not sure, call your
lawyer!
Financial markets could be in turmoil;
the family business in a trough; the
children may have no desire or aptitude
to follow the chosen career path; they
may have moved to another country or
be going through an emotional divorce
or rocky insolvency. It is for these and
many other reasons that a Will must be
as flexible as possible.
An effective Will should be able
to consider variable possible future
scenarios and adapt accordingly. Maybe
the trust should not terminate just yet;
perhaps a holiday home should be
purchased or the business sold.
However, for this flexible Will to be
efficient, the testator must have
trust in his executor and trustee.
The executor and trustee must be
of impeccable integrity, have expert
financial ability to manage the affairs
of another and have the emotional
intelligence to deal with beneficiaries
who may not have the financial nous
just yet.
It is highly recommended that one
contracts the services of professional
fiduciary experts when drafting your
Will and choosing your executor and
testator.
83
2014/04/04 5:54 PM
 Coffee with
COVER
Growing the UMA market

How do you expect the UMA

model to change over the next ve
years?
UMAs are under pressure to provide "UMAs are under
value to those brokers that place
business through them. With loss ratios pressure to
under extreme pressure, UMAs are provide value to
nding it difcult to buy business at
cheap rates and still manage to turn those brokers that
a prot. To remain viable they have place business
to offer brokers something that the
insurer cannot provide either by way through them."
of exceptional service or expertise. I
believe that only the best will survive.
From an insurer point of view, at what
stage do you see the need for a UMA?
UMAs essentially takes the place of a
specialist branch within an insurance
company. They provide expertise,
technical assistance and areas of
business where a general broker has
little knowledge. It is often difcult to
nd experienced staff in these specialist
areas and by giving the principal in a
UMA ownership in his own business,
you can attract and keep that expertise.
Is there not an argument for
amalgamation where specialists are
to niche?
Yes and no there is always an
economy of scale in any business but,
where you are looking at really specialist
areas, there can be minimal saving on
staff costs when amalgamating them,
so the best one can do as a cost saving
exercise, is to create an integrated hub
for accounting and human resources.
Sharon Paterson, CEO, Claims and underwriting would each
Inniti Insurance require their specialists. Stafng remains
a major cost centre of any business.

84

Coffee_APR.indd 1 2014/04/04 5:55 PM

 There is a lot of speculation
regarding the future of "general"
UMA's. What is your view on that?
"For a general UMA
For a general UMA to survive, they
to survive, they have to provide brokers with something
have to provide that they cannot get from an insurer.
brokers with They have to focus either on a niche
area and become the best in the market
something that
in that area, or they have to leverage of
they cannot get the lack of service and poor rates that
from an insurer." smaller brokers often perceive that they
get from large insurers. If UMAs can
provide smaller brokers with access to
facilities that gives the same exibility
experienced with larger brokers, and if
they can give the smaller broker access
to skills and to senior management that
they dont get from insurers, this will go
some way in assisting brokers to attract
good business. A general UMA has to
carefully select the broker that they deal
with, to ensure that the broker is not
selecting against them and that they
are acquiring the broker as a rst rather
than a last choice of carrier. They have
to earn their fee, to make it viable for
the broker to partner with them.
What is your view on the comments
that brokers might be able to
charge for advice on top of the
normal fees allowed through binder
"The best one can agreements?
do as a cost saving A broker, as the representative of
exercise, is to create the client, has the responsibility to
an integrated hub ensure that his client is correctly and
for accounting and optimally insured rather than just to
sell a product. This involves a detailed
human resources."
Coffee_APR.indd 2
analysis of the needs of the client and
being sure that the client can comply
with policy terms and conditions. Just as
we are prepared to pay a good attorney
or accountant more for their services, so
should we be prepared to pay more for
the services of a professional insurance
adviser.
Inniti has a number of UMAs.
Do you expect that number to
grow and, if so, where do you see
possible growth?
Yes, I do see a growing number of
UMA partnering with Inniti. I am always
on the lookout for good business and
new opportunities so watch this space
.
You have started up a reinsurance
business recently. How does this
development impact your UMA
partners, if at all?
Our emphasis on the reinsurance side
is targeted at the rest of Africa rather
than within South Africa. Clearly this
could open expansion opportunities
for our UMA partners into Africa. We
are always on the lookout for new
opportunities for our partners.
85
2014/04/04 5:55 PM
 Risk Management
The silo effect
The effects of a silo approach
when placing insurance cover
usually leads to several harmful
yet unintended consequences.
These include wasteful
duplication of cover, adverse
under-insurance or even more
frightening, the complete
absence of cover. A scenario
such as this is likely to prevail
when the negotiator of the
insurance contract singlehandedly
negotiates a contract without
full knowledge of the companys
clear risk exposure and the
extent of its risk appetite.
Nowadays risks are dynamic and much
more complex. This is why they require
an inclusive approach. The complexity
is brought about by the constant
change of the companys risk profile.
In the current economic climate,
companies are continuously exposed
to conditions that contain seeds of
undesirable change in their financial
situation. This scenario presents
the challenge for the creation of a
sustainable financial security model.
THE VIABLE OPTIONS
There are options available to
overcome this challenge including the
prevention of the situation as well
as the reduction of the probability of
its occurrence or transference of the
burden.
Risk transfer is significant. Buying of
insurance is probably the commonest
form of risk- transfer strategy within
a company . An insurance contract
is meant to give the insured peace
of mind. However, for the company
to experience peace of mind, the
negotiator of the insurance contract
must have a clear understanding of
a companys risk exposure as well as
its risk appetite before concluding the
contract. The content of the insurance
contract must be aligned to the
companys risk profile.
86
April 14.indd 86
It stands to reason that the insurance
buyer must work collaboratively with
the risk team so as to effectively
place insurance cover . Therefore,
there is virtually no way a company
can optimally negotiate an insurance
contract if there is little or no
integration of the risk team and the
insurance team.
The intergrated risk management
approach yields more sustainable
benefits because there will be a better
response to issues within the company
as the risk will be clearly understood
and identified. Moreover, both roles
serve as a second line of defence and
that involves providing oversight over
business risk ; monitoring the proper
implementation of the risk policy
and framework .The company would
then be able to identify uninsured
and uninsurable risks, thus ensuring
resilience to withstand both internal
and external risks.
Furthermore, companies will make risk
transfer decisions based on an explicit
comparison between the cost of risk
retention versus the cost of risk transfer
and execute only those transactions
that increase the companys value. The
right information of risks identified,
assessed and intended to be managed
will be properly communicated to the
right people at the right time with the
appropriate frequency so that they
may act. The risk management report
will be comprehensive and will cover
unusual losses, including how they will
be funded and steps taken to prevent
recurrence.
Overall, there would be data analysis
to identify the root causes of losses
and prevent their occurrence in the first
instance and consequently improve the
risk profile..There will be coordination
of information and both professional
teams will act in an advisory capacity
with regard to risk aspects. Thus,
they will embed the risk management
process into the core processes of the
business. The company will therefore
understand what the insurance contract
actually covers and then link that to
the companys profile.
PUSELETSO MAKHURA
Manager: Insurance and Loss Recovery
MTN
This kind of collaboration ensures
consistent application of risk
management policies throughout the
company.
THE OUTLOOK FOR THE
INTEGRATION OF RISK AND
INSURANCE
Companies in the future will compete
on the basis of how risk and insurance
processes are integrated and fit
together. This will constitute a critical
source of sustainable competitive
advantage.
Those companies that seize the
advantage by developing the
appropriate synergy will unltimately
reap the benefit disproportionately.
Moreover, a company that knows
how to nurture a collaborative
relationship between insurance and
risk management processes will
put itself in a better position when
negotiating cover. This is due to
the fact that insurers will be able to
ascertain the ability of the company to
assess and manage its risk exposure.
Consequently, their confidence in the
company will either grow or remain
stable because they are interested to
see if the companys risk management
processes are still robust.
COVER APRIL 2014
2014/04/04 5:57 PM
 It is crucial to stress that risk
management is a comprehensive
task that requires collaborative
relationships. Therefore, it is imperative
for companies to encourage the
interconnectedness of insurance and
risk magement processes with a view
to staying abreast of competitors.
Insurance professionals must appreciate
the nature of the companys risk
From qualitative to quantitative
The approach to risk
management is on the cusp of
a shift towards a more unified
slant from the traditional
process-driven and qualitative
focus. This looked good on paper
however the reality that was
ignored is the minefield that is
human fallibility, which leads
to an acceleration of potential
risk incidents. The combination
of qualitative and quantitative
risk management allows for
less of a static process and a
more continuous re-evaluation
throughout.
The rise of technology and automation
combined with the human condition
has brought with it certain significant
challenges, says Volker von Widdern,
MD of Marshs Risk Consulting
division. A small error in judgement
is now often replicated quickly and
spread across vast distances. Think
COVER APRIL 2014
April 14.indd 87
environment in order to provide
operational risk information to the
insurer.
On the other hand, the risk practitioner
must appreciate the significance of
risk transfer while remaining aware of
what is covered and excluded by the
insurance contract. Also, it is important
to take into consideration, the terms
THE POTENTIAL FOR A STREAMLINED PROCESS IS CLEAR
of the phenomenon of the viral
photo, post or tweet and its possible
consequences. Certain human
behaviours pose risks as well such
as a tendency to fall into blind
routine, to avoid unpleasant truths,
to use irrational measurements when
choosing a course of action.
It is the myriad of potential human
or technological errors that challenge
any business where the process of risk
management faces a possible process
failure. Quantification of risk is usually
based on loss quantification, and
only occasionally progresses to more
structured consequence analysis and
exposure scenario assessments. Thus
with the introduction of a quantitative
element, like money, insurance or loss,
the risk management process gains an
and conditions of the insurance
programme as well.
These two critical aspects are
inextricably linked. Therefore if there
is no synergy, the whole insurance
buying exercise will be ineffective
and a futile exercise. The traditional
risk management process no longer
provides a lasting competitive edge.
additional function of quantitative risk
management.
The advantages of using this approach
are that it provides clarity in terms of
accountability and mitigates the effect
of human biases while also integrating
with strategic risk exposure assessment
and their related key performance
measurements.
The potential pitfalls, though, are
that the thinking becomes narrow,
assumptions may be inadequate and
results are badly interpreted, it becomes
a matter of garbage in/garbage out.
Quantification does not cover all
risks, it is not a substitute for alert
and enquiring risk diagnostics, noting
that risk quantification models cannot
provide for unknown unknowns.
87
2014/04/04 5:57 PM
 Risk Management
Warning: Risky investments!
South African investors need
to be aware of the difference
between risky businesses and
risky investments, as often
the confusion between these
can result in missing out on
opportunities within the current
market environment.
Piet Viljoen, Chairman of Value Asset
Manager, RECM, spoke on the topic
at a recent RECM presentation. He
explained that there are two types of
risks within the current investment
market. Business risk is the risk that
management deals with on a daily
basis in the course of running their
company, be it mining platinum or
providing IT services. What we as
investors do is manage investment risk
- an entirely different concept.
While some of the businesses that
RECM invests in may be perceived as
risky, they should not be confused with
risky investments. Mining platinum
out of the ground, as Anglo American
Platinum do, is by default a risky
business. However, if a low price is
paid for the companys shares, this
asset is a low risk investment, despite
the riskiness of the business. These
two concepts of risk must not be
confused.
As a value investor, RECM manages
the investment risk associated with
buying equity in a business, which
88
April 14.indd 88
gives investors access to the cash flows illusion of safety is a very dangerous
of that business. Their funds do contain investment proposition at the
risky businesses, but in their opinion moment.
they have paid such a low price for
An opportunity that RECM currently
these businesses that the risk is very
views as a low investment risk is
small.
cyclical stocks. These are stocks that
Value investing isnt just picking a are economically constrained at the
bunch of cheap assets; its a risk moment, are suffering due to the
management process. economic cycle and do not usually
have the cash flow to pay dividends.
There are some very real investment They also see an opportunity in low
risks that investors may be growth assets, which are assets that do
struggling with in the current market not have a growth story and are not
environment. Reaching for yield is a perceived to be going anywhere. Such
risky strategy which we see happening assets are priced very attractively for
frequently, as is reaching for growth, low investment risk and good returns.
as investors are often overpaying for
these assets. There are some assets which dont pay
income offer a fantastic investment
Another investment opportunity. The opportunities are
risk is related to the usually the opposite of where the
market concentration. risks lie and if an investor is doing
They analysed the opposite of what the pack is
statistics recently doing, the outcome will generally be
and saw that four fine. Investing in growth stories and
investment houses following the herd brings about a
are taking 80% certain comfort, however investors are
of the flow at the paying too high a price to access the
moment. Investing equity of these businesses.
in these houses
may seem like a A value investors main job is
low risk proposition, to manage the risk. The correct
but if everyone is management of investment risk leads
doing the same to strong compounding over time
thing, it becomes a because capital is not lost, and this
risky activity. This leads to peace of mind.
COVER APRIL 2014
2014/04/07 12:17 PM
 Global transactional
risk insurance doubles
Global demand for transactional risk
insurance has grown substantially
over the last three years, fuelled
by an increase in corporate, private
equity and infrastructure funds using
insurance to protect their deals
and gain a strategic advantage in
negotiations, particularly in cross-
border transactions, according to
figures released today by Marsh.
The amount of transactional risk
insurance placed by Marsh grew by
155% in the three years to 2013
with year on year growth of 26% from
2012-2013. In addition to increased
client demand, the insurance market
has increased its appetite to underwrite
these risks, particularly in emerging
territories, Marsh also said.
According to research published today
by Marshs Private Equity and M&A
Services Practice, M&A Transactional
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NEW
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email Brent:
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COVER APRIL 2014
April 14.indd 89
Risk Solutions: Global Growth Special
Edition, the limits of insurance placed
by Marsh in 2013, compared to 2010,
by geography were: Europe, the Middle
East and Africa (EMEA), $2,74 billion
($1,5bn); Asia Pacific, $1,03 billion
($114m); and Americas, $1,34 billion
($395m).
Marshs report notes that the
growing utilisation of transactional
risk insurance is most pronounced
in Germany, South Africa and across
Asia Pacific. Between 2010 and 2013
Marsh noted a 100% increase in
policies bound for German transactions,
while Asia Pacific experienced the
greatest overall growth, with a nine-
fold increase in the limits of insurance
placed by Marsh.
The transactional risk insurance market
has rapidly evolved from being largely
concentrated in Western Europe and
the US in 2010, into the global industry
it is today.
GUY ROYSTON
Senior Vice President
Private Equity and M&A
Practice Leader South Africa
Risk appetite is key to this growth:
while many firms are looking beyond
their own borders for mergers and
acquisitions opportunities, the
unfamiliarity associated with doing
deals overseas means they are taking
a much more cautious approach to
warranty exposure. Transactional risk
insurance solutions mitigate this risk.
Marsh reports that falling premiums
have also contributed to the growing
popularity of warranty and indemnity
insurance (W&I) insurance globally.
For example, in EMEA the average
premium rate was 1,55% of the limits
purchased in 2013, down from 2,1% in
2010.
New entrants to the market, coupled
with falling premiums, has fuelled
product innovation as insurers look for
new ways to differentiate themselves
from competitors and sustain their
books of business. Clients are taking
full advantage of this.
89
2014/04/08 9:19 AM
 Technology
Overcoming the
challenges of mobility
A top priority for IT executives
is the development and
implementation of secure and
reliable networks, especially for
small to medium-size enterprises
(SMEs) in search of innovative
value-driven business mobile
strategies.
SMEs are investing in flexible, mobile
infrastructures and setting the stage
for mobility and remote working. New
technologies must be aligned with
business goals.
IT decision makers control and
maintain reliable, secure and compliant
systems, but need to keep an eye on
their business. Whether a growing SME
or a thriving multinational, employees
communicate differently from three
years ago. There is a difference in
technology, and business demands
have escalated.
Todays array of mobile devices, social
platforms, and ubiquitous information,
coupled with a distributed, mobile,
90
April 14.indd 90
tech-savvy client base facing economic
challenges, call for a more strategic
approach to enabling business
communication.
This means quickly identifying
communications and collaboration
solutions that have the rich
functionality to meet todays business
challenges and requirements while
providing flexibility and scale to meet
future goals.
Demonstrating business value and
driving user adoption are challenges
for most IT executives. They have
limited resources and seek external
guidance on how to ensure network
performance and quantify the business
value.
Employees are using more tablets and
smartphones, and enhanced enterprise-
level mobile applications when working
away from the office, whether at home
or on a clients premises, to remain
productive while on the go.
COBUS BURGERS
CEO of NETCB
However, its important to secure
business data and information and
ensure network resilience and remote
access. IT must meet the needs of a
mobile workforce while continuing to
ensure that corporate data is secured
and managed appropriately across all
networks and devices.
IT is extending functionality to mobile
users by allowing remote access
to secure working environments.
Investment in technologies and
infrastructure is beginning to pay
off. IT executives are improving the
accessibility of information throughout
the business and improving the
connection of mobile employees to the
business.
COVER APRIL 2014
2014/04/04 5:57 PM
 Is it time for insurers to
review their mobile strategies?
A recent report by Juergen Weiss
based on the Gartner 2013
Global CIO survey predicted
that by 2015 at least 40% of
the currently existing insurance-
related, customer-facing mobile
applications will be abandoned
due to lack of demand. The
reason for this low adoption
appears to be that consumers in
general rarely interact with their
insurer leading to low alignment
between customer interest and
technical execution.
Nevertheless according to the survey
results, developing customer facing
mobile applications remains the third
most important technology priority for
insurers. Weiss points out that there
is a definite correlation between the
growing download in apps being seen
in Europe with wider smartphone
adoption. It is very evident that the
percentage of users using a cellphone
far outweighs those using the internet.
In fact it is predicted that by 2017, 79%
of users will have adopted smartphones
as opposed to just 49% in 2013.
COVER APRIL 2014
April 14.indd 91
DONT REINVENT
THE WHEEL, LEARN
FROM THE BEST
AND SEE WHAT
ALREADY EXISTS.
This raises three issues for insurers:
how insurance customers embrace
mobile insurance (demand), what
insurers should expect from mobile
applications (supply) and finally, best
practices for a better mobile insurance
experience.
As identified in the Gartner report,
there are few opportunities for
interaction between customers and
insurers. The potential for interaction
exists, for example through monthly
renewal information directed by
a smartphone app, but to engage
customers with these new interaction
points insurers need to overcome
preferences, for example phoning
a contact centre. Since the primary
reason for consumers for selecting
an insurance policy is price, if apps
dont create or highlight any monetary
incentive or benefit for customers
there is little appeal. Ignorance is
another factor with most customers
not even being aware that their
insurers provide such an app. Many
mobile apps appear to be the result
of an isolated and rather tactical
investment as opposed to a more
sophisticated and holistic digital
strategy.
Weiss recommends that insurers should
avoid investing in the design of mobile
apps without first having a detailed
value analysis. Only then should they
develop a holistic app strategy that
allows customers to use the app
seamlessly integrated into the entire
insurance value chain. Insurers should
stop building mobile apps that simply
replicate online portal functions. They
need to establish a mobile insurance
strategic framework based on different
elements of the mobile eco-system
(technology capability, supply of
and demand for such services,
regulation, market segmentation etc.)
and ascertain to what degree these
elements are controlled by insurers,
or have a variable or limited influence
on insurers. They can then pick the
right mobile architectural style, identify
the most commonly used services and
expose them.
Dont reinvent the wheel, learn from
the best and see what already exists.
Then leverage all the capabilities of the
smartphone, always keeping the end
user in mind. It is critical to remember
what influencing factors are important
like privacy, realtime data, ease of use
etc. Build apps that provide advice and
use gamification techniques to make
them more engaging and fun to use.
As yet the insurance industry has not
identified a killer app that will increase
customer adoption dramatically.
Telematics or usage-based insurance
could be such an app.
Watch this space.
RHYS COLLINS
Head of African Operations for SSP
91
2014/04/04 5:57 PM
 Technology
Change is as good as a holiday
Redefining the South African insurance sector
After a rocky 2013, the insurance
industry is poised to respond
to efficient process and slick
customer interaction.
The constant pursuit of improvement
or expansion defined 2013 for local
financial services providers operating
within the insurance industry. Caught
in a state of flux, many intermediaries
and intermediated insurers are
beginning to experience competition
from direct players. This phenomenon
is altering the shape of the South
African business environment.
New regulations like the Consumer
Protection Act and the Binder
Regulations have undoubtedly placed
a newfound burden on smaller
transitional insurance brokers.
92
April 14.indd 92
New legislation and necessities take
time to settle, and local players have
spent the better part of 2013 altering
their processes to accommodate these
expectations.
This transition has not been an easy
one, and comes at a time when
businesses and private stakeholders
are claiming more than ever before.
Intemperate weather conditions
have put a strain on insurers and
underwriters particularly in the
property and automotive sectors, to
settle a greater number of claims than
could have been anticipated.
Narrowing profit margins for insurers
are causing pressures in the broker
environment. Intermediaries and
intermediated insurers are being forced
to manage declining revenue streams,
leading to a steady pressure on
brokerages throughout South Africa.
The combination of a poor underwriting
year, newly introduced legislative
expectations and a shifting market
has created a perfect storm for the
intermediated insurance sector. There
can be no argument against the
statement that this segment of the
economy is in a state of flux.
Internationally, the situation is much
the same. Although larger insurance
groups in the United States, United
Kingdom and Europe are well
established within their respective
markets, growth is stagnant and
evolution is hampered by slow
economic recovery.
Africa is a hotbed of opportunity. With
less than a 50% insurance penetration
rate, this market is poised to respond
to the right kind of product offering at
the right time.
Despite the challenges, there have
been gains and improvements. The
introduction of standardised pricing
and technology designed to streamline
processes between the parties involved
in the underwriting process has been
fundamentally significant. Stride will
ultimately lead to an intermediated
financial service providers being more
aware of the full service offered to
the insured. Furthermore insurers are
standardising pricing models to ensure
that all intermediaries writing their
policies will offer similar pricing. This
will lead to better evaluation of risk
and ultimately better pricing.
The Stride switch has introduced a
unique opportunity for mediating
parties, those that operate the
technology that facilitates insurance
processes, to better understand the
South African consumer. By analysing
the available information and packaging
this insight these players could
potentially redefine the local insurance
sector as one that is highly responsive
and in tune with client expectations.
This is the light at the end of the
tunnel. 2014 presents a fresh
opportunity to make the most of a
newly regulated industry.
Success relies on becoming future
ready. By embracing new technologies
and approaches, insurance players
direct, broker orientated or otherwise,
can claim their share of the market.
The early adopters of efficient process
and slick customer interaction will
realise success it is inevitable.
Glen Mollink,
CEO
INNOVATION GROUP
COVER APRIL 2014
2014/04/04 5:57 PM
 healthcare
Tips for my client:
Non-healthcare expenses could affect your medical aid
It is generally well
known how dierent
healthcare claims impact
on what you pay your
medical scheme. Kristin-
Ann Cronje, Chairman
of the Alexander Forbes
Junior Board, discusses
the issue of the actual
costs of running a
medical scheme
and how these could
potentially reduce what
you pay in time.
Medical schemes can be described by
four main factors which are shown
below:
Contributions + Investment Income =
Claims + Expenses
SO, WHAT ARE NON-HEALTHCARE
EXPENSES?
The term Non-healthcare expenditure
(NHE) is used to describe all expenses
that do not relate directly to the cost
of claims. These include administration
fees, managed care fees, broker
commission, distribution costs, bad
debts and reinsurance costs.
LETS SPEND SOME TIME UNPACKING
WHAT THE FIRST THREE ARE:
1. Administration costs are costs
which are incurred in the day-to-day
operations of a medical scheme. Just
like any oce, administration costs are
a part of life for medical schemes!
These costs include pure administration
fees paid to the administrator, levies
paid to the Council for Medical Schemes
(CMS), trustee and principal ocer
remuneration, consulting fees for
actuarial, legal and other advice, auditor
COVER APRIL 2014
April 14.indd 93
fees and subscription fees for other
industry bodies such as the Board of
Healthcare Funders (BHF).
2. Managed care fees are paid for
services relating to the ecient
management of claims to improve
upon the cost-eectiveness thereof.
Some of the mechanisms that may
be employed include economic
incentives for physicians and patients
to select less costly forms of care and
controls on in-patient admissions. This
should help with keeping the costs of
healthcare down for both the scheme
and you, the member.
3. Broker commission applies to open
medical schemes and is paid to medical
scheme brokers for their advisory and
intermediary services provided to
individuals. These are the guys that
actually sell you your medical aid and
are then available if you need help
understanding how to use it.
Commission paid to brokers is
legislated in the Medical Schemes Act
and currently sits at a maximum of 3%
of your contributions, capped at R69.00
per month.
HOW ARE NON-HEALTHCARE EXPENSES
CHANGING OVER TIME?
The CMS has a general guideline for
medical schemes of maintaining NHE
at or below 10% of contribution
income. This means that medical
schemes should be left with about
90% of contributions that can be used
to pay claims and assist in building up
reserves for the scheme .
Assuming that NHE increases with
general ination, while contributions
increase with medical ination which
is usually higher than general ination
we would expect the NHE percentage
to decrease over time, irrespective
of whether additional cost control
measures are introduced.
This can be seen if we look at NHE
at an industry level. Total NHE as
a proportion of gross contribution
income (GCI) decreased slightly to
11.2% in 2012 from 11.3% in 2011
and 12.0% in 2010.
THIS STEADY DECREASE IN NON-
HEALTHCARE EXPENDITURE SINCE 2006
HAS THE FOLLOWING IMPACTS:
Allows for a larger portion of
member contributions to be
available for paying their claims,
which is why you joined the scheme
in the rst place;
Reduces the need for higher
contribution increases in the future,
which means you might be able to
have smaller increases in the future;
Allows for some level of reserve
building, which contributes to the
sustainability of the medical scheme.
As a broker, it is important for your
client to know exactly what they are
paying for within their medical aid
scheme, but to also identify extra costs
that may not be within their budget.
93
2014/04/04 5:57 PM
 healthcare
Looking for lasting value
in healthcare cover
The differences between medical
scheme and insurance cover
In these tough economic
times many South
Africans are looking
for more affordable
ways to access medical
cover for themselves
and their families.
As a result some are
choosing cheaper health
insurance products over
medical scheme options.
Dr Jacques Snyman, Managing Director
of Integrated Care Solutions at Agility
Global Health Solutions, says that
on the whole, insurance products do
tend to appear less expensive than
comprehensive medical scheme
options and for this reason they can
at face value seem like an attractive
alternative. However, one must be
cautioned that consumers should know
what it is that they are purchasing,
before committing themselves to any
product.
There are some major differences in
the cover provided by medical schemes
and insurance products. In each case
you should read the small print and
make sure that you are aware of all
exclusions and limitations. Carefully
consider what real value the product
offers. It is perfectly acceptable to
look for affordability when it comes
to medical cover, but at all costs avoid
a situation in which you find you
have inadequate cover when you or
a member of your family develops a
serious health problem or needs acute
access to hospital care during a medical
emergency such as a trauma event.
94
April 14.indd 94
WHAT ARE THE DIFFERENCES BETWEEN
MEDICAL SCHEME COVER AND
INSURANCE PRODUCTS?
One of the most important differences
is the extent of cover provided.
Medical schemes are required by law
to provide comprehensive cover for
271 of the most common and serious
medical conditions through prescribed
minimum benefits (PMBs). This means
that medical schemes are obliged
to pay the full cost of treating these
illnesses, which include emergencies
and 26 listed chronic conditions such
as hypertension, asthma, epilepsy and
diabetes.
Insurance products, on the other
hand, pay out a fixed lump sum. The
aim of these products is not to defray
medical expense and it is therefore
irrelevant which kind of treatment is
provided. They may also pay a set fee
for a specific procedure. According to
one study, insurance products typically
pay out a set amount of between R250
and R5 000 per day for hospitalisation.
While this may look impressive enough
on paper you may be in for a rude
awakening when you discover just
how expensive medical treatment in a
medical facility can be.
For example, the cost of private
treatment for one medical scheme
member and his family who had a
motor vehicle accident recently, rapidly
escalated to more than R1.2 million in
the space of just a week. The costs for a
hospital stay, ICU care, procedures and
specialist physicians or surgeons can
be very high and quickly add up. In this
scenario a R5 000 per day pay-out for
the family would not have been nearly
adequate. It is therefore essential to
ask yourself whether your healthcare
cover will afford you the required
protection in a situation such as this.
A good medical scheme option or
hospital plan will cover in-hospital
procedures and usually pay standard
medical scheme tariffs. However, you
may need to use a healthcare facility
that is part of your medical schemes
preferred hospital network, with
which special arrangements would
have been made to obtain the best
possible value.
Another difference between medical
scheme and insurance cover is that
insurers pay their clients directly
whereas medical schemes usually
will pay the providers in the event of
hospitalisation. For the medical scheme
member this means less paperwork
and fewer potential administration
headaches.
A perceived advantage offered by
insurance products, which are often
marketed as hospital cash plans
(not to be confused with hospital
plans provided via medical schemes)
is that they can be easily linked to
other insurance products such as
life, personal accident, disability or
funeral cover. This can also be done
COVER APRIL 2014
2014/04/04 5:58 PM
 with medical scheme cover as a further
convenience to members and can help
them to save on costs. Consumers
need to discuss their individual needs
with their broker and look for holistic,
integrated products that provide for
their complete health and insurance
needs as opposed to ad hoc cover that
will cost them more in the long run.
It is important to be aware that medical
schemes and insurers are governed and
regulated by dierent bodies. Insurers,
including health insurers, are regulated
by the Long Term Insurance Act and
governed by the Financial Services
Board (FSB), while medical schemes
are governed by the Council of Medical
Schemes (CMS) and regulated by the
Medical Schemes Act.
The regulations governing medical
schemes are designed to protect the
rights of members. They also provide
members with numerous safeguards
such as PMBs, which, as noted above,
protect both them and their families
should they experience a healthcare
calamity. Unlike insurance products,
medical schemes must charge all
members the same fees for a product
regardless of their health status.
COVER APRIL 2014
April 14.indd 95
While many South Africans do not
know this, medical schemes are
non-prot organisations, which are
governed by a board that is elected by
members. They are designed to serve
their members and provide them with
the best possible healthcare cover at
the most cost-eective price.
Insurance products, on the other hand,
oer none of the protections of the
rights-based Medical Schemes Act. Many
of these health insurance products are
currently misleadingly marketed as
though they cover medical expenses.
However, while these products can be
used to assist nancially during a time of
illness, they should not be used to try to
cover the medical expenses themselves.
There have been concerns that
insurance-based health products are
having a detrimental eect on the
medical scheme industry as young,
healthy consumers leave their medical
schemes for what they perceive as
cheaper health insurance products.
This is at present the focus of draft
demarcation regulations, which intend
to introduce a regulatory framework
that will govern such products as well
as protect medical schemes.
The draft regulations, which were
released for public comment by the
treasury, FSB and health department
in March 2012 and are currently being
redrafted for further comment later
this year, seek to establish what the
role of the insurance industry should
be in the health sector. The draft
regulations try to strike a balance
between protecting medical schemes
while enabling the public to access
much needed insurance products.
There is a need for well designed
insurance products that can
complement the medical scheme options
that are currently on the market. These
products should typically cover for loss
of income and provide for contingency
expenses during hospitalisation such
as Gap Cover which assists with the
gap between medical scheme taris
and the taris that hospitals charge.
However they should not be paying out
for medical expenses directly. This seems
to be where the draft regulations are
headed and if they remain on this path
they will have important implications
for the industry.
95
2014/04/04 5:58 PM
 healthcare
Healthcare 3.0
A move to a more compassionate
patient-centric healthcare system
Global healthcare is beset
by challenges that demand
constant adaptations and a
shifting focus on priorities
so that prevailing behaviour
and lifestyle changes can be
met. Valter Ado, Head of
Healthcare and Life Sciences
at Deloitte South Africa,
speaks to COVER about
shifting our healthcare system.
Globally, the emphasis has moved
from a focus on institutions as medical
providers, to one on doctors, paving
the way for Healthcare 3.0 where the
emphasis is on the consumer or patient
archetype.
The shift required is one from the
traditional healthcare model where
stakeholders are often bypassed in
terms of business engagement, to one
where the consumer/patient is at the
centre and constantly informed of all
matters affecting him or her.
Key areas in the Healthcare 3.0
model include smart healthcare
financing; that governmental muscle
is flexed for patients who also have
a say in the move towards building a
compassionate and inclusive society.
The smart finance approach requires
an adaptable, mixed financing model
that can be segmented for levels of
coverage, demographic profiles and
accessibility.
EXAMPLES OF EXISTING HEALTHCARE
FUNDING MECHANISMS ARE:
Australia, where healthcare funding
is through voluntary insurance with
tax subsidies paid by individuals.This
open-ended subsidy can potentially
96
April 14.indd 96
The smart finance
approach requires
an adaptable, mixed
financing model
lead to wasteful spending. Australian
private insurers fund treatment in
public and private hospitals and have
not widely adopted managed care
contracting.
Denmark, which funds healthcare
through local taxation with
provider management through local
authorities. Denmarks tax rates are
the highest in the OECD countries
and its healthcare spending accounts
for about 75 percent of the countrys
council spending.
France, where social insurance is co-
funded by employer and employee
with multiple non-competing
autonomous insurers. This policy
was established when medical care
was regarded as a need to be met
with little focus on cost control.
Current financing measures include
cost-sharing between employer and
employee and limited benefits on
health coverage.
Singapore, which has opted for
catastrophe insurance with a tax-
protected savings account. The
nations healthcare inflation outpaces
economic inflation as a whole. The
government heavily subsidises most
public hospital beds through general
taxation.
COVER APRIL 2014
2014/04/04 5:58 PM
 SMarTer than we think
For I do not understand
my own actions. For I do
not do what I want, but I
do the very thing I hate.
Romans 7:15, English Standard Version
We want to go to gym. We want to eat
right. We want to save. But instead we
avoid gym, eat junk food and spend all
the money we have (and sometimes
money we dont). We have all the
best intentions in the world to lead
responsible lives, but most of the time,
we do exactly the opposite.
Lets try to understand this through a
range of frameworks. One is the idea
of rst- and second-order preferences.
First-order preferences are what I want
right now. Second-order preferences
are what I want my priorities to be all
the time. What this boils down to is
my rst-order preference may be to
have a cigarette, but my second-order
preference is to stop smoking. The
challenge is that rst-order preferences
tend to dominate second-order, with
the result that we do what feels good
right now, rather than adopting the
kind of lifestyle we want.
A second, related, framework is found
in the behavioural nance literature. In
traditional nance, we expect people
to value the present more than the
future, but only by a small amount. In
behavioural nance, what experiments
have shown is that people place
COVER APRIL 2014
April 14.indd 97
AMY UNDERWOOD
Research and Product
Development at Alexander Forbes.
massively more value on the present
versus the future; this is known as
hyperbolic discounting.
SO, SINCE WE KNOW WE DO THIS, CAN
WE DO ANYTHING ABOUT IT?
One way to do this is via a
precommitment this is when we
make a voluntary self-commitment to
make the right decision in the future. A
recent study by Schwartz et al looked
at precommitments in the context of
improving what food we eat.
This study looked at the existing
Discovery programme called
HealthyFoods where consumers can get
cash-back for eating healthier foods. In
the existing programme, about 31% of
consumers food baskets
consisted of healthy
foods. One way to
increase this might be to
increase the cash-back.
But the study took the
opposite approach,
based on the idea that
individuals tend to be
more responsive to
losses than gains, and
allowed consumers
to put their cash-back
on the line if they
didnt increase their
consumption of healthy food. What
this meant is that if consumers didnt
increase and then sustain their
consumption of healthy food by 5%,
they would lose their cash-back.
Of the consumers oered
the opportunity to adopt this
precommitment, 36% chose to go
ahead. This shows how many people
are willing to put money on the line
for the opportunity to make a good
decision for their future.
Even though looking at a relatively
small incremental increase, in any
one month, only about one-third of
consumers were able to meet the 5%
requirement. However, over the period
of the precommitment, consumers
increased their consumption of healthy
foods by 3.5%.
What this conrms is that we know we
have self-control issues and many of
us are keen to do something about it.
Its dicult to do on the spur of the
moment, but if there is a way for us to
make the decision in advance, we can
see the value in it and it does help us
keep to a better lifestyle.
This can also be applied in the
retirement savings context. As weve
mentioned before, work by Thaler
and Benartzi has shown the benets
of committing to higher retirement
savings in the future. Their programme
is called SMarT and is being used by
the majority of funds in the US to help
employees make better decisions for
their future. What they do is sign up (or
are signed up) to a programme where
their contribution rate to retirement
savings increase each year when their
salary increases. This has been shown
to signicantly improve retirement
outcomes for employees.
The reality is that we all know self-
control isnt easy, but we dont have to
give up on our dreams of a healthier
lifestyle and a comfortable retirement.
Whether it be food or retirement
savings, we can still make good
decisions by using precommitments to
keep us on track.
97
2014/04/04 5:58 PM
 Governance
Towards the
final frontier
Proposed changes to
insurance accounting
standard must be tackled
as a board level issue.
Mark Danckwerts,
Partner in Financial
Services, Insurance at
KPMG, discusses these
proposed changes.
The proposed changes to the
accounting standard are expected to
be the biggest ever financial reporting
change for the insurance industry.
Derived from a significant collaborative
effort between International Accounting
Standards Board (IASB) and Financial
Accounting Standards Board (FASB),
the standard is set to provide a more
common framework for insurance
reporting.
Even though the new standards
effective date is likely to be no earlier
than 2018, insurers need to start
thinking about the changes now. While
the changes will no doubt impact
insurers accounts, insurers should view
changes in accounting standards as far
more than an accounting exercise. The
impacts on the business, systems and
people are often more pervasive than
they seem.
Thus, the changes should be
considered by more than just the
accounting and finance professionals
as they have some serious implications
for executives at board level. Amongst
other considerations, executives should
consider impacts on asset-liability
management, profit profiles and
product offerings.
98
April 14.indd 98
The changes required by the proposals
will undoubtedly have a significant
impact on the insurance technology
landscape and insurers may be
challenged by system changes as
they may need to tackle their legacy
systems. IT costs could easily make
up a significant portion of the overall
transition costs, with many of these
budgets allocated to actuarial systems
or process changes.
The proposals are likely to have a
weighty impact on closing processes
and reporting timetables. With proper
planning, such costs could be a
worthwhile investment and yield wider
benefits.
Implementation of the standard
will certainly require executives to
reconsider their human resourcing
needs. The proposals are expected to
place a heavy demand on experienced
actuarial, finance and IT resources.
For non-life products, particularly for
long-tailed casualty lines of business,
the change in discounting methodology
is likely to change the timing of
profits. Also, increased earnings
volatility resulting from the proposed
measurement model means there
may be a shift in focus towards more
traditional protection products.
Shareholders and analysts will need to
undergo a period of reorientation on
how the proposed changes will affect
reported results and dividend policies.
Insurers can already start getting
ready for the changes by keeping
their board, audit committee and
senior management informed on
how profound the change is likely to
be. They can put processes in place
to future proof current changes to
accounting, policy administration
and actuarial modelling systems in
readiness for the anticipated changes
and this could coincide with system
changes required to achieve the
Solvency Assessment and Management
(SAM) requirement of the Financial
Services Board.
This will help them to budget for any
possible system changes and allow for
any additional systems development
time ahead of implementation.
COVER APRIL 2014
2014/04/04 5:58 PM
 FSB cracking down
on compliance
With the FSB conducting more
supervisory visits to Financial
Services Providers, and with
those visits being more vigorous
and in depth, you could soon
be receiving a letter from the
Supervision Department advising
you that they will be paying you
a visit sooner than you think.
Richard Rattue, Managing
Director of Compli-Serve, chats
to COVER about the implications
of this compliance.
Receiving such a letter normally puts
FSPs into a spin; some cases for good
reason. However, as with all such things,
a little preparation goes a long way.
If you are running a business which
is perceived by the regulator to have
a higher risk rating i.e. collecting
client premiums, hedge funds etc. the
likelihood of a visit is much greater
than for a regular adviser. However,
this wont be the case if youre on
the regulatory radar screen for some
reason or another. Examples of this
would be late submission of compliance
reports or financial statements, or an
excessive number of complaints, or
even one serious complaint.
SO, THERE YOU SIT IN YOUR
OFFICE, WITH THE FSB COMING
IN TWO WEEKS TIME - WHAT
SHOULD YOU GET READY?
First and foremost, it is important to
remember that a key theme of an
FSB visit is around Risk Management
and therefore, not unsurprisingly,
the questions are aligned to this
subject. Core to this is having key
documentation in place such as a Risk
Management Plan, which shows that
you have identified some of the key
risks that apply to your business and
have actively put steps in place to
mitigate such risks.
Another key area of interest is FICA,
whereby you will be expected to show
evidence of FICA training, your FICA
COVER APRIL 2014
April 14.indd 99
internal rules, procedures in respect of
risk rating clients, politically exposed
persons and details of anti-money
laundering training, that you and your
staff have attended as is required in
terms of the Act. It is most likely that
the FSB would undertake a file sample
and expect to find your identification
and verification documentation in good
order.
THERE WILL IN ALL
LIKELIHOOD BE A
FOCUS ON YOUR HR
PROCEDURES AND TAKING
ON OF PERSONNEL.
There will in all likelihood be a focus
on your HR procedures and taking on
of personnel. This will include looking
at whether contracts are in place, job
descriptions etc., together with your
disciplinary dismissal procedures, which
would apply in the event that one of
your authorised persons is removed
from your employ or from your
authorised, register.
If you collect client premiums or
manage client funds, it is a good idea
to ensure that you have documentation
to hand to show that separate bank
accounts are being used and duly
audited, as required in terms of the
Act. Please make sure that all key
individuals attend the meetings as the
Registrar tends to react badly when
they are talking to junior personnel
as it simply does not set a good
impression, and request that your
Compliance Officer attend, as their
input will be required for the specific
section relating to compliance related
matters.
FIRST AND FOREMOST,
IT IS IMPORTANT TO
REMEMBER THAT A
KEY THEME OF AN FSB
VISIT IS AROUND RISK
MANAGEMENT
The likely outcome will be a Risk
Mitigation Plan that the FSB will
forward to you after your review, with
timelines for implementation that
range between 30 and 90 days, given
the risk attached to the outstanding
item. The key individuals will then
have to confirm with the Registrar
that the outstanding items have
been implemented. In the event that
you do not communicate this, it will
be assumed that you have not paid
attention and further action/sanction
may be heading your way. It is thus
important to treat the matter seriously,
as surely the biggest risk of all has to
be the suspension of your license, and
anything that puts a license at risk
should get your urgent attention.
As with most things, the secret is
preparation, and for those FSPs that
have been paying attention to their
compliance requirements and putting
some key procedures in place, then
a visit should be nothing to fear. For
those individuals that continue to pay
lip service to the regulations, an FSB
visit may have you reaching for your
anxiety medication.
99
2014/04/04 5:58 PM
 Governance
The global cost
of compliance
Increased cost of compliance,
ongoing regulatory change and
growing importance on reporting
add demand on compliance
teams.
Thomson Reuters announced on 14
March 2014 the findings of its annual
Cost of Compliance survey which
revealed that 53% of compliance
officers feel their personal liability has
increased; a reflection of increased
focus on senior individuals at the
supranational level.
According to the survey, this perceived
increase in personal liability may be a
contributing factor of costs associated
with senior compliance officers
continuing to escalate.
The findings highlighted the diverse
pressures on compliance functions,
with shifting supervisory expectations,
no let-up in the volume of regulatory
change and the start of many of the
big implementation programmes for
major complex legislation.
Thomson Reuters surveyed more than
600 compliance practitioners from
financial services firms including banks,
brokers, insurers and asset managers
across 71 countries covering Africa,
the Americas, Asia, Australia, Europe
and the Middle East. It builds on
annual surveys of similar respondents
conducted over the course of the last
five years, offering year-on-year trends
and developments.
KEY FINDINGS FROM THE LATEST
REPORT INCLUDE:
66% of respondents expect
the cost of senior compliance
professionals to increase in 2014.
75% of respondents expect
an increase in the amount of
information published by regulators.
26% of compliance teams spent
less than an hour a week amending
reports for the board (26% in 2013).
100
April 14.indd 100
for financial services firms. In 2013,
Globally, compliance functions again
reported spending little time liaising
with the internal audit function,
a growing cause of concern.
The number of compliance teams
spending more than 10 hours a week
tracking and analysing regulatory
developments has nearly doubled
in the US (13% in 2013 and 25%
in 2014) and the Middle East (8%
in 2013 and 18% in 2014).
The ability to comply with confidence
and transparency is integral to building
trust in the financial services sector,
says Chris Perry, managing director,
Risk, Thomson Reuters. Compliance
leaders are being held to increased
accountability amid an ever-increasing
volume of regulation, the expectation
to move and comply fast, and the
exposure to record fines for non-
compliance, now regularly totalling in
the billions. It has never been more
important that boards support their
compliance function and its senior
leadership with the budget, resources
and tools to help ensure transparency,
trust and a lasting change in
behaviours throughout firms.
INCREASED COST OF COMPLIANCE
Investment in effective risk and control
functions is extremely important. Given
the volume of anticipated rule changes
combined with a shift in regulatory
expectations regarding culture, it
is unsurprising that 66% of those
surveyed expected the cost of senior
compliance professionals to increase
in 2014. The competition for senior,
experienced compliance officers is
likely to be heightened as regulators
seek to increase their in-house skills.
Furthermore, 64% of respondents
thought that the total compliance
team budget would increase in 2014
and 20% of respondents thought it
would be significantly more in 2014.
The results year-on-year suggest
that not only are compliance salaries
rising across the board, but that the
size of compliance teams may also be
growing.
COMPLEX REGULATORY CHANGE
Working in an ever-changing regulatory
environment has become the norm
81% of respondents expected an
increase in the amount of information
published, while for 2014 expectations
have eased off slightly to 75%. The
results are positive in that they show
expectations are not quite as high as
they were in 2013, but the reality is
that any regulatory material which does
appear in 2014 will simply add to the
vast amounts of regulatory information
with which compliance officers already
struggle with.
Overall, almost a quarter of firms are
spending more than 10 hours per
week reviewing the implications of all
this new information (22% in 2013).
There were some regional variations
in this area, however. For instance,
the number of US compliance teams
spending more than 10 hours a week
tracking and analysing regulatory
developments nearly doubled (13% in
2013 and 25% in 2014).
INCREASE IN REPORTING
Reporting in all forms is set to increase
in importance in 2014. Regulators
have placed a stronger focus on
culture, conduct risk and tone from
the top, and by association raised
expectations with a firms abilities to
identify, measure and report. According
to the survey, 26% of compliance
teams spent less than an hour a week
editing reports for the board (26% in
2013). Asia has experienced the most
change in terms of time spent on board
reporting, in the last year the number
of firms in Asia spending more than a
whole working day each week creating
and amending reports for the board
has increased from a fifth to more than
a third.
COVER APRIL 2014
2014/04/04 5:58 PM
 Death benefits unable to
settle funeral expenses
An employer has failed in its
attempt to be repaid from death
benefits for the loans it granted
to the families of three deceased
members to pay for funeral
expenses.
The Pension Funds Adjudicator Ms
Muvhango Lukhaimane has ruled that
because a death benefit does not form
part of the deceased estate, funeral
expenses which are obligations of the
deceased estate cannot be paid from
death benefits.
Ms Von Zeuner, a director of Two Ten
Chemicals (Pty) Ltd, complained to the
Office of the Pension Funds Adjudicator
that the Chemical Industries National
Provident Fund (first respondent) had
not repaid the company for loans of
R5000 each granted to the families of
Mr T Ngobeni, Ms N Bambeni and Mr J
Ngobeni who passed away on 27 May
2012, 22 January 2012 and 22 August
2011 respectively.
The company had expected for the
loans to be recovered from any death
benefits that became payable by the
first respondent.
COVER APRIL 2014
April 14.indd 101
Upon T Ngobenis death, a death
benefit of R257 387.10 became payable
to his dependants and beneficiaries by
the first respondent. Upon N Bambenis
death, a death benefit of R81 058.65
became payable and upon J Ngobenis
demise, a death benefit of an
undisclosed amount became payable.
In its response to the Pension Funds
Adjudicator, NBC Fund Administration
Services (Pty) Ltd (second respondent)
said in respect of T Ngobeni, a
death benefit of R257 387,10
became payable. After identifying
his dependants and beneficiaries,
R47 884,23 was paid to P Ngobeni
(his spouse) on 15 August 2013; R47
884,23 was paid to C Ngobeni (his
daughter) on 2 July 2013; R47 884,23
was paid to B Ngobeni (his daughter)
on 30 September 2013 and R12
601,11 was paid to the guardian of P
Makhubela on her behalf.
A benefit of R50 590,68 was allocated
to T Ngobeni and would be paid to her
when she turns eighteen. The benefit
due in respect of P Ngobeni had not
been paid as the first respondent
awaited a payment instruction in order
for payment to be made.
In respect of N Bambeni, a death
benefit of R81 058,65 became payable.
The benefit was allocated and paid to
her mother, stepmother, two siblings,
two sons and two nephews. However,
a benefit for one dependant, namely
L Mtengwane in the amount of R5
412,60 had not yet been paid as the
first respondent awaited payment
instructions.
In respect of J Ngobeni, the claim was
repudiated due to late notification.
However, the employer advised that
claim documentation was submitted
on time. In her determination, Ms
Lukhaimane said in terms of Section
37C (1) of the Pension Funds Act,
provides that a death benefit shall not
form part of the deceased estate.
Therefore, the employer is not
permitted to deduct the outstanding
balances of the funeral loans granted to
the families of the deceased members
from the death benefits. The funeral
loans are debts of the deceased estates
and should be recovered from the
deceased estates, said Ms Lukhaimane
whilst dismissing the complaint.
101
2014/04/04 5:58 PM
 Events

COVER
turns 25!
Where were you when it all
began, back in 1988 when
David Alston decided to create
COVER and fill a much needed
gap in the insurance industry
for accurate and interesting
reportage? Fast forward to 20
February 2014, and David Alston
was still there to celebrate
COVERs 25th birthday with
the new (and did you see how
young they are?) COVER team
at the Norton Rose Fulbright
in Sandton. The industry was
well represented at the cocktail
evening, and it was a great
opportunity to meet new
people and share fresh ideas.
This milestone event would
not have been such a raging
success without the support of
our sponsors. To Norton Rose
Fulbright, Lion of Africa, Genasys
Technologies, Fulcrum, Oakhurst
and Tracker, a very special thank
you for the hours and dedication
you put into making our 25th a
night to remember.

Pictures by Justin Rhys Nicolau

102 COVER APRIL 2014

April 14.indd 102 2014/04/07 4:16 PM

 COVER APRIL 2014 103

April 14.indd 103 2014/04/07 4:16 PM

 Events

Its Madame
Zingara to you!
The concept of an insurance networking dinner was ever-changed
with the Insurance Institute of Gauteng (IIG) dinner held on Thursday
6 March. The dinner took place at the infamous Madame Zingara
at Monte Casino. As you stepped into the old carnival tent, you
struggled to recognise your 1920s clad friends within the industry.
The dinner included an incredible five course meal and entertainment
that ranged from Show Girls music, to contortionists shooting
arrows with their feet. The IIG dinner was certainly a 2014 event to
remember!

104 COVER APRIL 2014

April 14.indd 104 2014/04/07 4:16 PM

 Gauteng goddesses
of insurance
On Valentines Day the Gauteng Women in Insurance held a
special breakfast at the Hollard Campus in Parktown. The speaker,
Jodie Hill from Jomat, held the floor with her talk on Own and
love the Goddess. Hills speech and the red velvet cupcakes were
the high points of the day, which was sponsored by Innovation
Group, SHA, Insure Group, Aquarius Underwriting Managers, Gem
& Jewel and Constantia.

The entrance fee, products, gifts and donations will be used for the Door of
Hope mission in Glenvista, Johannesburg. This initiative saves the lives of
hundreds of children every year.

Pictures by Nadine van Staden

The Lion sings tonight

Friday, 28 February marked
the launch of the Lion of Africa
Music Expressions at the Yamaha
Theatre in Marlboro. The eclectic
award-winning Judith Sephuma,
known for her best selling jazz
albums and gospel music, was
the first artist to take to the
stage. She has collaborated with
successful musicians like Michael
Bolton, Ringo Madlingozi, Oliver
Mtukudzi; Pastor Benjamin
Dube, Dj Pepsi, just to name a
few.

The event was attended by COVERs

Thenjiwe Roda and was a huge
success. Here are a few pictures,
and make sure to visit our Facebook
page for more. www.facebook.com/
COVERPublications

COVER APRIL 2014 105

April 14.indd 105 2014/04/07 4:17 PM

 Market Cover
AUTO & GENERAL ADOPTS LITTLE
ANGELS
Auto & Generals Western Cape
Broker division is giving back to their
community and recently adopted an
organisation in Somerset West called
Little Angels.
Little Angels is a community-based
care facility that is dedicated to
empowering and caring for physical
and mentally challenged children who
suffer from Cerebral Palsy. Currently,
14 children, from a couple of months
old to 21 years of age, are in the care
of Little Angels.
Auto & General and partners including
Altech Netstar, Origin, FIA Tygerberg
Branch, Prism, V-Plus, JC Maintenance,
Unico Makelaars, Sapcor Gordons
Bay, Direct Axis and Telesure Group
Services, among others, donated
14 new beds and bedding to the
organisation.
The handover took place on 21
February 2014 and according to
Juan Manuel, General Manager of
Auto & General Brokers Southern
Regions, It was a very emotional but
heartwarming experience, something
that we will never forget and always
hold in our hearts.
Sean Jackson, Head of Auto & General
Brokers, said, We are committed to
improving the conditions that these
children live in. Throughout the year,
our Western Cape Broker division and
various business partners will work
on upgrading the organisation for the
benefit of the kids. We applaud our
broker team and our valued partners
for their generosity and kindness!
Picture by Rozelle de Waal
106
April 14.indd 106
ALTRISK SUPPORTS THE CANCER
ASSOCIATION OF SOUTH AFRICA
Every year 14 million people worldwide
hear the words, You have cancer.
In South Africa, more than 100 000
people are diagnosed each year, and
besides the emotional toll of coping
with the disease, it also brings with
it exceptional financial challenges.
This is one of the reasons why Altrisk
is donating R70 300 to the Cancer
Association of South Africa (CANSA)
towards their CANSA Care Centres that
provide care and support programmes
for those living with cancer and their
loved ones to assist them during their
treatment and recovery.
CANSA is a non-profit organisation that
enables research, educates the public
and provides support to all people
affected by cancer. CANSA provides
home-from-home accommodation to
patients undergoing cancer treatment
at oncology clinics far from their
homes; there are currently 12 CANSA
Care Homes across the country where
patients stay for an average of six
weeks at a time and receive meals,
counselling, support and transport to
and from treatment centres
(http://www.cansa.org.za/cansa-care-
centres/).
Lucy Balona, CANSAs Head of
Marketing and Communications, says
with financial help from organisations
like Altrisk theyre able to extend their
reach to cancer patients who are in
dire need of support.
One of many things CANSA would like
to do is to translate our Cancer Care
coping kit into more official languages.
The kit consists of two audio CDs
aimed at anyone recently diagnosed
with cancer; it provides information
and practical tips to promote physical,
emotional and mental well-being
before and during treatment. In short,
helping survivors and their loved ones
cope better with a cancer diagnosis,
she explains. (http://www.cansa.org.
za/cancercare-coping-kit/)
Michael Blain, managing director of
Altrisk adds, Cancer remains a highly
emotive illness that has far reaching
implications for the patient and their
family. Unfortunately, not only does
the cancer survivor face a punishing
treatment regimen in many cases,
but the cost of treatment can become
a major financial burden, he says.
Considering the emotional strain of
being diagnosed with the disease, the
care and support programme offered
by CANSA provides an essential safety
net for patients who do not have the
financial means to cope with this
debilitating illness.
When living with a serious disease
or condition, proper care, disease
management, nutrition and counselling
is fundamental to ensure a fulfilling
and better quality of life. As Altrisk,
were delighted to be able to contribute
to supporting cancer patients on their
journey from treatment to recovery.
Altrisk is a specialist long-term risk
product provider that offers risk
products ranging from death and
disability to critical illness, cancer,
income replacement and retrenchment
benefits. Each year Altrisk supports
a non-profit organisation that works
towards making a health-related
improvement in the lives of South
COVER APRIL 2014
2014/04/08 8:11 AM

CANCER REALITY CHECK
Information supplied by CANSA
The top five cancers among
South African men and women
(excluding non-Melanoma skin
cancers) are:
Men
1. Prostate cancer
2. Primary site unknown*
3. Lung cancer
4. Colorectal cancer
5. Oesophageal cancer
Women
1. Breast Cancer
2. Cervical Cancer
3. Primary Site Unknown*
4. Colorectal cancer
5. Kaposi Sarcoma
(* Primary sight unknown
means that it is not possible
to determine where the cancer
originated in the body)
90% of cancers are caused
by environmental & lifestyle
factors such as smoking,
diet and exercise.
More than 100 000 South
Africans are diagnosed
with cancer every year.
South African cancer
survival rate is 6/10.
1 in 4 South Africans
are affected by cancer
through diagnosis of
family, friends or self.
Globally cancer kills more
people than TB, AIDS
and Malaria combined.
Source: National Cancer Registry
(2005)
For more information go to
www.altrisk.co.za
Africans by driving positive behavioural
change. Part of the insurers fundraising
drive is to encourage financial advisors
to be part of the initiative. Altrisk
therefore pledges a sum to a worthy
cause for every application received
from financial advisors during the
campaign period.
COVER APRIL 2014
April 14.indd 107
FEDGROUP INDUCTS FIRST
PARTICIPANTS IN LEARNERSHIP
2014 sees the first intake of FedGroups
Iteke Learnership Programme, a
year-long initiative that offers five
matriculants mentorship, work
experience, and a tertiary education.
Brinny Mphogo is the inspiration for
Iteke. Over eight years ago, FedGroup
executive Grant Field began mentoring
knowledge.
Mphogo, and encouraged him to
further his education. Mphogo now
holds a post-graduate degree, heads-
up the initiative and acts as the
primary mentor to new members on
the learnership.
We chose the name for the
programme from Sepedi: Iteke means
to challenge yourself, and this certainly
is a challenging programme. Iteke
is not a programme for matriculants
looking to entertain a gap year. Rather,
it is designed for people who wish to
build a strong foundation for future
success.
We choose participants for the
programme exclusively from FedGroup
beneficiaries; which means in most
circumstances, these kids have lost one
or both of their parents, and FedGroup,
through its trustees, has a pre-existing
relationship with them. Applicants went
through an intensive interview process.
Those who were successful showed
compassion, ambition, and a sense
of Ubuntu. These traits feed into the
family values encouraged at FedGroup,
so we know we have a group that
will find enormous benefit from the
programme, and who will add value to
the firm, says Mphogo.
There is a three-pronged approach to
Iteke: work experience, mentorship,
and education. Beneficiaries will
rotate through departments, spending
two months in each. They will learn
the systems and processes, and
become competent administrators
and contributors to the department.
Participation that is stressed learners
are expected to undertake projects.
Iteke learners will work alongside
some of South Africas leading financial
services professionals.
We have open lines of
communication, monitor our learners
closely, and meet with them regularly
both in a group and one-on-one.
In this way, if a learner is battling
in any area of the learnership, we
can address the issue and provide
assistance. At FedGroup, we believe
strongly in the power of education,
so will make every effort to ensure
that our learners graduate from
the programme certified. Whether
on concluding the programme they
pursue a career in financial services
or not, Iteke will provide them with
well-rounded working experience,
independence, and financial
FedGroup pays the tutelage and
exam fees for the SETA-accredited
Certificate in Business Administration
Services. Learners receive on-site
training from a lecturer, and are
tasked with monthly assignments
throughout the year, before sitting for
a final exam.
Each learner received a monthly
allowance for transportation and
living expenses. They are exposed
to good financial practices, and are
taught about investments, retirement,
and insurance. FedGroup actively
encourages the learners to start an
investment portfolio as the first step
to becoming financial independent.
If they move on they will be in a
highly advantageous position in
the job market. Research from the
Solidarity Research Institute shows
that: individuals with some form of a
tertiary qualification even if it is only
a diploma or certificate do much
better in the labour market than those
who only have matric. Furthermore,
the report concludes that the modern
economy demands more from job-
seekers: more knowledge and the
ability to apply that knowledge. The
Iteke Learnership Programme equips
young people with these attributes.
Formal training, combined with on-
the-job experience and the guidance
of highly regarded financial services
practitioners prepares them for highly-
contested market.
107
2014/04/08 8:11 AM
 Market Cover
ITS A DANGEROUS WORLD OUT
THERE
Donald Kau, Head of Corporate Affairs
at Santam, told COVER about the
short-term insurers Be safe out there
campaign that was launched nearly
a year ago on Monday, 8 July 2013.
The radio and print campaign used the
different days of the week to show
people how to manage their risks,
day by day, highlighting an interesting
finding, based on Santams claims data.
The campaign was about the personal
safety of loved ones, what was the
rationale behind the campaign? What
brought the idea about? Who drove
the initiative from an idea to an actual
campaign?
Santam believes it has a responsibility
to make individuals more aware of risk
behaviour and to share our experience
and expertise for the greater good: to
help people lead safer lives. Insurance
good and proper is about being there
for our clients when they need us most
at claims time. But its about more
than that. Its also about helping them
to prevent things from going wrong in
the first place.
The campaign engages with people
on a topic that is highly relevant to
108
April 14.indd 108
all South Africans: your own safety
and the safety of the people you care
about. All the communication elements
were designed to create a shift in
attitude and enable safer behaviour.
Santams creative agency, King James
Group, drove the creative aspect of the
campaign.
What did you hope to achieve with this
campaign, and now, in hindsight, have
you reached your goals?
The aim of the campaign was to show
consumers how small changes in their
daily behaviour can play a big role in
keeping them and their possessions
safe and avoid unwanted accidents and
damage.
Santams core business is risk
mitigation. By sharing what we
know, we help clients to mitigate the
risks they face daily. Our network of
brokers advises our clients on how to
manage their risks on a daily basis. The
campaign was a way to emphasise the
message, and we think we achieved
just that.
The follower numbers across Santams
social media platforms have increased
and Santams brand sentiment, as
measured through our social media
channels, is overwhelmingly positive.
Our client feedback process that
manages social media complaints
is also contributing towards turning
sentiment around and is at an industry
leading response time for complaints
via social media.
What results did see from your
Daily risks tips? Who compiled the
information for you and what was the
general response? What kind of risks
did you assess and what response
did you get on Facebook? Will you
continue this in the future?
The findings for the day to day risks is
based on Santams experience and own
data, gathered from our over 700 000
clients, for each day of the week. The
statistics used were gathered from our
claims data and reflect when incidents
occurred, not when claims were
lodged. Santam process over 30 000
claims a month.
The risks identified for each day of
the week were shared with consumers
along with tips on how to mitigate
each one. This ranged from worn
out geysers on a Monday, increased
car hijackings on a Tuesday, fewest
incidents on a Wednesday, increased
chance of lighting on a Thursday,
more chance of a fender bender on a
Friday, increased risk of break-ins on a
Saturday and more claims of damage
caused by potholes on a Sunday drive
than any other day of the week.
Comments and feedback indicate that
consumers found this information
useful and generally thought positively
of the message the campaign was
conveying.
COVER APRIL 2014
2014/04/08 8:11 AM
 Product Development
The growth engine
The current insurance landscape
in South Africa may seem settled,
but there have proven to be
many gaps for growth. Andre
Rousseau; Pravin Burra, Yuresh
Maharaj from the Deloitte
South African team and
Raymond Wennekes and Mark
de Koo from the Professional
Services Firms Office in the
Netherlands spoke to Taryn at
COVER about distribution channel
gaps in insurance, and what they
are doing to fill these.
People are noticing large gaps in
insurance, particularly when it comes
to looking at distribution channels
to facilitate the new thinking within
the industry. Analytics and how you
treat your client is largely driven
by legislation, but there is also a
big drive to reach the untapped
market. According to Andre Rousseau,
Insurance Industry Leader at Deloitte
Consulting, this channel includes the
broker and sales agent alike, but
also looks at a more direct channel.
This talks to digital channels such as
mobile, unique call centres and other
applications. Analytics are used to
attain a better understanding of the
customer and hence enable more
client centric products to be developed.
The products are more focused on
client needs and demands compared
to historically developed products.
Rousseau explained.
DISSECTING THE SA INSURANCE
LANDSCAPE
The insurance market, both locally and
globally, have two distinct offerings
Short Term and Long Term insurance.
On the Short Term side, it is perceived
by the customer to be an obligatory
purchase, so the emphasis comes in
around innovation and value add.
Previously we have seen the price
sensitivity in the local short-term
insurance market, but we are beyond
that now, says Yuresh Maharaj,
Insurance Audit Leader at Deloitte. He
commented that if the price was the
COVER APRIL 2014
April 14.indd 109
only differentiator, we would have
reached saturation point. It has now
become a case of - What else can
you offer the individual beyond a loss
compensation for damage? he says.
If you look on paper, South Africa
looks like a mature insurance market,
says Pravin Burra, Director of Financial
Services Analytics at Deloitte. In
actuality, SA is an evolving market
with the risk of the middle class SA
citizens needs being underinsured
in certain areas. Pravin explains that
understanding customer needs is critical
to making sure that the South African
customer is properly serviced. As the
country has developed over the last
twenty years, we have established an
emerging middle class, and they may
not have exactly the same needs as the
previous middle class, Burra explains.
While South Africans tend to indicate
that they have a lot of cover, it is of
Deloittes opinion that they do not have
balanced cover. The main gap in the
market, in their opinion, is looking at
customers holistically, and providing
them with cover that is well structured
and more balanced.
AN EVER-CHANGING MARKET
According to Deloitte global research,
people that fall in the younger age
category (below the age of 44 years)
are very open to more direct channels
of insurance. These direct channels
include more real time channels,
which prevents the customer from
being overwhelmed by a wealth of
information.
In South Africa, the emerging middle
class has meant that there is great
potential for a pot of gold at the end
of the rainbow. If you look at lower
LSMs, the cellphone penetration has
become quite a phenomenon, and
with that you get the opportunity to
extend cellphone insurance to these
markets, says Pravin. South Africa has
opportunity for growth, specifically in
providing targeted offerings to a variety
of groups as their needs evolve.
Customer affordability is still an issue
locally, and customers often run the
risk of cutting down on essential
109
2014/04/08 9:59 AM
 Product Development
cover. According to Pravin, education
of risk cover plays an important role
in these issues, along with avoiding
bombarding the customer with noise.
What you need is targeted, needs-
driven solutions for the customer, he
says. Rousseau gives the example of
short-period insurance, which would
not be affected by the higher interest
rates and lower spending cycle. There
are products that are being designed,
and should be designed to work around
this. You can cover lower LSM levels
and it will not be as affected by this,
he highlights.
THE GROWTH ENGINE
Upon surveying South Africas unique
class market, and the insurance
landscape as it stands, Deloitte found
the need to move from a mass market
insurance approach to a customer-
specific insurance imperative. With
the help of their colleagues in the
Netherlands - Raymond Wennekes,
Senior Manager at Deloitte Consulting
within Insurance and part of Strategy &
Operations Practice and Mark de Koo,
Senior Manager at Deloitte Consulting
within Insurance - they drilled down
what the individual customer needs.
Deloitte looked at the insurance
industry globally, and came up
with a strategy for the use of more
streamlined processes and tools to
help insurance companies mine their
data more effectively. Known as The
Insurance Growth Engine, it is used
as a way to get the right product, to
the right customers, at the right time.
Using analytical data on a day-to-day
basis insurance companies will become
more effective benefiting both the
client and the company and The
Insurance Growth Engine allows this to
happen. Using this process and tools
allows companies to increase their
revenue and be more profitable by
selling the right product to the right
group.
The engine part allows customer
interaction to be spot on. The
customer benefits by having a product
sold to them based on their specific
needs and socio-economic situation
that they may find themselves in. In
this way, insurance companies easily
move toward a customer-based
outcome, and are in line with the
proposed Treating Customers Fairly
requirements.
110
April 14.indd 110
FULLVIEW SOLUTION SET TO
REVOLUTIONISE FINANCIAL ADVISE
IN SA
For the first time in South Africa,
financial advisers are now able to view
the complete net wealth of their clients
on one digital platform - this includes
all their assets, investments, liabilities
and retirement products.
David Lloyd, Managing Director
of Liberty Investments, sees this
360-degreeview of ones wealth,
combined with the other data the
system holds, such as all historical unit
prices and index levels and a complete
set of current fund fact sheets, as
dramatically improving the service
provided by financial advisers to their
clients.
The role of a financial adviser is to
provide guidance to their clients. Their
ability to do so effectively is directly
linked to the quality of the information
they have on hand. Financial advice
adds the most value when it is based
on a comprehensive understanding
of the current situation of the client,
hence this platform.
The primary purpose behind Libertys
development of FullView is to fill these
information gaps, thereby ensuring
that advisers are fully informed and
able to give their clients the very best
advice. Simply put, FullView is a tool
that enables financial advisers to know
more about their clients, and provides
a wealth of automated reporting,
triggers and alerts - thereby allowing
them to apply that knowledge to do
so much more for their clients. And of
course the client would need to give
consent on this,
The tool also contains every South
African unit trust price, allowing the
advisers to customise the portfolio
reporting they give. Advisers are thus
able to customize the content and
frequency of client reports according
Daily updates
of a clients
investments
Online view of a
Financial
planning tools
clients wealth
universe
Access to historic
Latest fund fact
FSB registered fund
prices and main
sheets index values
Regular,
customisable
reports
to their clients preferences. Although
Liberty has developed this software, it
carries each advisers brand or logo and
doesnt promote Liberty as it has been
built as an adviser tool to support their
service to their clients.
FullView achieves this by allowing
advisers to access full details of all
their clients existing assets, liabilities
and life cover in one place. This data is
collected automatically and on a daily
basis. By applying this information to
the various tools available on FullView,
advisers are then able to develop an
accurate overall risk profile across
their clients entire financial universe,
and use this as a basis from which
to set, align and track their financial
objectives. The system allows advisers
to set up client goals and link them
to various assets and products and
portfolios and then reports on how the
client is tracking towards these goals.
FullView comes at a time when the
industry is becoming increasingly more
regulated. Whilst they believe that
this is in the best interests of both
consumers and the industry, they
recognise that it does increase that
administrative requirement by advisers.
This is why Liberty specifically designed
FullView in a way that will help to
significantly reduce this administrative
burden whilst also clearly demonstrating
the adviser is delivering a first class
ongoing service in return for the
ongoing advice fees the client is paying.
FullView also provides the clients of
the advisers using FullView, with the
functionality to see various elements of
their own net wealth, its components,
asset split and their overall risk profile.
COVER APRIL 2014
2014/04/08 9:59 AM
 REWARDS & RECOGNITION
Bestmed launches its 2014 PaceSetter+
recognition programme as second tier
of their bigger Reward & Recognition
Programme for employees.
The concept of gamification in the
corporate environment is observed
with greater interest and although fairly
new in South Africa, has been yielding
great success abroad. Companies
like Nike, Volkswagen, and LOreal
have been using it for years. Gartner
Research Projects believes that by
2014, more than 70% of Forbes Global
2000 organisations will have at least
one game-based application, and
by 2015, half of all companies that
manage innovation processes will have
gamified them.
Locally one of the first organisations
to deploy gamification is one of the
countrys largest Medical Schemes,
Bestmed. According to CEO Dries
la Grange, Bestmed has invested
internally on fun ways to recognise and
applaud good employees performance
and behaviours, who will achieve
bigger Client Intimacy and a positive
impact on their members. Bestmed has
COVER APRIL 2014
April 14.indd 111
contracted the South African developed
HR software solution, S|CUBED to
assist them with a technology engine
that can support the Medical Schemes
drive for Service Excellence and added
value for their end-users, being the
members of Bestmed.
The first objective is to support
employees to recognise and appreciate
one another for living out the schemes
values by displaying the appropriate
behaviours and consistently getting it
right!
A fun system of awarding badges
and accolades was developed and
integrated with the S|CUBED HR
technology platform. A complex
system of algorithms and workflows
at the back-end makes the front-end
application user-friendly and fun to
use.
PBS CEO Gerrit Stimie commented
that S|CUBED was delighted to assist
Bestmed with this project and that
Gamification is an important concept
in their drive to help clients achieve
greater results through people. His
favourite example is Foldit; a game
that scientists from the University
of Washington in Seattle developed
to help them better understand the
structuring of proteins in different
circumstances. The game was taken
public and between the 240 000
registered players, a problem that kept
scientists stumped for 15 years was
solved within three months.
Bestmeds ultimate goal with this
creative programme is to expose its
members to even better and more
rewarding client contacts.
GETTING GEARED UP
A live event can be made or broken by
the quality of the lighting. The capital
outlay for the latest professional gear
can be significant and finance difficult
to secure swiftly. Fintech have entered
the entertainment industry sector and
now offer lighting equipment financing
options. Their latest collaboration
with DWR, suppliers of intelligent
lighting and control equipment for live
staging, theatre and large-scale events,
provides the perfect opportunity for
companies to keep on the cutting-edge
of lighting technology.
DWR sell lighting equipment to
technical suppliers or staging experts,
who in turn hire rigs out to event
organisers for live shows. They also sell
gear directly to theatres, schools, clubs,
places of worship and television studios
and provide support, training and
servicing of the equipment. Through
Fintech their clients now have the
option of rental finance solutions.
Banks have different rules as to what
equipment they will finance. To refer
a financing company like Fintech to
our clients makes the whole process
simpler, better and faster, because
they understand our industry and the
equipment requirements. This market is
capital intensive and margins are high,
Fintech puts our clients in a position
to purchase more equipment and not
hurt their day-to-day cash flow, said
Duncan Riley, Director and Owner of
DWR.
111
2014/04/08 10:00 AM
 LiquidCapital LiquidCapital Camargue Camargue
PENNY STERLEY BRIGITTE ARCHER GERHARD DE BRUIN JOHN STEBBING
General Manager: Business Development Business Development Officer Financial Director: Camargue Group Group General Liability Director

Hollard Zurich Oak Tree Intermediaries

ADRIAN ENTHOVEN CHRISTOPH LEUZINGER TEBEGO KEKANA
Chairman Head: Global Corporate Broker

PFP Insurance Brokers FPI FPI

STEPHEN LOTZ NTAI PHOOFOLO DAVID KOP
Western Cape Consultant Chairperson-Elect Head of Membership & Corporate Relations

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