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industry outlook what 2014 has in the stars

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 25 YEARS OF INDUSTRY INTELLIGENCE

CONTENTS
COVER JANUARY 2014
50

JANUARY 2014

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SHORT-TERM
Industry intelligence to nancial professionals www.cover.co.za
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Coffee with COVER: Edward Kieswetter 68
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m E P
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Fidelity Guarantee a must for every policy 75
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Mortality in the game industry 76
Risky behaviour and your clients 77

industry outlook what 2014 has in the stars

OFC_landscape.indd 1 2013/12/05 11:42 AM

FINANCIAL PLANNING

ON THE COVER
Hedgefunds at a glance 73

FACING A CHALLENGING 2014 8

Our well-known annual Industry Outlook indicates a challenging 2014
on all fronts. One of the main issues is still the low investment growth HEALTHCARE
environment, which affects not only the investment environment, but
also the profits in the short-term industry. However, our commentators
share some of their thoughts on where the opportunities lie and how we Selecting medical aid options 95
should be facing the challenges.
Explaining Prescribed Minimum Benefits 96

FINANCIAL PLANNING HAS TURNED THE CORNER 50

The financial planning industry is transforming itself at a rapid pace,
finding solutions for the various challenges created by increased WORKING WITH WHEELS
regulation, market conditions and growing product innovation, among
others. The opportunities underlying these challenges are carefully
unveiled here. Tracking your children's driving behaviour 82
Global auto market 83

RISE OF THE MUTUALS 70

Globally, the Mutual and Cooporative Industries are healthy and growing,
writing a collective insurance premium income of USD 1,22 trillion
representing 26,7% of global premiums written. Mike Jackson, CEO of RISK MANAGEMENT
PPS, and Shaun Tarbuck, CEO of ICMIF, spoke at the recent International
Cooperative and Mutual Industry Federation (ICMIF) Conference held in
Cape Town. As media partner for the ICMIF, COVER spoke to them both Strike-related risks 84
and got their views on the Mutual and Cooperatives Industries. What you know you dont know 84
Product recall risks 85
Capital project cost overruns 86
Risk reduction strategies for municipalities 87
CHECK YOUR EMERGING MARKET APPROACH 97
With the underinsured and the uninsured still beckoning in Africa, multi-
nationals are entering the various markets showing potential for growth.
To be successful requires careful planning, correctly structured products
and understanding the markets you are entering. In our Africa Rising UMA CORNER
section we provide our readers with interesting comments that will assist in
their African growth strategies. Businessman of the Year 78

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 JANUARY 2014

Jan 14.indd 2 2014/01/10 1:39 PM

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 70 97

EDITOR
Tony van Niekerk
tony@cover.co.za

EDITORIAL
TECHNOLOGY Annetjie van Wynegaard
annetjie@cover.co.za
Addressing retirement industry issues 81 Taryn Kerr
taryn@cover.co.za

ADVERTISING & MARKETING

Hermione Ballinger
hermione@cover.co.za

GOVERNANCE EDITORIAL, ADVERTISING & MARKETING

Thenjiwe Roda
thenjiwe@cover.co.za
Debt in the EB environment 88
Class actions coming in funeral insurance 88 ADMIN & SUBS
Time to choose mediation 90 Brent Munnik
Is all regulation constitutional? 91 brent@cover.co.za

LAYOUT & GRAPHIC DESIGN

Wesley Chipps
wesley@cover.co.za

Publisher
LEGAL COVER Publications

Insurable interest in indemnity insurance 93 Street address

80 Devilliers Way,
Trust deed valid? 94 Glencairn, Cape Town

Postal address
P O Box 2030
Sun Valley, 7985

Telephone (083) 567-0757

REGULAR Fax (086) 642 6263
E-mail: info@cover.co.za
Editorial 6 Website: www.cover.co.za
Market Cover 102
Product Development 108 Images: 123rf.com; istockphoto.com
& shutterstock.com
Events 110
People on the Move 112 Editorial Board
Peter Atkinson, Seamus Casserly,
Mike Duncan, Ronald Gordon, Mark Haken,
Jonty Kirkman, Baravand Madhav,
Rod Pearson, Colin Travers.

Advisory Committee
Carel Nolte, Viviene Pearson, Kalim Rajab

The Editorial Board serves in a voluntary and

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

See our Facebook page

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

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

Jan 14.indd 4 2014/01/10 4:33 PM

Untitled-1 1 2014/01/10 4:43 PM
 Editorial
Tony van Niekerk Editor-in-Chief

Ring in the
STEPPING OUT FOR GROWTH
Its no wonder then that local companies are looking
to other emerging markets for their future growth
initiatives, with especially East and West Africa showing

changes
huge potential. Over the past few years COVER has
steadily been building its own network across the African
continent, tying up with industry associations and
individual companies. This has culminated in the first
African Insurance Distribution conference taking place in
2011 and now, three years and three conferences later,
The financial services sector has been under a lot of
two regional seminars in Ghana and Kenya. Through
pressure from a variety of fronts over the past five
these seminars we are hoping to provide a platform
years. Firstly, the financial, and more specifically the
where global companies can connect with local players.
banking sector has been carrying the blame for the
Look out for more detail on these and other initiatives
financial crisis that hit the world round about August
that we will be hosting in 2014.
2008. The barrage of regulation that followed included
the insurance and financial planning sectors. This CHANGE IS CONSTANT
resulted in the industry not only having to deal with the On page 106 and 107 of this issue we also bring you
financial slump, but also with escalating costs brought news of interesting developments taking place at COVER.
about by the increased regulation. Our well-known and much-loved Associate Editor, Kim
Forbes, decided to spread her wings in December to join
In our annual Industry Outlook feature, we can clearly
a financial planning company. Kim has been a fantastic
trace many of the dominoes back to 2008. However, as
asset, colleague and friend at COVER and within the
psychologists and the odd self-help book will tell you,
industry as a whole. While we at COVER are sad to see
crisis creates room for change as it focuses introspection
her go, we are glad the industry retained her.
and revitalisation. Storms expose weaknesses and shakes
out the dead wood. In my opinion, the local financial To ensure our readers and advertising clients benefit
industry has certainly made the most of the crisis and from the various changes in the media world, the rise of
the resultant storms. social media and the vast opportunities offered by digital
channels, COVER appointed two young qualified people,
Realising the benefits of all the changes and sacrifices
with digital media experience. This will strengthen our
that have been made is however being complicated by
partnerships within the industry and will bring fresh and
the inability of our government to lift the economy out
stimulating media ideas to the market.We look forward
of the 2% growth headlock that we are in. It is highly
to exploring, experimenting and executing exciting
frustrating that South Africa seems to miss out on every
campaigns with you in 2014.
opportunity offered to us by global economic changes.
When the rand was strong, we had long announced a
trillion rand plus infrastructure spend, and only now,
with the rand being under severe pressure, do we want
to start that spend. The rating agencies are rightfully
criticising us because of our budget deficit, negative Wishing you all a fantastic
year of fullled dreams. Tony
Balance of Payments, and increasing inability to execute
on stimulus plans that look really great on paper.

6 COVER JANUARY 2014

Jan 14.indd 6 2014/01/10 4:38 PM

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 INDUSTRY OUTLOOK
Written by the stars

What does 2014 hold for

the insurance and risk
management industries and
their partners? There must
be a number of industry
players who are hoping that
the new year resembles
the old in no way though
the December rainstorms
in Gauteng may already
have some claims managers
sweating. Fortunately,
there are many aspects to
winning, and our contributors
to this feature from many
sectors of the industry
provide us with their forecast
for the year ahead.

8 COVER JANUARY 2014

Jan 14.indd 8 2014/01/10 10:40 AM

 Outlook for investments & Outlook for short-term and UMAs
nancial planning

Industry trends to look out for by Andrew Bradley, Sustainable protability demands tightening of
CEO of Old Mutual Wealth belts by Pierre Geyer, MD, Hollard Select Brokers
& Underwriting Managers

Encouraging savings key to growth by David

Lloyd, MD of Liberty Investments Commitment to strategy spells success by Gary
Jack, CEO, Ace Insurance
2014 will be a challenge by Danil Kriel, CEO,
Sanlam Private Investments
Balancing the scorecard in 2014 by Edwyn
ONeill, CEO, Zurich
Advisor challenges for 2014 by Ian Middleton, MD
of Masthead
Thriving on partnerships by Peter Gordon, CEO
Modest growth means search for security by Craig of Lombard Insurance
Pheiffer, Head, Private Client Asset Management at
Wealth & Investment Management, Absa
Commitment to growth of UMAs by Gareth
Beaver, CEO, Centriq Insurance
A icker of hope by Dr Adrian Saville, CIO of
Cannon Asset Managers
Industry outlook for 2014 by Herman
Increased demand for professionals by Chris Botha, Schoeman, MD of Guardrisk
Senior Fund Manager, Imara Asset Management
South Africa

Client-centricity needs skills and innovation by Jay Outlook for industry bodies
Naidoo, Divisional Director, Entrepreneurs Division,
Liberty Retail Sales Quo Vadis the IISA in 2014 by David Harpur, CEO,
IISA

Outlook for intermediaries The SAIA perspective by Barry Scott, Chief Executive,
SAIA

2014 renewal negotiations similar to last year

FISA in 2014: Professionalising duciary practice by
by Marsh Global Analytics
Angelique Visser, Chairperson of FISA

What can we expect in 2014 within South 2014: FPI continues to add value to its members by
Africa? by Anton Roux, CEO of Aon South Africa David Kop, FPI Senior Manager, Policy and Research

Digitalisation and big data key drivers in 2014 by

Increasing pressure on intermediaries in
Rhys Collins, Head of African Operations for SSP
challenging environment by Patrick Pillai,
Commercial Business Head & Executive for
Operations at PFP Insurance Brokers Be SMART by Kevin Daly, MD of Value-Ad

COVER JANUARY 2014 9

Jan 14.indd 9 2014/01/10 10:41 AM

 Industry Outlook
Investments and
financial planning
Industry trends to look out for
The Financial Services industry
is evolving, with a greater focus
on client-centricity, transparency
and a changing regulatory and
technological environment. There
are a number of trends likely to
remain strong:
A MOVEMENT TOWARD ADVICE-
LED WEALTH MANAGEMENT
The complexity of this industry means
a greater emphasis on well-informed
financial advice to ensure clients needs
are appropriately met. The challenge
is to ensure that the product being
considered is appropriate for a specific
individuals needs. Without having
a fairly good understanding of the
financial structures and complexities,
clients will not get a financial product
appropriate for their specific needs.
A very strong trend, certainly one that
weve taken great heed of, is the move
toward advice-led wealth planning. The
typical product-led approach assumes
clients fully understand the extent of
how products work and what they
can and cant do for them. This is not
always the case. With an advice-led
approach, the conversation starts with
the lifestyle goals of the client and all
investment decisions are made based
on this. Keeping the end-goal in mind,
10
Jan 14.indd 10
and knowing that investment decisions
were made based on a specific desired
outcome, mitigates some of the risk
of short-term thinking and irrational
investment behaviour.
This is also highly in line with Treating
Customers Fairly (TCF).
TREATING CUSTOMERS FAIRLY
A pertinent theme is an even greater
move toward client centricity. While
this has gained momentum in the
industry over the last few years,
with the introduction of TCF, clients
will now start experiencing some of
the benefits. Its aim is to increase
consumers confidence in the
financial services industry by raising
the standards of business activities
and introducing changes to the way
financial services businesses currently
operate.
These activities will be regulated by
six fairness outcomes, demonstrably
delivered by regulated financial
institutions. This will be a major focus
point for businesses over the next few
years, as they get their processes fully
in place. Not only must fair treatment
of customers be central to the entire
culture of the business, but products
and services marketed and sold in
the retail market must be designed
to meet the needs of identified
customer groups and targeted
accordingly. Communication must be
clear and explicit. Customers must
receive suitable advice based on their
circumstances. We also have to deliver
on our promises and eliminate any
post-sale barriers to change products,
switch providers, submit a claim or
make a complaint. TCF is about making
sure clients understand exactly how the
advice or products they have purchased
meet their needs and expectations
and what they are paying for, and
why. It will create a greater level of
accountability in the industry.
GREATER FOCUS ON FEE
TRANSPARENCY
Developed and implemented by the
Financial Services Authority in the UK,
the Retail Distribution Review was
developed to ensure consumers are
offered a transparent and fair charging
system for advice, are clear about the
service they receive, and are offered
advice from highly respected and
qualified professionals. One tangible
implication of this trend is the move
toward clean fees.
For new businesses, many platforms
are offering clean prices from which
rebate and financial planner fees are
not paid. These will be paid separately
and explicitly by the client. Improved
transparency means that clients
know exactly how much they are
paying to invest in funds from the
outset and throughout the life of their
investments. Understanding costs will
be easier, as the clear breakdown
of fees will make comparing fund
ANDREW BRADLEY,
CEO of Old Mutual Wealth, a future fit
advice-led wealth business
COVER JANUARY 2014
2014/01/10 10:45 AM
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Untitled-1 2013/11/20 4:44
2014/01/10 3:02PM
PM
 Industry Outlook
management costs between providers
much simpler. Clean fees will certainly
become a buzzword.
RETIREMENT FUND REFORM
BUSINESS PLANNING
The Financial Services Board in
South Africa released an Intermediary
Remuneration Review discussion
paper last year. The Minister of
Finance described it as being aimed
at promoting household savings and
reforming the retirement industry.
Some of the issues covered include
improved governance over pension
funds, ways to improve preservation
of retirement fund assets and to
ensure higher levels of income in
Encouraging savings key to growth
DAVID LLOYD,
Managing Director of
Liberty Investments
DRIVERS OF GROWTH
I believe that there are two growth
drivers for the year ahead and that they
are interlinked. Firstly, a forced culture of
saving will emerge and secondly, industry
participants will be contending for how
they might gain through this forced
change.
Time and again, Government has
highlighted the relatively low savings
rates in South Africa and has been
looking at ways to change this with a
slew of papers on possible retirement
saving and investing reforms over the
last twelve months.
This ensuing change will bring with
it opportunity and its clear that the
industry participants will be focusing on
these proposed changes and considering
carefully on how they might benefit.
BENEFITTING FROM THE
OPPORTUNITIES
In many economies, South Africa
included, there is an aversion to save,
even when people are aware of the
benefits of doing so.
It is for this reason that policymakers
are looking to a range of tools to
encourage saving and enable households
to provide themselves with a financial
cushion. The opportunity lies in industry
players ensuring they provide solutions
to this aversion through robust financial
consumer protection, education,
awareness and choice.
12
Jan 14.indd 12
retirement. Working groups within
financial services businesses are
starting to gear themselves towards
ongoing monitoring, identification of
opportunities and influencing of future
developments in this regard. These will
be a strong theme going forward.
TECHNOLOGY FOR GREATER
SIMPLICITY
With clients desires for greater
simplicity is the move toward digital
platforms. Over the last decade it has
evolved from WAP, to mobile sites
and now to responsive design sites
websites that scale their size depending
on the device youre on: PC, tablet or
phone. These are the typical industry
CURRENT STATE OF THE
INVESTMENT INDUSTRY
The key industry trend for me is
essentially driven by the global and
South African interest rate trend/cycle.
That is that both the global interest rates
and the local rates are relatively low and
look to remain that way for some while.
This means lower stock market returns
for investors.
Due to the low returns, investors are
forced to become more vigilant, seeking
ways to increase their capital. A key
impact of this is that it highlights the
expenses of investing, which I believe are
relatively high in South Africa. I believe
they are higher due to increased costs
of doing business in South Africa rather
than participants overcharging.
To illustrate why I think there will be an
increased scrutiny on costs, assume a
retail South African investors total costs
of investing effectively reduces their
returns by approximately 3% per annum.
In South Africa, we have come from
a time where expected gross returns
were around 20% a year. With this
underlying engine, actual returns tend to
be sufficiently high that investors fail to
notice these costs.
We are now in a scenario where
expected returns are in the range of 12%
a year. Without any change, expenses
are thus now running at some 25% of
the expected returns and thus investors
(and commentators) are becoming very
much aware of the costs of investing in
South Africa.
break points. So, a major trend is
convergence, in other words, one
solution that works across all platforms.
Further, once again, is leveraging
technology to create simpler ways
of doing business and enrich the
client experience online. It is key
for businesses to create an enabling
experience for financial planners by
providing innovative online tools.
These should focus on enabling them
to undertake financial planning and
modelling online, do straight-through-
processing and provide relevant
reports, graphs and information to
inform discussions, among other
things.
I believe that providers, asset managers
and distributors will all need to be even
more cognisant of this in the products
and services they offer, especially how
they are priced.
GROWTH IN 2014
While the industry continues to thrive,
I believe 2014 will see two main areas
of growth, mainly through those South
Africans who have a strong desire to
continue investing and growing their
money embracing a savings culture.
And, from the large portion of South
Africans who have yet to become part of
this pool.
We know that the needs of investors
in South Africa are expanding relative
to the changing market dynamics;
therefore, they are looking for an
offering to meet their developing
demands. Thus, those industry players
who are continually developing industry
firsts that make an actual impact on a
customers life will continue to enjoy
client growth.
However, there is a large portion of
South Africans where considerable
barriers to saving exist, such as limited
access to financial markets, complexity
of financial products and information
irregularities.
It is imperative that industry players
build relationships with this market
and educate this market about the
solutions available, as I believe this will
be beneficial once their circumstances
change.
COVER JANUARY 2014
2014/01/10 10:46 AM
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Untitled-1 1 2014/01/10 4:45 PM

 Industry Outlook
2014 will be a challenge
Markets have had an exceptionally
good run globally and locally, with
the South African stock market up
some 21,6% over the last 12 months.
Investors should not, however, expect
the same kind of returns next year.
The big story locally was the rand,
which depreciated by almost 20%
against the dollar, again confirming the
importance of diversifying investment
exposure internationally. Clients with
offshore exposure would have done well
this year.
Against this buoyant but volatile
backdrop, the SPI Equity Portfolio
outpaced the JSE All Share Index by
6,6% over one year and 3,6% over
three years.
The decisions that made this strong
performance possible were our
overweight exposure to blue-chip
shares, such as Richemont, Bidvest and
British American Tobacco, all of whom
withstood uncertain economic times
because of their predictable earnings
streams. We were also underweight in
cyclical counters like Anglos and Billiton
and had no gold, platinum or retail
sector exposure.
Our underweight positions in the gold
counters, particularly Anglogold and
Gold Fields, contributed the most to
our outperformance year-to-date while
our Richemont exposure, lightened
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Jan 14.indd 14
in August after a strong run, was
the top contributor to the portfolios
performance. Taking profits in Naspers,
which increased almost 80% year-to-
date, added value.
Detracting most from performance
were the weaker rand and our under-
weight exposure to SA Breweries, which
delivered almost 40% year-to-date.
Each year, we ask some of our portfolio
managers to identify their preferred
shares for the next year. Last year,
the best-performing stock picks
were Steinhoff (up 52%), and Invicta
(up 45%). African Bank was a big
disappointment, slumping 42% on acute
concerns about its unsecured lending
book.
Globally, Johnson & Johnson was the
star performer, rising almost 60% in
rand terms and almost 40% in Sterling.
MacDonalds and Anheuser Busch also
gained ground but trailed the MSCI
Index.
As far as the stock picks for 2014 go,
Invicta remains a good choice, and
Standard Bank is a share to watch in
the banking sector.
On the international front, Samsung
Electronics, at a forward PE ratio of
less than seven, offers good value.
Accenture and Philip Morris are also
included.
DANIL KRIEL,
CEO, Sanlam Private Investments
Our portfolio managers motivation for
their stock picks makes for interesting
reading and a year from now we will
once again report on who got it right!
At the markets current elevated levels,
we are likely to be going into a lower-
return environment and investors
need to be prepared for that. From an
investment positioning point of view,
we are adopting a more conservative
approach as we go into 2014 and, as
mentioned, have taken some profits off
the table.
2014 is an election year in South Africa
and there are likely to be many political
speeches designed to woo voters
rather than foreign investors. By the
time investors stop worrying about the
elections, US Federal Reserve tapering
will probably become a concern.
So prepare yourself for a challenging
year, with rand volatility the order of
the day. In this environment, we advise
investors to tread carefully and, most
importantly, to make sure they are
adequately globally diversified.
COVER JANUARY 2014
2014/01/10 10:50 AM
Untitled-1 1 2014/01/10 4:45 PM
 Industry Outlook
Advisor challenges for 2014
Independent financial advisors
are likely to continue facing
many of the same challenges
from 2013, plus additional
challenges that will become
evident during the year ahead.
Advisors top-of-mind concerns
are the profitability squeeze
and the uncertainty regarding
looming legislation changes.
Against a backdrop of rising electricity,
fuel and other prices, consumers are
under increasing financial pressure and
are focusing more on their finances.
Advisors are challenged not only to
find new business, but to preserve
that which is currently on their
books, especially in light of stronger
competition from peers in the same
financial circumstances. Advisors
also face intense competition as they
search for clients higher up the living
standards measure (LSM) chain. This
shift in market focus, a knock-on result
of the tight economy, has become
necessary for many to maintain a
profitable client base.
Modest growth means search for security
We may see a modest revival of
world trade and economic activity,
with international GDP growth
averaging about 3%. In South Africa,
growth may be a little lower.
Local positives include the prospect
of greater stability in mining and
manufacturing after the upheavals
of 2013. Exports may also pick up as
Europe, still our largest trading partner,
shows signs of recovery.
Within the local financial services
sector, we can expect muted growth
of the industry pie. There are signs of
increased corporate borrowing, though
credit extension to consumers remains
under pressure.
Growth may prove fragile. Constraints
and uncertainties are at least as
evident as potential growth drivers.
Toward year-end, the JSE was trading
16
Jan 14.indd 16
From another perspective, regulatory
changes through the retail distribution
review (RDR), part of the FSBs
financial advice reforms, are a threat to
the profitability of advisory businesses
that rely on commission income. More
than two thirds of advisory businesses
currently earn most of their income
through upfront or trail commissions.
Fewer than half of these businesses
are modifying their fee structures
in advance, as it is impossible to
make concrete plans without clarity
and direction from the legislators on
commission, as well as the interplay
of remuneration versus the Treating
Customers Fairly (TCF) principles.
Where RDR has been introduced
globally, the number of intermediaries
has notably dropped. However, this
may not happen to such an extent
locally. The number of independent
advisors has fallen, but this may be
due to advisors not meeting regulatory
requirements, reaching retirement
or exiting for another reason. Some
independent advisors have also opted
to become tied agents and work for
a product provider, which is often the
at elevated levels. The average P/E
ratio was 19 versus a 10-year average
of 14. A pullback, perhaps in the 5% to
10% range, cannot be ruled out.
OPPORTUNITIES OUT THERE
Client service is perhaps the greatest
area of opportunity. At least two
drivers are evident: regulatory pressure
and proactive structural changes by
major organisations to create sharper
focus on the client.
South Africa may follow the UK
example and ban commission
payments to advisors.
In the corporate sector, we see
structural change to enhance
service delivery to clients. Retail and
institutional banking services are being
separated or realigned to achieve
sharper focus on the needs of specific
categories of customer.
IAN MIDDLETON,
Managing Director of Masthead
result of strong recruitment drives
by providers. While this option is not
appropriate for all advisors, it can offer
a safe haven for those who see it as
helping to relieve the financial pressure
of running ones own business.
The momentum shift from independent
brokers to tied agents should slow
down, with the FSB concerned about
the large recruitment or sign-on
bonuses and therefore we are likely
to see the regulator taking steps to
stem this tide. Furthermore, looking
internationally, the trend to become
a tied agent has slowed in Australia,
which adopted the equivalent of RDR
during 2013. South Africa is likely to
follow suit.
Other main trends that have emerged
in the advice sphere are that advisors
are taking a longer-term view of their
business and there will be greater
implementation of TCF regulation.
Both these trends are positive, for
customers, advisors and the industry.
CRAIG PHEIFFER,
Head, Private Client Asset
Management at Wealth &
Investment Management, Absa
COVER JANUARY 2014
2014/01/10 10:51 AM
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 Industry Outlook
Diversification is another opportunity.
Those with an offshore capability
and reach across Africa are well
positioned to grow volumes when local
uncertainties inhibit the prospect of
significant domestic market growth.
INSIGHTS ON LOCAL AND GLOBAL
INVESTMENT INDUSTRY
The JSE hit a succession of new
highs late in the year. The Dow
has also been on a strong run and
other markets have been buoyed
by continued asset-buying by the
Fed. With stocks so high, a degree
of caution is indicated in 2014. Any
A flicker of hope
Ever since the global financial
crisis of 2008, the worlds
advanced economies have
struggled to return to their pre-
crisis performances. Having spent
the last five years recovering,
we see glimmers of hope on the
economic horizon, but its not
yet time to break out the Mot.
Abenomics the aggressive economic
stimulus policy of Japan, named
after Prime Minister Shinzo Abe is
expected to see Japans economy tick
up to produce growth of about 2,0%
in 2014. To put this into perspective,
Japans real economic growth averaged
less than 1,0% between 1992 and
2013, so this certainly reflects an
encouraging trend for the worlds third
largest economy.
18
Jan 14.indd 18
pullback is a blow to the investment
industry, but if wealth is protected
and relationships are strengthened by
well-qualified advisors, the long-term
effects are positive.
THE MARKET FAVOURS STOCK-
PICKERS. SECTOR PLAYS ALONE
WONT PROVIDE OUTPERFORMANCE.
CONTINUED GROWTH?
When uncertainty prevails, the most
potential probably lies in areas where
investors feel a degree of comfort.
The US also is expected to see modest
growth of the order of 1%-2%. Adding
Europe into the equation, which looks
set for anaemic but positive growth,
the rich world as a whole will likely
achieve some 1,5% growth in 2014.
While this remains insipid, the outlook
for these economies as a collective
looks healthier than at any time since
2007.
The growth of advanced economies,
however, remains firmly capped.While
those countries have all embraced some
form of stimulation, none has addressed
the structural issues beleaguering
them. The problems revolve around
demographic decay, debt levels that
translate into government bankruptcy
and despair among the youth, where
high youth unemployment levels (above
50% in Spain and Greece) flag the
potential of a lost generation.
I expect asset management firms to do
well that have a proven reputation for
in-depth fundamental research and the
ability to uncover hidden value. Their
skills will be in demand.
Product development might also
be expected in areas where some
uncertainties can be removed. We may
see further innovation in commodity
exchange traded funds. An ETF linked to
the resources sector enables a simple play
on the rand price of the metal without
worrying about labour and safety issues at
a particular mine. Uncluttered investment
propositions could have substantial appeal.
DR ADRIAN SAVILLE,
CIO of Cannon Asset Managers, offers
his thoughts on the outlook for 2014.
By contrast, emerging economies are
generally in good shape, although
economic growth within them is
expected to vary widely by region. The
structural drivers that have shaped
emerging country performance over
the past two decades remain in place
and we expect to see robust and
inclusive growth in these economies,
accompanied by social and economic
mobility. We can look to an average
rise of roughly 5% from this group of
countries.
Given that the advanced economies
now account for a little under half of
world GDP, this should translate into
global growth of some 3,0% - 3,5% in
2014.
South Africa looks set to achieve
growth in line with the global average,
but with risks to the downside.
Specifically, in 2014, we will face
several headwinds: a general election,
expected to manifest in market
anxiety; ongoing frustration over a
lack of infrastructure capacity; and a
hangover from the wage settlements
of 2013. In addition, administered price
inflation could shave as much as 1% off
South Africas economic growth rate, so
a level of 2,5% is possibly in store for
the country.
On the positive side, tailwinds come in
the form of the (hopefully) accelerated
implementation of infrastructure
projects and South African companies
making some headway in finding and
benefiting from regional business
opportunities.
COVER JANUARY 2014
2014/01/10 10:53 AM
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Untitled-1 1 1 08.08.125:04
2014/01/10 09:16
PM
 Industry Outlook
Increased demand
for professionals
GROWTH DRIVERS
Because of low economic growth
and high levels of indebtedness at
consumer level, we expect interest
rates to remain low for some time. This
should be supportive of equities as an
asset class as cash will deliver negative
real returns and bonds a poor pre-
tax return of 1-2%. We expect asset
management businesses to benefit
in this scenario as it increases the
demand for the services of professional
investment managers. The culture of
saving and investment is increasing
within the emerging middle class.
This will also support industry growth.
Increasing legislation and regulatory
rigour will cause many smaller industry
players and independents to merge
with more established houses due to
the high cost of compliance.
INDUSTRY FOCUS
Education among emerging consumers
on the need for savings and investment
will be paramount. This not only
holds true for South Africa, but the
whole of sub-Saharan Africa, which
is experiencing massive urbanisation
and fast growth of the middle class.
20
Jan 14.indd 20
INDUSTRY OUTLOOK 2014
WE EXPECT ASSET
MANAGEMENT
BUSINESSES TO
BENEFIT IN THIS
SCENARIO AS IT
INCREASES THE
DEMAND FOR
THE SERVICES OF
PROFESSIONAL
INVESTMENT
MANAGERS.
enabling these firms to attract some
of the best investment talent in the
industry.
GROWTH IN 2014
The chase for higher yields than cash
and the emerging middle class will
be the drivers. We expect further
consolidation in the industry. You either
Telephony has changed the African have to be niched like the boutique
economy. Education and product managers or very large (bestowing
delivery can be accessed through scalability). Eroding margins and higher
mobile phones at fairly low cost. In costs may force mid-sized players to
addition to new technology platforms, exit the market or review their business
established methods of selling via models.
traditional media and presentations
at education facilities should be
considered.
CURRENT STATE OF INDUSTRY
Increased costs associated with
compliance and legislation will be
the biggest negative factor for the
industry. This is likely to get worse
and will cause margin pressure, as
there is little scope to increase fees in
a highly competitive market. Smaller
boutique asset managers are likely to
grow as they employ less cumbersome
reporting structures, follow more
flexible investment policies and offer
better incentives. Multi managers
and asset owners increasingly seek
exposure to boutiques managers who
often tend to outperform benchmarks
due to their smaller size and flatter
managerial structures. Profit-share CHRIS BOTHA,
incentives also tend to be more Senior Fund Manager, Imara Asset
aggressive at smaller managers, Management South Africa
COVER JANUARY 2014
2014/01/10 10:55 AM
 Client-centricity needs
skills and innovation
Growth in our traditional markets is
dependent on our ability to improve
on our marketing and distribution
capabilities. Through leveraging
technology, we can expand our
reach and develop more cost
effective business models.
In all of this, we cannot ignore the fact
that the steady growth of the Black
middle class presents numerous growth
opportunities. The female market is
woefully under-insured and focus on
this sector will most definitely provide
opportunities for growth. To succeed
in this environment, financial planners
need to become more customer
centric. They need to constantly upskill
themselves to ensure that they remain
relevant, since customer knowledge
and access to information has shifted
the balance of power.
As with all regulatory changes,
implementation comes at a cost.
The ability of the key players to
absorb these costs and associated
management pressures will be
a defining factor in their future
sustainability. From an advisor
perspective, moving from commission
to fees will not be an easy switch.
Luckily, based on the latest FSB
update, we may be given some time to
allow for this transition. The consumer
role in terms of their understanding,
knowledge and willingness to pay a
fee cannot be underestimated. So,
consumer education is a critical part of
this change as well.
If we remember the simple principle
that Life Insurance is sold not bought,
we can recognise that the role the
intermediary plays in our industry
is critical. Notwithstanding all the
JAY NAIDOO,
Divisional Director, Entrepreneurs
Division, Liberty Retail Sales
uncertainty, the intermediary is and will
always be pivotal to the industry. We
need to focus on attracting the right
talent and ensure that we can offer
the best proposition for their success
and sustainability going forward. The
opportunity to develop distribution
models for the future landscape is now.
The industry is in a state of transition,
and with this comes uncertainty and
concerns. Notwithstanding this, the
opportunities for growth and expansion
are aplenty and those that are resilient,
courageous and innovative will define
what this industry will look like in the
future.

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COVER JANUARY 2014 21

Jan 14.indd 21 2014/01/10 10:55 AM

 Industry Outlook
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Jan 14.indd 22
Outlook for
intermediaries
Increasing pressure
on intermediaries in
challenging environment
PATRICK PILLAI,
Commercial Business Head and Executive
for Operations at PFP Insurance Brokers,
a wholly owned subsidiary of Price Forbes
As we start the new year, markets remain soft
and rates remain highly competitive in the short
term. In the medium term, the market should
harden resulting from consolidation in the insurer
market and the impact of some large losses.
As we move into 2014, commercial brokers will continue
to find it difficult to cope with the costs associated with
the current compliance and regulatory environment.
Brokers will continue to compete on price because of the
soft market conditions and it will be increasingly necessary
for them to find key ways to differentiate themselves.
Clients will also become more demanding about the
quality of service they receive with a stronger requirement
for accurate invoicing, efficient delivery of policy
documentation and most importantly claims handling
efficiency.
In order to deliver on these service requirements, there
will be growing pressure on commercial brokers to run
sophisticated IT systems and to take the IT service in-
house. Equally, there will be an expectation from clients
for a more bespoke service from brokers who have a
more in-depth understanding of their business and can
provide a customised product.
On the issue of fees and commissions, larger commercial
clients will start to demand an increased level of
transparency around earnings and brokers will be
under pressure to break from the tradition of charging
commission in the commercial space, and rather propose
transparent fee structures that will be calculated on the
amount of time spent on the account.
This will ultimately benefit clients because they will be
charged according to their specific needs and service
requirements, rather than simply a percentage of
premium.
Finally in terms of business growth, 2014 will remain a
challenging year to land large South African clients, but
for those brokers who have spent 2013 cementing African
partnerships and key alliances, Africa will remain an
exciting market for business growth.
COVER JANUARY 2014
2014/01/10 11:25 AM
Untitled-1 1 2014/01/10 5:08 PM
 2014
Industry Outlook
OUTLOOK FOR INTERMEDIARIES
2014 renewal negotiations
similar to last year
After a year of insurance premiums
increasing at a rate around inflation,
the reduction in natural disasters
both here and abroad means that
corporates looking to renewal
preparations this year-end can
expect flat premium adjustments.
A recent report by Marsh Global
Analytics for the third quarter of 2013
and looking ahead to 2014, predicts
that as renewal negotiations for 2014
kick off, stable insurance market
conditions are continuing for well-
managed risks.
In 2013, we were spared major
Gauteng hailstorms or Cape St Francis
fires the latter having been the single
most expensive claim for a single event
in South Africa while, internationally,
there were no material tsunamis
or Hurricane Sandys producing
widespread insured losses. There were,
of course, any number of mini-disasters
and South African insurers paid their
share of those through reinsurance.
Policyholders can therefore expect their
premiums to rise by no more than the
inflation rate when they renew their
policies this year.
24
Jan 14.indd 24
However, there is little doubt that short-
term insurers have more than usual
to think about when looking at their
underwriting approaches for 2014, with
a rolling wave of regulation under way.
Marsh South Africas report for 2013
indicates that global insurance markets
have remained stable to soft for the
past 12 months, for all well-managed
risks, over key classes of insurance.
Since the final quarter of 2012, global
reinsurance capacity remained strong,
solvency levels were stable, many
insurers enjoyed upwardly-adjusted
credit ratings and market underwriting
was negotiable/flexible for well-
managed risks. Solid insurer corporate
profits were achieved in 2012, despite
several significant catastrophe events
taking place over the fourth quarter.
First half renewal preparations in 2013
reflected that the market was still
stable across most lines of business
for well-managed risks. A spate of
global and local loss events occurred
from January to November [2013]
but nothing severe enough to turn the
market. Many insurers reported solid
first half corporate profits and this
trend continued up to end of the third
quarter.
A number of South African and
European measures remain in the
regulatory pipeline for next year and
beyond. In South Africa, the insurance
industry is experiencing a spate of
regulation, of which SAM (Solvency
Assessment and Management
implemented over the last two years
with much more to follow), twin
peaks and consumer protection
regulations are but the highlights. This
continues to raise standards for market
companies, personnel and processing.
However, this also drives up essential
compliance spending, which could
have a measureable impact on insurer
corporate profit levels at the end of a
financial year.
Marsh sees no drastic hardening in
the insurance market, following what
has proved to be one of the most
demanding periods for the insurance
industry since the early 1990s. The
challenges facing the short-term
insurance industry continue to be
inflationary pressures, low interest
rates, the raft of new regulations,
abundant market capacity and rising
competition.
COVER JANUARY 2014
2014/01/10 11:29 AM
 What can we expect in
2014 within South Africa?
FOR THE RISK INDUSTRY
All underwriters in South Africa have
made unacceptable underwriting
losses, so its very likely that we will
see premium increases in 2014. The
magnitude of these losses is very much
dependent on the specific class of
insurance being written, for example,
motor premiums may increase at a
different rate to that of D&O cover.
FOR BUSINESS ACROSS THE BOARD
As were going into an election year,
we can expect business confidence
all-round to take a knock. The issue
is not so much the outcome of the
elections, but rather the fact that many
key policy decisions will be delayed
until after the elections. The biggest
frustration for business will come from
indecision.
I believe that we will continue to see a
deepening of strategic risks arising from
economic, political, competitive and
regulatory factors during 2014 and the
foreseeable future.
The downward trend in local business
risk readiness and risk maturity as a
result of financial and human capital
constraints will continue to hamper
business growth.
The 2013 Aon Global Risk Management
Survey conducted among 1400 of the
worlds largest organisations across
diverse industry sectors shows that
economic slowdown/slow recovery,
regulatory/legislative changes and
increasing competition are not
surprisingly the top three risks faced by
businesses in 2013 to 2016, damage
to reputation/brand shot up into
fourth most concerning risk, while
political risk/uncertainties broke into
the top 10 risks for the first time in
2013. But underrated risks such as
computer crimes/cyber hacking, loss of
intellectual property and data, counter
party credit risk and risks emanating
out of social media, have been
highlighted as needing more focus in
future according to the survey.
COVER JANUARY 2014
Jan 14.indd 25
I BELIEVE THAT WE WILL
CONTINUE TO SEE A DEEPENING
OF STRATEGIC RISKS ARISING
FROM ECONOMIC, POLITICAL,
COMPETITIVE AND REGULATORY
FACTORS DURING 2014 AND
THE FORESEEABLE FUTURE.
If ever there were a trend indicator
for 2014 and beyond, it would be
that volatility is here to stay. Ongoing
labour action and disputes, political
upheaval, reputational crises across
both corporate and government
sectors, market and currency
volatility, flagging investor confidence,
growing regulatory pressures, power
shortages and extended outages,
failing infrastructure, serious levels of
consumer indebtedness, hefty increases
in operating costs and a dire shortage
of institutional management capability
are all culminating to take their toll
on businesses, and on consumer
confidence. Volatility is something
that South Africa will face for at least
a couple of years and businesses will
need to find solutions to working
within such an environment.
The worrying trend is that elective
expenditure on risk readiness is on the
decline as companies continue to defer
spend on risk mitigation. The danger
is that deferring spend makes risk
readiness less of a priority. A lack of
preparedness for the range of threats
and risks that clients may face and
the repercussions of failing to prepare
appropriately for these are not being
given the board oversight it requires,
until its possibly too late.
The good news, though, is that these
risks to business can be mitigated by
building overall resilience and ensuring
that the business has plans and
procedures in place to reduce risks to
levels that are as low as are reasonably
practicable. It is vital that business
ANTON ROUX,
CEO of Aon South Africa
leadership sees the increasing linkages
between the various special risks;
integrate their plans across the broad
spectrum of possible risks; engage
risk solutions experts to quantify the
changing risk landscape and provide
appropriate covers.
Threats provide opportunities for
growth in that the best-prepared
companies will be the ones that better
manage their vulnerabilities and thus
can withstand a greater range of
threats; that can recover more quickly
and can return to commercial activities
sooner than their competitors.
While it is difficult to predict which
risks will emerge and demand
attention, we can be certain that
successful companies will not be
the ones that adopt a wait and
see approach. Instead, they will be
the ones that prepare themselves
thoroughly to anticipate future needs
and undertake the difficult process
of finding solutions to address them.
They will not just fix what is broken,
but view their new circumstances as
a portal to the next generation of
business opportunity.
25
2014/01/10 11:36 AM
 Industry Outlook
OUTLOOK FOR SHORT-TERM AND UMAS
Sustainable profitability
demands tightening of belts
Sustaining profitability within
short-term insurance companies
will demand that companies
boost their focus on procurement
and claims cost management
into 2014 as the industry
contemplates the hardening of
rates.
The hailstorms of 2012, combined with
the St Francis Bay fire that ravaged 76
homes, have caused underwriters to
re-examine their claims management
capacity and cost controls in disaster
scenarios.
The industry is also focusing heavily
on risk management, driven by risk
improvement measures to ensure the
correct placement and comprehensive
cover for policyholders.
The year ahead will be characterised
by growing engagement on regulations,
particularly those relating to binders
and the fees paid to outsourced
intermediaries performing insurer
Commitment to
strategy spells success
Undoubtedly, the industry has been
suffering from depressed rates and
generally low underwriting margins.
Now, more than ever, insurers need
combined ratios in the low 90s to
meet the cost of capital in a low
interest rate environment. In spite of
this, we saw more competition than
ever, investment by multi-national
insurers and an abundance of capital.
Managing loss ratios is about
underwriting discipline and portfolio
management. Underwriting discipline
26
Jan 14.indd 26
functions. TCF will also drive significant
improvements in the quality, service
and value delivered to policyholders
and consumers.
Broker consolidation is likely to
continue apace in 2014 and there are
a host of factors behind this, including
fierce competition, aggressive new
entrants, a continuing loss of skills
(particularly in technical underwriting
and claims), increasing compliance,
general business costs, as well as
the constant striving for greater
efficiencies.
From an insurer perspective, the
business opportunities presented
by social media platforms and the
ability to use smartphone technology
are immense, and we are likely to
see insurers increasingly using these
platforms to enhance their customer
service. We have already seen a
number of players invest significant time
and money in developing insurance
apps that provide claims reporting and
incident management assistance for
brokers and policyholders alike.
is about maintaining a consistent
approach and showing the grit and
determination to make the tough
decisions. Our philosophy is simple
we choose our business carefully and in
line with our overall strategy. We will
not write business purely to increase
our market share.
Portfolio management is about
making the most of your data -
better analysing it to gain a more
sophisticated view of risk. Drilling
deeper into your portfolio allows you to
PIERRE GEYER,
Managing Director, Hollard Select
Brokers and Underwriting Managers
Given that insurers are becoming
increasingly prescriptive in their claims
incident management in a bid to drive
down average claim costs, customer
experience and lower premium
increases are also likely to be a
characteristic of the market in 2014.
Insurers are embracing telematics - the
integrated use of telecommunications
and information and communications
technology (ITC) to monitor driver
behaviour and vehicle use. This
innovation will ultimately influence the
extent of cover we are able to provide,
and the price at which that cover can
be provided.
Insurers are being attracted to the new
markets, higher top line growth and
greater underwriting margins offered by
the direct model. Brokers are trying to
counter this threat by securing binder
and outsource arrangements so that
they can own and manage more of the
insurance value chain and eliminate
some of the inefficiencies they perceive
in the conventional space.
GARY JACK,
Chief Operating Officer,
Ace Insurance
fix problems, increases clarity around
risk appetite and identifies new areas
for profitable growth.
For us, growth has been about
expanding our underwriting and
product offering locally replicating
ACEs unique global underwriting
capabilities and expertise. One of the
keys to successful execution of this
strategy is attracting the best talent.
There is no doubt that the emergence
of the direct model has been successful,
particularly in the personal and SME
space. In our space, though, brokers
COVER JANUARY 2014
2014/01/10 11:41 AM
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Untitled-1 1 2014/01/10 5:09 PM

 Industry Outlook
Balancing the scorecard in 2014
The South African insurance
landscape has changed remarkably,
with burgeoning competition local
and global as well as changes
in the regulatory environment,
technology, customer profiles and
how people prioritise their financial
planning. These developments have
made the operating environment
more complex than ever before.
Edwyn ONeill, Chief Executive
Officer at Zurich, shares his
short-term insurance trends
and buzzwords for next year:
consolidation, consumer centricity
and profitability.
CONSUMERS WILL NO LONGER
JUST BE A POLICY NUMBER
Insurers and brokers, together, will
endeavour to find out everything they
can about their customers whether
they like golf, camping on the weekend
or purple lollipops. There will be a
mind shift around customer service.
Transparency, while maintaining
confidentiality, will be key finding out
everything about the customer in order
to price and segment appropriately
and ensure that the product is tailored
accordingly. There will also be a move
towards openness about processes and
figures so consumers know exactly
what they are paying for, why they
are paying that amount and what they
will receive at the end of the day.
28
Jan 14.indd 28
remain our chosen means of distribution
and we support this market. The
emergence of Marsh, Aon, JLT and
Willis as a strong multi-national broker
contingent here in South Africa is good
for our industry. We do, however,
support a diverse broker industry, and we
would be encouraged to see more South
African brokers entering the market.
Against a backdrop of fragile economic
growth, stagnant premiums in real terms
and increased competition growth
is extremely challenging. Product and
distribution innovation are vital too.
Companies are also increasingly looking to
new markets in Africa for opportunities.
Also, changing policy wording and
communications will become essential.
Simply put, Treating Customers Fairly
(TCF) will become more than just a
regulatory requirement; it will become
a concept ingrained in company
culture.
TAKING IT IN OUR STRIDE
The progression of the Short-Term
Insurance Data Exchange (STRIDE)
initiative, aimed at creating a secure
method of transferring customer
information and underwriting data
between insurers and intermediaries,
will drive the shift in transparency.
STRIDE enables insurers and brokers
to get to know their customers and as
a result meet their specific insurance
needs. Added to this is the increased
protection of the customers privacy
a prominent issue on the regulatory
agenda in terms of the proposed
Protection of Personal Information Act
(POPI).
FUTURE TRENDS
Marginal underwriting yields, a spate
of regulatory requirements and
stricter solvency requirements will
continue to stress insurer balance
sheets. Regulatory investigations
into cell captives and pressure on
UMAs to shoulder an increasing
compliance burden may strain these
areas. All of this should lead to more
industry consolidation insurers with
strong balance sheets, disciplined
underwriting practices and robust legal
and compliance structures will be
tomorrows winners.
CONSOLIDATION OF UMAs
New regulation such as the regulatory
exams (phased compliancy), Solvency
Assessment and Management
(SAM) and TCF are making it more
difficult (and more costly) for smaller
underwriting managers (UMAs) to
remain compliant. The growth of direct
insurers, financial uncertainty and a war
on talent are some of the challenges
facing UMAs. Will we see an increase
in niche UMA or perhaps consolidation
a trend we are likely to see more
of as the UMA model is a sustainable
alternative distribution model in the
short-term space; attracting broker
support because of the bespoke model
and access to high-level expertise.
EXAMINING PROFITABILITY AND
INNOVATION
The industry has seen a definite
slide in profitability margins. 2014
will see insurers focusing on their
core lines of business, putting tighter
controls on claims and procurement
processes. In terms of the competitive
landscape, we may see some players
aiming to diversify their revenue and
distribution channels as well as their
business competencies. Insurers will
also explore cost saving initiatives
and may outsource. This presents
an ideal opportunity for technology
service providers who can cater for
the demand. Ultimately, short-term
insurers will really start to focus on
their strengths and capabilities in 2014,
which could prompt significant changes
across the sector.
COVER JANUARY 2014
2014/01/10 11:51 AM

Building a financially
sustainable future
The short-term insurance
industry has faced a number of
challenges in 2013, and this will
continue in 2014. Consumers
will still find themselves under
financial pressure, with an
obvious knock-on effect for the
short-term insurance industry.
Severe weather-related events will
carry on testing both customers and
insurers. Despite what may, at face
value, be a rather bleak outlook,
there are a number of opportunities
for short-term insurers that will
ensure their success in 2014. This
year, short-term insurers will succeed
through critical scrutiny of their current
strategies, heightened awareness
of their value chain, and active
management of their customers.
In 2014, short-term insurers should
expect to work both smarter and
harder. They are encouraged to align
the risks they underwrite actively
to an effective pricing strategy. Of
particular importance would be the
scrutiny of how weather-related claims
are priced, rather than overreacting to
each inevitable weather cycle. Perhaps
most importantly would be ensuring
COVER JANUARY 2014
Jan 14.indd 29
that the correct risk management is in
place to meet both the expected and
unanticipated risks that 2014 will surely
bring.
For intermediated insurance companies,
the reality is that they have the
opportunity to weather the challenges
more effectively through the trusted
relationships that brokers and advisors
have with their customers. This should
serve the customers needs better,
though it will only be true if the
intermediated insurance companies
invest time and resources into creating
the platforms for data to flow between
the customer and the insurance
company, and into aligning business
processes with broker and advisor
practices. There is still too much
duplication, too many blockages of
information, and too much protection
of self-interest to be addressed for the
benefit of the consumer.
Changes in the compliance landscape
will gain more momentum this
year - It will be an important year
for embedding regulatory changes.
When it comes to Treating Customers
Fairly (TCF), for example, we must
ensure that we are able to get our
businesses really to think about our
customers and how we can achieve
this operationally. It should not be
RAIMUND SNYDERS,
Chief Executive Officer of
Mutual & Federal
about satisfying the regulator, but
rather, satisfying our customers.
Ensuring that the value chain from
the customer, to broker, to insurer
and reinsurer works efficiently
within regulatory parameters, will be a
challenge. There is concern regarding
the cost of regulatory compliance and
the value to the consumer in the end
is questionable, but this should not
prevent all of us from really putting
our hands into our collective bosom,
to work for the consumer. This will pay
off in the long term.
Opportunities for insurers lie in
connecting with customers and
meeting their insurance needs with
the right products, delivered in the
most effective manner. This plays out
across a range of elements in the value
chain, including price, access, product
features, claims management, policy
wordings and conditions. The ultimate
goal for insurers should be helping
their customers prevent, manage and
prepare for risk events.
Those insurers that successfully
partner with brokers will ultimately
reap the most benefits. This includes
supporting brokers by providing them
with solutions that will enhance
value for the customer. There is
strong recognition that nurturing
broker relationships helps build strong
customer satisfaction. At Mutual &
Federal, we rely on our brokers to
provide us with information and data
that enables quality decision-making,
excellent customer service and sound
underwriting. We understand that good
data supports excellent decisions and
enhances competitive strength; at the
same time, it promotes efficiency from
a quality and cost perspective.
A further opportunity for 2014 will be
in addressing the deterioration that
large insurers have indicated in their
underwriting results. Insurers cant
carry this risk alone, nor can they
simply pass risks on to reinsurers. It
will be a challenge to find the balance,
but finding it is imperative for the
continued health of our economy.
29
2014/01/10 11:52 AM
 Industry Outlook
Thriving on partnerships
January, the month in which we
publish our Industry Outlook,
is usually a good time to select
one or two companies for
individual feedback on their 2014
outlook. This year, I visited Peter
Gordon, a member of Lombards
executive team. Peter updated
me on his views of the current
state of the industry and what
Lombards plans are for 2014.
IT IS GENERAL KNOWLEDGE THAT
THE SHORT-TERM INDUSTRY IS
CURRENTLY UNDER IMMENSE
PRESSURE. WHAT IS YOUR TAKE ON
THE CURRENT CONDITIONS AND
HOW ARE YOU NAVIGATING THE
CHALLENGES?
It is a tough time, with heavy price
competition and excess capacity in
general. We will seek to underwrite
30
Jan 14.indd 30
the risk accurately, price appropriately,
defend good sustainable business
and let go off business that is sub-
economically priced.
IT IS A TOUGH TIME,
WITH HEAVY PRICE
COMPETITION AND EXCESS
CAPACITY IN GENERAL.
Another challenge is the regulatory
environment. The intention of the
regulations is positive, but the rush
of regulations coming through in the
context of a competitive environment
is difficult to manage. We need
to understand fully what the real
intentions and requirements are,
then deliver on those in a simple and
effective way. Success lies in finding
simplicity in the complexity.
COVER JANUARY 2014
2014/01/13 8:13 AM
 WHAT DO YOU THINK WILL
SEE THE INDUSTRY THROUGH
THE DIFFICULT TIMES? ARE
INDUSTRY PLAYERS WILLING TO
DO WHAT IS NEEDED TO IMPROVE
CONDITIONS?
The answer lies in good underwriting
and realising that market and price
competition with capacity is here to
stay. You have to set yourself up with
skill and processes that allow you to be
more effective and really to understand
the environment in which you
compete. The sources of capital are so
diverse in the market that shortage of
capacity is not an issue.
In answer to your question, Are
industry players willing to do what is
needed to improve conditions? yes
and no. You have responsible players
who understand the long-term nature
of our business, but you also have
those players who take a shorter-term
view.
THE GREY AREAS SHOULD
NOT LAST TOO LONG
However, clarity around regulation and
quicker implementation, coupled with
effective enforcement and policing will
go a long way. The grey areas should
not last too long.
IS IT DIFFERENT FOR SPECIALIST
INSURERS IN THE UMA SPACE?
They face exactly the same challenges,
but we believe that there remain viable
models to pursue for great business
in the specialist environment. Our
strategic intent is to continue to pursue
the UMA model - it allows you to
attract skills in a market short of skills.
Properly structured, you have people
much more aligned to the ownership
and profitability of the business. This
clearly creates a better and more
sustainable environment. Again,
understanding regulations and financial/
capital modelling in this environment is
essential.
If our partners and we have mutual
understanding of the challenges of
the environment, collectively, we can
create opportunities.
LOMBARD HAS A STRONG
PARTNERSHIP MODEL, WHICH
SEEMS TO BE WORKING WELL
FOR YOU. WHAT DO YOU LOOK
FOR IN A PARTNERSHIP WITH A
SPECIALIST?
COVER JANUARY 2014
Jan 14.indd 31
First and foremost, we look for a
culture fit with Lombard and partners
aligned to our values. It starts with
open and honest communication.
Primarily, its about underwriting,
service and operational excellence,
around a commitment to partnership
and long-term sustainable relationships.
Then we look at demonstrated
expertise in a particular class of
business. However, it is essential
that the potential partners are truly
specialist and we therefore steer away
from commoditised business, where it
is often just about price.
General UMAs are at risk given
regulatory information requirements
but true specialists will be sustainable.
We are seeing that already. The more
volume-based commoditised UMAs
are being swallowed up, especially
where brokers are relied on to do most
of the work. They are just not viable
anymore.
The most effective way now is to
find a real specialist that can offer
something unique in a specialised
environment.
HOW PREPARED IS THE MARKET
IS TO DEAL WITH BINDER
REGULATIONS? DO YOU HAVE ANY
SPECIFIC MEASURES IN PLACE TO
DO SO?
Not sure how prepared the market
is as there are so many different
models. Those that are set up to
bring specialised value to the market
can justify their place. Those who
are in the UMA business just to get
more money out of the value chain
will probably not survive. We dont
really have to change much in our
partnership structures as they are set
up to be UMA structures in the true
sense.
Challenges will come in managing the
distribution chain in the restriction
of delegating underwriting functions.
There needs to be continued
engagement with regulators around
delegation fees and how each insurer is
handling the UMA model. We have to
look at the total cost and capabilities
of our partners to provide underwriting,
then agree on a remuneration model
that is fair according to that.
We all want a responsible business and
an industry that is sustainable. It is
worth working in conjunction with each
other and the regulators, to achieve
that.
LOMBARD HAS A HISTORY IN LIFE
INSURANCE, BUT BRIGHTROCK
REALLY IS YOUR FIRST ABOVE-
THE-LINE, FINANCIAL ADVISOR
VENTURE. HOW IS THIS WORKING
FOR YOU?
From a partnership perspective, it is
extremely exciting. They are a great
team and their product approach is
very compelling. It is challenging to
bring a new concept to the market, but
they are making good headway.
There are other complexities in the
life industry but, ultimately, the
partnerships are managed in the same
way, with a focus on excellence in
skills. If there is a team in the life
industry that can succeed with a
challenge like this, it is the Brightrock
team.
IS LOMBARD LOOKING TO AFRICA
FOR GROWTH? IF SO, WHERE WILL
THE VENTURES TAKE YOU?
We see growth opportunities in
Africa and are looking to expand
internationally. Our strategy is to be in
commercial business and will also be
based on partnerships. We will build a
network of relationships and alliances
into Africa rather than a branch or
office network. Internationally, we are
following opportunities in selected
markets particularly in the Bonding and
Guarantee space.
We have a joint-venture in Australia
providing Construction Guarantees,
a partnership in Sweden doing the
same and we are exploring some
opportunities in South America.
Peter has been in the insurance
industry since 1994, but took a three-
year sabbatical in strategy consulting
during that time. He started at Price
Forbes as a junior account executive
on the broking side, and then moved
into risk finance consulting and captive
insurance company management for
about three years. To keep things
exciting and interesting, he fulfilled
similar roles in the UK and Europe.
When his wife wanted to return to
South Africa he decided to make the
move, staying in consulting. However,
the travelling was excessive, and he
joined Lombard in 2007 to start up
the partnership business. Outside of
Lombard, Peter loves spending time
with his family. They have a boy of
eight and an 11 year-old girl. He runs
to keep fit and to keep the weight
off, and he plays golf as often as time
allows.
31
2014/01/13 8:13 AM
 Industry Outlook

Commitment to growth of UMAs

The 2013 results reported
by some of the top general
insurers so far indicated a
severe underpricing of risk
premiums. As such, the
resulting cost of putting
insureds back into the position
they were before a claim, is
significantly higher than the
premiums being charged, and
this needs to be addressed in
the coming year.
The FSB (Financial Services Board)
half-year (YTD June 2013) market
report bears witness to insurers and
reinsurers taking a beating this year, a
beating not attributable to significant
out of the ordinary catastrophic events.
reduction in available capital, creating
the pressure to improve underwriting
profitability.
CONSOLIDATION
Across the sector, we expect to see
an uptick in the rate of consolidation
at broker, UMA (underwriting
management agency), and underwriter
level. Although we have seen a steady
rate of friendly consolidation in 2013,
we may very well see this trend take
on a new level in 2014 as the game
plan changes from a friendly to a more
aggressive one.
REGULATORY ENFORCEMENT
The regulator is going to increase
enforcement (fines, penalties and
sanction) of many of the new laws GARETH BEAVER,
and regulations promulgated, as the CEO of Centriq Insurance, expects
to see insurers achieve better
regulator has geared up in terms of
underwriting results in 2014.
staff, both numbers and quality.

REGULATORY REFORM
There will be no abatement to the
current volume and pace of regulatory
reform the industry is currently dealing
with. Remuneration issues earned by
parties within the value chain (that
is, binder regulations and the like)
will continue to be a big focus next
year. This includes the principles
of TCF (Treating Customers Fairly),
which should be operational among all
industry participants by now.
CONSTRAINED GWP [GROSS
WRITTEN PREMIUM] GROWTH
With the global economic outlook
still uncertain, consumers, individuals,
and commercial entities will continue
to face tight financial constraints.
Locally, with it being an election year,
and our political landscape in a very
dynamic state of affairs, we are likely
to experience very high degrees of
labour and political unrest. Neither of
these will be conducive to a stable
exchange rate, and will also not attract
fixed investment by South African or
international investors.
More industry trends we can expect to
see next year include the following:
SHAREHOLDER ACTIVISM
Given the more recent poor returns
achieved by many insurers and
reinsurers, shareholders are now duly
assessing comparative investment
opportunities. This is likely to lead to a
THERE WILL BE NO
ABATEMENT TO THE
CURRENT VOLUME AND PACE
OF REGULATORY REFORM THE
INDUSTRY IS DEALING WITH.
Factors that may contribute to the
growth of the insurance industry
include:
ACCESS TO AND DEVELOPMENT OF
PRODUCT FOR THE UNINSURED
MARKET IN SOUTH AFRICA
Current insurance penetration rates are
still extremely low in southern Africa.
But there has been a marked increase
in the economic status of many South
Africans, all of whom are potential first
time buyers of insurance products.
THE CONTINENT OF AFRICA
As a continent, Africa is high on the
agenda of international investors who
are looking to unlock its resources
and the vast wealth of opportunities
associated with developing these
economies. South Africans are well
positioned to capitalise on this growth
as insurance expertise will be required
to facilitate many of these projects.
As the local people benefit from this
economic development, opportunities
abound to sell insurance products.
Factors that may have a negative
impact on the insurance industry
include:
INCREASED LABOUR AND
POLITICAL UNREST
Destruction of assets, and loss of
production and incomes, among others,
will all have a negative impact on
insurance industry participants.
CRIME
Crime levels are on the rise, and the
target is people and/or entities that
have assets that are typically insured.
This will continue to drive upward
losses, and costs thereof will need to
be imposed upon an already stretched
consumer.
Centriq is very excited about the
current dynamics within their niche
space of being a cell captive insurer
with a focus on the UMA business
model, brand affinity, and alternative
risk transfer insurance solutions, as well
as the insurance industry in general.

32 COVER JANUARY 2014

Jan 14.indd 32 2014/01/10 12:25 PM

Untitled-1 1 2014/01/10 5:10 PM
 Industry Outlook
Key focus areas for the company next
year include:
UMA PORTFOLIO INVESTMENT
AND GROWTH
Centriq Insurances big push in 2014
will be adding to our portfolio of
UMAs, including start-up UMAs. We
are also determined and committed to
seeing all our UMAs grow exponentially
in the coming year. In the past, we
Industry outlook for 2014
One of the most important
developments in the local cell
captive arena in 2013 was
the issuing of the Financial
Services Boards (FSB) discussion
document on third party cell
captive insurance and similar
arrangements.
This document not only provided
more clarity and certainty, it also
underscored the fact that there is
most definitely a need for cell captive
insurance in South Africa. The industry
welcomed the FSBs decision to put an
end to so-called similar arrangements
as these posed a significant risk to the
future of cell captives.
A legislative framework that takes
cognisance of the unique structure
of cell captives will level the playing
field in what has become a major part
of the local insurance industry. It is
anticipated that competition in this
area will increase in the near future, as
more companies are expected to apply
for cell captive licences once the final
rules are set out.
The twin peaks regulatory framework
with the Reserve Bank most likely
taking responsibility for the prudential
regulation of insurers, and the FSB
retaining responsibility for market
conduct will continue to take shape
in 2014 and it will be interesting to
see how the Reserve Banks approach
compares with that of the FSB.
Treating Customers Fairly (TCF) will
continue to be top of mind, with
supervision and reporting requirements
shaping the way that the industry does
business. Insurers will be watching
34
Jan 14.indd 34
have left the growth plans largely to
determination and financial constraints
of our UMA partners. But we will now
continue to actively engage our UMA
partners to invest in their organisations
for growth.
ALTERNATIVE RISK FINANCE
PRODUCT EXPANSION
Weve got a new leadership team
running our ART business unit, and will
the TCF regulators decisions closely
to inform their approach to TCF
compliance going forward.
Better definition of the framework for
micro insurance is expected in 2014
and it is not inconceivable that the
existing long- and short-term insurance
acts could be adapted to make
provision for this sector.
After saying in 2012 that it would scrap
gap-cover products, Treasury recently
acknowledged that gap-cover insurance
does indeed have a role to play in the
marketplace, albeit within a regulated
framework. While the details of how
these products will be regulated must
still be hammered out, this sector is
expected to pick up now that the long
awaited clarity has been given. Product
development, which had been put
on hold during recent years, will gain
traction again and there are significant
opportunities to be realised in gap-
cover insurance.
TREATING CUSTOMERS
FAIRLY (TCF) WILL CONTINUE
TO BE TOP OF MIND...
Reinsurers will continue pressuring
insurers to price risk even more
accurately and to continue improving
risk management practices. Although
reinsurers retain their appetites for new
business and more business lines, they
are expected to become more selective
in the classes of insurance they choose
to support.
Despite the fact that underwriting
profits are expected to show further
downward pressure as loss ratios in
certain classes of business, for instance
be adding to that in the coming year.
As such, we look forward to evening
the playing fields in this space.
Overall, Centriq will continue building
and entrenching our already strong
brand across the industry sector for the
benefit of Centriq and our loyal and
valued business partners.
HERMAN SCHOEMAN
MD of Guardrisk
motor, continue to deteriorate fierce
competition could continue to push
premiums down in the coming months.
Insurers with surplus capital to invest
will no doubt be looking northwards
and Africa will be an area that could
yield some good growth opportunities
in 2014 and beyond.
The global growth outlook has improved
in recent months and, with global real
GDP growth forecast at 3,1%, economic
activity is likely to improve in 2014.
Locally, real GDP growth is expected
to average around 3,0% over the
next decade with key downside risk
coming from the political environment.
High unemployment and widespread
industrial unrest will continue to
present major challenges in the
coming years. South Africas real GDP
per capital is expected to more than
double in US dollar terms over the next
10 years, which will further increase
consumers purchasing power and
drive forward industries such as the
wholesale and retail sectors. Growing
wealth also augurs well for greater
expansion of the local financial sector.
COVER JANUARY 2014
2014/01/10 12:26 PM
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Untitled-1 1 2014/01/10 5:11 PM

 Industry Outlook
OUTLOOK FOR INDUSTRY BODIES
Quo Vadis the IISA in 2014
The IISA can look back on a
successful 2013 during which we
have strengthened our financial
base and delivered meaningful
services to our professional
and general members, and our
corporate subscribers.
As the SAQA registered Professional
Body for the short-term industry, the
IISA has continued our development
of the IISA CPD programme as
we endeavour to make as many
opportunities available for our members
to earn and record their CPD hours
towards their annual requirements.
Much work has been done on the
updating of study material and
the re-curriculation of the UNISA
insurance study programmes for the
future attainment of our professional
designations as a Fellow, Associate or
Licentiate of the IISA.
36
Jan 14.indd 36
The number of students studying our
Licentiate programme at Milpark and
the courses offered in Botswana by
BAC have increased considerably during
the year under review.
Our 2013 Ruby 40th Insurance
Conference this year was a great
success with over 1000 attendees from
305 companies and 23 countries. This
together with 49 exhibitors and 29
speakers set many a new record for the
IISA in conjunction with our conference
partners SAIA and the FIA.
Looking forward to 2014 we have set
some objectives for the new year.
These include:
1. Building and extending the
reach and impact of the Insurance
Conference Southern Africa at Sun
City in July 2014 under the theme of
THE BUSINESS OF INSURANCE IS
INSURANCE.
DAVID J HARPUR,
FIISA, FCII, CIP, FSRMSA, Chief
Executive, The Insurance
Institute of South Africa
2. To host several forums during the
course of the year on topical and
challenging subjects of relevance to the
short-term industry that will carry CPD
rating for our Professional members.
3. To continue expanding our CPD
programme to offer more opportunities
for professional members to achieve
their required hours of learning. This
will include a web-based method of
achieving additional hours towards
the CPD by delivering on line lectures,
talks, forums and conferences. Also the
magazine reading facility of recording
hours towards the CPD will be expanded.
4. To concentrate on the UNISA
subject re-curriculation programme to
ensure study material is ready, relevant
and available for students of the new
Higher Certificate in Insurance at
UNISA in 2016.
5. To further grow the number of
professional Fellow, Associate and
Licentiate members of the IISA by
attracting more qualified members
to apply for their professional status
and encouraging more individuals to
undertake the study programmes at
UNISA,Milpark and Etana.
6. To attract more corporate
membership of the IISA to facilitate
more of our insurance industry focused
work in the educational field.
7. To assist in finalising and releasing
the Hyde Park Accord for the short-term
industry at the Insurance Conference
Southern Africa in July 2014.
8. To conclude 2014 with another solid
financial performance to ensure our
ongoing sustainability in an always
challenging educational and business
environment.
COVER JANUARY 2014
2014/01/10 12:41 PM
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Untitled-1 1 2014/01/10 5:12 PM

 Industry Outlook
The SAIA perspective
At the SAIA, we cover many
diverse areas of industry
operations, so in preparing for
this article I obtained input from
all the areas of the SAIA.
TSUNAMI OF LEGISLATION AND
REGULATION
South Africa is a member of the G20
group of nations, despite not being
among the largest twenty economies.
Similarly, we are members of the
BRICS grouping, again despite not
being one of the largest five emerging
markets. These groupings recognise us
for being the most influential economy
in Africa. This brings with it is a desire
from the lawmakers to bring the state
of regulation up to the standard of the
largest economies in the world.
So, South Africa has embarked on a
rapid modernisation of our regulatory
regime. So far, so good! However, this
is being done at a pace far faster than
the larger economies implemented this
change. We recognise that the SAIA is
probably as large as the industry can
realistically afford, yet we are in many
cases only one-tenth of the size of
the insurance associations in the other
G20 states. Insurance Europe, the
European confederation of insurance
associations, where Solvency II was
originally designed, represents national
associations that collectively employ
more than one thousand people.
Whereas Solvency II will have taken
fourteen years in Europe, we have
caught up in six, and will now launch
simultaneously with Europe.
So, for a relatively small association
like the SAIA, this pace of legislative
change represents a tsunami of
legislation, far beyond which we can
comfortably address. We are well
aware that the use of tsunami does
not sit comfortably with all, but the
term has now become part of the
local vocabulary, so we use it without
apology.
Similarly, for our members, the
compliance challenge has become a
massive burden. In my member visits
to CEOs, the lament most often heard
is that CEOs, especially of small to
38
Jan 14.indd 38
medium sized companies, now spend
in excess of 50% of their time dealing
with compliance. This detracts from
their ability to deal with underwriting
challenges, marketing their products,
and growing their businesses.
Of course, this also comes at a cost.
While not solely due to compliance,
if one analyses the costs of doing
insurance business over the last six
years, costs plus commissions have
increased from 25% of premium to
32% of premium for typical insurance.
BARRY SCOTT,
This 28% increase has certainly placed Chief Executive, South African
underwriting margins under pressure, Insurance Association
with this increase of course coming
straight out of the underwriting margin,
and ultimately being passed on to
consumers.
For 2014, most of the existing
BRICS Reinsurance Project
initiatives will continue, with final
implementation date being in future Policyholder Protection Scheme,
years. However, for many issues, 2014 which will see a fund being
will be the crucial year for us to get it developed in order to protect
right! The existing initiatives are also consumers in the event of the failure
joined by new issues recently added to of an insurer
the agenda.
Third party Cell Captive Review
Some of the more important issues are:
Ongoing binder regulation issues
Solvency Assessment and
Management (SAM): The SAM A review of the ombudsman
Light Parallel run starts 1 July landscape
2014. This will require quarterly
Solvency calculations based on SA There is a bottleneck on the legislative
QIS 3, new reporting templates programme in Parliament which does
not help, and which brings with it
that will be introduced, and new
additional time pressures. In addition,
governance and risk management
as a result of the upcoming national
requirements. The public consultation
elections to be held in 2014, including
process of the new Insurance Bill
and its subordinated legislation the process to elect a new National
will commence in 2014. This will Assembly and provincial legislature in
require many volunteers from the each province as well as Parliamentary
industry and many hours. The SAM Committee Members, the parliamentary
landscape also sees a review of the schedule will be challenging.
way in which reinsurance business is
Our concern is the pressures that
conducted in South Africa, which is
this places on smaller insurance in
crucial to the future way in which our
particular, with the result that the bar
reinsurer members participate in the
has quickly been raised, with many
market. This will address the branch
companies needing to increase their
versus capitalised company versus
market share in order to survive. This is
suitcase brigade debate.
not easy in a fairly static market.
Treating Customers Fairly
Our legislation team will remain under
Twin Peaks, with the concomitant the very capable leadership of our
challenges to Who regulates what? General Manager, Suzette Strydom,
assisted by the equally capable SAM
Retail Distribution Review team led by Nico Esterhuizen.
COVER JANUARY 2014
2014/01/10 12:43 PM
 TRANSFORMATION
The much-awaited Financial Sector
Code was finally gazetted in 2012, and
is now in force. The standards have
been finalised, and the training for the
industry is complete. This now means
that while the old Financial Sector
Charter was a voluntary commitment,
and companies could instead choose
to report against the generic codes,
the industry charter is now part of the
legislated transformation environment.
This also brings the intermediaries into
the FSC for the first time.
There are particular unique challenges
for the insurance sector in terms of the
FSC, these being access to insurance
and enterprise development.
The access to insurance aspect is
proving to be particularly difficult for
insurers, which are expected to sell
products into markets with which in
most cases they have no experience.
There is no ready-made intermediary
network in place, especially in the
areas where the products need to be
sold. There are also some legislative
challenges, around the FAIS area,
and the failure of the legislative
process to address the much-
awaited Microinsurance Bill (which
we now believe will no longer be
addressed through a specific bill). A
Microinsurance Bill would have allowed
composite insurers, with lower solvency
requirements and less rigorous FAIS
requirements.
In the area of enterprise development,
the DTI-led discussions around the
motor body repair industry continue,
with progress being made at last.
There is pressure for the industry to
play more of a role in the development
of black suppliers, in particular around
the MBR industry, and increasingly in
the building trade. We have previously
shied away from creating our own
enterprise development fund at the
SAIA, but this possibility now needs
urgent attention. As an alternative, we
are looking at developing a relationship
with the ASISA enterprise development
fund.
We will continue with our flagship
consumer education project, which
has now delivered in excess of R560
million to basic financial literacy
education.
It has become increasingly obvious
that the push to transform the
workplace needs a boost. For this
COVER JANUARY 2014
Jan 14.indd 39
reason, we have initiated a project
that has brought in the FIA and IISA
to address the industry Human Capital
Development challenges.
To address the transformation needs
of the industry, our Board has created
a new Board Committee called
Transformation and Social Risks, to
be led by our new recruit General
Manager, Leila Moonda.
INSURANCE RISKS
Our Board has recognised that the
underwriting results in the industry
have come under pressure of late,
and that we need to do something
THERE ARE PARTICULAR UNIQUE
CHALLENGES FOR THE INSURANCE
SECTOR IN TERMS OF THE FSC...
to address this. The Board agreed
that we need a specific focus on the
underwriting areas, and accordingly
created a new Board Committee called
Insurance Risks, under the leadership of
our stalwart GM, Viviene Pearson. This
new portfolio carries many challenges,
as we need to consolidate much of the
work previously done under a variety
of portfolios. Viviene has been given
this portfolio because of her wide
experience and successful track record
in delivering projects.
The portfolio will include, among
others, Motor, Property, Agriculture,
Marine, Construction and Machinery.
Some of the specific projects include:
Green Geyser project, which seeks
to see one million insurance
replacement geysers being
alternatives to the electrical geysers.
This project remains dependent
in its initial stages on government
funding, perhaps through Eskom.
This is a critical year for this project,
as we anticipate a decision from
government on the funding issue;
Sustainability of motor insurance
is still an issue, with the need
for compulsory third party motor
property insurance, and certainly
the need to address road safety.
This challenge is exacerbated by the
ongoing changes in the Department
of Transport and the associated
transport related parastatals;
Sustainability in the property
portfolio, including issues related
to climate risk, and the looming
problem of acid mine water; and
Sustainability of agricultural insurance
and specifically multi-peril crop
insurance and the related challenges
with regard to food security,
especially the need to extend
insurance cover to emerging farmers.
TECHNOLOGY PROJECTS
After many years of incubation, the
short-term insurance data switch
STRIDE is ready and open for business.
This is an essential element of the
compliance need contained in the
binder regulations. The users of
STRIDE have themselves struggled
to implement the system changes
required to use STRIDE this includes
both insurers and intermediaries. 2014
will be a watershed year for STRIDE,
and usage needs to reach a level that
makes it economical for STRIDE to
continue.
While bringing STRIDE to fruition
is the obvious key issue, there are
ongoing data quality issues in the
industry. An extremely important
initiative, not only for compliance
reasons but also which would enable
many industry initiatives, is the ability
to centralise data, which is addressed
by the Finance and Insured Vehicle
(FIVS) project. This project is also
expected to deliver more accurate
industry statistics to government
around key negotiation points.
IN GENERAL
While I have talked about specific
issues, we are acutely aware that our
industry image and reputation still
need attention. Under the guidance
of our newly appointed Chairman,
Themba Gamedze, we expect to
engage more fully government at top
level on many of these issues. We
need to tell government that insurance
plays an essential role in the economy,
protecting the assets and investments
of our citizens and businesses. We are
an ethical industry, with the interests
of our consumers at heart, and with a
long track record.
2014 will be one of our most
challenging years, with so many issues
reaching critical junctures. We have
a dedicated and capable team at the
SAIA, and, given the support of our
members and our Board, we will be
able to rise to the challenges.
39
2014/01/10 12:46 PM
 Industry Outlook
FISA
2014
FISA in 2014:
Professionalising fiduciary practice
The Fiduciary Institute of
Southern Africa (FISA) was
formed in June 2008, and has
its origins in the Association of
Trust Companies, a prestigious
body founded in 1932 to
represent the interests of trust
companies and their clients.
In June 2008, membership of FISA
was broadened to include anyone
active in the broader fiduciary industry.
FISA actively invites membership
from individuals who meet its entry
requirements, be they from a legal,
accounting, financial planning or other
background. In this way, FISA aims
to assist in transferring skills to the
broader industry as well as to set and
maintain high ethical standards.
PROFESSIONAL EXAMINATION
FISA has the outspoken aim of lifting
professional and technical standards
among fiduciary practitioners. In
2012, it introduced the examination
that entitles successful candidates to
apply for the professional status of
Fiduciary Practitioner of SA (FPSA).
The examinations are run through the
40
Jan 14.indd 40
University of the Free States Centre for
Financial Planning Law (CFPL) and have
been benchmarked at the NQF level of
a Bachelors degree. The CFPL also plans
to offer an Advanced Diploma in Estate
and Trust Administration from 2015.
Achieving FPSA status testifies to
the fact that the person has attained
a level of knowledge and skill that
justifies distinction as a professional in
the fiduciary field. It also indicates that
the person is aware of and committed
to the ethical principles that the
public at large can expect of someone ANGELIQUE VISSER,
entrusted to manage the affairs of Chairperson of FISA
another who is not in a position to do
so.
The FPSA will replace the previous members to earn points through
certification system that FISA adhered various activities, including attendance
to. All existing certifications will cease at conferences, seminars and regional
to be recognised after 31 December meetings, as well as writing articles for
2017, when all FISA members will fall publication.
into one of two categories: those with
FPSA status, and those without. CONCLUSION
FISA has continued to grow members
CONTINUING PROFESSIONAL at a very pleasing rate. We believe
DEVELOPMENT we add real value to our members
As part of the professionalisation of professional lives and we look forward
the fiduciary industry, in 2013 FISA to continuing this into 2014 and
introduced a CPD system, allowing beyond.
COVER JANUARY 2014
2014/01/10 12:47 PM
Untitled-1 1 2014/01/10 5:14 PM
 Industry Outlook
2014: FPI continues to
add value to its members
The best way for the Financial
Planning Institute (FPI) to
add value to its members
professional lives is by
continuing to create consumer
awareness around the CFP
mark. The FPI will further
inform the public that, when
they make use of the services
of a CERTIFIED FINANCIAL
PLANNER professional for their
financial planning needs, they
are guaranteed to be dealing
with a professional individual
who has gone through a rigorous
certification programme.
This certification programme requires
a high level of education (an honours
degree), demonstrated experience
(three years or one year in a structured
mentorship programme) and a
commitment to our Code of Ethics and
Professional responsibility.
Our members have generously donated
their time to our pro bono initiatives,
which allows the public to experience
the message of professionalism that
we continuously send out. To date, our
consumer campaigns have delivered
the following:
Some 800 CFP professionals investing
over 17 000 pro bono hours;
MY MONEY 123 programme receiving
rave reviews and attention; and
A stronger and growing media
coverage reach - over 4 million
potential consumers.
In 2014, we aim to intensify our
consumer campaign by:
Providing printed and downloadable
consumer toolkits;
Developing and delivering more
specialised pro bono programmes,
suited to middle income and high net
worth audiences.
42
Jan 14.indd 42
In addition to this, we also recognise
the need to support our members
through a time of change in the
profession. in 2014, we will be
undertaking the following activities
to assist our members in light of the
anticipated legislation:
International research has shown
that the value that is added to a
consumer by working with a financial
planner is substantial. Our first
quarter research project will focus on
the value-add in the South African
market;
SOUTH AFRICA IS A
DIFFERENT PROFESSION
TO THAT OF THE UK AND
AUSTRALIA. WE HAVE
BOTH A FIRST WORLD AND
THIRD WORLD ECONOMY.
South Africa is a different profession
to that of the UK and Australia. We
have both a first world and third
world economy. It is therefore not
possible to exactly emulate what has
been done in those jurisdictions. We
are engaging with the regulator to
ensure that any legislative changes
take the above into account and that
the profession will be sustainable
and be able to deliver on our vision
Professional Planning for all;
The anticipated legislative changes
will require a change in the way that
financial planning businesses are run.
We will be supporting our members
with tools, guides and events to
assist with practice management.
DAVID KOP,
FPI Senior Manager
Policy and Research
We anticipate that the draft Twin Peaks
legislation, which will be informed by
the incoming Treating Customers Fairly
Regulations (TCF), will surface in the
first quarter of 2014. This will provide
the profession with more clarity on the
legislative environment in 2014, and
going forward.
The RDR discussion is running parallel
to the above. At the recent FSB
Regulatory Seminar, Jonathan Dixon
presented on the FSBs thinking thus
far. We are encouraged to see that
there is acknowledgement by the
Regulator that the value that financial
planners add to the industry is not
always recognised, and that advice is
not remunerated. This indicates that
there is a holistic view being taken as
opposed to the more common, narrow
focus on costs.
We continue to work closely with the
FSB and other Regulators to ensure
that the proposed legislative changes
protect both the professionals as well
as the consumers that we serve.
COVER JANUARY 2014
2014/01/10 12:48 PM
 Up here, commitment
is everything.

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Untitled-1 1 2014/01/10 5:16 PM

Untitled-1 1 2014/01/10 5:17 PM
 Industry Outlook
Be SMART
Gaining a competitive advantage
in todays market has become
increasing difficult. Technology
has developed, morphed and
fine-tuned itself in so many
ways that it seems that the next
level of upgrade impedes each
corporate decision.
Looking specifically at Outbound
Call Centers, with their high-energy
environments and leader boards, their
traditional methods to optimise sales
are centred on propensity to purchase
modeling. Making use of dialers, voice
analysis, call monitoring software and
CRM programs all has its place, but
what is the next level, where to next?
What about data optimisation?
COVER JANUARY 2014
Jan 14.indd 45
KEVIN DALY,
MD of Value-Ad
A South African-based company is
currently implementing what they call
SMART Lead Allocation in financial
services outbound call centers. This
method is showing great promise in
Australia and Southeast Asia, with
increases of up to 38% on strike rates.
While traditional propensity to purchase
modeling analytics increase the
likelihood of the potential client buying
a particular product, Value-Ad has
turned it around and looked at the sales
interaction from the other side. What if
the focus shifted to the propensity of a
salesperson to sell to specific clients?
Once sales people are profiled, they
are assigned leads that they are most
likely to succeed with on an ongoing
basis. This drives revenue and also
helps retain staff: a win-win situation.
THIS METHOD IS
SHOWING GREAT
PROMISE IN
AUSTRALIA AND
SOUTHEAST ASIA
Due to the high number of client
interactions in call centers, SMART
Lead Allocation can be implemented
and show results in a short space
of time. However, the process is
not limited to call centres and can
also be applied in face-to-face sales
environments.
Nothing says optimisation more than
an increase in revenue! If your sales
staff are more likely to be given
leads that will result in a sale, their
motivation will sky rocket and along
with it your sales figures and revenue.
45
2014/01/10 12:50 PM
 Industry Outlook
Digitalisation and big data
key drivers in 2014
With the growth in mobile
technology and changes in social
behaviour disrupting the industry,
insurers need to be in a position
to respond to, and meet,
consumer demands or they will
lose out to competitors who are
more innovative. This disruption
could be an opportunity for
insurers to create a truly flexible
IT infrastructure that can adapt
to multiple channels and devices
with few constraints.
Digital innovation, with a focus on
mobile, is without doubt the direction
that technology development is going.
Making sure websites are optimised for
mobile use, be it for smartphones or
tablets, or introducing a smartphone
app, is becoming increasingly important
and will continue to do so in the years
ahead.
46
Jan 14.indd 46
DIGITAL INNOVATION, WITH A FOCUS
ON MOBILE, IS WITHOUT DOUBT
THE DIRECTION THAT TECHNOLOGY
DEVELOPMENT IS GOING.
In general, insurers need to continue
to invest in their systems to manage
these changes. Those with modern
flexible, service-oriented architecture
based systems, will be able to make
However, with all this innovation these changes and integrate more
and the continued growth in mobile, easily with other third party systems
customers still want to use other or data sources. For those that havent
channels. So, making sure you can modernised yet, there will be greater
deliver great service across multiple urgency to do so in 2014 as change is
channels is going to remain a challenge happening at an unprecedented rate.
for many insurers.
On the motor insurance side, insurers
still havent felt the full effects
of usage-based insurance either.
Telematics based insurance is still in
its infancy, but understanding how
to manage the data being produced
is increasingly critical with many
insurers becoming hamstrung by
systems that are no longer fit for
purpose. If insurers focusing on
the motor market are to remain
competitive, they need to implement
more targeted underwriting and
develop niche products. Many
insurers risk being left behind in the
telematics revolution in 2014 and
beyond if their legacy systems cannot
cope with, or properly utilise the big
data it generates.
COVER JANUARY 2014
2014/01/10 12:51 PM
Untitled-1 1 2014/01/10 5:21 PM
 Industry Outlook

2013 in numbers
$44bn
Insurer cost of natural disasters
151
Number of road deaths
over one weekend in 2013

2.9%
Global GDP growth in 2013

$130bn
Total economic loss from
disasters

40% (1950)
25000
Number of lives lost in
R13.19
Price of a litre of 95 Octane
to 60% (2013)
Percentage of all countries
natural disasters fuel on 31 Dec 2013 that are democratic

48 COVER JANUARY 2014

Jan 14.indd 48 2014/01/12 4:59 PM

 srebmun ni 3102
987

300 000
Total number of students at UNISA
deadly road accidents
in December 2013

38.4m Trades on the JSE

12.3m
Kids in school in 2013
44.34%
Increase in JSE trades from 2012

95 672
Grade 12 learners
R3.97tn
Total value of trades on the JSE

COVER JANUARY 2014 49

Jan 14.indd 49 2014/01/12 10:26 PM

 Financial Planning Feature

Independent
and reliable
financial advice
endangered?
Transformation of the financial planning industry has been going on for more than a decade now, having
mainly started with the advent of the FAIS Act. When we compare the industry of ten years ago with what
we have, it is clear that we have seen major structural change. However, there is a lot to do and change is
happening slowly.

Besides regulatory challenges, financial planners also face major market challenges, demographic and socio-
economic pressures within their target markets as well as innovation that challenges their paradigms. One
of the daily challenges faced by financial planners is the range of products available on the market, and how
to compare the benefits fairly.

This leaves the financial planner with the challenge of advising on a product with which he or she is
unfamiliar. What follows is that financial planners may struggle to get information on clients policies and
benefits from product providers with whom they have no contracts.

For this feature, COVER asked some financial advisors how the sector should be dealing with these
challenges, the failure to do so which suggests that impartial and skilled advice is unsustainable.

Change is inevitable:
now how do we deal with it?
In January last year, my
colleagues and I sat down
to discuss and write our
annual business plan. We
tried to anticipate where the
environment is heading due to
the wave of consumerism now
upon us. Those fighting against
this impending force, rather
than using it to their benefit,
are making a mistake.
The regulators have informed us that
upfront commissions on investments
will effectively disappear in the near
future, and rebates are soon to be
regulated against. Transparency is
key! As an industry, we need to see
what we do through the eyes of the
consumer to assess what is fair and
reasonable.
INDUSTRY READY FOR THIS
CHANGE?
It seems not. Advisors have not been
anticipating these changes. Moving away
from upfront commissions towards fee-
based remuneration (which means on-
going fees from investments) has been
far too difficult a transition to make for BARRY OMAHONY,
most advisors. However, there has been FPI Financial Planner of the
a considerable number of CERTIFIED Year 2013 and Founder of
Veritas Wealth Management
FINANCIAL PLANNER professionals at

50 COVER JANUARY 2014

Jan 14.indd 50 2014/01/10 1:25 PM


AS AN INDUSTRY, WE NEED TO SEE WHAT WE
DO THROUGH THE EYES OF THE CONSUMER
TO ASSESS WHAT IS FAIR AND REASONABLE.
the top end of the market who have
already established themselves and who
are ready for this change.
As an industry, we must consider if
there is a certain level in our society
that we just cannot service fairly. If this
is so, then we as an industry need to
talk to government about appropriate
solutions. Indications coming from
government are that they are going to
introduce some form of product in the
retirement area and at a discretionary
savings level. This means that,
effectively, no advice will be needed in
this market.
WHAT WILL ALL THIS MEAN
FOR INDEPENDENT FINANCIAL
ADVISORS?
We hazard a guess that the regulator
is uncomfortable with so many FSP
licences and that they would prefer
the smaller FSPs either to retire, or to
consolidate or to return to being tied
agents for the big companies. The
regulators cannot and will not say this
openly, but this move will result in
unemployment and will obviously make
the regulators job easier.
WILL THIS BE BETTER FOR THE
CONSUMER?
As a capitalist first, I am always sorry
to see small businesses fail, as I
believe they are very important for our
economy. I am also sorry to see such
high barrier levels to entry for young
advisors starting out. The government
COVER JANUARY 2014
Jan 14.indd 51
ARNOLD
Married with children.
Main breadwinner.
Loves his job.
needs to consider the consequences
of its actions before moving
forward. We at Veritas Wealth
believe passionately in independent
advice.
WHAT WILL BIG PRODUCT
PROVIDERS DO TO HELP SMALL
INDEPENDENTS?
The answer to this question is I
am not sure they can. I was asked
recently if I would make any
changes to the FAIS act. In my
opinion, one conflict of interest
that should be allowed is for the
bigger companies to invest in
practice development within an
independents practice. It should
be allowed for, say, a three-year
window period and then banned
again. The effect would directly
benefit the clients of these
practices. A second consideration
would be to invest in courses, trying
to get as many advisors to CFP
professional status, which will be of
direct benefit to the consumer.
The big players will, no doubt, go
directly to clients, but financial
planning is not just about distribution.
It was, but now advice is all about
adding value to clients over time;
giving money a real meaning and
freeing clients up to get on with their
profession or life knowing that you
have their affairs in order. We at
Veritas Wealth are very excited about
the future as change is inevitable,
and we have to deal with it!
51
2014/01/10 12:59 PM
 Financial Planning Feature
FPI marks importance
of financial planning
Consumer indebtness in South
Africa appears to be at an
alarmingly high level: consumer
debt currently stands at R1,2-
trillion, up from just R300-billion
in 2002.
Recent Reserve Bank statistics show
that household debt as a percentage
of disposable income is at a worrying
76%. This has eased somewhat from a
high of 80% in late 2008. On the face
of it, South African consumers have
heaps of debt to manage, with most
of their disposable income going into
servicing it so, how do they get out
of it?
The FPI, with the broader financial
services industry, uses its annual
Financial Planning Week to introduce
financial planning to consumers as a
way of improving their finances. Our
industry is accountable for ensuring
that citizens are equipped with the
necessary financial knowledge,
understanding and tools to transform
their dire financial situations and create
their own, self-sufficient and financially
secure future.
Introductions to financial planning take
place in the form of free consultations
with CERTIFIED FINANCIAL PLANNER
professionals who conduct an in-
depth financial analysis and chart a
way forward based on the verdict
reached. This is coupled with financial
RECENT RESERVE BANK
STATISTICS SHOW THAT
HOUSEHOLD DEBT AS A
PERCENTAGE OF DISPOSABLE
INCOME IS AT A WORRYING
76%.
52
Jan 14.indd 52
literacy clinics and MYMONEY123
financial education programmes
held nationwide and backed by the
FPI. The clinics are hosted by FPI
Approved Professional Practice firms,
FPI Corporate Partner companies
and other financial services industry
organisations.
As part of Financial Planning Week,
the FPI reaches out to the public
through various initiatives such the
Retirement Financial Literacy clinics,
presented by CERTIFIED FINANCIAL
PLANNER professionals, hosted
at selected retirement homes. The
Institute realises the importance of
financial planning during retirement
age, a time most retirees find
challenges from a financial planning
point of view.
Street activations also take place
at intersections where information
around financial planning is shared and
memorabilia handed out. Paramount
to the FPIs objectives is to ensure
financial planning becomes an integral
part of the life planning process. Too
often people make commitments
that involve money without preparing
a plan and this has negative
repercussions.
The Institute of Behavioural Finance, in
conjunction with the Financial Planning
Institute, offers a free, scientific
GODFREY NTI,
CEO, Financial Planning Institute
assessment of each persons financial
risk tolerance. The risk tolerance test
is provided by FinaMetrica, world
leaders in scientific risk tolerance
testing. Their system is used by leading
financial advisors in 23 countries in
seven languages. More than 700,000
FinaMetrica risk tolerance tests have
been completed.
Once completed, the results of
this report is then discussed with a
financial planner/advisor offering a
free consultation during the Financial
Planning Week.
Prem Govender, CFP, FPI Chairperson
concludes, The collective involvement
of the financial services industry
displays a momentousness shift in our
consumer financial literacy drive. The
industry is well aware of the fact that
large amounts of South Africans have
their backs against the wall in relation
to indebtedness and need solutions.
In line with our core mission to
promote good financial planning among
all South Africans, the FPI is proud
to lead this initiative, ensuring that
consumers take action to better their
financial lives.
COVER JANUARY 2014
2014/01/10 1:02 PM

Fair comparison
When it comes to comparing
the life insurance offerings of
different product providers in the
market, independent financial
advisors face an unenviable and
increasingly complex task.
While life insurance products are
marketed using shared and well-
established industry constructs such
as death cover, critical illness, income
protection and disability cover these
structures can, in fact, differ vastly.
Often providers own comparison
documents may add to, rather than
reduce, the confusion.
In BrightRocks view, the solution is to
use each individual clients needs as
the departure point for a comparison,
rather than relying on a blanket
comparison of a specific product
construct such as capital disability
cover.
We believe financial advisors will
achieve a more accurate and useful
assessment of different providers
offerings by focusing on each of the
specific financial obligations that an
individual client may face in the event
of illness, injury or death.
This is not only a more client-centric
approach, but also aligns entirely with
the Treating Customers Fairly (TCF)
outcomes. By measuring products
in relation to how well they meet a
clients specific financial obligations,
rather than measuring them in relation
to one another, its possible to spot
the differences in providers offerings,
identify any gaps or shortcomings and
ensure advice is aligned closely to the
clients need.
WHAT TO CONSIDER:
1. The nature of the need, and of
the pay-out required. Is the clients
need an asset protection or income
protection need, or does the client
require both? Typically, asset protection
needs require a lump-sum pay-out,
whereas income protection needs are
recurring in nature;
2. How cover will grow over time
both before and after claim. Usually,
cover is set to grow year on year in
COVER JANUARY 2014
Jan 14.indd 53
...THE
TERMINATED
No one expected the wave
of retrenchments.
SCHALK MALAN,
Executive Director at BrightRock
line with consumer inflation for
the duration of the cover term,
regardless of the growth in the
clients need over time. Depending
on the nature and duration of a
specific need, this can either result
in the client being significantly over-
or underinsured.
3. Cost of premiums over time.
Purely comparing products based
on an upfront premium cost can be
misleading. Its important that any
product comparison take account
of how the premium is funded over
time, especially if the need for cover
is whole-of-life.
4. Claims definitions and criteria:
This remains one of the most
complex and important areas
of comparison and one where
advisors and clients may encounter
the greatest number of pitfalls. In
the interests of treating customers
fairly, we caution against:
General waiting periods on
disability and critical illness
products; and
Products that rely entirely on
narrow or subjective claims
assessments, such as the own or
similar occupation or Activities
of Daily Living for disability
assessments.
53
2014/01/10 1:03 PM
 Financial Planning Feature

Changing life circumstances,

changing investment needs
Age is an issue of mind over The calculation is based on 2008
returns of the ALSI (equity), ALBI
matter, Mark Twain once
(bond) and STeFI (cash) indices.
declared. If you dont mind, it
doesnt matter.

While this may be true when evaluating

the passage of time in your bathroom ...WHEN IT COMES TO YOUR
mirror or when marking a birthday that INVESTMENTS, YOUR AGE OR
brings with it a new decade, when it
MORE PRECISELY, YOUR LIFESTAGE
comes to your investments, your age
or more precisely, your lifestage MATTERS A GREAT DEAL.
matters a great deal.

Consider two hypothetical investors,

both of whom retired at the end of
2008. At the point of retirement, Alice Alices portfolio, which was heavily
was invested 90% in equities and 10% invested in the local equity market, NICK BATTERSBY,
in bonds. She had seen the equity would have suffered a substantial loss Chief Executive Officer
market deliver strong returns over the of almost 20%. Brenda, however, had PPS Investments
preceding number of years and had reduced the risk in her retirement
wanted to secure these returns in her portfolio by reducing her equity
retirement portfolio. exposure and investing in a more
diverse mix of assets. Her portfolio was Alice, had she remained fully invested
Brenda, on the other hand, had been cushioned against the financial crisis post retirement, may have been able to
advised by her financial intermediary and the value of her retirement savings make up her loss over time. However,
that while equity investments are likely increased by almost 7%. as she required part of her savings to
to deliver the highest returns in strong
markets, they are also likely to result
in the greatest losses when markets
fall. As she approached retirement, she
had therefore opted for a lower-risk
investment strategy and had invested
in a diversified portfolio with a 20%
allocation to equities, a 40% allocation
to bonds and a 40% allocation to cash.

Unfortunately, the global financial

crisis set in shortly before the investors
retired and stock markets around
the world registered significant value
declines.

Assuming each investors portfolio was

valued at R1,000,000 at the start of
the year, the make-up and outcomes
of these two investments upon
retirement are summarised below:

54 COVER JANUARY 2014

Jan 14.indd 54 2014/01/10 1:05 PM


fund immediate retirement expenses, a
portion of the loss she incurred would
likely not have been recovered.
TAKE YOUR PERSONAL
CIRCUMSTANCES INTO ACCOUNT
This illustrates an important principle:
When making and managing your
investments, it is essential to consider
your personal risk profile, taking your
investment horizon and tolerance for
risk into account.
WHAT YOU NEED TO CONSIDER
When considering whether your
investment portfolio remains suited to
your risk profile, there are three key
factors to take into account:
1. WHAT IS YOUR RISK
TOLERANCE?
All investments carry a certain degree
of risk, and higher-risk investments
generally also result in higher long-
term returns.
Equity is recognised as the asset class
likely to deliver the greatest long-term
growth. However, this brings with it the
highest level of short-term volatility.
This means that while an equity
investment may experience several ups
and downs over shorter periods, these
fluctuations tend to smooth out over
time and generate solid returns over
longer periods.
In contrast, cash is regarded as the
safest asset class. This means that
while cash will offer you more muted
returns, it also offers better protection
against substantial capital losses.
COVER JANUARY 2014
Jan 14.indd 55
...IS BACK
Property and bonds lie somewhere
in-between the two on the risk/
return spectrum.
Arnold was prepared.
When allocating your investment
between the various asset classes, He had Altrisks new
you need to determine your ability
to cope with a large investment loss. Retrenchment benet
If you have the time to make up
such a loss, you may be comfortable that pays a lumpsum
to take on additional risk in return
for greater potential growth over
of up to ve times his
time. However, if a large loss will monthly salary in case
significantly erode the final outcome
of your investment, you may not of retrenchment. Which
have the tolerance to take on such a
high level of risk. gave him the nancial
2. WHAT IS YOUR MAIN security he needed while
INVESTMENT GOAL?
Are you focused on growing your he was unemployed.
savings and building up your capital?
Or is your primary concern the
preservation of your capital, or the Tell those like Arnold
need to draw an income from your
investment? about Altrisks
If you are still building up your Retrenchment benet.
savings, you may choose to include
a more significant exposure to Because everyone needs
equity in your investment portfolio.
However, if you will soon need to
a chance to make a
utilise or draw an income from your comeback.
accumulated savings, your focus may
shift to capital preservation.
3. HOW LONG DO YOU HAVE For more information
LEFT TO INVEST?
Short-term market fluctuations tend speak to your Altrisk
to smooth out over time. If you have
a long enough investment horizon broker consultant or go
ahead of you, you may therefore
benefit from a significant exposure
to www.altrisk.co.za
to equities as this is likely to lead to
greater long-term growth.
However, it is important to remember Were your type
that when short-term market losses
do occur, it may take up to several of risk insurer.
years to recover. Should you not have
very long to invest until you need to
utilise your capital, it may therefore
be appropriate to opt for lower equity
exposures.
When making your investment
decisions and reviewing your
investment portfolio to ensure its
continued suitability, its important
to take a holistic view (and to
consult a qualified intermediary
if you are uncomfortable making
these decisions on your own). After
all, as we adapt to our changing
circumstances, so too should our
investments.
*continues on p58
55
Altrisk is a division of Hollard Life Assurance, an authorised
nancial services provider (FSP 17697).
2014/01/10 1:05 PM
 Lion of Africa Insurance
streamlines its business operations

After months of preparation, Lion of

Africas new structure is now in place. It
has been built around Gauteng as the hub
of its business, and has been based on the
delivery of superior services to its clients.
Adam Samie, CEO at Lion of Africa Insurance, says
that the change has created many exciting business
opportunities for all their stakeholders by placing more of
Lion of Africas specialised staff members in the front line of
service to its business partners.
Samie says that Lion of Africas business is now built
around the provision of key services to its selected broker
partners through its staff and great IT support services.
Our primary focus is to ensure world class services to
our brokers who have a regional or national footprint and
have diverse and complex portfolios.
Our structure has undergone considerable change
to accommodate this single focus. The creation of an
integrated sales and underwriting team for the different
market segments has the effect of making our entire team
market facing. This makes the underwriting technical team
much more accessible to our brokers and clients and is
expected to make the development of superior insurance
solutions for our clients a lot simpler, explains Samie.
Lion of Africa is first insurance company in South Africa
to achieve a Level 1 Broad Based Black Economic
Empowerment rating in terms of the BBBEE Act of 2003
and is a wholly owned subsidiary of The Lion of Africa
Holdings Company (Proprietary) Limited, owned by
Brimstone Investment Corporation Limited, a broad based
black investment group listed on the JSE.
Meet some of Lion of Africa Insurance leaders
Property business: Anwa Adams
Retail business: Isabel van Heerden
Marine business: Carmen Pasqualle
Marketing: Rethabile Mahuma
Claims: Llewellyn Titus
Gauteng
Corporate business: Shelton Siwedza
Local authority business: Pride Choruma
Pretoria: Regina Thomo
Johannesburg: Steven Isaacs
Underwriting Services: Rene Van Biljon

Another key part of Lion of Africas strategy is the opening KwaZulu-Natal

of its client service centre in Johannesburg to ensure that Martin Grover
80% of all administrative underwriting and claims enquiries
are attended to in real time. Port Elizabeth
Sally Robertson
The service centre is intended ultimately to manage new
claims reporting and enquiries through enhanced reporting Western Cape
standards that ensure that customer service lies at the Priscilla Gross
heart of its business.
Claims
We are excited about the new structure and our teams Llewellyn Titus
are raring to show our clients that a new breed of insurer Fieez Abbass
is on the prowl, adds Samie. Bridget Alexander

TA K I N G P R I D E I N W H AT W E D O

56 COVER JANUARY 2014

Jan 14.indd 56 2014/01/12 1:20 PM

Untitled-1 1 2014/01/10 5:25 PM
 Financial Planning Feature
The complex financial needs
of high net worth individuals,
coupled with the challenging
economic markets that investors
need to navigate, highlight the
need for independent financial
advisors (IFAs) who are familiar
with high net worth strategies.
High net worth individuals like
to know that they are protected
against market drawdowns while
at the same time participating
when markets rise.
Usually, once high net worth individuals
have made their fortune, they look
to protect what they have for their
familys financial security and for their
retirement years. The smart ones
generally realise when they have
enough capital, and dont put all their
existing asset base at risk to try and
make more.
They like to know that their strategies
protect them against market
drawdowns, while at the same time
allowing them to participate when
markets rise. In essence, this strategic
combination firstly protects what they
have, and secondly assists them in
accumulating more without putting too
much at risk.
58
Jan 14.indd 58
Diversification is a key element of the
strategy that high net worth individuals
should have in place. Because they
can generally take on more risk than
less wealthy investors, high net worth
individuals can invest in a more diverse
set of products. These could include
hedge funds, property syndications,
private equity deals and structured
products.
There are different ways of categorising
high net worth individuals and that,
in REZCO Asset Managements view,
this could be an individual with assets
greater than USD 1 million. However,
one should also consider liquid and
illiquid assets; for example, someone
might think their house is worth R5
million, but the market may pay only
R2,5 million at a certain point in time.
Due to the asset not being valued
often, it is often challenging to gauge
the actual level of wealth. Another
indicator of being a high net worth
individual is someone who needs to
establish a family trust to protect their
personal assets.
A number of people are actually quite
wealthy but without the conspicuous
consumption that goes with it. Many
wealthy people have family trusts
to protect their assets. This means
that, as individuals, they might not
be that wealthy, but the family trusts
net worth wealth
IFAs key to high
management
Partner at REZCO Asset Management
WINDALL BEKKER,
that hold and protect their wealth
are quite valuable. Many people are
heavily invested in the markets, and
so the value of their wealth is highly
correlated to the markets performance.
Because of these variables, wealth
can be eroded over years, and if
not managed correctly, individuals
may reach retirement and not be
able to afford the same luxuries
and the lifestyle to which they were
accustomed during their working
lives. These high net worth individuals
need to have certain strategies and
risk management elements in place
to ensure they are following an
investment strategy appropriate to their
age, their investment goals and the
amount of risk they are willing to take
on at any given moment.
The role of the independent financial
advisor is therefore very important, and
trust in this relationship is paramount.
If trust between the client and his or
her independent financial advisor is
broken, it is a bit like a marriage: very
hard to move forward together once
more. There are many highly regarded
IFAs with long track records and loyal
customer bases. Clients must make
sure that they know who they are
appointing to be their IFA and that
they have the appropriate technical
skill sets and abilities as they begin the
relationship.
COVER JANUARY 2014
2014/01/12 1:20 PM
JHB 44515

Weve got great

relationships with
our partners.
Kind of like those
annoyingly lovey-dovey
couples who finish
one anothers sentences.
Yup, in the world of insurance partnerships,
were Those People.

To all our underwriting managers, brokers and distribution partners -

no matter how long weve been partners with you, were still completely smitten.

www.hollard.co.za An authorised financial services provider

Untitled-1 1 2014/01/10 5:26 PM

 Financial Planning Feature

Communicating bigture
of investments avoids
damaging financial decisions
South Africas ailing exports
and production industries
has thepotential to send
overwhelmingly confusing
signals to local investors.
Communicating the effects
of short-term market shocks
and hype to retirement fund
members - who need context
of the big-picture economy - is
crucial to avoid panic that may
potentially lead to members
changing between investments,
negatively impacting their long-
term plans to retire comfortably.
that are heavily dependent on energy, NICKY WEIMAR:
like the mining and manufacturing Senior Economist at the Nedbank
Group Economic Unit and
sectors.
VUYO NOGANTSHI,
Against this backdrop, negative news Head of Institutional Business at
Nedgroup Investments (pictured)
headlines can also prompt investors
to change their investment decisions
irrationally, which could have a
devastating effect on their retirement
savings.
INDUSTRIES THAT ARE HOLDING
THE ECONOMY BACK INCLUDE
THE MANUFACTURING AND
MINING SECTORS AND UTILITIES.

In effect, the South African economy

will be placed under more strain than
it already is. There are currently many
issues that are straining the local
economy primarily on the export and
production front. Industries that are
holding the economy back include the
manufacturing and mining sectors and
utilities.
Another factor putting South Africas
economy under strain is the loss of
international competitiveness due to
surging production costs, run-away
electricity costs, rising unit labour costs
attributed to above-inflation wage
growth, fading productivity, increasingly
violent strikes, insufficient power,
transport, logistics infrastructure,
poor service delivery, red tape and
corruption.
High electricity prices and lack of power
capacity are major constraints on the
economy and are hurting industries
...MEMBERS NEED CONTEXT OF THE BIG-PICTURE ECONOMY...
The most significant factor in terms
of ones ability to retire in comfort
is staying invested for the long-
term. Chopping and changing
between investments, and wholesale
withdrawals from investments, as a
result of key life events or changing
jobs, can have devastating effects on
retirement savings.
Generally, members requiring
investment returns at any given
moment are driven by their perceptions
and interpretations of economic factors
at play at that time. In order to avoid
panic and pressure from members
on decision-makers to implement
damaging short-term changes to
retirement investments, members need
context of the big-picture economy
and any communication they receive
must explain this in the context of their
investments long-term performance.
members are forced to make their
By contextualising what members
require to retire comfortably, relative
to what is being achieved in the
market, trustees and other advisors
will be able to offer assurance that
members long-term savings goals are
achievable in spite of a short-term dip
in performance.
By efficiently communicating the
current situation and focusing on what
it means for the long-term, members
are able to make informed, rational
decisions regarding their investments.
If, however, communication happens
infrequently, is poorly structured and
own assessments, it will likely have
a negatively influence on retirement
savings.

60 COVER JANUARY 2014

Jan 14.indd 60 2014/01/12 1:22 PM

Untitled-1 1 2014/01/10 5:27 PM
 Financial Planning Feature
Choosing your
retirement income
When deciding how to invest
accumulated retirement savings,
many investors have to choose
between a guaranteed annuity
(which provides a guaranteed,
predetermined income for the
rest of your life) and a living
annuity (through which you
invest in unit trusts to generate
further returns, and draw the
income you require out of your
investment portfolio).
Although you are able to transfer from
a living annuity to a guaranteed annuity
(or to a different living annuity), the
decision to invest in a guaranteed
annuity is final and no transfers out
of the product are allowed. Investors,
with the assistance of a financial
intermediary where needed, should
therefore consider their retirement
strategies carefully. The following
factors should be taken into account:
INCOME FROM YOUR ANNUITY
A guaranteed annuity will provide
a stipulated income for the rest of
your life, based on prevailing interest
rates. Currently, the highest published
guaranteed rate is 9,2% per annum
on R100,000. If you retired with
R100,000 today, you would therefore
receive R9,201 per year (or R767 per
month) until your death. Logic dictates
that when interest rates are high, you
will receive a higher income. However,
economics indicate that higher interest
rates also correspond with higher
inflation rates, which means that the
real value of a higher income (after the
impact of inflation) may not be that
much greater.
With a living annuity, you determine
your income by choosing to draw
between 2,5% and 17,5% of your
investment value annually (you can
amend your income rate every year
on the anniversary date of your
investment.) By keeping the amount
and frequency of your income
payments as low as you can, you
62
Jan 14.indd 62
are able to ensure that your savings
last you for longer. Equally important
is ensuring that you have made
appropriate unit trust selections that,
depending on your personal risk profile,
will aim to promote continued growth
in your investment. A key benefit of
a living annuity is that you have the
option to adjust your income level
and portfolio make-up when market
conditions change. However, it is
important to emphasise that income
payments are not guaranteed, as these
are taken out of your investment
capital. Your income is therefore
directly dependent on the performance
of the unit trusts you have selected as
underlying investments.
PRODUCT FEES
When taking out a guaranteed annuity,
you may choose whether or not to
seek the assistance of a financial
intermediary, to whom you would pay
a negotiable initial advice fee. The
fees related to the annuity itself are
embedded within the product. These
fees will be taken into account when
determining your income payment, so
the income you receive is net of fees.
When taking out a living annuity, you
may need to pay three parties: your
financial advisor (this is a negotiable
fee), the party responsible for the
administration of your investment(s),
and the asset manager(s) of the unit
trusts you select. The higher your
ongoing fees, the lower the effective
growth rate within your product.
It is therefore important to invest
NICO COETZEE,
Executive: Business
Development at
PPS Investments
with a product provider that offers a
favourable fee structure.
RESIDUAL VALUE OF THE ANNUITY
Simply put, in a guaranteed annuity
there is no value at death. As the
insurer who offers your policy bears
the risk that you might live for a long
time after retirement, it also keeps any
residual assets if you die shortly after
retiring.
In a living annuity, the residual value
of your capital on your death is payable
to your elected beneficiaries. Although
this may not be your primary objective
when investing your post-retirement
savings, it means that living annuities
may, if managed efficiently, have
enduring value to your beneficiaries.
It is clear that both types of annuities
have a place in the market: For
investors who value certainty and
would prefer to take on only very
slight risk exposure (even if at the
expense of potentially greater returns),
a guaranteed annuity may be the
more appropriate alternative. However,
for inventors who wish to exercise
more control over their savings and
seek the potential to generate further
investment returns (even at potentially
higher levels of risk and involving
greater individual responsibility), a
living annuity may be most suitable
solution. It is therefore very important
to obtain appropriate financial advice
to ensure that your post retirement
investments best suit your risk profile
and requirements.
COVER JANUARY 2014
2014/01/12 1:25 PM
 Choice Elements - CMYK

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For more information on our mobile applications, contact Momentum Short-term
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MomentumSTI_RiskSA_January2014.indd 1 2013/11/22 11:53 AM

Untitled-1 1 2014/01/10 5:27 PM
 Financial Planning Feature
Capital Gains Tax:
Trusts versus Individuals
Many financial planners, and the
general public, have expressed
concern regarding when and to
what extent they or their trust
is liable for capital gains tax
(CGT). Knowing the different tax
treatments will assist in choosing
how to structure your estate and
trust more effectively.
In this article we highlight some of the
most important differences in CGT
from either a trust or an individuals
perspective.
TAX RATES AT A GLANCE
As most people are aware, a normal
trust is taxed on all taxable income at a
fixed rate of 40%, whereas individuals
earning above the threshold are taxed
at their personal marginal rate, ranging
between 18% to 40%, and qualify for
certain exemptions and rebates.
WHEN A CAPITAL GAIN IS
REALISED WITHIN A TRUST,
66,6% OF THAT GAIN HAS TO
BE INCLUDED FOR INCOME
TAX PURPOSES (TAXED AT
40% AS STATED), EFFECTIVELY
MEANING THAT A TRUSTS CGT
IS 26,7%. A TRUST HAS NO
YEARLY EXCLUSION.
Individual taxpayers who make a
capital gain will be able to exclude
R30 000 of any gains in a year (or
R300 000 in the year of death) and
will include 33,3% of the remaining
gain for income tax purposes. The gain
will be taxed at their specific marginal
rate (between 18% and 40%), which
effectively means that an individual will
have a maximum CGT rate of 13,3%.
64
Jan 14.indd 64
Without taking any other factors into
consideration, one would therefore
pay more than double the CGT in a
family trust than if you held and sold
the assets in your own name. Enter the
conduit principle.
DISTRIBUTING THE GAINS FROM
THE TRUST
The conduit principle with regard
to trusts has been written about
extensively and is also at the centre of
National Treasurys proposed changes
to the taxation of trusts. In simple
terms, income or gains that are realised
inside a trust, can 'flow through', or be
distributed to the beneficiaries of the
trust, while retaining the nature of the
income.
This means that dividends received
get passed on as dividends and
taxed as dividends, that interest
earned and distributed gets taxed as
interest, and that capital gains that
are distributed get taxed as capital
gains. These amounts are then taxed
in the hands of the beneficiaries and
not the trust. The fact that the nature
of the income is also retained is very
important, as natural persons receive
certain exemptions, exclusions and/or
rebates on certain items and get taxed
differently.
In terms of paragraph 80 of the Eighth
Schedule of the Income Tax Act, where
a capital gain is vested in a beneficiary
of the trust, the trust will not have that
gain included in its own tax calculation,
but it will be taxed in the hands of the
beneficiary.
This means that where a trust deed
authorises the trustees to do so, the
trustees are able to distribute the
capital gains of the trusts, vesting it
in the beneficiaries. It is also possible
to distribute the gains to multiple
beneficiaries, each paying at their
assumed lower marginal tax rate and
each having their own annual exclusion
of R30 000. Substantial capital gains
tax savings can thereby be achieved.
To achieve savings of this nature, the
capital gain has to be allocated to a
resident natural person in the year
RIGARD SEVENSTER,
Fiduciary Specialist, Glacier
by Sanlam, CFP Professional
and FISA member
in which it was realised by the trust.
Many trusts have beneficiaries that
include another trust. If the gain passes
to another trust first and then to an
ultimate beneficiary of the second
trust, the higher effective tax rate
applies.
TAX SAVINGS VERSUS PROTECTION
The main purpose of a trust should
be the protection of trust assets
and beneficiaries interests, and any
possible tax savings should receive
only secondary consideration. If capital
gains are vested in a beneficiary, the
protection that the trust offers on the
portion that is vested falls away. If the
gain is distributed, there might be a
temporary tax saving, but if the gain
vests in the beneficiary, it becomes
an asset in his or her estate and is
open for attachment by creditors and
ex-spouses, as well as increasing the
estate value for estate duty purposes.
Trustees should therefore consider
all the implications before taking this
route merely to potentially save on
CGT.
OTHER CGT CONSIDERATIONS
Many people with family trusts received
advice years ago to transfer their family
homes into their trust. This was done
at a time when trusts were slightly
more tax efficient than they are today
and before SARS started removing
any tax advantages that trusts might
have had. One of the consequences of
SARSs current treatment of trusts is
the exclusion of the primary residence
rebate. An individual who sells his
primary residence does not have to
include the first R2 million of any
gain made, but only if it meets the
requirements set out - one of these
being that the property had to be
registered in the individuals name.
Having your primary residence inside
a trust will mean that any gain made
on the sale will have to have all of it
included or distributed.
CHANGES TO THE LAW?
During this years budget speech, the
Minister of Finance alarmed people
when it was indicated that government
was looking at various changes to tax
law regarding trusts to prevent what
COVER JANUARY 2014
2014/01/12 1:27 PM
 We are insured.
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Untitled-1
0007-ACE 1 corporate Print ad_Umbrella.indd 1 2014/01/10
2013/11/06 5:28PM
4:23 PM
 Financial Planning Feature
they perceived as tax avoidance. After
various meetings with the financial
planning industry and regulatory bodies,
including FISA, the FPI and the Law
Society of South Africa, it was explained
what the general benefits of having
a trust are, and highlighted that less
individuals than believed used trusts
in a manner to save on capital gains
Boost retirement savings
- courtesy of taxman
Your retirement annuity (RA)
offers you a very attractive tax
benefit: 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 therefore able to add
to your retirement savings without any
additional outlay.
66
Jan 14.indd 66
tax. Treasury has not finalised any tax
changes and indicated these were not
likely to happen in the short term.
KEEPING THE STATUS QUO
As things stand, the taxation of trusts
is unchanged and will remain that way
for the foreseeable future. Trustees are
still able to let income flow through
RA contributions for the tax year
ending February 2014 are tax
deductible for the greater of:
15% of non-retirement funding
income (income not already being
used for contributions to a pension or
provident fund);
R3,500 less 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
to beneficiaries, thereby reducing
the trusts tax liability. It is important
to remember that trustees may only
distribute capital gains to beneficiaries
if the trust deed empowers them to
do so. It is therefore vital to consult
an advisor in order to get the right
structure and advice.
CAMILLA EDWARDS:
Legal Advisor, PPS Investments
IF YOU CHOOSE TO INVEST
THE MONEY THAT YOU ARE
ABLE TO RECLAIM, YOU
ARE THEREFORE ABLE TO
ADD TO YOUR RETIREMENT
SAVINGS WITHOUT ANY
ADDITIONAL OUTLAY.
amount by end February 2014, it may
be worth considering an additional ad
hoc contribution to do so.
It is also an opportunity for investors
in traditional, underwritten RAs to
access the flexibility and cost savings
associated with a modern, unit trust
based offering. Even if termination
charges imposed by your policys
underwriter may be prohibitive
when considering a transfer to a
unit trust based savings vehicle, ad
hoc RA contributions can be made
into a separate, unit trust based RA
investment without incurring any
penalty.
You can also rest assured that this ad
hoc investment will not be subject to
any penalty in future, as modern, unit
trust based RAs pose no termination
charges for reducing or ceasing
investment contributions or for moving
your investment to a different product
provider.
COVER JANUARY 2014
2014/01/12 1:27 PM
 Considerations for clients
who like adrenaline kicks
Action sport is a multi-million
dollar industry, and the total
number of participants in the
five most popular action sports
skateboarding, paintball, wall
climbing, mountain biking and
trail running - is more than
40 million in the USA alone,
according to a report by Global
Industry Analysts.
South Africa has not escaped the
trend. Sports such as mountain biking
are rapidly growing in popularity,
motorsport remains a firm favourite
among speed junkies and even cage
fighting is gaining infamy among
executives keen to work out their
stress with some one-on-one bare
knuckle combat.
So, what do you do if your client is an
action-adventure-extreme sports athlete
and needs cover? Have you thought
about what an underwriter will consider
when assessing your clients application?
Hobbies or avocations have a
significant impact on the premium for
life insurance, because participation
in a dangerous pursuit will pose a
significantly higher mortality risk; a
cave diver faces a greater personal
risk than an average recreational diver,
and is accordingly charged a higher
premium for life cover.
Certain hobbies may attract an
additional loading on the premium
offered; however, the client can opt
for an exclusion instead, especially
in instances where participation is
irregular or on an ad-hoc basis, and
the client cannot justify the additional
avocation loading.
Not all insurers automatically exclude
avocations. Altrisk, for example, offers
cover for once-off participation in an
event. So, a person who does a diving
course while on holiday or a once-off
bungee jump, is covered. Altrisk also
doesnt exclude or apply a loading for
COVER JANUARY 2014
Jan 14.indd 67
sports such as mountain biking. It is
very important to check your clients
policy wording in this regard.
FULL DISCLOSURE
Avocations that could be deemed
dangerous must be declared before the
policy starts. If clients take up such an
avocation after the policy starts, they
are obliged to let the insurer know.
Though hazardous avocations can
impact on a persons eligibility for cover
and the offered rate, its extremely
important to answer this section of the
application honestly and completely.
The insurer can rescind coverage if
there is missing information or any
type of non-disclosure. When it comes
to disclosure, as a general rule, provide
the insurer with as much information
as possible in order to ensure a fair
assessment.
Here are some examples of avocations
and the type of information needed to
determine the correct loading:
Scuba diving
Normal recreational diving up to 40
metres is not loaded by Altrisk provided
its within the clients qualifications.
However, sports such as cave diving or
potholing (a deep hole under water or
a reef) can carry an additional loading
or, if preferred, an exclusion.
Mountaineering
We consider the following factors
for clients who are ardent mountain
climbers:
climbing alone increases risk, both
technically or in the event of an
accident;
climbing without ropes is dangerous
for more obvious reasons;
mountains 6000 metres above sea
level require extra skill to climb and
bring an additional risk of altitude-
related disorders such as pulmonary
hypertension, hypoventilation
and right heart failure (caused by
respiratory failure).
DALENE ALLEN,
Specialist Risk Consultant
and Co-founder of Altrisk
Aviation
Aviation rates are individually
calculated according to the clients
personal experience. Altrisk uses an
actuary, who is also an experienced
commercial pilot, for these calculations.
Considerations to take into account
include the type of aviation licence,
type of aircraft, how much experience
the pilot has and the number of hours
he or she is expected to be in the air
over the next 12 months. Even factors
such as the type of airstrip and quality
of airport used are considered in the
assessment.
Motorsport
As mentioned, not all insurers
automatically exclude or load
avocations. Motorsport safety standards
have improved dramatically over the
years not only in terms of practice,
but also in terms of track conditions
and management, vehicle design and
protective wear.
Applicants with a valid motorsport
licence could qualify for cover from
Altrisk with no loadings or exclusions,
although it is still the individual that is
underwritten, so the clients health and
lifestyle still remains a key factor.
Ensure that your client has made
full disclosure regarding the nature
and frequency of these avocations.
Make sure you get cover from an
underwriter with the necessary
expertise to rate the client fairly and
on an individual basis. When it comes
to application stage, dont ever assume
that something is not important. If it
crossed your mind, the underwriter
needs to know about it.
67
2014/01/12 1:28 PM
 Coffee with
COVER
Inspiring others to dream more
What has shaped your view of life feeling. If you know I care about you, and I
say, I am not happy with your performance,
and its challenges?
In the face of My most signicant input in my formative
you will hear the words differently than if you
think I have a negative intention towards you.
challenging times in years came from my parents. I grew up in The relationship gives the words meaning,
the retirement and a township; we were very poor, sleeping
six children to a room, with me on a piece
more than the words themselves. Intention
therefore pervades the way in which you
insurance industry, of mattress (I rst slept in a bed when I lead, and leaders must be mindful of the
the calibre of leaders was eight years old). In those early years,
the socio-economic conditions we had to
impact of their relationships and words.

and quality of their face were balanced with robust values and
decisions come under a strong work ethic. My parents taught us
sound spiritual values: my dad taught the
the spotlight more principle of hard work, and mom taught us
than ever. Edward that we are here to be a blessing. We grew
up being thankful for the little things, and
Kieswetter, CE, learned how to cope. As an eight-year-old,
How has the Marsh relationship
impacted Alexander Forbes?
We were clear that, on our own, we would
not be able to succeed in the risk-broking
business. We decided to nd a partnership
that would unlock greater value for all

Alexander Forbes I had to work, not for pocket money, but to

put bread on the table for my siblings.
Group, told COVER
What kind of impact do you want to
how his leadership
have on society?
principles developed. You dont inspire
He shared his vision
I have a simple philosophy: a life of
contentment is measured not by what you people by telling them
for the company, and get, but by what you give. Maslow says
of the great things you
the legacy he wishes
you are motivated by your needs: security,
food, shelter, belonging, acknowledgement, have done. You inspire
to leave. self-actualising. But I see that model as an
them by telling them
ego-centric, consumption model, in which
the focus is on self. My model subscribes of the great things
to the question: what impact or difference
did I make? Whose lives did I touch? Of they can do.
course, you have to respond to your own E Kieswetter
needs, like feeding your family, and so on.
But my contention is that my journey is not
measured by the Maslow principles, but by
the signicance of the life lived. When I am
85 years old, and I reect on my life, it is not
the money in bank that will be the measure
of my success.

You hold to the tenet that People

do not care about how much you
know, but about how much you
care. Why is this value important to
you?
Long after you have forgotten what I
tell you, you will remember how you feel,
because humans store emotions, rather than
facts, about an experience. Have you noticed
that if you have had an argument, you may
forget what triggered it, but still have the

68

Coffee_Jan.indd 1 2014/01/10 5:34 PM

 stakeholders: clients get value for money,
shareholders a return on their investment,
employees a better career prospect. In the
years leading up to that transaction, this
business was not growing. Clients were
saying, We need you to have access to
international resource and expertise. The
discussion shifted from the search for a
partner to saying it makes sense to have
an outright merger between those two
businesses. It has saved a signicant player
of 75 years in the risk-broking business. It
A genuine leader
is not a searcher
for consensus
but a moulder of
consensus.
Martin Luther
King, Jr.
Coffee_Jan.indd 2
demonstrated to the world that a South
African asset could attract international
interest and investment, and a South African
management team could be retained.
How have your plans regarding
African expansion developed over
the years?
We are clear that we are a company
rooted in Africa. Post the sale of the risk
business to Marsh, we are consolidating our
footprint, and have a clear intent to grow
our businesses in key African destinations,
and will not be thinly spread. We have
focused three cornerstones in the Anglo-
phone world: sub-Saharan Africa, East
Africa, West Africa (Ghana and Nigeria). As
we consolidate business in those locations,
we can look beyond that. To support
our growth, we have begun to disinvest
in UK and Europe. As a South African
company invested in Africa, there is more
value in having an ofce in Nairobi than in
Manchester. We will be establishing roots
here for the next three to ve years.
Alexander Forbes embraces a
higher purpose principle. Explain
to our readers what this means.
Holding to a higher purpose is to
understand the impact of your work rather
than the work you do; for example, the
administrator of a pension fund may view his
or her task as capturing information, but the
higher purpose is to create peace of mind
for people. We try to inculcate in our staff
the ability to look beyond the work they do
and be mindful of the impact of their work.
A bricklayer may lay bricks, but the purpose
is to build walls, to build houses, to build
homes and, ultimately, to full dreams of
families. If I do my work well, there will be a
place of safety and belonging. If I have that
picture in my mind, I am much more fullled
in completing my daily tasks. There is a noble
mission in the work you do.
How do you achieve balance in a
busy life?
I dont believe in balance I believe in
congruence. Four notes create harmonious
sound they dont have to be equal, but
must be concordant, so that they t together
to present a whole. We often dont have that
congruence in life. Our work should be an
expression of our life, not an addition to it.
Everything you do need not be in balance,
but in harmony and work together. If your
work is not congruent with your values, you
lose energy and a sense of signicance.
What legacy do you want to leave
at Alexander Forbes?
I would like there to be an organisation with
a higher sense of purpose, a company that
truly understands its impact on society, not
just the bottom-line. Clients must receive
worthwhile value, staff must experience a
great place to work, the community must
feel we give more than we take, and the
shareholder must receive a fair return for
risk they take. The Financial Services is often
criticised for being mercenary. We know
that if we optimise client value, the other
requirements will fall into place.
69
2014/01/10 5:34 PM
 International Cooperative and Mutual Insurers Federation World Conference 2013
PPS promotes its unique
proposition: Mutuality
Mike Jackson played a major
role at ICMIFs (International
Cooperative and Mutual Insurers
Federation) World Conference in
Cape Town, as Chief Executive
of the Conferences host
organisation, PPS, and as a new
ICMIF Board member. COVER
gleaned some insights into his
thoughts on the mutual model,
PPSs growth and some future
opportunities and challenges
from his opening presentation at
the conference and his interview
with The Voice, mouthpiece of
the ICMIF.
BENEFITS FOR MEMBERS
According to Mike, PPS made a symbolic,
but highly significant, change last year.
Previously the profits from the mutuals
business trading and investment income
had been allocated to its members
through something mysteriously called
a Surplus Rebate Account. Now, the
name has changed and, henceforth, all
of PPSs members will have their own
Profit-Share Account.
PPSs member surpluses are calculated
so that members are now rewarded
for all the PPS products they hold.
The more qualifying products
members have with PPS, the greater
the allocations. Members can track
the accumulation of profits in their
accounts via their benefit statements.
(Benefits accumulate in this way during
members working lives and can be
taken out upon retirement.)
This change is important because,
since 2003, PPS has seen major
product development from originally
only a single core product, the Sickness
and Permanent Incapacity Benefit.
Members now have access to life
insurance, dread disease cover, a new
disability benefit product a full range of
retirement and investment products.
70
Jan 14.indd 70
These developments have been
reflected both in the number of
members (PPS now has over 210,000
members) and in the profits which PPS
has been able to allocate to members
Profit-Share Accounts. Last year, for
example, the members allocation was
the highest ever, at ZAR 3 billion (USD
300m), made up of ZAR 886m from
operating profits and over ZAR two
billion in investment profits. In total,
almost ZAR sixteen billion has been
generated for members benefit in the
ten years since Mike took over the reins.
GROWING AWARENESS
Mike Jackson points to the increase in
PPSs profitability for members as one
of his most satisfying achievements
since he took over as Chief Executive.
Nevertheless, there remains a
generational challenge of getting the
message through to recently graduated
professionals, those in their twenties and
early thirties. Were struggling to get
through to young professionals, he says,
adding that the problem is that their
interest is more likely to be focused on
a new car or on the latest technology
rather than on insurance or investments.
In response, PPS has engaged
strategically since 2012 in developing a
sophisticated advertising programme,
which has included highly original TV
commercials.
PPS also put resources into
communicating more effectively with
the financial intermediaries who are
responsible for about 80% of the firms
business. Furthermore, PPS has begun to
develop its own directly-employed sales
force, now employing about 170 sales
consultants. Nevertheless, at present,
independent intermediaries still account
for the vast majority of PPS business,
and there is a clear need therefore to
ensure that they are properly trained
on PPSs range of products and on the
services it offers members.
ON COMPETITION WITH NON-
MUTUALS
Mike Jackson explains that his
strategy revolves around his members,
whilst competitors remain focused
on shareholder returns. The Key
Performance Indicators employed in
managing the business reflect this
focus on member interests and, as he
stresses, the need to ensure that his
firm provides good customer service.
As he points out, professionals meet
each other regularly in the course
of their work, so that any stories of
bad experiences with PPS would very
rapidly do the rounds.
ON TRANSFORMATION
PPS has also been working to
encourage black empowerment
in the workforce, and an internal
Transformation Committee has been
operating since 2011, taking a lead
in areas of employment equity,
skills development and disability. At
present, 31% of PPSs staff are black
African, 13% South African Indian, 12%
coloured and 44% white.
Mike Jackson came to PPS as the
organisations first professional
insurance executive, having previously
been an Executive Director at Liberty
Life and MD of Charter Life (now
Liberty Active). He has taken a
leadership role more generally in the
South African insurance industry,
including as Chairman of the Insurance
Industry Employers Association and the
Life Offices Association.
COVER JANUARY 2014
2014/01/12 1:30 PM

ICMIFs CEO, Shaun Tarbuck,
shares his ideas on finding
the winning strategy that
sets companies apart and
gives them the competitive
advantage. He admits this
is not easy, given that the
target is constantly moving
as innovation and economics
change at an ever-faster
pace. His insights are based
on his recently completed
series of more than thirty in-
depth interviews with chief
executives of ICMIF member
organisations, focusing on
their current concerns and
strategies for the future.
I am in the privileged position not
only of having just undertaken the
chief executive interviews with
ICMIF members, but also of speaking
regularly to chief executives and others
outside the ICMIF membership about
their strategies and their future plans.
From these discussions has developed
my assessment of what I believe to
be the ten key issues for a winning
insurer of the future.
My thoughts have been honed through
helpful comments from the ICMIF
Board and ICMIF members and they
are now ready to be shared. Here
then are the fruits of ICMIFs collective
knowledge, offered back in the
hope that it will give your own firm
competitive advantage.
1. BEING A PROFESSIONAL AND
WELL-RUN BUSINESS
The starting point for any insurer is
to be as efficient and professional
as they can be. Benchmarking
COVER JANUARY 2014
Jan 14.indd 71
ways to become a
winning insurer
of the future
efficiency is relatively easy these days,
but achieving the highest levels of
efficiency is much more difficult.
On the positive side, cooperatives
and mutuals tend to have higher than
average customer loyalty and retention
levels, so new business acquisition
spend is generally lower. They also
save by not requiring investor relations
departments. But less positively, many
mutuals have higher costs from still
using agency sales forces, even if this
does have the advantage of closeness
to the customer.
Technology plays a vital role in
efficiency and many ICMIF members
utilise cutting-edge technology to gain
benefits. The mutual advantage is that
a well-run mutual insurer should have
an expense ratio that is a couple of
percentage points below the national
average. With this in place, my other
nine points can be addressed.
2. CUSTOMER-CENTRIC - PUTTING
CUSTOMERS AT THE HEART OF ALL
DECISIONS
Although customer-centric is the
new buzz-word in the insurance
industry, the reality is that, for many
insurers, it is just marketing-speak.
For cooperatives and mutuals, it is our
raison dtre.
First must come an understanding
of the needs of our customers,
achieved by having the strategies
and processes in place to get closer
to them. Improving the customer
experience, in turn, facilitates greater
cross-selling per customer and greater
loyalty. The mutual advantage here
lies with the agencies and branch
networks that many have maintained
and usually closeness to a major
affinity group.
3. COMMUNICATING OUR VALUES
TO ALL STAKEHOLDERS
Mutuals have traditionally been poor
at communicating with their key
stakeholder groups, their members,
the media, the government and the
general public. As a consequence,
the mutual difference is not as well
known as it should be. However,
ICMIF companies that in recent years
have been communicating their
values and principles are starting to
show significant progress in getting
the message across - a message that
is very much in tune with todays
economic realities and which resonates
with the general public. It takes time
and commitment: there is no quick fix
here.
4. ENGAGING WITH CUSTOMERS/
MEMBERS
If the staff of cooperatives and
mutuals put customers at the heart
of everything they do, companies
will find it much easier to engage
with customers and to win their
trust. There are wonderful examples
of ICMIF members doing just this,
whether in relation to quality customer
service, to claims handling or in the
community.
71
2014/01/12 1:30 PM
 International Cooperative and Mutual Insurers Federation World Conference 2013
It is trust that is the mutual advantage
here, given that we operate in an
industry that generally has very low
levels of trust from the general public.
5. LISTENING AND RESPONDING TO
CUSTOMERS
Too many insurers, in my opinion, are
guilty of designing ever more complex
products with non-transparent charging
structures. In reality, what customers
want are simple products explained in
simple language.
In other industries, like retail, the
customer is king slogan holds true.
With increased usage of social media,
I believe the customer is about to
be king in insurance also. Those
insurers that are actively involving
their customers in product design and
customer service, through whatever
communication mediums they choose,
are on the path towards gaining the
trust of the general public.
This cant be a tick-box exercise - there
has to be a process whereby customers
are listened to and responded to when
they take their time to engage with us.
6. BEING IN TUNE WITH THE
CHANGING RESPONSIBILITIES OF
ORGANISATIONS: EMBEDDING
SOCIAL, ENVIRONMENTAL AND
ETHICAL ISSUES IN STRATEGY.
It is no longer sufficient for
72
Jan 14.indd 72
organisations merely to be efficiently
run. Modern businesses are increasingly
expected to be good corporate citizens.
The responsibilities which insurance
companies are expected to meet
have undoubtedly changed in
the last few years. Terms such as
responsible or caring capitalism are
regularly bandied about. The battle
to be seen as sustainable and socially
beneficial businesses began a few
years ago as insurers developed
social, environmental and ethical
(SEE) strategies. Its true that many
of these strategies were simply PR
(and may well have been cut back
during the recession). But the stakes
have been raised. There are a number
of ICMIF members who are world
leaders in their SEE strategies - but
not enough. The mutual advantage
is that an SEE strategy fits perfectly
with our values and once implemented
and communicated should encourage
greater trust.
7. HAVING A VALUES-BASED
STRATEGY
Values are important because they
define what matters to an organisation
and what it stands for. The way values
manifest themselves in what people
do can be a powerful differentiator for
cooperatives and mutuals. Many times
I have heard talented staff of ICMIF
member firms say that they joined the
organisation because its business values
matched their own personal values.
A values-based strategy is more than
just the culture of an organisation:
it should permeate every level and
department, including customer
service, marketing, claims, human
resources, investments, community
affairs, and sustainability. It is about
doing things right by the stakeholders,
be they members, customers, the
wider community or the general public.
A shareholder-based insurer can
develop a values-based strategy
also, but ultimately is answerable to
its shareholders whose interests are
paramount. The mutual advantage is
that we are inherently values-based
organisations and are seen by others
as such.
8. BEING FAIR AND TRANSPARENT
IN BOTH REPORTING AND
GOVERNANCE
Our forms of governance are one of
our key differentiators. The challenge
here is making our governance
structures effective in relation to our
business, so that they are relevant and
engaging to members and relevant in
todays society.
It is no longer appropriate to issue
huge annual reports full of jargon and
business-speak: more progressive
organisations produce short easy-to-
understand summaries for members.
Neither is it sufficient just to produce a
financial report when triple-bottom line
and integrated annual reports are far
more informative. Treating Customers
Fairly (TCF) or Market Conduct, as it is
known globally, will be the new global
standard in how to treat customers.
This will be one piece of regulation that
could allow the mutual advantage to
be highlighted.
9. BEING INNOVATIVE AND A
MARKET LEADER
A culture that embraces innovation
and fosters new ideas will create a
business edge. Although being first to
market with new products is generally
seen as a winning strategy, innovation
isnt just the preserve of product
development.
Innovation in the mutual world comes
in many forms, in areas such as use
of telematics and other technology,
risk prevention, claims management,
sustainability strategies, and human
resources. Why do mutuals generally
lead the way in innovation? I believe
it is because our long-term business
perspective means that we are more
willing to invest in innovation and
because of the empowering and
inclusive way that staff are treated.
10. CREATING A CULTURE THAT
ACTIVELY ENCOURAGES ALL THESE
Culture is an essential element of
effective strategic change and it is
the way leaders behave that sets the
culture of an organisation. The mutual
difference is the culture of service to
the customer.
Many of our chief executives have an
inclusive, supportive, and empowering
management style that encourages
initiative, creativity and innovation with
a service-orientated environment.
In conclusion, the power of the unique
ICMIF network is the ability to share
strategies that work. I am very aware
that all of these ten points could be
expanded significantly with many
great examples from among the ICMIF
membership.
COVER JANUARY 2014
2014/01/12 1:31 PM
 the

Spot Light ON SOUTH AFRICAN HEDGE FUNDS

EVOLUTION OF SOUTH AFRICAN HEDGE FUNDS

1995-1996 2002 2003 2004 2005 2007 2008 2009 2011 2012 2013

First SA R1.4bn First SA AIMA SA Joint R10bn FAIS R30bn Hedge Fund Amended National AUM
hedge total AUM Funds of chapter discussion total AUM CATIIA total AUM Standing Reg 28 Treasury reaches
funds Hedge formed paper The licence to Committee under PFA and FSB all-time
created Funds Regulatory under ASISA releases
regulate allows high of
launched Position of replaces proposed
Hedge hedge AIMA SA pension framework R42bn
Funds in fund funds to for
South manager allocate regulation
Africa 10% to of hedge
released by hedge funds in SA
FSB, ACI, funds
AIMA SA

Funds of R42.2bn
Other Average size of professional Current size of SA single
Funds

NUMBERS
1.1%
63.0%
hedge fund investment team strategy hedge funds
plus analysts
Individuals 60%
Seeding 18.5% % of SA hedge funds
6.0% structured as
en commandite partnership
Life Pension (i.e. limited liability
partnership)
Funds Funds
6.4%

GROWTH
5.0%

IN
13.3 years
OF THE INDUSTRY Hedge fund manager
(excluding funds of hedge funds for SA) average investment
*USD exchange rate at R9.86 experience

INDUSTRY
R4bn
Inflows into equity long/short
SA HEDGE FUND INVESTORS during past year

SA R42bn 1.1% p.a.

Global R23780bn
Average management
fee charged
DOWNLOAD
the complete
42.9%
Novare Investments
% of AUM managed by largest

IES
South African Hedge 10 funds
Fund Survey Report G 7.4%
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2013 at . . .
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http://www.novare.com/research/
TYPICAL OUTSOURCED
STR

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Ma

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35 Length of fund track record as % of AUM lti-

Mu
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52.5% 15.7%
30 27.5% Fixe
Fund Valuation
Equity Long/Short d In
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25 He Prime Brokerage
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21.2%
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20 18.8% Compliance Monitoring
16.6% Other
15 14.2%

10 Annual Fund Audit Client Administration

FAIS
Compliance Monitoring
5
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Y E A R S

Disclaimer: This infographic is subject to the DISCLAIMER stipulated in the Novare Investments South African Hedge Fund Survey Report 2013 which is available on
www.novare.com/research or from marina@novare.com. This infographic is for the use of Novare Investments (Pty) Ltd and its clients and is subject to copyright. This

document is for information purposes only and is not intended for the solicitation of new business. Novare Investments will not accept any liability or responsibility of
whatsoever nature and however arising in respect of any claim, damage, loss or expense relating to or arising out of or in connection with the reliance by anyone on

the contents of this document.

Novare Investments is an authorised Financial Services Provider: 757

Untitled-1 1 2014/01/10 5:36 PM

 Short-term
Regent ready for
return on innovation
Tony Van Niekerk interviewed
Jurie Strydom, Chief Executive,
Regent Insurance Group who
provided an update on the
current state of the short-term
insurance industry, and give
insight into Regents strategies
for maintaining a sustainable
business.
DESPITE PRESSURE, GOOD
PERFORMANCE
It is common knowledge that
underwriting margins have come under
severe pressure as evidenced by the
reported results of a number of short-
term insurers. It has been a difficult
period, with extreme events like the
hailstorms of late 2012 and some large
fires. More recently, the depreciation
of the rand is creating further pressure
through the cost of imported vehicle
parts.
Regent, however, is involved in a
number of different niche market
segments and this has helped the
company maintain an acceptable
underwriting margin. In particular, we
have benefitted from strong vehicle
sales. This is an important distribution
channel for us being part of the
Imperial Group. Our operations in
Africa outside South Africa have also
performed exceptionally well.
74
Jan 14.indd 74
On commercial vehicles, we have
observed that fuel costs are having a
significant impact and fleets are being
worked harder for longer. As the leading
commercial vehicle insurer in South
Africa, we are constantly on the look out
for innovative ways to add value to our
commercial vehicle clients - we recently
purchased a business with world-class
skills and telemetry technology to help
us, to help our clients become more
profitable by providing them with
analytics that has not only practical
application, but measurable results that
positively impact their bottom line and
proactively manage their risk.
The insurance industry is also not
immune to the pressure consumers
are under due to general economic
headwinds and higher indebtedness.
Premiums do remain highly competitive
and are often the deciding factor when
business is placed. The significant
insurance capacity in South Africa is
also a major factor.
On the positive side, the industry has
absorbed these pressures and I have no
doubt will ultimately emerge stronger.
PRESSURE ON PRICING
The competitive nature of the industry
is clearly good for customers. Going
forward, though, I believe that
the industry needs to see greater
innovation and differentiation between
insurers, rather than relegating
insurance to a mere commodity - an
example is the growth of telemetry-
based motor insurance.
Ultimately, insurers will start
experiencing increased costs from
compliance and the risk-based capital
regime. While this will make the
industry safer, the cost will ultimately
be passed on to the consumer.
REGENTS RECENT PERFORMANCE
Gross written premium in the year to
30 June 2013 was R3,2 billion, 6% up
on prior year. The underwriting margin
was 7,9%. Those are satisfactory
outcomes in a difficult market, and
new business related to vehicle sales
was also very good.
As a business, we are very focused on
maintaining satisfactory margins and
returns. In certain business areas, that
sometimes means having to turn away
business you believe is unprofitable.
Investment returns were well supported
by good returns from equities, albeit
somewhat balanced by lower interest
rates. Overall, profit was up 22%
on the prior period. Regent remains
well capitalised relative to regulatory
requirements.
MAINTAINING PROFITABLE
BROKER BUSINESS
There is ultimately a place for both
direct insurance and broker business
in the insurance market. They offer a
choice of different value propositions
to the consumer: the broker offers
value in terms of advice and support
in interacting with the insurer, which
many consumers continue to value.
The broker business, in particular, has
developed into a commodity market in
the non-specialised segments, where the
only differentiation between competitors
is price. I think ultimately brokers would
be acting in their clients interests to
demand innovation and service from
insurers and not merely price.
RATIONALE BEHIND CLOSING
UNPROFITABLE BUSINESS
Regent made a decision to close some
unprofitable books of business in May
2013. The books in question represent
less than 10% of our premium income,
but have performed poorly and are
the kind of commodity business that
does not promise attractive returns.
As a business, we are very focused on
maintaining robust underwriting and
adequate margins through the cycles.
Regents focus is on market segments
where we can innovate and
differentiate ourselves, and not merely
being a me-too offering. This includes
business through our dealer and
bancassurance channels, specialised
segments, emerging market life
business and our significant operations
in Africa outside South Africa.
INDUSTRY RESPONSE TO CLOSING
OF THE BOOKS
The process has been well executed
in the interest of clients and brokers.
Brokers have responded very
professionally in placing their clients
elsewhere. We have worked hard
to ensure that we communicated
effectively during the process.
COVER JANUARY 2014
2014/01/12 1:33 PM
 REGENT STRATEGY GOING
FORWARD
Regent focuses on market segments
where we can develop and maintain a
differentiated offering. We are a multi-
channel business working through
brokers, banks, agents and motor
dealer intermediaries. The foundation
of our relationship with intermediaries
is superior service and an innovative
product offering.
For example, in the commercial
vehicle sector, where we are a
market leader, we are offering
new telemetry-based services that
dramatically improve loss ratios. In
Significance of Fidelity Guarantee
and employee dishonesty
We all appreciate the potentially
negative financial impact on a
business of dishonest acts by
employees. However, we may
not fully appreciate that any
short-term cover not including
Fidelity Guarantee is defective.
The intermediary is left exposed
and Professional Indemnity
cover is at risk. Bluntly, Fidelity
Guarantee cover should not
be optional when it comes to
arranging insurance cover for
businesses, regardless of their
size.
THE FOLLOWING EXAMPLE IS
INDICATIVE:
The insured had a fabric manufacturing
and retailing business. A routine audit
determined that hundreds of metres
of fabric were unaccounted for, and
a subsequent investigation revealed
that a number of employees, acting
in concert over several months, had
stolen it. Their modus operandi was
simple: on the days they committed
the theft, they wore loose fitting
clothes. They would cut fabric from
large rolls, wrap it around their bodies
and exit the business premises with the
theft undetected by the firms security
officers.
COVER JANUARY 2014
Jan 14.indd 75
one recent case, the loss ratio fell
from 140% to 70% in just three
months.
We work to ensure that pricing is
appropriate for risk and that we engage
our customers and intermediaries in
a value-adding way. Going forward,
customer relationships and retention
will be a key priority for all insurers,
at least on a par with new business
acquisition.
REGENTS BRAND IDENTITY
CHANGE
We have made important changes
to the strategic focus and business
A claim was lodged under the
companys business insurance policy,
specifically in terms of the Fidelity
Guarantee section. The amount of the
claim was substantial, but within the
indemnity limit, and the client was
identified.
Fidelity Guarantee covers the theft
of money or other property either
belonging to or in the care and
custody of the insured. The lost
must be the result of fraudulent and
dishonest activity of employees, acting
individually or in collusion, and gaining
from this fraudulent or dishonest
activity. There are two bases of cover
available:
Blanket cover: includes all employees
regardless of rank
Named or position based cover: for
specific individuals or those whose
position is fully described so that, in
the event of a loss, it is clear who is
covered and who is not
Rating is based on the total number
of employees and the actual Limit of
Indemnity selected and is also subject
to a First Amount Payable (Excess)
and specific exceptions/conditions.
Various clauses and extensions are
included, for example, the cost of
an accountant to verify any claim is
covered in addition to the Limit of
Indemnity.
operations of Regent over some
months. Regent has cleaned up in
areas that were not optimal and
sharpened the focus on segments
where we can provide differentiated
and value-adding products. The
business is truly entering a new phase
in which we are really well positioned
to make the most of opportunities in
the insurance sector.
The launch of a new brand identity is
therefore much more than a cosmetic
affair. It sets out clearly for customers
and staff that Regent is strong a means
to be still stronger in our chosen
markets.
RICHARD STEVENS,
Portfolio Manager at Renasa
Insurance Company Limited
In assessing the risk exposure,
underwriters would want to know
what checks and balances are in place
to minimise or eliminate fraudulent
activity. Information required includes:
how long the business has been in
existence; reference checks before
employing staff; any fraudulent activity
by staff in the last five years; if a
money policy in force and who the
underwriter is; if an application to
any underwriter has been declined;
how cash will come into the hands
of employees; cash receipting and
authorising procedure; internal and
external audit procedures; stock
controllers.
The state of the economy has impacted
negatively not only on businesses, but
also on their employees. Unfortunately,
the temptation to enrich oneself is
an ever present threat, and the most
unlikely person at times can succumb
and commit fraud or theft in the
belief that he or she will not be caught.
And our current economic environment
has exacerbated the situation. The
ever rising cost of living, coupled with
high unemployment, has added to
the financial burden of many. Fidelity
Guarantee is a product that is available
at a modest premium. Businesses
without it face potentially dire
consequences.
75
2014/01/12 1:33 PM
 Short-term
Insurance in the
game industry
Its evident that the game
industry of Southern Africa has
been growing at a rapid pace,
and all indications are that this
trend will continue for some
years to come. For this reason,
Kuda has positioned itself as a
major player in the market to
complement its already very
successful Bloodstock and Sports
Horse products.
GAME INSURANCE TO PROTECT
YOUR INVESTMENT RETURNS
Historically, Listed Equities and Fixed
Properties offered double digit returns.
The game industry has seen double
digit investment growth returns for the
last 10 years, and this is expected to
continue.
The game industry is active throughout
the year, with a number of BIG
auctions followed by a myriad of
smaller ones where the game owner
sells off offspring to recapitalise on his
initial investment. Even bigger than
the auctions is the market where game
owners trade amongst themselves,
either in person or through a vast
network of game capturers and traders,
and this is where you need to know
your trade.
RETURNS MERE PAPER PROFITS
UNTIL INVESTMENT REALISED
There are numerous risk factors which
can influence you realising the return
on your investment, but fortunately
these factors are all insurable risks.
It is foolhardy to invest your efforts
tending to your animals with the
greatest of care, only to take the risk
of not safeguarding your animals to
NO MATTER HOW WELL PREPARED
OR EXPERIENCED THE TEAMS, THERE
IS ALWAYS A RISK OF MORTALITY.
76
Jan 14.indd 76
ensure they reach the final investment
realisation phase. This phase is the
last step in banking your profits, and
its the most important step in turning
paper profits into real returns.
There are a number of factors
contributing to game mortality,
but here we look at only those
the insurance industry identifies as
Insurable Risks.
Most animals being moved - either
for re-location purposes on the
farm, or when sold - are routinely
tranquilised. The risks involved in
this process are numerous, but
can be complicated or mitigated
by the experience of the helicopter
pilot, the Vet, the ground team and
the weather. No matter how well
prepared or experienced the teams,
there is always a risk of mortality.
After capture, the animals have to be
transported to the buyers farm or,
harm at their final destination.
if the animals are to be auctioned,
to the Auction Holding Pens. There
are many risks involved in the
transportation process one such
risk could be poor ventilation of the
transporters trucks.
In all cases of handling game, there
is by default a measure of stress to
the animal. The animals concerned
are wild by nature and being handled
can result in stress causing death.
In some instances, they die from
stress-related causes shortly after
their release.
These factors have been identified
by the Insurer as insurable risks, so,
neither the buyer nor seller need take
the risk of total loss as this can be
insured against.
CHOOSING AN INSURER
Certain species of game are more
resilient to the process of capture,
translocation and being held in holding
pens. It is therefore important to
choose an insurer that understands
the risks associated with the different
game species and factors that can add
GERT PIENAAR,
Kuda, and
SHARON PATERSON,
CEO Infiniti Insurance
to or mitigate these risks.
It is also important to choose an
insurer that understands that each
individual or group of individuals
has different risk profiles. Having an
insurer that determines your individual
risk profile, then reflects that in
the premium charged, is a win-win
situation - and one grounded to a
very large extent in a partnership with
your insurer. Choose an insurer with a
partnership philosophy.
When an insurer agrees to give you
cover for a certain risk, it is taking
the risk over from you in return for a
premium paid. Because it has done
this, the insurer has the right to set
requirements as to the preferred Vet,
game capturer and transporter to be
used. These should be seen as risk
mitigating factors as the ultimate goal
of the insured and the insurer is to
deliver the animals alive and free of
CAPACITY
With the high prices that good quality
animals are commanding at auctions,
one of the most important factors
in choosing an insurer is capacity.
Make sure that your insurer has the
underwriting capacity to insure your
existing high-valued animals, and be
sure that you check the underwriting
capacity of your insurer before going to
an auction to buy a multimillion rand
animal.
WHAT DO THE UNDERWRITERS
SAY?
The game industry is not to be entered
into lightly. It is essential for an insurer
to do its homework before considering
underwriting any new class of business
and part of this process is to roll
up your sleeves and understand the
environment so that you can assess
areas of risk. In addition, you have
to have implicit trust in the expertise
of your underwriter. Infiniti is really
excited to enter this new and fast
growing area of business which is so
much part of the South African culture
with its partner, Kuda.
COVER JANUARY 2014
2014/01/12 3:41 PM
 Risk behaviour
- key factor for short-term insurance
Each month, Santam, South 22% SAID THEY LEFT VALUABLES IN THEIR VEHICLES; 24% SAID
Africas largest short-term THEY SPED UP TO BEAT RED TRAFFIC LIGHTS; 21% OWNED UP
insurer, unpacks an interesting TO TEXTING WHILE DRIVING; 21% CONFESSED TO DRIVING TOO
insurance topic with research REGULARLY OVER THE SPEED LIMIT; AND 21% DECLARED THEY DID
derived from exclusive Santam NOT CHECK THEIR VEHICLES BEFORE UNDERTAKING LONG TRIPS
client surveys. This month, the
insurer shares information on the
understanding of risk behaviour.

WHEN THE FAMILIAR BREEDS
DISASTER
In a survey conducted by Santam, 91%
of respondents indicated they would
adjust their behaviour appropriately
when they were aware of risks.
This response may be at odds with
recent findings that awareness of risk
does not appear to lead to adjustments
in behaviour.
One such study, entitled
Neuroscience based safety-
behaviour change at unmanned level
crossings, by Biju Dominic of FinalMile
Consulting in Mumbai, shows that up
to 15 people die each day at well sign-
posted railway crossings where victims
who are regulars at sites, were
prepared to take unnecessary risks
because they generally believed more
strongly in positive outcomes.
In the Santam survey, despite so many
respondents indicating they adjusted
behaviour when aware of risks, most
respondents declared that they had
undertaken some risky behaviour:
22% said they left valuables in their
vehicles; 24% said they sped up to
beat red traffic lights; 21% owned up
to texting while driving; 21% confessed
to driving too regularly over the speed
limit; and 21% declared they did not
check their vehicles before undertaking
long trips. By far the riskiest behaviour,
however, was in not adding valuable
items to insurance policies immediately
after purchases (41%).
the risks we take, enabling us to
Conversely, by a comfortable margin
(62%), respondents believed they were
already taking sufficient steps to be
safe.
Respondents showed a well-developed
sense of what constitutes their risk
profile and appeared to show an
awareness of the actions needed to
manage their risk profiles and therefore
manage their premiums.
Asked to describe the actions they
would take to manage their safety in
2014, respondents pointed to more
responsible driving, and taking steps
to behave more responsibly. Most,
however, undertook to make their
homes more secure with common
actions ranging from installing more
external lights and infrared beams,
building higher walls and adding razor
wire, to replacing window panes with
shatterproof glass and more frequently
testing alarm systems.
Respondents were also preparing for
a difficult year in 2014, so that, while
acknowledging the need to adequate
cover in potentially more risky times
(24% felt there was more crime in their
residential areas), they were expecting
to have to settle for cheaper insurance
(45%).
According to Attie Blaauw, Head
of Personal Lines at Santam, risky
behaviour and risk profiling are
inseparable when insurers underwrite
risk.
As we become more aware of risks
and change the way we think, it
affects our behaviour and consequently
live safer lives day by day. In turn, if
policyholders take steps to eliminate
their risk, they will find they enjoy a
more positive risk profile and therefore
lower premiums than high risk
policyholders. Making sure you manage
your risk therefore can mean you can
enjoy premium short-term insurance
cover at reasonable rates.
According to the Santam survey,
respondents agreed that among the
key precautions policyholders can
adopt is to continually audit their
belongings and coverage to ensure
they are not under-insured and the
appropriate insurance cover in place.
At a time when policyholders are
hard-pressed, there is always the
potential for them to make the
mistake of being underinsured due to
choosing the lowest premium cover.
Clients should be aware of the danger
of underinsurance. Ultimately, its
important for clients to understand that
the risks they continue to take in their
daily behaviour and their risk profile
will impact their premiums. Our duty
as an insurer is to ensure they continue
to receive value for their premiums,
concludes Blaauw.

COVER JANUARY 2014 77

Jan 14.indd 77 2014/01/12 3:42 PM

 UMA Corner

Spell adversity
Antonio Iozzos journey to success
clearly illustrates the principle that
with the necessary commitment

with a capital O
and vision, adversity can be
transformed into opportunity.

In 1999, my brother and I established company recognised for its expertise

a short term insurance brokerage,
and, after three years of our efforts
to provide clients with a personalised
service and the most appropriate,
cost-effective insurance cover we could
negotiate with insurers, our reputation
grew and the brokerage became
well-known in the industry and with
clients. I also became involved in the
property development business by
setting up Meadow Star Investments,
and, in 2004 I founded and moved
over to Insurance Underwriting
Managers, which has grown into a
in underwriting, claims management,
policy administration and product
creation.
WHAT ATTRIBUTES DO YOU THINK
QUALIFIED YOU FOR THIS AWARD?
My early experiences taught me
that one has to be prepared to take
risks in order to make something of
nothing. This does not mean that I
tackle new ventures blindly - it does
mean that I have to think five to six
moves ahead, anticipate what can
go wrong, and I make contingency

WHAT SHAPED YOUR LEADERSHIP

STYLE IN YOUR YOUNGER YEARS?
Quite simply, a lack of money and the
need to succeed. When I was 12 years
old, my father was diagnosed with
Multiple Sclerosis, and confined to a
wheelchair. My mother became the
only breadwinner, and I soon realised
that the only way to get ahead was to
work. I became the pizza man at our
local pizzeria, and earned enough over
weekends and at night to contribute to
the bond and monthly groceries.

I enrolled in Hotel school and, with my

mother and brother, opened our own
Italian restaurant. Despite my mother
having cashed in her pension to make
it possible to start the business, and
long hours of hard work, the venture
failed owing to lack of funds. We made
sure that all the creditors were fully
paid from the sale of the restaurant
equipment, but were left with little to
live on.

In 1997, I was offered a position as

an insurance broker at a brokerage
in Kempton Park. I did well in this
position and found that I really enjoyed
the challenge of working in the
insurance environment. At the same
time, I studied through the Insurance
Institute of South Africa to improve my
knowledge and skills.

UMA_Jan.indd 1 2014/01/10 5:38 PM

 plans to accommodate the possible
negatives. I think this award recognises
what I have achieved in a short space
of time in the highly regulated and
competitive worlds of insurance and
property development. I also think that
the award recognises the management
skills required for one individual to be
able to manage and grow the various
specialized departments both of these
businesses require.
At the same time, I must mention that
the confidence and support I received
at home has definitely helped to
keep me grounded. I could not have
achieved this without the support of
my family my wife, kids, mom and
dad.
HOW DO YOU ENSURE THAT THESE
LEADERSHIP PRINCIPLES FILTER
THROUGH TO THE LEADERSHIP OF
THE COMPANY?
Being an underwriting manager in
the insurance industry, we take on
risk every day that is our business.
We take on accounts that others may
perhaps not want. Of course, we assess
the risk, but we cant be risk averse
that cannot be your orientation if you
want to succeed in insurance. We find
UMA_Jan.indd 2
ways of taking seemingly-adverse risk
and turning it into a profitable account.
We do this by paying specific attention
to the clients unique circumstances
to provide flexible solutions and risk-
management measures to provide
cover for the client whilst ensuring that
our risk is acceptable.
I empower my senior managers to
implement these principles in their
departments and I ensure compliance
with core business principles by having
on-going reporting processes, both
written and in individual and collective
We are poised for growth, and with an
meetings. This allows me to keep in
constant touch with results, and to
know how the business is representing
itself to clients and business partners.
WHAT ROLE DO BUSINESS
PARTNERS PLAY IN THE SUCCESS
OF IUM AND YOUR OWN
LEADERSHIP?
Our business partners are obviously our
brokers and Centriq, a wholly owned
subsidiary of Santam, which is surely
the best backer I could ask for in the
industry. I need their support to offer
competitive, well-crafted products
to the market. I have found business
partners in Centriq and our brokers
who have the confidence to apply their
vast knowledge and experience to
compliment and enable my vision.
I cannot omit our staff, which
now numbers about 100 at IUM,
in acknowledging our partners in
achieving success.
WHAT OTHER DEVELOPMENT
STRATEGIES DO YOU HAVE WITHIN
IUM?
eye on the future, we have invested
millions into developing and honing our
2014/01/10 5:38 PM
 Information Technology infrastructure,
as well as the expertise and experience
in staff and management.
Quite a few insurers have expressed
interest in buying into the business
they are looking at acquiring
shareholding into UMAs in order for
those insurers to secure a line of
business from the UMAs brokers and
clients. I appreciate that the days of
failing to make a profit for your insurer
are gone it is reckless to use your
insurers money without ensuring a
profitable return on equity. I am very
mindful of the responsibility that the
insurer places in the hands of UMAs
and I do all that I can to ensure that
IUM and its staff treat the responsibility
given with the appropriate care and
attention.
I think there are just too many players
in the industry at this time, with the
result that irresponsible competitiveness
sometimes results in unfavourable
situations. For example, aside from our
core commercial business in which IUM
is involved, IUM is a significant player
in the heavy haulage arena no one
wanted to touch haulage six or seven
years ago, but now everyone wants to
write haulage business, not necessarily
because they have the expertise or
experience, but because they are
pursuing profit. For instance, a good
rate on a truck is 5%, and a very good
rate is 4%. However, some insurers
are now quoting rates of around 3%.
This pursuit of growth is unrealistic in
relation to risk and is not doing the
market any good. It is unfair on the
client, who has budgeted a certain
amount for insurance over the year,
to find itself paying a higher premium
after three or four months because the
insurer has to revise the rates upward
for the book to remain profitable.
Also, there is much movement in
the market, and I believe that UMAs
without capital or those who are
reducing rates unrealistically in the
pursuit of market-share will fall by the
wayside. My only wish is that it is not
the clients who bear the brunt.
HOW DO YOU RATE BUSINESS
LEADERSHIP IN SOUTH AFRICA IN
GENERAL?
A: There is no doubt that we lack
strong leaders with a clear vision of
where they are going. For many, the
focus is on them personally, with no
real desire to help general growth and
contribute towards the community at
UMA_Jan.indd 3
YOUNG PEOPLE NEED
PRACTICAL EXPOSURE TO
BUSINESS AT SCHOOL.
large. I believe that business leaders
have a responsibility to give back to
the community. IUM sponsors the
Italian football club comprising 250
children. Even in the space I play in,
I find it hard to find someone who
thinks holistically about growth and
employment. For example, I actively
encourage my staff to keep healthy
and happy - I am enthusiastic about
vitality, in line with this, we are
installing a fully fitted-out Techno gym
at our offices which opens in March
next year.
HOW DO WE PREPARE LEADERS OF
THE FUTURE?
Young people need practical exposure
to business at school. One way to
train through experience would be to
set up a program in which Grades 10
to 12 learners physically participate in
business initiatives in which they have
to perform the functions necessary
to conduct a business, with the
assistance of seasoned entrepreneurs
formulating a business plan, selling
the product, managing the books,
making the business work. Whether or
not the business venture is a success,
by end of matric the youngsters will
have acquired a practical skill-set and
experience that will stand them in
good stead for the rest of their lives.
In this way, we can develop a culture
of entrepreneurial endeavour, in many
cases without a tertiary qualification
being required, which our country
sorely needs.
I have a son of 12, and an eight-
year-old daughter. I give my son an
incentive, not pocket money to teach
him that nothing worthwhile is for
free. For example, when he was nine,
I encouraged him to ask for discount in
a clothing store. People are too reticent
and accepting of the status quo they
need to learn to seek out opportunities
and to grasp them when they present
themselves. Luck is the very moment
when preparation meets opportunity.
If you are ready and prepared, you can
more easily identify opportunity.
In our own small way we do our part
to prepare the youth. To help young
people enter the employment market,
IUM runs internships for learners straight
out of matric and pays for their training.
Centriq has been in an insurance
business partnership with Antonio Iozzo
and IUM for a numbers of years. This
prestigious recognition is most certainly
well deserved, and we congratulate
him on his achievement. We look
forward to the journey ahead in support
of achieving both parties respective
business objectives, including profitable
growth, and ensuring that we meet
our customers needs for appropriate
insurance risk solutions and service
excellence by delivering on our claims
service obligations.
Doing business with UMAs means
partnering with independent and
entrepreneurial minded people like
Antonio and his team, albeit in an
industry that requires extremely tight
disciplines to ensure adequate pricing,
managing the cost of claims, and
compliance with the ever-growing
regulatory requirements. Managing the
balance of influence that our UMAs
exert in wanting to grow market share
versus Centriqs influence to ensure
these tight disciplines remain in place,
is what we at Centriq have become
good at. And this is what makes our
UMA business unit an exciting and
challenging place in which to operate
in the industry.
GARETH BEAVER, CEO, CENTRIQ
INSURANCE
2014/01/10 5:38 PM
 Technology
New technologies address
retirement industry challenges
The South African retirement
industry is grappling with the
need to accommodate reforms
and deliver on new demands to
strengthen retirement savings
at a lower operating cost.
Optimised IT infrastructure offers
some of the solutions.
Recent research by PwC and the
Centre for the Study of Financial
Innovation found that the wave of new
regulations governing issues such as
solvency and market conduct could
swamp retirement funds and long-term
insurers with costs and compliance
requirements. The research also
found that the new rules could also
distract retirement fund and insurance
managers from the more urgent task of
running profitable businesses at a time
when the industry is under stress.
Four or five years ago, youd
expect double-digit returns from a
pension fund, but now the returns
are substantially lower; the cost of
administration is resulting in some
funds delivering returns far below
inflation. These costs are crippling the
industry and savings are being eroded
by the dual manager and administrator
process.
This changing environment presents
the industry with both challenges
and opportunities. Addressing the
challenges will force changes in fund
administration, bringing with it an
opportunity to embrace advanced
technology to help streamline
operations, improve efficiencies and
lower costs. Much of the retirement
sectors administration is currently
slowed by the use of outdated tools
and systems, duplication of processes
and extensive manual interventions,
adding to the cost of administration.
With the sector actively seeking to
deliver greater returns to retirement
fund beneficiaries, the answer is to
achieve greater replication of various
operations through automation, and
ensure greater cost efficiencies through
outsourced or managed services.
COVER JANUARY 2014
Jan 14.indd 81
Pension fund administrators need
to move away from spreadsheets
- to intelligent platforms that are
agile and scalable. These platforms
enable not only the management
of investments and savings by large
volumes of people, but also the ability
for policyholders to choose their
investment in line with their appetite
for risk, and even repeatedly amend
these choices.
WHEN THESE SOLUTIONS ARE
DELIVERED IN A MANAGED
SERVICES ENVIRONMENT, THE
COST OF ADMINISTRATION CAN
BE REDUCED BY BETWEEN 20-
25% PER MEMBER.
A scalable solution has the ability to
repeat an operation in a standard
fashion for large volumes over multiple
permutations. When these solutions
are delivered in a managed services
environment, the cost of administration
can be reduced by between 20-25%
per member.
At present, there tends to be a clear
distinction between the management
of the asset and the management
of the liability, placing an additional
layer of cost into the operations. In a
hosted managed services environment,
the platform managing liabilities,
policies and member records could also
manage assets, reducing the need for
another vendor and third leg in the
cost chain.
The managed services model
also allows funds to benefit when
sweeping changes are introduced
across the sector. In a parameterised
system, there is no need to change
the underlying code only certain
variables. When the system is shared
in a hosted environment, policies
are processed in a universal manner,
duplication of effort and costly coding
is avoided, and funds are able to adapt
in line with the changes, rapidly and
cost-effectively.
BRIAN ANDERSON,
Head of Business Development,
Africa, SunGard
Crucially, this also enhances compliance
and governance. Now that trustees
must meet much more stringent
fiduciary obligations, a sophisticated
system offering a strong audit trail and
better management and investment
checks ensures compliance and reduces
the pressure particularly for external
trustees who serve as caretakers of
these funds.
In addition, new platforms are coming
to market with capabilities that allow
for online self-service. This passes the
administration burden to the initiator,
further reducing cost and complexity.
Pension funds and their trustees are
also challenged in keeping up with
changes in risk management. Not only
do they have to deal with demographic
challenges and an alarming fall-off in
yield, they also have to grapple with
risk management concepts that were
previously the domain of the higher
echelons of sell-side investment banks.
For pension funds, there is an obvious
investment required in technology and
in data management to ensure the
reliability of their metrics.
Financial modelling and actuarial
calculations must be carried out
consistently, adapting to changes
in our environment - where the
population is not driven to save, the
life expectancies of an older generation
is increasing; but HIV/Aids is impacting
the younger population feeding the
pension fund. To ensure accuracy and
consistency, funds need effective,
sophisticated actuarial evaluation
and modelling tools that build on a
repository of models created over a
period of years.
Improved infrastructure and processes
will also enable agility and shorter time
to market with new products. They
will deliver significant improvements
in compliance and risk mitigation, and
eliminate duplication in processes. In
the face of a changing environment,
pension funds also need to invest in
robust platforms that support new
operational requirements, including
analytics, business intelligence and
mobility.
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2014/01/12 3:42 PM

Keeping track of your
childs driving behaviour
John Edmeston, Managing
Director of Cartrack, writes about
the values of tracking devices for
parents.
According to arrive alive the most
vulnerable people for fatal vehicle
accidents are young adults between
the ages of 15 and 29. Tracking units
use Global Positioning System (GPS)
technology that will provide parents
with information at an affordable price.
TRUST
A GPS tracking unit offers geo-fencing
that sets a virtual perimeter for a real-
world geographical area. Parents should
explain the risks and use the statistics
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Jan 14.indd 82
Working with
WHEELS
ACCORDING TO
ARRIVE ALIVE THE
MOST VULNERABLE
PEOPLE FOR FATAL
VEHICLE ACCIDENTS
ARE YOUNG ADULTS
BETWEEN THE AGES
OF 15 AND 29.
Insurers are taking note of how
telematics can provide them with a
tool to measure a drivers risk profile. If
driving habits are shown to be good via
a telematics unit, cover can be made
available on better terms.
to emphasise the danger of drunken
driving, speeding and crimes like theft
and hijackings to their children.
ONLINE PORTAL
Tracking enables the recovery of a
stolen vehicle, and provides an online
portal that allows families to log on
from any location to check the location
of the vehicle.
SPEED IS A KILLER
Telematics will alert you if your child
is driving recklessly. The GPS tracking
unit will allow you to monitor the
speed at which the vehicle is driven
and will even tell you whether the
driver is accelerating, braking or
cornering hard.
COVER JANUARY 2014
2014/01/12 3:43 PM
 Working With Wheels

Global auto sales

AUTOMOTIVE FINANCE AND
LEASING FOR CONSUMERS IN
EUROPE
According to Finaccord, Russias market
for new car point-of-sale finance is
now the largest by value in Europe.
While the global financial crisis affected
nearly all countries in 2008 and 2009,
this market has surged ahead in Russia
and Turkey in more recent years, while
it has continued to fall in the worst-
hit EU economies: Greece, Hungary,
Ireland and Italy, and, to a lesser extent
Portugal and Spain.
Sales of new cars in Russia have risen
sharply since a slump in 2009, and
Russia has been the second-largest
market for new cars in Europe since
2011, only trailing behind Germany.
Russia is the largest market for new car
finance and leasing taken out through
dealerships, with an estimated EUR
20,48 billion in gross advances and
new assets leased for 2012, or 26,4%
of the whole European market in 2012.
However, dealers in Russia and Turkey
sell far fewer used cars than France,
Germany and the UK. When used cars
are added to the picture, Germany still
has the largest market for automotive
finance and leasing at the point of sale,
but Russia is ahead of France and the
UK.
THE MOST SERIOUS DECLINE IS
THAT OF THE ITALIAN MARKET,
SINCE ITS AUTOMOTIVE MARKET
IS BY FAR THE LARGEST OF
THESE COUNTRIES.
The importance of the Russian market
can be seen in the composition of the
top 15 finance providers of automotive
finance and leasing at the point of
sale.While the captive or joint venture
finance providers of Europes leading
manufacturer groups held nine of
these top 15 places, six were held
by independent companies, and only
one of these did not have significant
activities for automotive finance in
Russia. This was Santander Consumer
Finance, which held third place on
this analysis across Europe, thanks to
its partnerships with both dealers and
manufacturer brands in 12 countries.

In Turkey, new car sales boomed

after 2008, with a large majority of
customers taking out finance and
leasing at the point of sale. So, the
value of gross advances and new
assets leased for new cars stood at an
estimated EUR 3,68 billion for 2012, or
4,8% of the whole European market,
compared to 2,3% in 2008.

COVER JANUARY 2014 83

Jan 14.indd 83 2014/01/12 3:43 PM

 Risk Management
Managing Strike-
Related Risks
Debbie Geraghty heads up the
mining risk management practice
at Marsh Africa. Here she writes
about how the perception of risk
has changed since the events at
Marikana in August 2012.
News on mining sector strikes this
strike season was markedly subdued
in 2014, after last years fraught
negotiations ended in violence and
tragedy. 34 striking platinum miners
were gunned down by police during
a wildcat strike at a Marikana mine,
increasing uncertainty and risk in
the mining industry. The number of
strikes in 2012 hit a five-year high,
characterised by violence and leaving
employer-labour relations in tatters.
This sort of action leaves mines behind
on production forecasts, possible
loss of expensive equipment and
even closure by smaller operations.
It is these mid-tier ventures that are
hit hardest, as cash-flow is severely
affected by equipment damage, lost
work days and the requirement to hire
additional security.
Plan for the
known unknowns
Risk management is not only
about those risks that are readily
identifiable, to quote Donald
Rumsfeld, former US Secretary of
Defence, the known knowns or
the things we know that we know,
but more importantly, companies
also need to plan for the known
unknowns or those events we know
that we dont know! Whilst this
might sound like gibberish, the logic
is quite sound! They need to plan
for the unknown unexpected events
before the event finds them.
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Jan 14.indd 84
Previously, strike action was seen as
an unlikely risk, as mining companies
generally had good labour relations;
now other issues are clouding unrest
and strikes have become a real
possibility in every industry.
According to the Industrial Action
Report for 2012, the mining sector lost
370 473 working days in 2011 and a
staggering 2 728 359 in 2012. The
total number of employees involved
in work stoppages increased from 47
732 in 2011 to 138 993 in 2012. The
Chamber of Mines disclosed that the
gold-mining sector was losing R600m
a day due to strikes.
From an insurance perspective, a strike
per se is not insurable. It is only the
resulting property damage that may
trigger a suitable policy. The trend
seems to be an increase in property
damage, indicated by Sasrias increase
in claims frequency and the combined
loss ratio from 45,9% to 88,1% in Q4
of 2012. Sasria says this was mainly
due to damages as a result of labour
strikes from various sectors such
as mining, transport and farming.
Take, for example, the current largest
liquidation in South Africas history:
the First Strut Group - probably
a perfect example of a known
unknown! First Strut was the darling uncertain future! Suppliers et al, who
of the construction industry: a large
number of financiers were happy to
accept their paper; it was rated BBB;
it was the epitome of a successful
group no one saw what was actually
happening. Dealings with the group
were seemingly beyond reproach,
but we know now that this was all
an incredibly elaborate smokescreen
Currently 80% of the claims are as
a result of labour strikes. In addition,
Sasria experienced an increase in the
claim frequency by 91% whilst the
severity of the claims increased by
135%. This reflects a new trend in the
claims environment, and Sasria believes
that this trend will continue in the
current period.
It is the uninsurable risk, though, that
weighs heaviest, as can be seen in
the comparative numbers. There are
solutions aimed at providing advice and
appropriate services in terms of crisis
response, especially to smaller and
mid-tier operations.
Commodity prices are down, mines
under pressure and theyre facing more
riot, strikes and civil commotion, while
property is being negatively impacted.
Mining companies need to actively
review their insurance requirements
and risk position.
Marshs International Mining Market
Updates for the last two years align
with these comments. From the
2011-12 report: In summary, across
the marketplace it is clear that
mining continues to be a challenging
business for insurers. We continue
to recommend regular engagement
between mining companies and their
insurers to maintain a high level of
trust and an opportunity to discuss
particular risk issues.
GIDEON BOCHEDI,
General Manager Salvages at Credit
Guarantee Insurance Corporation
at best and, at worst, the most
intricately woven deliberate fraud ever
conceived.
The shock that has rippled though
the business sector is palpable; the
financial sector is reeling while countless
employees are pondering a very
may have believed they were dealing
with a sure bet, are licking their wounds
and wondering how this could have
gone so wrong. The question for every
shareholder, stakeholder, director or
company executive now to ask is what
can be done to ensure that this does not
happen again; and happen again it will
that is, in fact, the only guarantee!
COVER JANUARY 2014
2014/01/12 3:43 PM
 Never before has there been stronger
proof offered that insuring against the
payment default of even the most
significant of debtor companies is the
most prudent of risk management
considerations.
I have witnessed the dire straits
that too many uninsured suppliers
are facing following the demise of
many other companies in liquidation.
Suppliers vary in size; some can
absorb partial losses while others
simply cannot! It is extremely painful
Product recall risk looms for
South African companies
At a seminar hosted by insurer
AIG South Africa, Deon
Binneman, an independent
reputation advisor warned:
Product recall is a business crisis
and must be treated as such. It
has the potential to affect your
brand and reputation with all
your stakeholders substantially
and can have a disastrous effect
on the share price of listed
companies as well.
Fonterra, one of the worlds biggest
exporters of dairy products, is currently
in the news for all the wrong reasons:
whey products used in making infant
formula have been found to be
contaminated with bacteria that could
cause botulism. China, still sensitive
after the contamination of infant
formula by melamine in the recent
past, was the first to impose a ban,
and other countries have followed suit.
The company has issued a recall of
possibly contaminated product, but
faces criticism for delays in disclosing
the contamination.
As Fonterras experience shows,
Binneman notes, what a company
does right at the beginning of a
product recall crisis is vital. Once,
you may have had days to formulate
your reaction but in todays connected
COVER JANUARY 2014
Jan 14.indd 85
to look into the eyes of directors who
are patently aware that their own
companies may face closure in the
very near future. They are unable
to replace lost turnover and are
faced with attempting to repair very
damaged cash flows on diminished
profit margins due to the magnitude
of some of the very large business
dealings a la First Strut.
The recent spike in Business Rescue
applications, significantly up on last
year, is testament to the strain in the
world, its nanoseconds. You absolutely
have to have a plan for a product
recall in place right from when you
begin manufacturing it, he says. That
plan has to be thoroughly tested, and
the necessary authorisation to act
already obtainedthere isnt time to
call a board meeting when theres an
emergency.
Binnemann argues that 63 percent of
a companys market value is tied up
in intangibles like its brand name and
reputation. A high-profile product recall
can have a significant effect on these
intangibles and thus on a companys
value. Its vital that a company has
thought through how to regain control
of what is invariably an intense
situation.
Eelco van Keimpema, Profit Centre
Manager: Liabilities for AIG South
Africa, says that in contrast to
overseas, product recalls are not a
hot topic in South Africa yet. The
Consumer Protection Act gives the
legal framework for product recalls
economy and unfortunately, many of
those companies have already been
liquidated.
Windfall orders, big name companies
and the potential cost of counting
irrecoverable losses are part of doing
business, but all could have been
avoided had the risk been assessed
and a credit insurance policy been in
place.
to become important, he warns.
And many South African companies
are already exporting to countries
where product recall is a very real
risk. Thats why we are introducing
a comprehensive solution to help
companies mitigate the substantial risks
associated with a product recall.
Van Keimpema says that expensive
though the costs of a product recall
might be, they are only the start.
Senior managers must be assigned to
the process with grave consequences
for their normal work, and often
production lines have to be halted
until the product is given a clean bill of
health by authorities.
AIGs cover is aimed at food,
drink, cosmetics, pharmaceutical
and tobacco companies, whose
products are particularly susceptible
to contamination. It includes crisis
management and consulting from NSF,
a leading player in the food safety
arena.
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2014/01/12 3:44 PM
 Risk Management
Costly capital projects veering
off track can be corrected
Large capital projects, with
their multi-year timelines,
changing requirements and
complex procurement issues,
are inherently risky. They
require diligent oversight from
management and the board,
given the common occurrence
of budget overruns and their
effect on the companys financial
health.
Boards have the responsibility to
oversee an organisations strategy and
key risks. Capital projects fall squarely
within the realm in the light of their
significant costs and the business
implications of delayed or over-budget
projects.
Lack of oversight from the board can
result in severe consequences. In the
power sector, for example,regulators
have rejected substantial portions of
capital funding requests where they
believe management and the board
could have exercised better oversight
of costs, schedules and risks.
Any institution that has ever
undertaken major capital building
projects knows they almost always take
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Jan 14.indd 86
longer and cost more than expected.
Unless strong project controls are
in place, project owners often dont
realise the severity of delays and cost
overruns until well after a project has
foundered.
How a board and its management
handle the various issues on a
capital project go a long way when
determining the success of the project.
A recent analysis carried out by PwC of
52 capital projects missteps at public
companies showed that after a public
announcement of a capital project
delay or shutdown, the majority of
companies experience a steady decline
in the share price. By the three-month
mark following the announcement,
the declines in price averages 15
percent. In the most severe case of the
companies analysed, one experienced
an almost 90 percent decline in share
price.
While cost overruns and delays have
always been serious issues, companies
have become increasingly concerned
about them since the recent economic
uncertainty. A new report issued
by PwC, entitled Correcting the
course of capital projects, states that
mega-projects usually exceed their
budgets by 50% or more. Also, large
JONATHAN CAWOOD,
Capital Projects Leader for
PwC Africa
projects tend to be risky with some
exceeding $1 billion over many years
and encompassing many moving parts,
resources and contractors.
In emerging markets, such as Africa,
project developers also face unique
problems, including language barriers
in contract negotiations, different
legal standards, a greater likelihood of
political interference, and the need to
import skilled labour, equipment and
materials.
A number of infrastructure projects
have been rolled out across the African
continent. The Industrial Development
Corporation has invested a total of
R6,2 bn in 41 projects across 16
African countries in 2012, the majority
of these being in mining, industrial
infrastructure and tourism.
Within South Africa, the Government
is on track to spend in excess of R4-
trillion on infrastructure in the near
future, focusing on rail, roads, water,
energy, communication and sanitation.
Infrastructure is a top priority in Africa,
with many countries still not investing
enough, hampering their growth
prospects and increasing burden on the
years ahead and on future generations.
Many projects experience problems
along the way because they didnt get
off to a good start. Our research shows
that poor estimates during project
planning and missed deadlines are the
largest contributors to project failure.
But even projects that veer far off
track can be corrected if both the
owners and contractors are amenable
to working together to resolve the
immediate problems and establish
a more effective plan to working
together to resolve the immediate
problems and establish a more
effective plan for managing and
monitoring the project going forward.
COVER JANUARY 2014
2014/01/12 3:46 PM
 The three key elements of the control
environment are proper transparency
of controls, clear accountability of
responsibilities, and a meaningful
audit trail of information to make sure
people are performing their required
roles effectively, states the report. An
effective risk management process
is also critical to ensure project
managers monitor risks and assess
when they need to put a mitigation
plan in place.
The best way for a company to get
back on track fast is to be alert to
red flags. Such signals usually indicate
its time to investigate to determine
Municipalities need effective
risk reduction strategies
South African municipalities
should consider implementing
risk reduction strategies to
control the increasing problem of
vandalism and theft which has
cost the City of Johannesburg an
estimated R3,6 million this year.
Municipalities should put more
emphasis on implementing risk
reduction strategies and identifying
alternative measures of dealing with
vandalism and theft.
While the local government has
made major inroads to bolster its risk
management strategies, more effort
should be placed on dealing with
the theft of manhole covers, guard
rails, street-name poles, steel-grid
inlets, fencing posts, poles and traffic
light cables. This can be done by
holding regular strategy sessions with
brokers and insurers where alternative
risk management strategies can be
developed to protect municipalities
from incurring financial losses.
When a risk has been identified and
cannot be completely eliminated,
risk reduction measures should be
implemented to contain it. As a
COVER JANUARY 2014
Jan 14.indd 87
whether the project is truly in trouble
and if so, how to fix the problems.
Two obvious signs of project trouble
are requests to expand the budget and
stretch the schedule. Other indicators
that a project is in peril include
changing the scope, delay of materials,
suspicion of fraud, and safety concerns.
One serious injury or a string or
minor injuries can bring a halt to the
project, with an investigation into the
causes, and even the revision of risk
management plans.
The study puts forward a number of
proposals for companies to get projects
back on course. These include: the
result, municipalities should explore
alternative risk management strategies
of dealing with the problem at hand.
The local government can effectively
deal with the theft of manhole covers
and guard rails by imposing stricter
regulation on the scrap metal industry.
As long as a market for stolen scrap
metal exists, there will always be
a demand for municipal manhole
covers and guardrails. Regulating the
scrap metal industry and reducing the
number of illegal traders available can
provide relief for municipalities. This
can be done by ensuring that all scrap
metal traders are licensed.
balancing of costs, quality and time. A
knee-jerk response may be to cut costs
or to rush to get back on schedule.
But, in trying to cut costs that are out
of control or speed up a project that
has fallen behind, quality may suffer.
Companies should seek experienced
project managers. To help fix troubled
projects, owners may need to
strengthen their project management
team by filling in gaps or bringing
in different and more experienced
people. All parties should also keep a
comprehensive audit trail. Litigation
is always a possibility, so all parties
should thoroughly document project
decisions and developments.
PRIDE CHORUMA,
Local Authorities Manager at
Lion of Africa Insurance
If a scrap metal operator is caught
buying illegal goods it should be
penalised and lose its licence. The
risk of losing a licence should deter
operators from buying stolen goods.
The government should also consider
introducing jail sentences for people
caught stealing from municipalities.
Local government can also curb this
problem by replacing stolen goods with
material not in demand by criminals;
for example, replacing manhole covers
with concrete slabs.
While items like manhole covers,
fencing posts and poles are often
excluded from insurance policies,
the local government still has a
responsibility to make sure that these
items are replaced immediately when
stolen, to avoid liability risks, arising,
for example, from accidents, as a result
of a missing manhole cover.
It is essential for municipalities to
work closer with their insurance
advisors and brokers to review and
update risk management strategies
regularly to avoid bearing the brunt of
financial losses as a result of repair and
replacement costs.
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2014/01/12 3:47 PM
 Governance
Impact of debt on risk in the
EB environment
The majority of our workforce is
moving into 2014 under severe
financial stress. 20,21 million
were recorded as credit active
consumers in South Africa during
the second quarter/term of 2013,
62% of whom are in arrears or
are debt impaired.
The Employee Benefits (EB)
environment and the associated risk
benefit structures generally choose
to focus on ensuring the physical and
psychological well-being of employees
and invest millions of Rands into
proactive health management,
creative product development and
return-to-work programmes. But,
the reality is that financial stress is
the biggest worry for individuals. Not
only has this issue been rated as ve
times higher than health concerns
in the employee environment over
recent times, the problem appears
to be growing larger rather than
reducing in nature. As time passes,
more and more consumers are battling
with a bombardment of advisory
smses notifying them of their arrears;
receiving written legal demands; are
subject of the issuing and attachment
of Emolument Attachment Orders
(EAOs, sometimes referred to as
Garnishee Orders) and are taking home
less and less pay at the end of the
month.
General class actions:
funeral schemes beware
There can be no doubt that a general
class action has now arrived in
South Africa. But before over-zealous
lawyers wring their hands in glee, a
moment of pause is required.
Class actions have a place in clearly
defined circumstances. Not otherwise.
As in any litigation, identifying a
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Jan 14.indd 88
TOTALLY DISRUPTIVE
The impact of this is multi-faceted,
extending across all spheres of
an individuals life. The employer,
however, typically experiences the
following: a disruption to administration
with the increase of EAOs; the need
of frequent, individualised staff
counselling; absenteeism from work;
and, not least of all, escalating and on-
going demands for an increase in salary
often the reason for strike action.
Take Marikana, for example!
In spite of this state of affairs, few,
if any, employers appear to have
embraced the need to put consumer
awareness and financial education
processes into place in the work
environment; even fewer are aware
that some of the so-called legally
issued EAOs arriving on their desks
have been issued from courts without
jurisdiction and are actually not
enforceable. In addition, neither the
employee, nor the Human Resources
or Payroll Departments, are necessarily
aware that the amount of monthly debt
repayments made per month (including
the EAO amount stipulated by said
court) are negotiable according to an
individualised income and expenses
analysis. Education, awareness and
case management can ensure that
the employer is relieved of the burden
of debt and the employee is assisted
in an empathetic, understanding and
individualised manner.
cause of action raising a triable issue
is fundamental. In the case of a
general class action, there are the
pre-requisites for class certification
that may be conveniently described
as ascertainabilty, numerosity,
commonality, typicality and adequacy
of representation. Appropriateness
(of the class device) and an equitable
method for the distribution of any relief
obtained are also required. In short,
MEYER DE WAAL
Oosthuizen de Waal Attorneys &
ELISE BURNS-HOFFMAN
Burns-Hoffman and Associates (pictured)
Employee Benefits, so carefully
structured in attempting to manage
risk, appear to be sorely lacking
in their efficacy where there is no
space for the inclusion of a service
that addresses the biggest concern of
employees financial well-being.
For a small increase in premium per
month, specialised, uniquely trained
and extensively experienced financial,
budget and debt management
expertise can be included in the EB
offering and rolled out at shop floor
level, where our workforce is crying
out for this kind of assistance.
ADV CHRISTOPHER SHONE
& ADV PAUL HOFFMAN
SC, Directors of the Institute for
Accountability in Southern Africa
the class action device will only apply
if the essential requirements of a class
action can be satisfied at the time of
certification.
Class actions are appropriate where
there has been widespread, consistent,
uniform harm through a common
practice. They are ideally suited to
situations where the harm per person
is too small to justify individual claims
COVER JANUARY 2014
2014/01/12 3:47 PM

Christopher Shone
Paul Hoffman
being litigated but where collectively,
the claims have an economic litigation
mass - that is, the class device.
Consider the position of the members
of an unregistered funeral insurance
scheme not underwritten by a
registered and authorised long-term
insurer, as required in terms of the
Long Term Insurance Act, 1998; but
it operates nonetheless bear in
mind that no person may conduct the
business of an insurer without being
registered and authorised. The sale of
funeral type policies is a significant and
unregulated market where members of
the public are lured into the schemes
believing that they hold a valid funeral
policy. In many instances, they do not.
FSB IN THE LINE OF FIRE
Assuming that the Financial Services
Board (FSB) is aware of this type of
operation, one must ask if there is a
CLASS ACTIONS ARE APPROPRIATE
WHERE THERE HAS BEEN WIDESPREAD,
CONSISTENT, UNIFORM HARM
THROUGH A COMMON PRACTICE.
COVER JANUARY 2014
Jan 14.indd 89
claim against the FSB? And if so, on
what legal basis? Is there, in fact, a
claim on a class basis?
By all accounts, the short answer
would appear to be yes! If the essential
requirements for a class action are
considered, it is clear that they can all
be satisfied. But why target the FSB?
It is submitted that this is because the
FSB owes a duty of care to members
of the public, which, in practical terms,
means that the FSB is required to
ensure that unregistered insurers do
not operate and fleece members of
the public. If the FSB is aware of these
operators, then it is required to take
appropriate action - that would include
closing them down.
The next issue relates to the nature
of any claim and the value of any
claim. Members of an unregistered
insurer would be entitled to cancel
their policies and recover any
premiums that have been paid to the
unregistered scheme. Section 60 of
the LTI essentially provides for such,
albeit on an individual basis. There is,
however, no reason why these claims
may not be brought on a class basis
providing the prerequisites for class
certification are met. By collectivising
the claims, there should be no
difference to the essential claim. Each
member would be entitled to recover
whatever has been paid. This is a
simple mathematical calculation for the
purpose of distribution of any recovery.
An additional claim for class members
could possibly include the additional
costs of obtaining funeral cover in
terms of a legitimate funeral policy or
scheme. Again, this can be determined
on a simple factual (mathematical)
basis.
The essential issue is whether the FSB
is a realistic target of a class action
claim in these circumstances.
DUTY OF CARE
A recent decision in involving the Civil
Aviation Authority is highly informative
on the issue of the duty of care owed
by Organs of State. The FSB (as an
Organ of State) is a legitimate target
of any claim where it is aware of the
activities of an unregistered insurer
yet fails to take any action. But FSB is
not necessarily alone. Those registered
insurers that underwrite these
unregistered schemes, more correctly
reinsure them, are also clearly in the
line of sight of any claimant or class,
NO MATTER, IF THE FSB
IS LIABLE, IT HAS DEEP
POCKETS AND IT MUST BE
THE PRIMARY TARGET.
as would be the brokers and agents
peddling these unregistered schemes
to the unsuspecting public. Then, of
course, there is the scheme itself,
although it is unlikely that the scheme
will be in any financial position to meet
any claims that may be made.
No matter, if the FSB is liable, it has
deep pockets and it must be the
primary target. That the FSBs funding
is essentially sourced from industry
fees and levies is irrelevant. If the FSB
is liable, funds must be found by the
FSB. So, who will eventually pay any
claim if the FSB is liable? Presumably,
the insurance industry through higher
levies, which, in some way, will be find
its way passed back onto consumers. If
the FSB did what it is clearly mandated
to do, however, then this issue would
not arise.
That insurance consumers could be the
ultimate, albeit indirect, funder of the
FSBs liabilities is, of course, absurd,
more so when the FSB has failed to
do precisely what it is required to do.
Let the industry pay through higher
fees and levies without passing this
on. After all, when the unregistered
operators are eventually shut down,
the registered insurers are the most
likely beneficiaries as individuals
will seek out insurance cover on a
legitimate basis. It is highly unlikely
that members of these unregistered
schemes would simply not buy cover.
The FSB may cry foul alleging limited
personnel and resources, as in the
Fedsure debacle. But that is simply
not good enough. The FSB has a clear
mandate and needs to fulfil it. For
too long the FSB has hidden behind a
plethora of excuses for not dealing with
unregistered insurers.
Now that we have access to general
class actions in South Africa, it is time
that the FSB does what it is required to
do. Otherwise, the FSB is a legitimate
target. As it should be.
89
2014/01/12 3:47 PM
 Governance
Cost of selective attention
in the insurance industry
Before turning to the specifics of
Andre Visser (not his real name),
a Fitter and Turner awaking one
morning to find he had lost sight
in one of his eyes, a general
perspective about mediation and
the role it plays is necessary to
set the scene.
Commercial mediation may be defined
as a without prejudice and confidential
process during which parties explore
options that are not available during
adjudication by an Ombud or by a
court. The exploration happens in
the presence of a mediator who
works equally hard for both parties.
Adjudication should always be available
when parties are unable to reach
settlement, but too often parties seek
an adjudicated outcome when other,
more sensible and creative outcomes
are possible.
SELECTIVE ATTENTION MAY
EXPLAIN THE SINGLE-MINDED
APPROACH OFTEN USED TO
RESOLVE DISPUTES.
In a well-aired advert, Ben Kingsley
stands in front of a bar talking about
general insurance, while the clothes
of the bartender standing behind
him changes four times. Due to
selective attention, as referred to by
Neuroscientists, few people watching
the advert notice this change in
clothing. Selective attention may explain
the single-minded approach often used
to resolve disputes. When our attention
locks onto an adjudicated outcome, we
quickly lose sight of other possibilities.
Mediation offers the promise of a
multi-dimensional and cognitively more
complex approach to problem solving,
than adjudication by an Ombud or a
court.
90
Jan 14.indd 90
We return to the story of Andre Visser.
The precision work required by his
work makes it impossible for him to
continue as a Fitter and Turner and
Andre has a claim under his employers
Group Scheme, underwritten by ABC
Insurers, for a loss of income benefit
reviewable every year. He also has
a claim of R 3 million against ABC
Insurers, under a personal policy for
his total and permanent disability to
work in his own occupation or another
suitable occupation, taking into account
his education, training, experience and
other factors. His employer effectively
dismisses Andre on the basis of his
incapacity, and makes him ABC
Insurers problem - having engaged
in the afore-mentioned selective
attention and not investigated the
possibility of employing Andre in a ADVOCATE JACQUES JOUBERT,
different capacity. Andre sits at home Commercial Mediator, Trainer,
and becomes depressed waiting to Author of the Woza Mediation Blog
hear about his claim for R 3 million,
adding another layer of complexity
to his already difficult situation. One
day Andre receives a letter from ABC to consider all options. Imagine if a
Insurers, repudiating his claim on specialist mediator, knowledgeable of
the basis that he is still employable. the insurance industry, confidentially
Incensed, he lodges a complaint with and without prejudice, explored
the Ombud. options and ideas with Andre and
ABC Insurers rather than repudiating
ABC Insurers now runs the reputational,
the claim. Imagine if Andre were
financial and precedent-setting risk of
empowered by the experience of
the Ombud overturning the repudiation
being heard and did not see himself
as wrong in law, or by exercising its
as a victim of ABC Insurers. Perhaps
equity jurisdiction.
he would start thinking about starting
his own business and ABC Insurers
NOT A VICTIM
may have considered making an ex
Imagine if ABC Insurers letter, instead
gratia payment as seed capital for
of repudiating Andres claim, invited
such business. It may even have been
him first to attend insurance mediation
possible that Andres employer could
employ him in another capacity, and
the mediator could invite the employer
to the mediation.
Mediation overcomes selective
MEDIATION OVERCOMES attention and creates possibilities that
SELECTIVE ATTENTION AND are not possible during adjudication by
an Ombud or a court.
CREATES POSSIBILITIES
THAT ARE NOT POSSIBLE The time seems right for the insurance
industry to apply the King III principle
DURING ADJUDICATION BY
in favour of mediation and to launch a
AN OMBUD OR A COURT. mediation initiative for the industry.
COVER JANUARY 2014
2014/01/12 3:48 PM
 Is all regulation constitutional?
In 1999, South African Mark
Shuttleworth sold the rights to
Internet Security software that
his firm, Thawte, had developed
to American firm Verisign, in
a deal worth R 3,5 billion. He
became one of the worlds
youngest billionaires.
However, he now resides in the Isle
of Man, mainly because of taxation
considerations and South Africas
regime of exchange control. Exchange
control limits the movement of wealth
across borders, and has largely become
defunct in most of the economies
of the world. In South Africa, it
was reintroduced by the Apartheid
government after Sharpeville to prevent
the flight of capital from that country,
and it is still in force for the same
reason, even though South Africa is
now a free democracy.
When Mr Shuttleworth decided to take
his money out of South Africa, an exit
charge of R250 million was imposed
on him by the South African Reserve
Bank. Mr Shuttleworth subsequently
sued the government for return of
his property. The case as recorded as
Shuttleworth v South African Reserve
Bank and Others (30709/2010) [2013]
ZAGPPHC 200 (18 July 2013).
COVER JANUARY 2014
Jan 14.indd 91
The court found against Mr
Shuttleworth, deciding that the
policy of keeping exchange control is
important for the national interest.
However, the judge then proceeded to
strike down certain of the provisions
of the Currency and Exchanges Act
9 of 1933 (Act) and its Regulations.
In particular, the provisions of s9(3)
of the Act, which gives the President
sweeping powers, simply by regulation,
to suspend any law, including an Act
of Parliament, affecting currency,
banking or exchange finding this to be
inconsistent with the Constitution of
South Africa. Of great importance is
the finding of the judge that regulation
3(1)(c), which prohibits payments
abroad without approval, offends
constitutional rights of freedom of
expression and privacy.
ONE-SIDED AND ARROGANT
ACTIONS
I will not dwell on the merits or
otherwise of exchange control,
but what interested me in reading
the judgement was that, in the
Shuttleworth case, we again find the
construct in the formulation of law
whereby the actual Act itself sets out
the broad ambit of the legislation,
and then mandates a government
functionary to vary the application
of the Act in its detail by means of
regulation. This is, of course, also
DR GERRIT SANDROCK,
Rock Consulting
the manner in which the Insurance
Acts have been constructed, and
the Minister of Finance, through the
Financial Services Board and the
National Treasury, also has sweeping
powers to decide on a wide scope of
matters affecting the South African
Insurance industry. There does not
really appear to be any need for
consultation with interested parties.
This construct of law allows the
functionaries to act in the rather one-
sided and apparently arrogant manner
to which we have become accustomed.
They act like this because the law
allows them to.
For the South African insurance
industry, the powers that the regulator
and the Treasury have obtained
through this structure allow them to
determine, amongst other matters,
the remuneration that insurance
intermediaries earn in the form of
commission. In the case of commission
regulation, this is of course not new.
Introduced by the previous government,
for nearly four decades since 1976
South Africa has endured insurance
commission regulation. At the time,
one Willem Swanepoel was Registrar of
the Financial Institutions Office (FIO),
the forerunner of todays Financial
Services Board (FSB), although with
just 12 members of staff, it had
nothing like the size, power and
scope of todays FSB with its 485-plus
employees and a budget exceeding
half a Billion Rand! The FSB today, like
the FIO from which it emerged, has
the power to make and interpret its
own laws, administer them, adjudicate
transgressions and impose fines and
penalties, all in terms of the legal
construct where Parliament had handed
over its control of the execution of the
Insurance Acts to the Regulators.
Unable to obtain any form of
agreement from the insurance industry
as to whether or not commission
regulation should be introduced,
whether or not it would be beneficial,
what the limits of such regulation
might be, or even how it should be
91
2014/01/12 3:48 PM
 Governance

administered, Swanepoel went ahead

and announced arbitrary arrangements
by means of what amounted then to
little more than an edict - by means of
the Regulations that the Insurance Act
allowed him to make.

His stated purpose was to reduce

premiums in the interests of
policyholders. Whilst the industry
had pointed out much that could go
amiss by attempting to regulate any
element of insurance pricing, neither
the industry nor Swanepoel could ever
have predicted the colossal array of
unintended consequences that his edict
would ultimately spawn.

Swanepoels entirely random

commission limitations, the precise
numbers of which continue to apply,
quickly rendered vast swathes of the
broking industry wholly unsustainable.
This rapidly undermined the vital
distribution systems of most insurers
and inevitably gave birth to several
new institutions including underwriting
managers (UMAs). In numerous cases,
this had the effect of creating conflicts
of interest between broker and client,
the very opposite of what Swanepoel
had hoped for, and leading to the
perceived need for yet more complex
regulation.
In almost four decades of one
amended or supplemented regulation
after another, none of it has served
either to reduce premiums or even
to prevent premium escalations. On
the contrary, the gigantic costs now
associated directly and indirectly with
this aberration have served instead to
drive costs up significantly. The latest
in this long series of developments
is the introduction of the so-called
Binder Regulations in terms of
which an attempt is made to micro-
manage insurers expenditure by
stipulating precisely how much is to
be paid for the production of product
wording, policy documentation and
claims services, to mention but a few!
Swanepoel would no doubt be greatly
distressed to know just how badly it
has all gone awry.
Even the Treasurys own 2009
document: A safer savings
environment for SA speaks of the
necessity for commission regulations
ultimately to be done away with.
The Policy Board in 1999-2000
recommended the regulations be
abolished and regulations to achieve
this were prepared and actually signed
by the previous minister of finance.
Also, commission regulation has long
been done away with in virtually
every jurisdiction internationally where
which it was tried. As with ours, the
experiments proved futile, leading
to great uncertainty, confusion,
expense, red tape, loss of jobs and
micromanaged incomprehensible
legislation.
Why have we chosen not to follow
the simple disclosure rules of other
jurisdictions that place no limit on any
of the cost elements of insurers, other
than that limitation which is enforced
through fierce competition? Instead,
we now have an array of regulations,
each more complex than the next, all
of which are frequently changed and
updated in a mesmerising barrage judgement striking down the powers of
of Board Notices, explanatory
memorandums and Guidance Notes.
A recent (July, 2013)
PricewaterhouseCoopers survey shows
that this tsunami of words has now
taken on such gigantic proportions as
to be considered the greatest single
risk to the industry, its executives
requiring now to spend upwards of
65% of their productive time dealing
with it! Surely Parliament needs now to
get involved and demand a complete
review, reduction and simplification of
the legislation, the plethora of sub-
ordinate legislation and the regulation
to which our financial services industry
is expensively subjected? This should
be done long before any further
legislation is passed and any more
risk added to the industry. Certainly,
it needs to be completely reviewed
before we steam ahead with yet more
failed foreign ideas such as twin
peaks, SAM and TCF, and before it too
becomes the soap opera comedy of
errors that commission regulation has
become?
Getting back to Mark Shuttleworth -
he had deep enough pockets to take
on the constitutionality of the largely
arbitrary rules that the exchange
controls impose on the citizens of
South Africa in the Courts. He did not
win on the aspect of getting his exit
charge refunded, but the ancillary
the authorities to make their own one-
sided regulations without considering
their constitutionality may ultimately be
more useful to us.
The good intentions of regulation
are more often than not negated
by unexpected and unintended
consequences, and the attempts by our
rulers to centrally control every aspect
of the economy are often not informed
by the rights and duties provided
by the Constitution, but by myopic
political objectives. We need more
people like Mark Shuttleworth to get
the focus back on our rights to function
as a free democracy.

92 COVER JANUARY 2014

Jan 14.indd 92 2014/01/12 3:50 PM

 Legal
Insurable interest:
Are you out or are you in(sured)?
An indemnity insurance contract
seeks to indemnify the insured
against financial prejudice
either in full or in part upon the
happening of a future uncertain
event.
Prior to concluding the contract,
thereby accepting the risk on behalf
of the insured, underwriters analyse
information relating to the property to
be insured and the risk insured against.
For the contract to be enforceable, the
insured must have an insurable interest
in the subject of the insurance. This
interest was for some time defined with
reference to the insured suffering direct
financial harm.
The case of Lorcom Thirteen (Pty) Ltd v
Zurich Insurance Company South Africa
Ltd 2013 (5) SA 42 (WCC) is illustrative
of how the concept of insurable interest
COVER JANUARY 2014
Jan 14.indd 93
was extended to apply in a business
relationship between two entities where
the insured did not suffer direct financial
harm due to the insured event but was
nevertheless entitled to recover the
market value of the property in terms of
the policy concerned.
Lorcom Thirteen (Pty) Ltd (plaintiff)
sued Zurich Insurance Company South
Africa Ltd (defendant) in terms of
an insurance policy issued by the
defendant in respect of a fishing
vessel (vessel) that was lost at sea.
The defendant repudiated the claim,
one of the defences raised being
that the plaintiff did not have an
insurable interest in the vessel. The
vessel was owned by Gansbaai Fishing
Wholesalers (Pty) Ltd (GFW), not
the plaintiff, but was the plaintiffs
wholly-owned subsidiary. Although
the parties envisaged that the plaintiff
would become the owner of the vessel
in future, it was not the owner at the
BYRON OCONNOR,
Director, and
VERUSHA MOODLEY,
Candidate Attorney, Dispute
Resolution, Cliffe Dekker Hofmeyr
time the vessel was lost. In essence,
therefore, the plaintiff obtained
cover over the property of a different
company.
The judge confirmed that a liberal
approach is adopted by courts both in
South Africa and abroad in determining
whether a person who has concluded an
insurance contract has an interest in the
event apart from the insurance contract
itself. In finding in favour of the plaintiff,
the court found that the combination
of the plaintiffs right of use, its well-
founded expectation of becoming
the owner of the vessel and that the
plaintiff was the 100% shareholder of
GFW established an insurable interest
measured with reference to the market
value of the vessel. In light hereof, it is
possible that more than one party may
have an insurable interest sufficient to
recover the market value of the subject
of the insurance.
This case makes it clear that, in defining
insurable interest, an overly strict
approach cannot be adopted. Provided
the insurance contract is not construed
as a gambling transaction, that is,
the interest created by the insurance
contract is not the only interest the
insured has in the property insured, the
insurer will be bound by the cover it
provided. To prevent potential prejudice,
underwriters should ensure that
sufficient information in relation to the
relationship between the insured and
the insured property and the potential
loss in the insured property is obtained
at the proposal stage.
In the event that misrepresentation or
non-disclosure of information can be
proven, the insurer will then be able
to repudiate the claim on that basis.
Regard should also be had to whether
the exemption clauses in the contract
sufficiently protect the insurer in light of
what is set out above.
93
2014/01/12 3:50 PM
 Legal
Is your trust deed valid?
The alarming answer is most
probably not, because legal
audits have shown that more
than ninety percent of trust
deeds (and/or amendments to
trust deeds) in South Africa may
not stand the test of validity if
tested in a court of law.
The fact that a trust deed has been
filed at the office of the Master of
the High Court is no guarantee of its
validity, in that it is not the Masters
duty to check for validity.
94
Jan 14.indd 94
There are various reasons that could
render a trust deed invalid. One of
these is the different legal systems that
apply in the South African Trust Law.
analysed and rectified before any of
PROF WILLIE VAN DER WESTHUIZEN,
Millers Attorneys
However, the main culprit may be that
the trustees have been allowed too
wide a discretion when it comes to
the choice of beneficiaries. This allows
them a so-called general power of
appointment or right to choose, which
then also causes the object of the trust
to become vague.
Another source of invalidity pertaining
to trust deeds is that they are often
merely created without any proper
agreement between the founder and
the trustees.
There are also other problems that
may not necessarily render the trust
invalid, but can cause serious family
feuds, unnecessary legal costs and court
applications for trustees and beneficiaries
of these ill-fated trust deeds.
These include the incorrect structuring
of the beneficiaries, such as by stating
that the beneficiaries shall include
blood and other relations, as well as
de facto control given to one or more
trustees, which may cause the trust
deed to become his alter ego.
There are also testamentary
reservations, a lack of power to create
roll-over trusts and the unbundling of
trust assets.
The message: prevention is better
than cure, and much cheaper, too.
Have your trust deed properly checked,
these disputes may occur.
COVER JANUARY 2014
2014/01/12 3:51 PM
 Healthcare
Selecting a medical
scheme option for 2014
Many people will undoubtedly be
reassessing their medical scheme
cover and considering switching
to an alternative option in 2014.
This amid increasing costs of
living for the consumer and
increasing pressure placed on the
South African medical scheme
industry to deal with escalating
costs in a rapidly changing sector
without the necessary regulatory
support to adapt legally to these
changes.
It is critical for people to regularly
re-asses the medical scheme option
that they are on to ensure that it
is still appropriate to their familys
health profile and their financial
circumstances.
Peoples needs change all the time.
Furthermore, medical schemes usually
review their benefits on a yearly basis.
Therefore, a review of ones option
should ideally take place on an annual
basis or whenever a member goes
through a life-changing event; for
example, a person who has recently
acquired a degree could qualify to
belong to a medical scheme that offers
more specialised services and additional
benefits for degreed professionals.
PEOPLES NEEDS
CHANGE ALL THE TIME.
Life stage also plays an important role
when considering a medical scheme:
a single young professional or a
young couple are unlikely to require
comprehensive cover, but rather a
good hospital option, preferably with
no limits on hospitalisation and no co-
payments or deposits on admission to
hospital.
COVER JANUARY 2014
Jan 14.indd 95
GRAHAM ANDERSON,
Principal Officer at Profmed
Alternatively, a family with children
would probably require a more
comprehensive option, which includes
out-of-hospital benefits. Once again, it
is important to ensure that the hospital
benefits and benefits for the major
dread diseases are comprehensively
covered.
Switching to a cheaper option or
a hospital option could have some
significant financial benefits but only
if the member is able to carry the cost
of out-of-hospital medical expenses,
for example, doctors consultations,
acute medicine.
The cost of different options depends
on both the level of benefits offered
and the health of the average member
on the option. Generally, less healthy
members tend to belong to options
offering more benefits which often
make these options more expensive.
By switching to an option with fewer
benefits, members should be grouped
with healthier members, and therefore
pay lower contributions. The savings
made through lower contributions
SWITCHING TO A
CHEAPER OPTION OR A
HOSPITAL OPTION COULD
HAVE SOME SIGNIFICANT
FINANCIAL BENEFITS...
could be used for GP visits and other
expenses out-of-pocket as they are
needed.
Members must ensure they know their
rights with regards to the Prescribed
Minimum Benefits (PMBs), as this will
also aid in the understanding of the
best option to choose.
Essentially, there are certain conditions
that a medical scheme is obliged to
cover, irrespective of the option you
are on. This means that even if a
member is on a hospital option, he
or she must be covered for PMBs,
including those incurred out of hospital.
Another important consideration is that
some medical schemes make use of
Designated Service Providers (DSPs)
which members will be obliged to use
for treatment to avoid having to make
a co-payment. In this case, a member
with hypertension may be required to
use a specific pharmacy and GP.
Members should make sure that they
are happy with the DSPs available
before they commit to an option for
2013; however, before choosing an
alternative option, members must
understand their current health
situation, realistically assess the risks
they will bear and how these will be
impacted by the change - and make
provisions accordingly.
95
2014/01/12 3:51 PM
 Healthcare
PMB misinformation sees
rise in CMS complaints
Misinformation provided to
consumers with regards to what
exactly is covered under the
payment of Prescribed Minimum
Benefits (PMBs) resulted in a
number of complaints to the
Council for Medical Schemes
(CMS) last year.
Many consumers mistakenly believe
that medical schemes are required to
cover all PMBs in full, regardless of the
specifics of the condition, or the cost.
The fact is that not all conditions
related to a PMB are covered; for
example, a hernia is included on the
PMB list, but is only funded under
specific circumstances such as when
the condition is complicated. In
these cases, clinical proof such as
x-rays, blood tests and scans must be
submitted before a medical scheme
will cover them and an ICD 10 Code
(a unique code per condition) may not
be used as the sole verification of the
diagnosis according to CMS regulations.
96
Jan 14.indd 96
PMBs refer to a list of 271 conditions
and 25 chronic conditions that all
medical schemes are required to fund
as a basic benefit to all members.
However, the authorisation of
treatment for the condition and the
level of care at which cover is provided
are determined by the medical tests
and other clinical verification received
by the medical scheme, as well as the
parameters and definition of the PMB
condition as set out by the CMS.
This process is aimed at protecting
the member, as well as the medical
scheme, from unscrupulous code
shifting/farming that could lead to
unnecessary treatment or surgery.
Medical schemes are also not required
to cover PMBs or pay in full for the
condition under certain circumstances.
If a member is in a waiting period for
a pre-existing condition related to the
PMB and there is no PMB cover during
this time, the scheme may not pay out.
Similarly, if the level of care proposed is
not deemed appropriate, cover may only
be provided for the appropriate level
DR JACQUES SNYMAN,
MD: Integrated Risk Solutions of
Agility Global Health Solutions
of care, for example, you will not be
covered for hospitalisation if you can be
treated effectively as an out-patient.
THE FOLLOWING EXAMPLES LIST
WHERE A PMB CONDITION MAY
NOT BE COVERED IN FULL:
If it is not an emergency. An
emergency is defined by the CMS as
lifesaving treatment that needs to take
place immediately to save life or limb.
If you go to a non-Designated
Service Provider (DSP) when one of
your schemes DSPs is reasonably
available. This does not apply to
involuntary admissions where you are
unable to choose the provider due
to incapacitation or if treatment is
not available at your schemes DSPs.
It is important to note that some
treatment for PMBs is only provided at
a scheme DSP in terms of your option
benefits and you should thus confirm
this information prior to joining.
The level of care you receive is
inappropriate for the condition, for
example, ICU when you could be
treated in a general ward.
Consumers must speak to their
healthcare consultant to determine
whether their medical scheme cover
provides the appropriate level of care
that they and their family require at
every life stage and not leave every
eventuality to the accessibility of PMBs.
It is in the medical scheme members
interests to question their medical
practitioner in depth with regards to
their medical conditions and determine
the best, most cost-effective method
of treatment. This will ensure that
there are no additional costs that they
must pay for as well as helping to limit
medical scheme contribution increases,
which will ultimately safeguard the
sustainability and affordability of
private healthcare in South Africa.
COVER JANUARY 2014
2014/01/12 3:53 PM
 Africa Rising

Insuring the uninsured

- major challenge for insurance sector

The increasingly competitive High visibility within communities

insurance sector in South
Africa may regard the virtually
untapped lower earning
segments of the market as a
growth area, but much has to
be achieved before corporate
ambitions in these sectors of
the market becomes a reality.
Traditionally, lower income earners
have concentrated on funeral and life
insurance and the benefits conferred by
these policies. Driving this market are
social responsibility belief systems that
emphasise the importance of meeting
the financial commitments of a funeral/
burial ceremony.
Stokvels, the other predominant
savings mechanism, have in some
instances become virtual insurance
companies by allowing people of
similar socio-economic levels to
contribute money to group saving
schemes. Many of these have set
agreed criteria for the utilisation of the
cash generated, so that future costs
such as burials and education can
be met. These mechanisms function
effectively because they are part of a
community structure and peer pressure
ensures that all members meet their
financial obligations.
To effectively enter this market at base
level will require insurance companies
to build their profiles through market
education. To move beyond the base
level, companies will have to meet the
challenges of broadening the level of
acceptance and trust in the market.
where risk-type products are seen
to be relevant will also be required.
Funeral and life cover could be
considered as a lead product in
marketing efforts to build market
share. An insurer would also have to
consider that in many families there is
a dependence on a single breadwinner
and income protection products also
have a role in this market.
Affordability and specific needs are
therefore primary touch points with
potential policyholders.
It seems logical that a specially
devised income protector policy that
would cover loss of employment and
temporary or permanent disability
would be an entry point to the market.
The type of products that can be
sold into this market are limited by YURESH MAHARAJ
prevailing socio-economic factors. (pictured)
AND ANDRE ROUSSEAU,
Traditional short-term products - Insurance Industry Leaders
vehicle insurance and household at Deloitte Consulting
contents and cover policies - will
gain no traction in segments where
privately-owned vehicles and housing
are currently at low levels. For major insurers and banks providing
bancassurance services as part of
Although the market has embraced a suite of products, this is almost
funeral policies and is accessing them counter-intuitive in a market where
via mobile or telephonic contact, the mechanised and digital delivery is
move into new segments will entail a major strategic objective and is
education and explanations. People essential in reducing the costs of
will have to understand the conditions traditional brick-and-mortar financial
of the investment. This means having services. Direct marketing and delivery
the implications of acquisition costs, is therefore key in delivering low cost,
exclusions and duration of policies high volume products.
being personally explained.
In conjunction with these requirements,
legislation must also be considered.
Micro-insurance legislation demands
that products must be low-cost
alternatives with low entry barriers.

Effectively, this will require changing
the public perspective of insurers.
This will entail revisiting the products
that are offered and packaging them
at a low cost. New solutions for the
challenges of these internal processes
and distribution channels will need to
be sought.
STOKVELS, THE OTHER
PREDOMINANT SAVINGS
MECHANISM, HAVE IN SOME
INSTANCES BECOME VIRTUAL
INSURANCE COMPANIES...
Needs analysis, lower costs and a
viable choice of products will be
requisites if commercial and legislative
demands are to be met. Without
education, understanding and trust,
however, the industrys ambitions of
insuring the uninsured could remain
elusive.

COVER JANUARY 2014 97

Jan 14.indd 97 2014/01/12 3:54 PM

 Africa Rising
Correctly structured insurance
when moving into Africa
One of the biggest challenges
facing multinationals moving
into Africa from South Africa
or globally, is their failure to
correctly structure their insurance
programmes, which leads to a
breach in insurance regulations
and the significant penalties
and difficulties which can occur
thereafter.
Most of our clients have structured risk
committees to manage certain aspects
of risk, but for global companies with
no footprint in Africa, managing this
risk can be a nightmare as you need
very specific knowledge and experience
to correctly structure the programme.
Arrests in Ghanaian waters
signal a growing risk
Four people were arrested
in Ghana for their alleged
connections to the chartering
of a vessel which was used
to siphon off 3,500 tonnes of
fuel from a tanker captured in
Gabonese waters on 14 July.
The arrests were made after
the Ghanaian Navy, acting
on information from Interpol,
intercepted the MT Mustard off
the Saltpond offshore oil facility
on 1 August and arrested the 13
crew members.
Ghanas deputy minister of information
and media relations, Felix Ofosu
Kwakye, said the person who chartered
the vessel and its agent in the port
of Tema were the main suspects
amongst the four arrested. He added
that security agencies were checking
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Jan 14.indd 98
The scale of Africa means that the
regulatory landscape is fraught with
interpretation difficulties due to the
different rules and regulations in each
country, with many global operations
unaware of the implications of the
non-compliance with these laws and
regulations. Trouble ensues after
a significant loss with regulators
becoming involved and insisting on
heavy penalties that result in losses
being incurred by clients to correct
their compliance regimen.
Cover for a risk must be arranged
for the country of origin of that risk,
or claims will be paid in the country
where the policy was arranged; for
example, if insurance is bought in
South Africa for a risk in Nigeria, the
claim will be paid to the client in South
information that it was a Ghana-
based company that had hired the MT
Mustard to rendezvous with the pirated
MT Cotton.
The focus of the Ghanaian authorities
enquiries suggests the existence of
a well-organised network, which
had access to information about
the tankers whereabouts, to the
point of specifically hiring a vessel to
rendezvous with it. It indicates that
piracy networks and their onshore
support are not limited to former
ALVIN DYE,
Divisional Executive of
Marshs Construction Division
Africa in rands. This can cause all sorts
of complications around taxation, forex
and accounting balance sheets, as well
as be in direct contravention of local
legislation.
Large construction players have paid
their school fees in Africa, and there is
a good understanding of the implication
of loss and insuring correctly, but the
need for better education to stop
big mistakes from being by other
companies as they start to trade more
extensively in Africa, is vital.
MARTIN ROBERTS,
Senior Africa Analyst
at IHS Country Risk
Movement for the Emancipation of the
Niger Delta (MEND) militants and gangs
in the Niger Delta.
The plotters appear to have believed
that they could find a market for the
siphoned diesel in one of the best
regulated countries in West Africa, as
local media reported that they tried
to sell it to the Saltpond Offshore
Producing Company which declined
because the source of the fuel could
not be established.
The Ghanaian government has stepped
up its support for the Navy in response
to increased piracy, but it is likely that
the lucrative practice of siphoning off
oil from captured ships to sell on the
black market will simply concentrate
on neighbouring countries with laxer
security and regulation.
COVER JANUARY 2014
2014/01/12 3:54 PM

Sub-Saharan housing:
boom market or bug bear?
Sub-Saharan Africa cannot and
will not meet its development
goals without providing its
citizens with affordable housing.
This means going beyond bricks
and mortar to a housing value
chain that works, from land and
property rights all the way to
finance and investment products.
The World Banks latest global poverty
update shows that growth in Sub-
Saharan Africa rose to 5,6% in 2013
with a third of SSA countries posting
6% or higher. Two years ago, foreign
direct investment jumped 25% to
an estimated US$35,6 billion while
exports increased by 32% in the first
quarter of 2012.
Today, 40% of the continents one
billion people live in cities, compared
to 28% in 1980. By 2030, this is
projected to rise to 50%, and Africas
top 18 cities will have a combined
annual spending power of US$1,3
trillion.
Clearly, housing markets are set to
become ever more crucial to economic
growth and social stability in emerging
economies. To keep apace, housing
finance markets must change their risk
management approaches, business
models, funding tools, and policy
instruments to help expand markets,
increase access to affordable housing,
and contribute to countries strategies
for housing the poor.
COVER JANUARY 2014
Jan 14.indd 99
But many questions remain about
the balance between innovation
and regulation, risks to the financial
system, and appropriate measures for
promoting affordable housing in SSA.
UNDERSTANDING THE CONTEXT
It is crucial to understand the context
in which housing finance systems
operate. Only then can the relationship
between housing and the macro-
economy, the workings of housing
markets and approaches to finance and
lending in SSA be understood.
Finance products must match the
needs and circumstances of the target
population and need to be delivered
in a viable manner. The recent global
financial crisis and the unsecured credit
crisis in South Africa highlight the
dangers of poor lending practices and
unsustainable business and funding
models.
THINKING OUT THE BOX
There is an urgent need to enhance the
professional ability of private housing
finance institutions, government
housing and finance agencies,
and academic and international
development institutions in SSA in
order to facilitate much-needed
innovation in the sector. We not only
need minds engaged in innovating
housing finance products that take the
local social, economic and institutional
contexts into account; these products
must also be sound from a business
funding, operational and risk-
management point of view.
ROBERT MCGAFFIN,
Director,
UCTs Graduate School of Business
Kecia Rust, coordinator of FinMark
Trusts Centre for Affordable Housing
Finance in Africa, agrees, We work
closely with micro-lenders to expand
their product range so they can
finance low-income households. There
is a need, for example, for non-
collateralised loans to enable people
to finance incremental building and
home-improvement.
THE HOUSING VALUE CHAIN
However, sorting out the top structure
financial constraints alone will not solve
the housing challenge in SSA. Whether
governments and institutions suceed
in meeting the rising demand for
houses and housing finance products
in SSA will depend on the strength of
each link in the housing value chain:
land, property rights, infrastructure,
development rights, development,
end-user households, investment, and
management.
Institutional, procedural and legal
constraints also play a part, particularly
if weaker systems make transacting
too complicated, time consuming and
expensive.
Marja Hoek-Smit, Director of the
International Housing Finance
Programme at the Wharton School
Zell/Lurie Real Estate Centre, says,
Government, lenders and developers
must begin the necessary conversations
on what it takes to enable large scale
affordable housing construction across
the continent so we can build cheaper
houses in a sustainable way.
A better understanding of each
groups operating constraints and
preferred outcomes make for stronger
relationships for example, the
state familiarising itself with the
requirements developers must fulfil,
and being aware of the impact time
delays have on a projects feasibility.
Co-operation and innovation are
the way forward for affordable and
sustainable housing in SSA. We know
how urgent the need is. There are
solutions, but we do not have time
on our side. We need to start building
the housing value chain to create
affordable and viable housing markets.
99
2014/01/12 3:54 PM
 Africa Rising
Kenya: land of
opportunity
Kenya has stayed the course in
its economic reforms, with good
results. Inflationary pressures
have been tamed. Economic
growth has maintained a good
pace despite the slowdown of
exports to and tourism from
Europe, according to a recent
IMF survey.
Additionally, international reserves
are on the rise and the deficit of the
external current account has shrunk
significantlyexcluding capital-goods
imports that have surged because of oil
exploration. The public debt-to-gross
domestic product ratio has declined,
despite the large budgetary costs of
implementing the new constitution,
the March elections, and the wage
increases in the civil service.
100
Jan 14.indd 100
Elections took place successfully
in March 2013 after a few
postponements. 41 states were formed
with a governor appointed to control
each state or county. Infrastructure
and development is on an upswing
as Kenya is the hub of East Africa.
New shopping malls are currently
being developed, together with the
improvement and refurbishment of
roads around Nairobi. Nairobi airport
is a major regional hub and despite
the recent fire, major expansion of the
airport is taking place. The rest of the
world considers Africa to be a market
for growth with larger international
companies more prevalent. This
situation has given rise to a higher
level of competitiveness in the market.
British American Tobacco Kenya, the
largest producer of tobacco in East
Africa, is one of the largest listed
entities in the country. The company
hires approximately 5000 local farmers
on a contract basis which stimulates
the local economy. Their product is
also exported to countries throughout
Europe. Kenya has a significant
agricultural strategy in place (Africa
holds 25% of the worlds arable land
yet only 40% of this land is utilised
efficiently).
The steel industry is difficult to
manage: orders from the large mills
have been slower and reduced due to
stock being dispatched more regularly.
Overall milling, mining and production
costs have increased but the steel
price has remained buoyant with a
downward trend experienced.
Oil exploration is underway in the
north of Kenya; crime and corruption is
rampant (Nairobi is known worldwide
for crime and grime as per an article
published in the National News on 22
June 2013). The roadworthy condition
of the Kombis that are used for the
local taxi/transport industry is cause for
concern.
The countrys largest export earner is
the horticultural industry and Kenya
is one of the largest exporters of
flowers in the world. A large amount
ABDUL CASSIM,
Senior Manager Export Risk,
Credit Guarantee Insurance Corporation
of foreign currency is also derived from
remittances from Kenyan citizens who
are employed abroad.
The major development that is
currently in progress has resulted
in severe road congestion by heavy
duty vehicles; this is exacerbated
by the country not having a railway
line. Government has embarked on
the construction of a railway line
and introduced a 1.5% levy on goods
imported into the country to finance
the project.
Chinese fully manufactured products
provide active competition for local
manufacturers. The local businessmen
are lobbying with government to
control imports by introducing levies
and taxes on fully manufactured
goods that can be produced within the
country.
Unequal pay poses a threat to
economic growth as Kenya has the
widest disparity between the highest
and lowest paid workers in Africa. This
contributed to recent salary strikes in
the education and healthcare sectors.
Despite the negatives, Kenya is
a country of incredible beauty,
dynamism and hope. Almost weekly
an African investors conference or
growth summit is held in Nairobi.
International companies are flocking
to Kenya to establish and evaluate
growth. It appears that sustainable
development is within reach in Kenya.
International investors perceive Kenya
as a good hunting ground, an audit
by Brand Kenya revealed. The review,
dubbed the National Brand Audit,
states that the country is perceived as
a competitive investment destination.
The Economic Intelligence Unit ranks
Kenya as the fifth most globally
competitive investment area in Africa.
Wolfgang Fengler, the World Banks
lead economist for Kenya, Rwanda
and Eritrea, remarked that Kenya is
experiencing structural shifts that it
can leverage to its advantage and a
silent revolution is in progress which is
transforming Kenya for the better.
COVER JANUARY 2014
2014/01/12 3:55 PM
 Tax treaty between
Mauritius and South Africa
On 17 May 2013, South Africa
signed a new tax treaty with
Mauritius in Maputo.
The good news is that South Africa will
still have a tax treaty with Mauritius
in the future. Some have feared
SARS and the National Treasury will
simply terminate the existing treaty
due to concerns that South African
multinationals are abusing the existing
tax treaty concluded in 1996. It is
evident that some hard negotiation
took place, as many advantages of the
1996 tax treaty will be a long gone
memory when the new treaty enters
into force.
SOUTH AFRICAN MOTIVATIONS
FOR RENEGOTIATING
South Africas motivations for
renegotiating the 1996 tax treaty with
Mauritius were revealed when SARS
and the National Treasury briefed
Parliaments Standing Committee on
Finance about the renegotiations in
February 2011.
The main reason was perceived abuse
of the 1996 tax treaty and resultant
erosion of the South African tax base.
The National Treasury placed some
financial information before the
Parliamentary Committee about the
investment flows through Mauritius.
TOTAL INVESTMENTS BY SOUTH
AFRICA INTO MAURITIUS WERE:
R35,5 billion in 2006; R35,1 billion
in 2007; R46,8 billion in 2008; and
R53,5 billion in 2009.
COVER JANUARY 2014
Jan 14.indd 101
TOTAL INVESTMENTS BY
MAURITIUS INTO SOUTH AFRICA
WERE:
R6 billion in 2006; R5,1 billion in
2007; R6 billion in 2008; and R5,9
billion in 2009.
These figures show that total outward
investment by South African taxpayers
through Mauritius was far greater
about ten times more by 2009
than inward investment by foreigners
through Mauritius into South Africa.
CONTENTS OF THE TAX TREATY
The new tax treaty with Mauritius
takes as its basis the OECD Model
Tax Convention. However, there are
significant variations in which SARS and
the National Treasury addressed their
fears about abuse of the treaty by
taxpayers.
DUAL RESIDENT ENTITIES
The most significant deviation in the
new treaty concerns companies that are
tax resident in both Mauritius and South
Africa. Such dual residents are subject
to double taxation and classically, OECD
Model-based tax treaties resolves such
double taxation by determining that the
company shall be solely tax resident in
the treaty State in which its place of
effective management is situated.
UNDER THE NEW MAURITIUS
TAX TREATY, THE EFFECTIVE
MANAGEMENT CRITERION
IS SUBSTITUTED WITH AN
ADMINISTRATIVE DISCRETION.
JOHAN HATTING,
PwC International
Tax Senior Manager
South Africa follows the place of
effective management criterion in most
tax treaties, and also did so under the
1996 tax treaty with Mauritius. This
internationally recognised standard
for corporate tax residence provides
certainty of tax treatment to especially
multinational groups.
Under the new Mauritius tax treaty,
the effective management criterion
is substituted with an administrative
discretion. Accordingly, SARS and the
Mauritian authorities must endeavour
to reach mutual agreement on
whether a dual resident company
should be taxed only in Mauritius or
only in South Africa. If SARS does not
reach an agreement, the dual resident
company will be subject to double tax.
A DRAMATIC TURN OF EVENTS
Effectively, it will in future be up to
SARS and the Mauritian counterpart to
determine where a dual resident entity
must pay tax.
Moreover, such a dual resident will not
have an effective legal remedy against
any decision or lack of agreement by
the revenue authorities. This is because
there is no objective rule in the new
tax treaty in respect of which a Court
of law may adjudicate a taxpayer
compliant. There is also no automatic
right of representation for such a
taxpayer during the mutual agreement
procedures when the two tax
authorities decide where the taxpayer
must pay tax.
When Parliaments Standing Committee
on Finance was briefed about the
renegotiations in February 2011, SARS
made several statements concerning
dual resident companies under the new
Mauritian tax treaty. It was said that
the mutual agreement dispensation
under the new treaty was designed to
convey a message to companies:
101
2014/01/12 3:55 PM
 Africa Rising
that if they caused confusion as to
their place of residence, then they
could not expect to benefit from these
treaties.
THERE ARE LEGITIMATE AND
SIGNIFICANT NON-TAX REASONS
WHY INTERMEDIATE MAURITIAN
INVESTMENT AND OTHER GROUP
SERVICE ENTITIES ARE USED.
This speaks to the heart of the reason
why South Africa sought to renegotiate
the 1996 tax treaty - the concern that
South African corporate taxpayers
were abusing the treaty by investing
through intermediate Mauritian holding
companies in foreign lands. SARS
is well known to have aggressively
examined the tax residency in Mauritius
of such investment holding companies.
Has this new dispensation has not gone
a step too far? The representations
before Parliament were, in all fairness,
one-sided. There are legitimate and
significant non-tax reasons why
intermediate Mauritian investment and
other group service entities are used.
Among these reasons is the ability to
manage foreign currency reserves free
from exchange controls. The ability to
pool foreign currency outside South
Africa provides an effective hedge
against the Rand.
The boundless discretionary powers
granted to SARS under the new tax
treaty to determine where Mauritian
investment holding companies must
pay tax raises significant constitutional
concerns. Tax administrators are,
as a general rule, supposed to only
administer laws and should not be
put into a position where they may
exercise powers that properly belong to
Parliament.
PROPERTY INVESTMENTS
The new tax treaty brings unwelcome
news for foreign taxpayers that hold
investments in South African property
rich companies. Investment in mining
will be particularly affected. Under
the 1996 tax treaty, investments of
this nature were exempt from South
Africas Capital Gains Tax (CGT).
The new tax treaty repeals this
exemption.
102
Jan 14.indd 102
TAX SPARING FOR ECONOMIC
DEVELOPMENT
Under the 1996 tax treaty, tax-sparing
credits were granted on a reciprocal
basis for investment in either South
Africa or in Mauritius. This was a
particular type of double tax relief that
encouraged foreign investment and
which was aimed to preserve local tax
incentives.
Under the new tax treaty, the tax-
sparing relief will only be available
for investment into South Africa by
Mauritian residents.
TAX RATE REDUCTIONS
The new tax treaty will offer a number
of tax rate reductions:
DIVIDENDS
The rate of tax for dividends remains
unchanged at 5% when a minimum
shareholding of 10% of capital is met.
In all other cases, the rate of tax is
limited to 10% (previously 15%).
INTEREST
An exemption from source-based
taxation of interest was granted under
the 1996 tax treaty, only retained in
the new tax treaty for interest paid
or earned by a Government, or for
interest on debt instruments listed on a
stock exchange.
THE ABILITY TO POOL
FOREIGN CURRENCY
OUTSIDE SOUTH AFRICA
PROVIDES AN EFFECTIVE
HEDGE AGAINST THE RAND.
All other types of interest will be
subject to a maximum source rate of
tax of 10% (previously 0%).
South Africa is set to introduce an
interest withholding tax of 15% in 2014
on all SA source interest payments to
non-residents. Foreign companies that
finance local investments in South
Africa through Mauritian structures will
be hard hit by this new dispensation.
ROYALTIES
Like interest, an exemption from
source-based taxation of royalties was
granted under the 1996 tax treaty.
This exemption too has been
withdrawn under the new tax treaty,
which provides for a maximum rate of
tax of 5% in respect of any royalties
(previously nil%).
EXCHANGE OF TAXPAYER
INFORMATION
The new tax treaty contains the latest
OECD standard for the exchange of
taxpayer information.
It appears from the SARS briefing of
Parliaments Standing Committee on
Finance during February 2011 that
SARS considered it important that
there should be a full exchange of
information article in the new tax
treaty because the 1996 tax treaty had
a more limited version of exchange of
information where countries could say
that they had bank secrecy.
ENTRY INTO FORCE
Because the new tax treaty must first
be approved by the South African and
Mauritian Parliaments it is anticipated
that it will only become effective for
taxpayers on 1 January 2015.
COMMENT
In the main, the new tax treaty with
Mauritius will be of concern to many
South African taxpayers. It is clear
that South Africa held the upper hand
during renegotiation, and that these
were overshadowed and driven by tax
avoidance concerns harboured by the
South African authorities.
It would have been encouraging to
see a more balanced approach and it
is not clear at all whether the South
African authorities have been taking
cognisance of the strategic importance
of having an investor-friendly avenue
in and out of the country.
What stands in the background is
South Africas own attempt to establish
a tax friendly regime for international
investment the so-called gateway to
Africa project. It remains to be seen
whether this project will bear any
significant fruit.
The question is whether South African
multinationals will relocate their
international investment, finance
and/or group services activities from
Mauritius to South Africa when the
new tax treaty becomes applicable? It
may be that other countries that have
been competing in this space far longer
than South Africa may be the real
benefactors.
COVER JANUARY 2014
2014/01/12 3:55 PM
 SANLAM EMERGING MARKETS AND SANTAM
LEVERAGE BUSINESS IN EMERGING MARKETS
Sanlam Emerging Markets (Proprietary) Limited (SEM)
and Santam Limited (Santam) have entered into a series
of transactions (the Transaction) to align their interests
in current and future short-term insurance investments in
emerging markets.
SEM is tasked with expansion into international emerging
markets and currently operates in 10 African countries
outside South Africa and in India and Malaysia. Santam,
leading short-term insurer in South Africa with total assets in
excess of R18 billion (US$2,2bn), insures 80 of the top 100
companies listed on the JSE.
The Transaction positions SEM as a single investor for the
Sanlam Groups short-term insurance businesses in emerging
markets whilst enabling Santam to share in the economic
interest of the current and future short-term insurance
expansion in these markets. In principle, SEM and Santam
will respectively participate on a 65%:35% basis in the
Sanlam Groups short-term insurance businesses in emerging
markets. Through its participation in the Sanlam Groups
emerging market short-term insurance investments, Santam
will obtain exposure to the Indian, Malaysian and African
emerging markets, and have the opportunity to participate
in the Sanlam Groups future emerging markets short-term
insurance investments.
In terms of the Transaction, Sanlam will participate in
Santams investment in Santam Namibia Limited (Santam
Namibia).
In addition, SEM has acquired Santams 25,1% investment
in the issued ordinary shares of NICO Holdings Limited
incorporated in Malawi. NICO Holdings is the holding
company of NICOs short-term and life insurance businesses
across various countries.
In terms of the Transaction Santam will pay a net amount of
R167,7 million to SEM.
Santams Chief Executive Officer, Mr Ian Kirk, says: This
transaction enables Santam to achieve its international
investment objective through the economic participation in
SEMs short-term insurance businesses and gives us access
to SEMs growing footprint in some significant emerging
markets and it will create value for our shareholders. We
are confident that Santams short-term insurance technical
expertise will add value to SEMs growing footprint in
emerging markets.
PPS PURCHASES CORONATIONS SHAREHOLDING IN
PPS INVESTMENTS
PPS has announced its full acquisition of independent
investment company, PPS Investments (PPSI), through the
purchase of Coronation Fund Managers 49% shareholding in
the business.
The transaction, which has been approved by the Financial
Services Board (FSB), was effective from 1 October 2013,
meaning PPSI is now a 100% subsidiary of PPS.
Mike Jackson, CEO of PPS, says of the transaction It has
COVER JANUARY 2014
Jan 14.indd 103
always been part of the long-term strategy of both parties
for PPS to acquire the full shareholding of PPSI. We are
extremely grateful for Coronations involvement in the
establishment and growth of PPSI. The business has grown
significantly since it was launched in 2007 and with the
business plan being delivered on time and as expected, we
are very excited to take the next step, whilst continuing to
retain a strategic relationship with Coronation.
Anton Pillay and Pieter Koekemoer, CEO and Head of
Personal Investments at Coronation respectively, will
continue to remain on the board of PPS Investments.
Nick Battersby, CEO and Director at PPS Investments, who
was appointed to launch PPS Investments in 2007, will also
remain in the same capacity.
PPSI has an established and stable management team, with
85 staff across seven offices in Cape Town, Johannesburg,
Pretoria, Durban, Bloemfontein, Port Elizabeth and
Potchefstroom. The business also holds Category 1 and 2
FSB licences.
PPSI has amassed assets of over R14 billion and our core
range of real return PPS-branded funds of funds, have all
beaten their benchmarks over the last one, three and five
years, says Battersby. This transaction is the latest in a
series of important milestones at PPSI, following the business
achieving profitability in 2011 and declaring a maiden bonus
to PPS members in 2013 in respect of 2012.
STRUGGLING CONSUMERS CLAMOUR FOR SECOND
INCOME IN INSURANCE
Plagued by crippling food and fuel price increases and
below-inflation rises in salary, struggling consumers are
clamouring for a second income in the insurance industry.
GROWING DEMAND... Multisure Corporation CEO
Denton Goodford (left) and the companys Eastern
Cape business advisor, Vuyo Sityebi, are kept busy
by the people signing up for networking marketing
to boost their salaries amid rising living costs.
103
2014/01/12 3:56 PM
 According to CEO, Multisure Corporation, Denton Goodford,
the increased demand from people wanting to become
independent consultants (ICs) marketers of the
companys products has meant it has had to open up
offices nationally.

The company has seen a rise in its ICs of more than 30%
over the course of the past year, said Goodford.

The companys model of allowing policy holders to also

market the product as an extra income network marketing
is similar to the one used by major players in the industry,
like Sanlams Channel Life and Clientle.

Initially people who were unemployed or earning less than

R10,000 a month were contacting us, but, in recent months,
we have noticed another trend: People earning more than
R20,000 a month are calling us to get involved so they
can earn more. A salary that was sufficient in the past is
suddenly just not enough anymore, Goodford said.

After opening its headquarters in Port Elizabeth in 2005,

Multisure opened an office in Johannesburg in 2010,
and Cape Town late last year. Plans to open in Durban,
Bloemfontein, East London and George were at an advanced
stage, said Goodford. the Global Insurance Industry Statement this week. The
Statement is a collective call to action to proactively address
Where network marketing in the past was seen as climate threats and build societal resilience.
something part-time, we are finding people are signing up
for it fulltime, Goodford said. Santam recognises that climate change is a global collective
challenge that requires innovative and ongoing solutions. The
THUMBS UP
company supports the Global Insurance Industry Statement.
The company, which offers legal and funeral cover, has
received a thumbs-up from the Nelson Mandela Bay Business Vanessa Otto-Mentz, Santams Head of Strategy, says:
Chamber for its job creation. Chamber chief executive, Kevin Climate change is set to cause catastrophic weather-
Hustler, described Multisure as a home-grown success related losses. ClimateWise is the global insurance industrys
story of a local entrepreneur who has been able to grow his leadership group, driving action on climate change risk.
business outside of Nelson Mandela Bay nationally. As a member, Santam supports taking action to address
climate threats proactively and build societal resilience.
HISTORY
Consequently, Santam endorses the actions set out in
Goodford started up Multisure in 2000, after he had started
the attached Global Insurance Industry Statement. These
up his own practice following years as a successful State
include risk identification and analysis and the development
prosecutor. He had witnessed instances where people were
of products that incentivise risk reduction and prevention
simply side-lined by the legal system because they couldnt
through both building adaptive capacity and decarbonising
afford the legal costs.
economic activity. We call on the wider multilateral
During a trip to the US, I saw a business model which community to support widespread action and create a
combined legal cover with network marketing, he said. I constructive space for future more specific action.
returned to South Africa wanting to join up with a company
AIRBORNE INSURANCE SOARS TO NEW HEIGHTS
which offered that, because I felt passionate about the
Specialist aviation insurance brokerage, Airborne Insurance,
need for legal cover and about creating opportunities for
recently concluded a management buy-out deal with Cyan
people to earn a decent living in South Africa. But there was
Capital.
no company which offered both [legal cover and network
marketing]. Our partnership with Cyan Capital enables us to grow
the company and offer an extended product range to our
What started off as an experiment and managing the
clients, says Airborne Director, Scott Smith. Essentially,
company part-time in 2000 became fulltime for Goodford in
we can now offer business and high net worth insurance
2005, when he opened up offices in Port Elizabeth.
at the same standard that we have always offered aviation
ADDRESSING CLIMATE THREATS insurance.
ClimateWise, a global insurance industry group driving
Cyan Capitals Managing Director, Matthew van den
action on climate risk, together with The United Nations
Heuvel, says, Our strategy is to invest in businesses that
Environment Programme Finance Initiative (UNEP FI) and
are the best in their industry, highly skilled and where the
The Munich Climate Insurance Imitative (MCII) have launched
management team is invested in the business. As one of the

104 COVER JANUARY 2014

Jan 14.indd 104 2014/01/12 3:56 PM


biggest aviation insurance brokers in the country and a niche
player in the market, Airborne is the ideal partner to Cyan
Capital.
Scott Smith has been retained as Chief Executive Officer and
still owns shares in the company. Jacques Greyvenstein, the
Chief Financial Officer, and Chief Operating Officer Debbie
Ray are both part of the transaction.
Airborne specialises in all aviation-related insurance, such
as aircraft, airports, engines, pilots and even flight schools.
Committed to providing a complete range of aviation and
aircraft insurance options, Airbornes team of dedicated
brokers has secured large general and corporate aviation
insurance accounts in South Africa.
Airborne boasts a number of high profile names as its clients,
but services a range of customers, from the individual small
plane owner to $40 million jets and airlines throughout
Africa. The company currently insures over 800 aircraft.
As one of the continents leading and fastest growing
aviation insurance brokers, the company deals with top
underwriters both in South Africa and overseas, including
long-established specialists Lloyds of London. This enables
Airborne to find the best aviation insurance solutions for its
clients that are also internationally recognised. Programs are
designed to meet the current and future needs of clients,
including insurance against eventualities such as accidents
and injuries, third party damage, loss of revenue and loss
of licence, thereby making the aviation process safer and
smoother for pilots, crew members and passengers. Airborne
also offers advice on pricing levels and insight into the latest
developments in the aviation insurance market.
COVER JANUARY 2014
Jan 14.indd 105
MAINSTREAM RENEWABLE POWER LAUNCHES NEW
VENTURE TO ACCESS FURTHER INVESTMENT
Mainstream Renewable Power is launching a new business
venture called Mainstream Capital in a bid to gain access
to capital at better rates. The new platform is targeted
specifically at pension funds and insurance companies who
want to benefit from government-backed, long-term cash
flows by investing directly into the Companys wind and solar
projects.
Eddie OConnor, Chief Executive of Mainstream Renewable
Power, said its size and track record of delivering top quality
projects afford it the opportunity to set up its own platform
to attract investment.
Mainstream is the worlds most successful, independent
renewables company and is currently building hundreds of
megawatts of wind and solar plant across four continents.
It has a project portfolio of over 19,000 megawatts across
Ireland, the UK, Germany, South Africa, Chile, the US and
Canada and is actively looking at the best opportunities in
new markets.
Acknowledging that access to capital at pre-construction
phase can be tough, OConnor added that Mainstreams track
record meant it could now secure access to longer-term,
more reliable funding by developing its own capital raising
arm.
He said the move would make a huge difference to the cost
of raising finance. As the business has grown, the risk-
adjusted return has moved from private equity towards long-
term, stable infrastructure returns. he explained.
He added that Mainstream was now well recognised for its
success in delivering top quality renewable projects and so
it was now more straightforward to attract the interest of
pension funds and insurance companies from the outset of
any plans.
We have built a credible business. When you get this big,
there is an exercise in corporate branding in the sense that
people know that we know what were doing. We have a
great track record and our projects allow pension funds and
insurance companies to take a sensible outlook over a 20
year period, he said.
105
2014/01/12 3:56 PM
 Market Cover

Exciting
developments
Newbies
at COVER
COVER welcomes to its editorial team
Annetjie van Wynegaard and Taryn
Kerr, both Journalism and Media Studies
graduates from Rhodes University.
Annetjie van Wynegaard
Annetjie comes with experience as an editor
of Rhodes Journalism Review and social media
manager. Following two years of teaching English
in South Korea and travel in the Far East, Annetjie
returns to South Africa eager to contribute to
the ongoing success of COVER and its various
channels: COVER magazine, COVERConnect - the
weekly electronic newsletter, LinkedIn, Facebook,
Twitter and website: www.cover.co.za.

Taryn, with an Honours degree in health

journalism, has been a freelance writer and
journalist for Discovery Holdings, and has survived
numerous bootcamps, in fact, has founded and run
her own! Equally comfortable with intellectual and
physical challenges, Taryn will enhance COVERs
distinctive quality of editorial and add considerably Taryn Kerr
to the publications busy programme of supporting
industry bodies and companies at their numerous
events.

In addition to COVERs new editorial team, COVER

has two advertising executives for 2014: Thenjiwe
Roda, who has already been with COVER for
almost a year, and Hermione Ballinger, whose
experience in publishing and broadcasting will
stand her in good stead.

COVER bids farewell to Carroll Foster, COVERs

Advertising Executive, who returns to Texas after
enriching the South African landscape for many
years. Associate Editor, Kim Forbes, takes up a
new position at a financial planning practice in
January. COVER wishes them both well in their Hermione Ballinger
future
106 endeavours. COVER JANUARY 2014

Jan 14.indd 106 2014/01/10 5:39 PM

 So long, and thanks
for all the fish!

I AM DELIGHTED to be able to borrow from

Douglas Adams as I write my thanks and farewell.
Of course, in his science fiction series, the phrase
signals the departure of dolphins from planet earth
before its destruction. While I am confident that
COVER will continue its successful service to the
insurance industry as it has for the past 25 years,
I do want to draw on the fish motif. I am indebted
to Altrisk and Sanlam for the idea, though my
thanks extend to COVER, Tony and team, and the
insurance industry as a whole.
In the advertising campaign depicted in the pictures above,
Sanlam responds to Altrisks advertisement that affirmed
Altrisk as the pioneer of HIV insurance. Instead of disputing
this, Sanlam acknowledges it, asserting its own strength in
this product at the same time. has been such an enriching experience. Events such as the
Insurance Conference at Sun City are unparalleled globally
It is this bonhomie and ability to recognise excellence in what a privilege to have been a part of it!
a rival that has impressed me in the five years during
which I have been COVERs Associate Editor. I remember So, it is with a profound sense of gratitude that I depart
commenting to Tony early on that this industry loves to from COVER, though not from the industry (find me
network. At an IISA breakfast, or the FIA Awards, or an IIG at Chartered Wealth!). I am confident that the newly
dinner, you cannot depend on finding your contact at the constituted team with Tony at the helm will continue
table whose number you carefully memorised no, the to grow COVER and all its channels of communication.
entire assembly has arisen and shifted, loudly laughing and Thank you to all those whom I have interviewed, visited,
conversing and comparing numbers and catching up with photographed, questioned, emailed, badgered, and with
acquaintances, friends, competitors. Ask any MC who has whom I have giggled and shared significant moments. I will
tried to call the crowd to order! carry these experiences with me as I meet new challenges.

It has been my privilege to make the acquaintance of so
many in the industry through COVER. The support, concern
and genuine friendship extended to me, and to Tony and
our team, and the magazine as a stalwart of the industry,
have been far beyond what I would have expected. The
opportunity to interact with people of the calibre of our
editorial and strategic boards, and industry bodies, to
interview industry movers and shakers, and work so hard
with communications and public relations representatives
To Tony, and our team, thank you for the opportunity to
grow, learn and to be exposed to an industry that really
does have the interests of its clients at heart I would not
have recognised the extent of this commitment without
the inside track that working for COVER could provide.
To the new-comers (and some not so new), best wishes:
Thenjiwe, Hermione, Annetjie and Taryn, enjoy every
minute, and find, as I did, great joy in the wonderful
relationships and special moments that this industry offers.

COVER JANUARY 2014 107

Jan 14.indd 107 2014/01/10 5:39 PM

 SANLAM TAILORS UNIQUE PRODUCT SUITE FOR
GRADUATES
According to the 2013 Student Village Student Spending
Report, students spend more than the average South African
and 20% of students already have credit cards. These are
frightening findings, says financial services provider Sanlam,
if one considers how chronically indebted and under-saved
our society is.
In August, the Sanlam group launched Sanlam for Graduates,
a suite of investment and risk products designed to help
graduates with either a three-degree or four-year diploma
make the best use of their financial resources into the
future.
Nishen Naidoo, solutions manager at Sanlam Personal
Finance, says Sanlam recognises that graduates have worked
hard and have made many sacrifices to obtain a tertiary
qualification. We have created this offering to acknowledge
and reward them. Research shows graduates have low lapse
rates and generally remain loyal clients for longer than the
average middle income South African, so, from a business
perspective, this is a market we believe will deliver over the
long term.
Sanlam for Graduates is available to young (20 to 35 years
old) and established (35 and older) graduates. Our rates are
competitive and a sickness benefit on offer to individuals
with a 3-year degree or 4-year diploma for the first time in
South Africa can be adapted to each clients circumstances
and needs. It offers a variety of products from retirement
annuities to income protection and dread disease cover,
says Naidoo.
The RAs offered under this suite of products are from
Sanlams new Cumulus Echo range, which pay out bonuses
to reward clients for long-term savings.
SUPPORT THOSE WHO PROTECT YOUR HOME AND
FAMILY WITH DOMESTICOVER
Domestic workers and nannies are an integral member of
many households in South Africa and play a vital role in
looking after and bringing up children, especially for working
108
Jan 14.indd 108
moms. Their role in the household is often invaluable and
fostering a healthy working relationship with mutual respect
and loyalty is essential.
Medway DomestiCover is a new, packaged product tailored
to the needs of the domestic worker. It is unique in that it
provides substantial benefits to both this employee and the
employer at a very affordable monthly premium of R250.
The domestic worker is comprehensively covered in the
event of an accidental injury or death, regardless of whether
the incident takes place in the home or elsewhere. The
product also provides the employer with income protection
should they need to cover the cost of another domestic
while their employee is away from work during a period of
injury or illness.
Benefits include Funeral Cover, In Hospital and Casualty
Ward Cover, an Income Protection Benefit and Disability
Cover.
SEB INTRODUCES INFLATION ANNUITY TRACKER TO
ASSIST RETIREES
Sanlam Employee Benefits has launched an investment
portfolio that assists members approaching retirement
with converting their defined contribution lump sum into
an income for retirement. The Inflation Annuity Tracker
portfolio tracks changes in the relative cost of an inflation-
linked annuity caused by changes in interest rates and is
an attempt by Sanlam to improve the prospects of South
Africas retirees, more than half of whom cannot make ends
meet (source: Sanlam Benchmark Survey 2013).
Danie van Zyl, head of guaranteed investments at Sanlam
Employee Benefits (SEB), says South Africans often approach
retirement savings with the goal of saving a certain rand
amount by the time they retire. However, most of us do not
take into account that interest rates have a major impact on
the cost of a guaranteed, inflation-linked retirement annuity,
and we cannot foresee what interest rates will be on the
day we retire and how this will impact on our retirement
income.
The Inflation Annuity Tracker portfolio aims to closely match
movements in its benchmark index, the Sanlam Asset
Liability Index (SALI) Real. As real interest rates move up and
COVER JANUARY 2014
2014/01/12 3:57 PM
 down and the cost of an inflation-linked annuity decreases
or increases, so the index will change to reflect this change
in cost. The Inflation Annuity Tracker portfolio thus aims
to preserve retirement fund members ability to purchase a
guaranteed inflation-linked annuity.
REGENT USES TELEMATICS TO ENHANCE FLEET
MANAGEMENT
Regent Insurance has launched Regent Risk Solutions, a system
that integrates with the telematics systems of commercial
fleet operators to transform data into intelligence that can be
used to assist with route planning, scheduled stops, speed
management and other vehicle management essentials.
According to Wayne Rautenbach, National Manager for
Regent Commercial Vehicles (RCV), telematics technology is
mostly being used as a basic tracking system, and not being
optimised to identify potential areas to reduce risk and costs
or to improve productivity by changing driving behaviour.
Regent Insurance, as a leading insurer in the trucking
industry, has developed a risk solution to assist reduce road
fatalities, help businesses better manage their risk exposure
and improve profitability, says Rautenbach.
Fleet operators in the Southern African market realise
the importance of constantly monitoring their assets and
managing the risks within their control to stay competitive.
Research has shown that traditional transport controllers do
not have the time and are often not equipped to handle the
flow of information from telematics systems. This results in
telematics systems being used purely as vehicle trackers.
Regent Risk Solutions addresses this by taking over the hosting,
management and maintenance of the clients database.
This allows us to monitor all of our insured fleets live and
immediately report in real time when violations occur. From
critical events such as panics, impacts or battery disconnects,
to off-road deviations and unauthorised stops, we are able to
assist our clients prevent problems rather than react to them.
Regents ability to monitor, analyse and provide feedback on
driver performance, vehicle utilisation and violations assists
to improve the effectiveness of our clients operations teams
and risk, maintenance and marketing departments.
COVER JANUARY 2014
Jan 14.indd 109
CTRACK ADDS ON-THE-ROAD TECHNOLOGY TO FLEET
PRODUCT PORTFOLIO OFFERING
Ctrack has unveiled a new product called Ctrack On-the-
Road, which is based on Android and uses a full color touch
screen to enhance driver experience.
This complete onboard messaging and navigation system
assists fleet operators in saving time and money through
advanced navigation, optimal routing, voice functionality, task
management, messaging, and driver behaviour attributes,
ensuring improved productivity and operational efficiency.
The product offers task management integrated with
navigation functions to assist fleet managers with route
planning and assignment of tasks for the day. By optimising
their drivers routes, OTR helps lessen distance travelled
and cuts fuel and maintenance costs. With real time traffic
information, drivers are routed around roads with congested
traffic and a built-in front-view video camera for recording or
taking snapshots of an accident helps determine what might
have gone wrong.
For heavy or special sized commercial vehicles, the onboard
route navigation can be set to include the trucks weight and
size constraints for its route planning and navigation.
The OTR communication system integrates seamlessly into
a fleet and is easily configured into cars, vans, trucks and
heavy-duty vehicles, providing an all-in-one vehicle tracking
and fleet communications solutions. The terminal includes
voice communication and allows voice calls to predefined
numbers or instant messaging, which can only be accessed
by the driver if the van or truck is stationary, promoting
safety, better driving and efficiency.
EDAART MAKES DATA QUALITY EASY
Data is the life blood of all organisations and while technology
has developed rapidly to provide the means of storing,
retrieving, integrating and transmitting data the real challenge is
to make sense and deliver value from these vast data stores.
Corporate Governance is essentially the balancing of
stakeholder interests through a system of rules, practices and
processes to direct and control its operations. New legislation,
increased attention in the media and public questions about
transparency and executive responsibility are all factors that
point to the need for critical evaluation of data.
Data quality is a process not an end-point, says
Andrew Morris, Consultant with Independent Transition
Management, and in the UK we have developed a set
of robust software tools to support the on-going process
and deliver meaningful reportage with comparisons for
measurement and evaluation.
eDAART (Electronic Data Analysis and Reporting Tool) is a
suite of software built on industry standard technologies
which take volumes of data, applies a series of tests and
summarises the results into a standard format for ease of
understanding and comparison individually or across time
series. Incoming data, in any format, is deconstructed and
rebuilt using a set of templates and output takes the form of
standard, conditional and data type reporting.
109
2014/01/12 3:57 PM
 Santam celebrates 50
years of Child Art
The anniversary exhibition was managed by the Ibhabhathane
m
Santa e Project and curated by Jill Joubert, one of the leading art teachers
s t 2013, of th
A ugu g o ne es in South Africa. Joubert was assisted by Amos Letsoalo, the curator
rsd ay, 29
of ru nnin
p rog ramm of the Polokwane Art Museum. Artwork from this exhibition will be
hu rs t at
On T d 50 yea investmen xhibition donated to charities. The theme was Join the party and Minister of
ra t e oc i al ar t e a ed
s
celeb o rate s sp ecial ich showc
Education in Limpopo, Dikeledi Magadz, attended the event.
t co rp ith a wh
oldes country, w Museum, l children. Santam has previously partnered with the Polokwane-based
e A r t lo a
c
in th k wane eated by Ibhabhathane Project to extend art education into disadvantaged
o lo
the P rtwork cr areas through workshops and free art classes. In 2012 the training of
a art teachers was extended to special needs schools in Limpopo where
8 433 learners in 34 schools benefitted. More than 80 000 children
have participated in the Santam Child Art project. For the anniversary
exhibition, 34 schools participated in creating 50 unique artworks.

(Back L-R) Mr Temba

Mvusi, Head of Market
Development at
Santam, Mr Freddy
Greaver, Executive
Mayor of Polokwane,
and Mr John Lomberg,
Head of Stakeholder
Relations. (Front
L-R) Theto Letsoalo,
Tshepo Letsoalo,
Ntwakalo Mahuza,
and Ndzalo Mahuza
admire their art work.

(L-R) Councillor
Mamedupi Teffo, Mr
Temba Mvusi, Head of
Market Development
at Santam, Ms Dikeledi
Magadzi, MEC of
Education in Limpopo,
Mr Freddy Greaver,
Executive Mayor of
Polokwane, Mrs Coocky
Mehale, Principal of
Botlokwa special school,
and Ms Jill Joubert,
Curator Exhition
Ibhabhathane Project.

110 COVER JANUARY 2014

Santam 50.indd 1 2014/01/10 5:45 PM

 2 0 s
the 19
On 15 November 2013 the Drakensberg Insurance Institute (DII) held

t o
their gala dinner at the Golden Horse Casino in Pietermaritzburg. The

k
Bac
theme of the evening was The Roaring 20s. Founding President Dave
Jack was the guest speaker of the evening.

In his blue garden men and girls came and went like
moths among the whisperings and the champagne and
the stars. F. Scott Fitzgerald, The Great Gatsby

I lik
e
At sm large parti
a es. Th
Jo ll parties, eyre
Founding President of the DII, Dave Jack, and current

rdon B there so int

President, Dale Cavell-Clarke, embraced the 20s era.

aker, isnt imate

The G any pr .
reat G ivacy.
atsby

Let us learn to show our friendship for a man

when he is alive and not after he is dead.
F. Scott Fitzgerald, The Great Gatsby
Caz and Bonita Weeks (President of IIKZN), Dale Cavell-Clarke (President of DII committee members Sandra Bustin, Chris Adams, and
DII), and Daphne Thompson looked dapper in their Great Gatsby attire. Lisa Gunter enchanted the camera with their 1920s style.

RYAN ROBERTS OF SATIB LIFE AND INVESTMENTS World Records to see if my climb would be recognised.
REALISED HIS LIFELONG DREAM OF CLIMBING MOUNT Despite the odds, Ryan summited the mountain, having
KILMANJARO ON THE OCCASION OF HIS FORTIETH raised R168 000 for Rainbows and Smiles.
BIRTHDAY.
Close friends of ours had lost their five-year old son to He is still waiting for feedback from Guinness World Records
cancer and I decided to climb in memory of Roan. Rainbows but a listing would certainly be the cherry on top of a
and Smiles is a small charity which supported Roan and his successful trip.
family during his illness, so I resolved to raise R100 000
for them, which I felt was a large enough amount to make SATIB Insurance Brokers will be donating 10% of the
a difference to at least one sick child, says Ryan. To add premiums of all new SATIB Life and Investment clients to
an extra challenge and garner interest among people, Ryan Rainbows and Smiles for the remainder of 2013 so sign up
committed to climbing the mountain with Roans weight today to support this worthy cause.
when he fell ill strapped to his back an extra 25kgs, over
and above the usual eight or nine kilograms of supplies and
equipment every climber bears - and to choosing the most
challenging of the routes up the mountain - the Umbwe or
Whisky route.

Ryan trained for three months, working with a personal

trainer six days a week. I wore a 10kg training vest for
these sessions and then trained for four weeks prior to
departure in an altitude chamber, which assists with the
bodys adaption to high altitude, he says.

When Ryan began his climb of Kilimanjaro, the porters were

concerned that he was carrying too much weight (nearly 30
kilograms), as even they are limited to 12 kilograms. Isaac,
the lead guide, said no one had ever summited Kilimanjaro
with all that weight; I approached the Guinness Book of

COVER JANUARY 2014 111

Jan 14.indd 111 2014/01/10 5:46 PM

 NEW LION STRUCTURE

RETHABILE MAHUMA ISABEL VAN HEERDEN CARMEN PASQUALLE ANWA ADAMS

Marketing Retail Marine Property

RENE VAN BILJON ILSE KRUGER LEBOHANG MEHALANE

Underwriting Services Service Centre HR Manager

STEVEN ISAACS SHELTON SIWEDZA PRIDE CHORUMA

JHB Corporate Local Authorities

Lion POTM.indd 1 2014/01/10 5:47 PM

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

Untitled-3 1 2014/01/13 11:00 AM

 KINGJAMES 28087

At Santam, we know how important it is to stay up to date with the risks facing the modern
farmer. Which is why we take an in-depth scientific approach to assess all the adverse
factors that could confront your clients crops and assets. As the leader in specialised asset
and crop insurance, we have the ability to develop innovative risk solutions so that no matter
what risk their farm faces, weve got it covered. Santam. Insurance good and proper.

To find out more about Santam Agricultures unique insurance solutions,

specifically designed for the modern farmer, visit www.santam.co.za

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

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