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INSURANCE
INDUSTRY INSIGHT
2010 challenges
IN
N THEE
HOT SEAT
CASE STUDY: Alan Hutcheson CEO of Tracker gives an insight into how the
companys disaster recovery plan was put to the test
Recognised by more than 2,000
risk professionals globally
as the worlds leading
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I N S I D E FEBRUARY 10
RISK MANAGEMENT
31 Specialised risk management disciplines. Integrating
specialised risks in ERM. By Vanessa Payne
HOT SEAT
4 Tracker fire a case study EXECUTIVE SECTION
34 SAICA Annual Financial Services Conference
GENERAL INSURANCE
10 Brokers corner. Preparing to document the ASSOCIATION PAGES
RM plan. By Johann Maree
36 IRF Taking the retirement industry into the future
12 Industry insight. Succeeding in a drastically
37 FIA welcomes new CEO
transformed insurance sector
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A CO
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0/ !4
3 3 ) 3
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Chartis will help
you get there.
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ENTERPRISE RISK Feb 10 EDITORS NOTE
ENTERPRISE
The hot seat of this issue of En- one word that just about every leader men-
CHIEF SUB-EDITOR Milton Webber
MARKETING MANAGER Jackie Slavin
terprise Risk deals with a fascinating real tioned as being a key priority is customer.
time case study entitled Rising from the As a result, the levels of customer service PRODUCTION MANAGER Felicity Moon
ashes. During the early hours of Saturday will rise even further. PRODUCTION ASSISTANT Constance de Sousa
17 January 2009, the Tracker head office in In the last quarter of 2009, I took over the FINANCIAL MANAGER Andrew Lobban (ACIS, FCIBM)
Darrenwood, Johannesburg was gutted by editorship of Enterprise Risk when Sandra
ADMINISTRATION Tonya Hebenton
a fire that ripped through the building. Ac- Jordaan left. This was intended to be for
cording to Andre Ackerman, Trackers CFO, the period while a replacement was being SUBSCRIPTION SALES Cindy Cloete
the disaster recovery plan (DRP) was ex- found. I am pleased to let you know that DISTRIBUTION COORDINATOR Asha Pursotham
ecuted with military precision, enabling the we have now appointed an editor for En- PRINTERS United Litho Johannesburg
company to carry on with their business of terprise Risk. Bronwyn Barnard, who cur-
recovering vehicles. They took their first call rently edits Emergency Services SA and
just five hours after the disaster. The entire Occupational Risk for 3S Media, will be ADVERTISING SALES
administrative staff was fully operational at taking over from me with effect from the Stacey Glad Tel: +27 (0)11 258 6200
an off-site location by Monday morning. next issue, with Monique Terrazas continu- Cell: +27 (0)83 567 0073
The case study looks at the vital role that ing as assistant editor. I wish the team all Fax: +27 (0)11 231 7274/5
each of the parties played in the implemen- the best for taking this growing magazine E-mail: stacey@3smedia.co.za
tation of the plan. The client was Tracker, to even greater heights in this remarkable
the disaster recovery site and service pro- year of 2010. I would also like to thank the ANNUAL SUBSCRIPTION: R300.00
vider was IBM, the insurance broker was industry for their support. cindy@3smedia.co.za
Alexander Forbes Risk Management Serv- ISSN 1993-8217
ices, the insurer was Mutual & Federal and Copyright. All rights reserved.
the loss adjuster was Cunningham Lindsey
South Africa. The damage was estimated at All articles in Enterprise Risk are copyright protected and may not
be reproduced either in whole or in part without the prior written
ENTERPRISE RISK DEALS WITH A permission of the publisher. The views of contributors do not
necessarily reflect those of Enterprise Risk or the publisher.
FASCINATING REAL TIME CASE STUDY
ENTITLED RISING FROM THE ASHES
some R40 million, but the DRP ensured that PUBLISHER MEDIA 4, 5th Avenue, Rivonia, 2191
not even a fire could prevent Tracker cus- PO Box 92026, Norwood 2117 Tel: +27 (0)11 258 6200
tomers and staff from taking back tomor-
Fax: +27 (0)11 234 7274/5
row. A story well worth reading.
Enterprise Risk starts the year 2010 with E-mail: debbie@3smedia.co.za www.3smedia.co.za
CGF
two industry-insight articles that give the
views and opinions of the leaders in the
short- and long-term sectors. Each focuses STRATEGIC PARTNER RESEARCH INSTITUTE
(PTY) LTD
on the lessons learned from 2009, and the
challenges and opportunities that lie ahead
for the upcoming year. While 2009 was most
certainly a difficult time for the industry,
there are undoubtedly many opportunities
for those willing to take the initiative. The Editor
3
HOT SEAT ENTERPRISE RISK Feb 10
In the early hours of a into one of the proudest moments in On the following pages, we look at
Saturday morning last year, the Track- Trackers history. how the disaster recovery (DR) plan
er building was engulfed in flames, THE ROLE PLAYERS was implemented by considering the
causing an estimated R40 million in roles of the various players, what
The client Tracker
damages to the first floor of the build- they did right and the lessons that
ing. Fortunately, no one was injured The DR site and IBM can be learnt from this exceptional
service provider
and a comprehensive disaster recov- experience.
ery plan was in place. A combination The insurance broker Alexander Forbes risk The exceptional teamwork and pro-
management services
of Trackers disaster recovery plan, fessionalism of all the relevant role
The insurer Mutual & Federal
and its partnerships with the relevant players have been identified by all in-
role players, ensured that what could The loss adjuster Cunningham Lindsey volved as one of the key success fac-
South Africa
have been a business disaster turned tors in implementing the DR plan.
4
ENTERPRISE RISK Feb 10
HOT SEAT
KEY ELEMENTS OF SUCCESSFUL DR transport. The cost of a DR infrastructure, as The first step was to issue a holding state-
Hutcheson identifies the following key well as additional costs such as insurance, ment, conveying the following key mes-
elements in a successful DR: must also be considered. The assistance of sages:
Planning a service provider with the right know-how Only the top floor of one of Trackers ad-
business continuity plan and facilities are invaluable to ensure the min buildings was affected.
documenting the plan right decisions are made, and for this rea- A comprehensive Disaster Recovery Plan
choosing the right DR location and son Tracker partnered with IBM. is in place.
supplier
Tracker was still able to track and recover
Implementation
Testing
IMPLEMENTATION AND TESTING vehicles.
Execution You cant have a plan on paper only, There was no suspicion of a crime syndi-
says Hutcheson. Long before we needed cate attack.
thorough planning and a DR plan owner our business continuity plan, we had im- Nobody was hurt.
within top management must be tasked to plemented crucial aspects thereof, for ex-
ensure that senior people are putting in the ample, signing the DR site contract, pre-
time and effort required. Critical processes paring the DR site and putting the right
and IT systems must be identified, and the communication infrastructure in place, in-
technology layout of the business must be cluding updating staff contact details on a
documented in such a way that non-IT peo- monthly basis.
ple can also understand it. The plan should Successful testing was done in critical
always cater for more, rather than less. It
must also be remembered that small things
do matter, for example in this case, recover-
IF YOUR FULL BUSINESS CONTINUITY PLAN IS NOT
ing our staffs personal belongings as soon DOCUMENTED, YOU BETTER AVOID THE DISASTER
as possible.
Documenting the plan in full is another areas. If possible, do a full test. Do not as- Effectively, it was business as usual.
key element identified Hutcheson. If your sume that aspects of the DR plan do not Once the company had established a firm
full business continuity plan is not docu- require testing. Develop testing plans and handle on the crisis, a proactive media re-
mented, you better avoid the disaster. In record the results. Implement changes from lease highlighting all the positive aspects
this specific instance, because there were what you learn in the testing. of the fire was disseminated. Constant con-
no casualties of key staff, we did not have tact was maintained with key media to en-
to implement the full plan. We had experi- EXECUTION sure that the facts accurately reported.
enced executives who had prepared the DR Execution requires military precision, says A general script was prepared for custom-
plans to execute them. Hutcheson. The DR director must take ers and other stakeholders, and the control
Choosing the right DR location and sup- charge, maintain discipline and not allow room staff were briefed to handle queries.
plier is part of the planning process. Crucial panic. Crucial to the execution is the right Key stakeholders and board members were
factors to consider include the proximity of person for the job, concise decision-making notified and a statement was posted on the
the DR site to the main business location and a skilled secretary who can document Tracker website. An emergency Tim from
in terms of the risk versus the cost for both all meetings and immediately distribute the Tracker recording session was scheduled.
natural and unnatural disasters, difference minutes with detailed action plans. Senior Online social media and blog sites were
in power and communication grids, as well staff need to be involved but only members monitored and addressed. An advertorial
as operational practicalities such as staff of the crisis management team should be
present at the meetings. It is also crucial as
CRITICAL FACTORS FOR A
top management trusts the appointed team,
SUCCESSFUL DR PLAN and while holding people accountable, al-
A strong and capable DR team to take control
lows reasonable freedom with regard to
of the situation.
decision-making.
Senior staff should be allowed to make
decisions pertaining to their areas. In terms of technology, the relationships
Main focuses: with vendors, customer-partners, data and
critical operations up and running ASAP telecommunication partners are critical. The
vigorously defend the brand perceived rats and mice systems are im-
communicate with customers/partners portant and companies should also consider
be sensitive and supportive to staff alternate technologies to make a change
thorough understanding of IT and over easier.
Ops systems.
Strong vendor relationships.
Loyal and committed staff acting
PROTECTING THE BRAND
as ambassadors. A comprehensive communication plan tar-
Dont underestimate the softer issues. geting the media, customers and stakehold-
Remain positive and maintain a sense ers, as well as staff members, was immedi-
of humour. ately implemented to protect the brand.
Provide continuous food and refreshments to
the DR team and those helping out. Alan Hutcheson, CEO, Tracker
5
HOT SEAT ENTERPRISE RISK Feb 10
was placed in several key newspapers within branded DR site. Coloured Tracker shirts im- building, a loss that in most other instanc-
a day to put stakeholders minds at ease. proved coordination and stationery packs es would have crippled a business, turned
To avoid rumours and panic, positive were handed out. Hot snacks and drinks into a triumph for Tracker. Perhaps more
e-mails and SMSs were sent to all staff were served and music played to lift morale. importantly, the brand suffered no dam-
members within hours of the blaze, followed All teams were fully briefed by their manag- age because of a superbly executed
by details concerning their return to work. ers, before entering the state-of-the-art DR communications strategy.
Senior managers were briefed by trauma site and logging onto all the normal Tracker Tracker staff, instead of being flustered
counsellors to deal with their staff. To keep systems. A voice, fax and e-mail script was and disorganised, experienced some of their
inquisitive staff away from the scene of the prepared for all staff to help field queries on proudest moments as they witnessed the
fire, a variety of photographs of the burnt the blaze. professionalism with which the recovery
building were posted on the intranet site. was executed, a fact confirmed by the many
On the Monday morning, staff were greeted TRIUMPH FOR TRACKER proud and congratulatory messages on the
by a welcoming committee to an extensively R40 million of damages to the Tracker Tracker website.
6
ENTERPRISE RISK Feb 10
HOT SEAT
IBM's successful business continuity
is illustrated in DIAGRAM 1
The recent Tracker fire claim Arranging the right cover with the right then translate these into a comprehensive
clearly demonstrated how the right broker insurer, acting swiftly within the insurers risk management strategy to ensure that
can optimise the synergies between the vari- mandate and choosing the right loss ad- all exposures to the clients business are
ous role players in the insurance industry. juster were crucial to the prompt settling of properly addressed.
When the Tracker team arrived at their the claim. However, perhaps most important A broker must take a holistic view of the
premises on the morning of Saturday 17 was the brokers role in arranging adequate clients business, and provide the expertise
January 2009 to discover an estimated insurance and managing the clients ex-
R40 million of fire damage, their first port pectations and experience throughout the
of call was their broker, Alexander Forbes claim process.
Risk Services. The broker is the link between the in-
Alexander Forbes risk services immedi- sured, the insurer and external specialists
ately appointed a loss adjuster, Cunning- such as the loss adjuster, managing expec-
ham Lindsey South Africa, to visit Trackers tations and optimising synergies among
premises, assess the damage, investigate the the various role players, says Jaco Smit,
root cause and adjust the claim once it had business unit manager at Alexander Forbes
been formulated by the client and presented risk services.
by the broker to the insurer. On the Monday
following the fire, Mutual & Federal ratified THE BROKER-CLIENT RELATIONSHIP
the loss adjusters appointment and within In the relationship between the broker and
48 hours after the devastating fire, the loss the client, it is crucial that the broker has a
adjustors preliminary report was received. thorough understanding of the clients busi-
Since the loss was correctly covered by ness. In essence, the broker must understand
the insurance policy arranged by Alexan- the clients needs by having an in-depth
der Forbes, Mutual & Federal could swiftly understanding of his clients business and
process the claim and make interim pay-
ments to assist Tracker with the immediate Jaco Smit, business unit manager,
costs faced. Alexander Forbes risk services
7
HOT SEAT ENTERPRISE RISK Feb 10
DIAGRAM 2 Interlinked relationships and insight to ensure an enterprise-wide ap- a good broker is the ability to harness both
proach to risk management is implemented, internal and external expertise and experi-
says Smit. ence. Usually, the insurer appoints an ad-
juster of its choice. However, an experienced
THE BROKER-INSURER RELATIONSHIP broker will liaise with the insurer prior to
While the clients needs must always come the appointment of a loss adjuster to agree
first, the value of long-term relation- on the latters availability, flexibility, skill
ships between brokers and insurers cannot and integrity to ensure the client receives a
be underestimated. fair settlement, says Smit.
It is crucial that both the broker and in- Warren Buffet said, It is only when the
surer clearly understand and operate within tide goes out that you learn who has been
the agreed mandate to ensure prompt settle- swimming naked."
ment of claims,adds Smit. "When facing a catastrophe of this
magnitude without the assistance of an
THE BROKER-LOSS ADJUSTER experienced broker, this bit of Buffet wis-
RELATIONSHIP dom takes on a whole new meaning, com-
One of the most important characteristics of ments Smit.
CHAIN OF EVENTS
The first link in the chain was the swift
reporting of the loss to Trackers broker,
the Alexander Forbes group. They immedi-
ately informed Mutual & Federal, and the
insurer responded rapidly by assembling a
senior team to deal with the loss.
Alexander Forbes also immediately ap-
pointed a loss adjuster. The loss adjusters
preliminary report was received within 48
hours, allowing the claim to be processed
without delay. given the substantial loss and potential DIAGRAM 3 Illustrating Mutual &
An internal special investigations unit lengthy period of business interruption, a Federal's partnership approach
was appointed to establish the cause of number of interim payments were made to
the fire, with the assistance of forensic in- Tracker to assist in reinstating the busi- within hours. This can be attributed to a
vestigators. ness, says Lawrence. number of key factors:
A loss management plan was presented Formidable teamwork between all par-
to Tracker, providing clarity regarding the KEY SUCCESS FACTORS ties involved.
claims process. To date, Trackers claims The claim was handled within the short- Mutual & Federals senior manage-
experience had been exceptional, and est period and the business was reinstated ment team dealing with the claim had
8
ENTERPRISE RISK Feb 10
HOT SEAT
extensive underwriting and claims man- Transparency and good communications
agement experience, as well as the au- are essential.
thority to make immediate decisions. Insurance must be recognised as the
Alexander Forbes clearly understood final mitigation for the unexpected and
their mandate, duties and options as the clients backstop.
from the outset and coordinated the Giving the broker a clear mandate to act
entire process, while managing the in the event of loss, such as the appoint-
clients experience. ment of a loss adjustor from an approved
Mutual & Federal had a strong and posi- panel, accelerates the claims process.
tive relationship with the loss adjuster, For Mutual & Federal, this experience has
whose timely report was a crucial aspect highlighted the importance of fostering
in the swift handling of the claim. excellent business relationships with our
Tracker had a comprehensive disaster re- brokers and policyholders. When a short-
covery plan, which was well executed. term insurer, broker and policyholder act
as a unified force, a large-scale disaster
LESSONS LEARNT can be resolved within hours and the
A number of pertinent lessons can be Tracker case study is proof of this, says
learned from the Tracker claims process: Lawrence.
A partnership approach to good claims
Ken Lawrence, general manager, claims
management is required. technical: Mutual & Federal
The loss adjusters role appointment of a loss adjuster, ensuring Trust is mutual and in the context of
is vital in the claims process and through that the appropriate firm with the requisite claims is best demonstrated by early re-
possible pre-loss nomination or knowledge, technical expertise and capacity is selected. lease of funds through interim payments at
a vital trust relationship can be established A trust relationship must therefore also ex- a time where cash flow is most likely to
with the insureds relevant representatives. ist between the broker and adjuster. be stretched.
According to Ken Maclean, branch man- The first day on any major incident is With the nature and vast extent of the
ager, Cunningham Lindsey South Africa, crucial as critical decisions will need to be damage, we have no reservations in plac-
As students of insurance, we read about taken to ensure trading continuity. While ing on record that had it not been for the
the principles of utmost good faith and business continuity plans such as Trackers Trackers disaster recovery plan, the loss
the responsibility of the insured to dis- disaster recovery plan may be in place, would have resulted in far serious implica-
close material facts. However, the need for the adjuster is influential in the decision- tions from both a cost and business conti-
trust goes way beyond this. As far as the making process, and the insured must have nuity point of view.
insured is concerned, it is a two-way street comfort that the adjusters commercial acu-
with the insured needing to trust and have men will have been gained by involvement
faith in all those involved in the insurance in a range of industries and loss scenarios.
arrangements both from a policy and claims Reputational risk runs far beyond any
point of view. coverage provided by the policy and this
The test of any insurance is the claims is where the need for trust is the greatest.
service. Unlike many things that are bought, Communication remains the key to reten-
it is invisible at the time of purchase and tion of trust, an awareness of issues fac-
therefore effectively taken on trust from ing a business is vital and the broker again
both parties to the contracts point of view. has an important role to play in convey-
The insured needs the comfort of trusting ing information not only to the insurer but
the service and understanding what will also to the adjuster in a claim scenario,"
occur when and how, in the event of a loss, says MacLean.
to protect assets and trading as well as,
most importantly, reputation and brand. Ken Maclean, branch manager,
The broker can play a vital role in the Cunningham Lindsey SA
9
GENERAL
COVERINSURANCE
STORYY ENTERPRISE RISK Feb 10
BROKERS CORNER
The context of a problem consists What is the core activity? Who is involved reaffirm commitment to resources
of the strategic context, the organisational both internally and externally? clarify roles and responsibilities
context and the risk management context. What equipment does the business have define documentation and report-
A working knowledge of the FAIS Act and a and/or use? ing requirements.
documented business plan will assist in map- This policy sets the framework for the risk
ping the context for the development of a risk RISK MANAGEMENT CONTEXT management strategy and applies to all ar-
management plan. The risk management context includes the eas and entities within the business. Once
nature of operational, technical and regulato- the context and policy framework is clearly
STRATEGIC CONTEXT ry frameworks and what is being done. Some established, developing a risk management
The strategic context includes the na- questions to ask include: plan becomes easier. The risk management
ture of the environment in which a fi- What is the advisory business currently do- strategy should be integrated with other plan-
nancial advisory business operates. Some ing in terms of risk management, either for- ning and management activities.
questions advisers should look at are: mally or informally?
What relationships does the advisory busi- Is the advisory business insured? RISK MANAGEMENT RESPONSIBILITIES
ness have that are necessary for the busi- Is the advisory business a sole practitioner All advisory business owners and staff are
ness to operate? or does it have a legal persona? responsible for:
What laws, regulations, rules or standards The goals, objectives, values, policies and developing and implementing the risk
apply to the advisory business? strategies of the business and how advisers management plan
contribute to these are also important consid- reporting serious risk exposures and
ORGANISATIONAL CONTEXT erations that help define the criteria by which all serious incidents to the advisory
The organisational context includes the way decisions are made about the acceptability of business owner
the advisory business is structured and how risks, the form and basis of controls, and the reporting annually on the status of risk
it operates, including the extent of operative management options available. management actions to the owner and the
knowledge advisers have of their relevant ar- Within this overall risk management con- compliance practitioner
eas of responsibilities. This context may be text, it is also important to identify the strate- assisting in identifying potential risk expo-
technical or non-technical. It includes the ad- gic and organisational functions, such as: sures and for developing and implement-
visory businesses' aims, activities, structure, business management ing risk mitigation plans for unacceptable
membership and method of operation. These economic circumstances exposures, which may include:
are some questions to ask: corporate governance preventing potentially damaging events
What are the aims and objectives of the ad- commercial and legal through minimisation strategies
visory business? financial management providing decision makers with risk man-
human resources agement information to assess acceptable
technology and systems risks
unnatural or natural events. where appropriate, transferring risk to
Once these functions have been identified, third parties through insurance and
risk management policies and strategies can contractual arrangements.
be considered. Other stakeholders may be invited to assist
to identify potential risks and suggest any
RISK MANAGEMENT POLICY AND STRATEGY proposed mitigation.
To achieve an effective risk management sys-
tem, it is essential for advisers to develop a Dont miss the next article in our Brokers
clear policy statement, which should: Corner series!
outline the scope and process The next article will look at how to identify and
document the risks advisers face.
JOHANN MAREE
Maree is the co-founder of both the Institute of Practice Management and Myriad
Planning Solutions, which develops rules-based integrated business solutions for
financial advisers.
10
GENERAL
COVERINSURANCE
STORYY ENTERPRISE RISK Feb 10
INDUSTRY INSIGHT
Succeeding in a drastically
The current insurance landscape is drastically different compared to the
market before the global financial crisis, enabling some insurers to pull
ahead from their competitors and leaving others behind.
The financial crisis has al- government requests to cut costs and spend In addition, local insurers must also ad-
ready proved to be a watershed for the insur- more effectively. dress the perceptions of the insurance indus-
ance industry in many parts of the world. It is clear that all insurers across the world try in the low-income market. The challenge
The expectations of customers, investors, will be required to transform their business for the industry is perhaps greatest in those
governments and regulators from the in- practices to suit the changing sector. This market segments that have no awareness of
surance industry are changing rapidly and shake-up will challenge the competitive rel- insurance or see no benefit in it. Interven-
pervasively and as such, the environment evance of some insurers. However, it also tions to educate, inform and reach potential
is expected to evolve at a rapid pace over offers agile and farsighted firms a once-in- consumers are important and may present
the next two to three years, ruling out any a-generation opportunity to catapult them- viable opportunities for local insurers.
return to the relative stability and certainty selves to the front of what will be a very
that preceded the crisis. different racing order within many geo- IMPACT OF DISTRIBUTION CHANNELS
This was revealed by the Pricewaterhouse- graphical markets and classes of business. The disillusionment created by the crisis in
Coopers (PwC) The Day After Tomorrow for many of the more developed markets could
Insurance report, which gauged how the CHANGING CUSTOMERS affect channel preferences. In Germany and
global slump is reshaping the insurance in- Customers faith in financial institutions has Switzerland, for example, there has been
dustry and highlighted key developments waned, internationally. As capital disap- strong unease about the charges and plum-
that are likely to affect particular segments peared from the markets, customers have be- meting returns from many annuities. This
and geographical markets. come more cautious, preferring to hold on to is leading to a growing switch from tied to
While the response related to the market their cash. Those who are prepared to invest independent advisory channels, as custom-
downturn has varied from country to coun- their money are starting to favour simpler ers seek more thorough and unbiased advice
try, there is an overall feeling of uncertainty and less risky products. about which products match their risk ap-
that defines the industry, says Victor Mu- What customers demand from savings petite and demand profile. This echoes de-
guto, Southern African insurance leader at and investment products and how they velopments in the US in the1990s, and in
PwC. want to buy them will take a new direc- the UK in 2000 and after. In some countries,
Even companies that did not re- tion within many territories, with compa- Hong Kong, for example, buying insur-
quire bailouts have responded to nies that are slow to catch on, becoming ance through strong and trusted banks is
increasingly marginalised. becoming increasingly popular once again.
Clearly, customers will eventually start Companies will naturally need to keep their
spending, but will search for more effec- ears to the ground and adapt their chan-
tive risk protection. The key question is, nel strategies to what could be rapidly
on what terms will customers choose to re- changing preferences.
engage with insurers and how may product
and distribution strategies need to change INCREASING REGULATORY INTENSITY
to encourage them back into the market?
Under pressure from governments, supervi-
says Muguto. sion in financial services will be more intense
Whats more, consumer demand profiles
and regulations will be more subject to na-
are also changing in South Africa. Like their
tional priorities in their interpretation and
counterparts in the developed world, the lo-
application. Some countries are going the
cal insurance industry must react to these
extra mile in developing tough regulatory
changing customer needs. Customers are be-
regimes with a focus on governance and risk
coming more discerning and better able to
management. As a member of the Interna-
make informed choices. tional Association of Insurance Supervisors,
South Africa too
G REATER TRANSPARENCY AND COMPARABILITY OF FINANCIAL AND RISK is expected to
follow its lead.
DISCLOSURE WILL BE CRITICAL IN GAINING ACCESS TO THE LIMITED SUPPLY As such, we can
.
OF AVAILABLE CAPITAL VICTOR MUGUTO, SOUTHERN AFRICAN INSURANCE LEADER, PWC anticipate an
12
ENTERPRISE RISK Feb 10 GENERAL INSURANCE
Successful administration, prompt & efficient claims management and world-class customer service
determines both the market success and member satisfaction of any given medical fund.
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SHORT TERM ENTERPRISE RISK Feb 10
INDUSTRY INSIGHT
is growing, creating opportunities for the micro-insurance space, and Africa. South African insurers have
the industry. In addition, we have a innovatively enter the untapped been slow to expand into Africa but
large untapped, uninsured market, market in the near future, will expect this to change as the focus
which holds great opportunities for reap unexpected benefits. The on investment opportunities in
those insurers who can find the SAIA financial literacy consumer emerging markets and particularly
right solutions to product pricing education initiatives planned for opportunities in the financial services
and market access. The recent implementation in 2010 should arena will increase in 2010.
credit crunch has also created enhance opportunities for short-
opportunities, particularly in the term insurance companies with
credit risk sector, by highlighting the appropriate products.
vital importance of managing
credit risk.
14
IN-HOUSE
COUNSEL
Understanding YOUR role and strengthening your 15, 16, 17 &
18 March 2010
companys protection against legal liability The Wanderers Club,
Illovo, Johannesburg
Conference highlights and interactive sessions include:
T Discussing the Sections of the Companies Act that will be affected by new drafting
T Aligning legal policy with the business bottom-line
T Discussing the future of risk and corporate governance compliance as a function of the In-
House Counsel
T Highlighting the current corporate case law
T Mastering your contract negotiation and drafting skills
T Managing the use of your external advisor and controlling the cost to company
T Defining the In-House Counsel role in accountability to ethical business practice
Fax the below form to 011 880 6789 or for more information call 011 771 7000 or visit www.iir-conferences.co.za
creation of competitive advantage demarcation regulations will be the can be expected during 2010. This particularly motor-vehicle spare parts
same old, same old is just not most keenly watched development could result in growth opportunities and autobody repairs remain a cause
enough anymore. in the first half of 2010. The second for the industry in general. for concern in terms of claims costs.
half of 2010 will see South Africa
focusing on its many challenges, Greatest opportunities: The Soccer
especially how to capitalise on and World Cup 2010 will have a hugely
maintain the economic momentum positive impact on the economy,
of the World Cup. The insurance which will spill over to the insurance
industry will continue focusing on industry. Brokers need to examine
motor-loss ratios and the cost of the needs of all their clients with
motor vehicle repairs to restore this in mind. With the new FAIS
profitability; risk management; risk requirements, a number of non-
surveys and risk premium rates. compliant brokers will exit the market,
Another challenge is the ageing
public infrastructure and lack of ANOTHER CHALLENGE
Paolo Cavalieri, chairperson, maintenance owing to the economic
Etana Insurance environment and the consequent Keith Kennedy, MD, Mutual &
IS THE AGEING PUBLIC
Single greatest challenge: Our impact on claims. Federal INFRASTRUCTURE
biggest challenges as an industry are Single greatest challenge: Growth
finding creative and effective ways of Greatest opportunities: Companies in the short-term insurance industry creating acquisition opportunities
contending with economic pressure that are flexible and entrepreneurial will be challenged by the state of for other brokers. With general
for ourselves and our clients; finding with solid shareholders and the best the economy. The weather is also a service levels deteriorating in certain
ways to progress meaningfully in skills will survive the consolidation wild-card factor for the short-term insurance channels, the broker will
areas such as people and leadership among insurers and underwriting insurance industry, becoming more also remain vital to their customers.
development; and attracting top agencies in the next 18 months. unpredictable over the years, and
talent, so we will have strong and claims relating to such events are
skilled people to move forward. more frequent and larger.
16
SHORT TERM ENTERPRISE RISK Feb 10
PRODUCT RECALL
Companies are well advised to take they sell following the implementation of the Con-
up recall cover or increase their existing cover be- sumer Protection Act (CPA), as consumers will be in
cause the Consumer Protection Bill has been promul- a position to return unsatisfactory goods to the re-
gated into law. In more mature markets like the UK tailer as opposed being restricted to seeking recourse
which have similar laws in place, an increase in over- solely against the manufacturer, explains Marshall.
all product recall of 125% between 2004 and 2007 has This means retailers can be held as accountable as
been seen. With regard to non-food products, a mas- a manufacturer the middle man status has been re-
sive 894% rise was recorded between 2004 and 2007, moved. Retailers should advisably seek to ensure that
explains Keith Marshall, regional manager, liabilities their suppliers have recall plans in place along with
group, Africa region of Chartis South Africa. full-blown recall insurance. This is due to the fact that
Certain sectors will be at higher risk because of consumers are now in a position to hold the retailer as
the implementation of the CPA than others, and the accountable as the manufacturer.
TABLE 1 Risk rating
controls required will differ accordingly. These risk
and controls GET THE COVER NOW
SECTOR RISK RATING CONTROLS REQUIRED Marshall says that an increase in recall cover pre-
Retail and High Supply chain management including supplier miums is likely since there are more rights of re-
distribution insurance course for the consumer as is intended by the leg-
Contract certainty between suppliers and consumers islation. This is likely to translate into more claims,
Complaints handling processes and procedures
increased legal action, and therefore higher premiums
Product recall plans, processes and procedures to be
and/or deductibles.
set up by the insured with loss controls assistance
where applicable. In terms of the underwriting criteria, the retailer
and a manufacturer will now be rated equally as the
Manufacturing Medium to Supply chain management including supplier
high insurance exposure to claims increases with the consumer hav-
Contract certainty between suppliers and distributors ing access to greater routes of recourse. There is a
Increased quality control on product functionality, potential for retailers to carry even greater exposure
safety, education in the form of manuals and labelling than a single manufacturer, since the retailers will sell
Complaints handling processes and procedures multiple products from a variety of manufacturers.
Product recall plans, processes and procedures In a nutshell, buying cover now would be cheaper
Services Medium Contract certainty between suppliers and consumers for two reasons, notes Marshall. Firstly, if we con-
Complaints-handling processes and procedures sider the trends evident in the more mature markets,
we know that a spike in claims is inevitable. Secondly,
ratings and controls are detailed in table 1. forming a relationship with an insurer now enables
Retailers will be more responsible for the products the insurer to have a better understanding of what
TABLE 2 Liability the insureds activities are and what the specific risks
INSURED INSURER are. This translates into more favourable terms, as the
insured is not gauged against industry standards. For
Strict liability resulting in increased claims Increased limit as per exposure to risk of
and settlements. liability. instance, when dealing with a high-hazard industry
such as the tyre industry, an insured in such an indus-
Increase costs in the form of: Increased information requirements:
try that has had a quantifiable claims history (prefer-
quality control loss control
supply chain management processes, procedures, controls and ably a good claims record) in say over five years, will
vetting of suppliers monitoring systems. be in a more favourable position.
claim payments
counter claims against suppliers. ISSUES TO CONSIDER
Insurance packaging: Review information provided and provide There are a few factors that companies should be con-
warranty and inefficacy covers efficacy and/or financial loss cover on a sidering in light of the implementation of the CPA
increased limits for financial loss. selected basis subject to specific terms and renewing or taking out products recall insurance as
conditions. detailed in table 2.
20
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INDUSTRY INSIGHT
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STORYY ENTERPRISE RISK Feb 10
life insurance companies to have that management can access to grow and invest in the business treatment and better service.
an in-depth understanding of the numbers (sales volumes, in South Africa, and to ensure that The industry has gone some way
how their business will react to cash flow, solvency) quickly Discovery Life is at the forefront of towards addressing such issues
different risks. Secondly, business and confidently. Sound claims innovation, exhibiting leadership but much remains be done in
diversification provides protection, management processes protect in the life assurance industry. We 2010 to raise the image of the
as different business units against the increases in both will also expand our operations financial services industry and
react differently to challenging fraudulent and disability claims. A and success in the UK. position it as genuinely
conditions. Finally, the past year great team of people will carry a client centric.
instilled a greater appreciation for company through almost
South Africas financial regulatory any situation.
landscape, where measures such
as exchange controls shielded Industrys strategic priority for
us from the worst of the global 2010: There are two priorities
financial crisis. for 2010 firstly, maintaining
solvency and profitability, while
Strategic priority in 2010: I think being prepared for the next shock
discussions around retirement to the system and secondly,
reform will accelerate in the next achieving growth in a highly
year. Industry has a vital role to competitive space. The challenge
play in shaping South Africas will be to create meaningful
future retirement landscape and product differentiation while
this will surely be a focus area providing a value-for-money
for life insurers during 2010. proposition. The quality of the
As important is the debate and brand will play a large role in Liz Lambrechts, chief
consultation around the National achieving success. executive, Sanlam Personal
Health Insurance. Momentum Finance
looks forward to working with Lessons learnt from 2009:
industry and government to 2009 clearly showed us how
make meaningful contributions to important it is to have a visionary
establishing a sound foundation long-term strategy for resilience
for an inclusive financial in good and bad times, and that
services industry. the courage to implement that David Price, MD, Liberty
strategy, even in challenging Corporate
times, is crucial for survival. Lessons learnt from 2009:
Five years ago, the Sanlam Liberty Corporate has had a
group embarked on a strategy to successful year, despite the tough
environment. As a business, we
PRODUCTS OFFERED HAVE have resolved to harness the
pressure of 2009 as a positive
TO MEET CUSTOMERS catalyst for change. We have been
NEEDS AND REQUIREMENTS honoured to be recognised for our
Herschel Mayers, Discovery efforts by winning two industry
Life and Invest awards: the 2009 FIA Employee
Lessons learnt in 2009: It is diversify and place client centricity Benefits Product Supplier of the
crucial to ensure that the business at the heart of our business. This Year Award and the 2009 PMR
is built on quality foundations. strategy proved extremely resilient (Golden Arrow) Award for Large
The products offered have to and allowed us to perform well pension fund administrators and
meet customers needs and this year. product providers insurers.
requirements in a dynamic, rapidly
Selwyn Kahlberg, MD, changing environment. If the Strategic priority for 2010: Strategic priority for 2010: The
Alexander Forbes Life right building blocks are in place, Our greatest strategic priority challenge in 2010 is to remain
Lessons learnt in 2009: Get growth, investment and positivity for 2010 is to reestablish the focused on delivering on our
the basics right! This means a is required, especially in tough trust of consumers and change promises and building on a very
strong back office, sound claims economic times. These are the consumer behaviour. Consumers strong base in what is a constantly
management processes and a ingredients for ultimate success are sceptical about both the changing environment. Top of
great team of people three when the economic cycle turns for performance and the ethics of mind is making the customer
factors that saw Alexander Forbes the better. our industry, and have a more journey a seamless, pleasant
navigate the recession with sophisticated understanding of experience, and ensuring that we
success. A strong back office Strategic priority for 2010: Our financial solutions. As such, they are the first choice of advisers
ensures clients are happy and priority in 2010 will be to continue now demand transparency, fair across the field.
24
ENTERPRISE RISK Feb 10 EMPLOYEE BENEFITS
DISABLED EMPLOYEES
Reasonable accommodation
in the workplace
In practice, companies can do a great deal to accommodate disabled
employees and benefit from their skills and abilities while meeting
legislative targets. BY ANTON ENGELBRECHT, ALEXANDER FORBES HEALTH
The Commission of Employment Eq- in conjunction with retirement benefits from the re-
uity Report 2008 2009 from the Department of tirement fund.
Labour indicated that the percentage of permanently As such, the provision of disability insurance by
employed people with disabilities in the formal sec- employers should be viewed as a part of a disability
tor has reduced from 1% to 0.7% compared with the risk management strategy in the workplace.
previous year, despite targets set by the employment
equity regulations. REGULATORY ISSUES
People with disabilities experience high unemploy- Historically, employers accepted the insurers deci-
ment levels and often remain in low-status jobs. Ig- sion in terms of the validity of the disability claim
norance, fear and stereotyping contribute to possible submitted without applying the provisions stipulated
unfair discrimination against people with disabilities in Schedule 8 of the Labour Relations Act (LRA).
in society and in employment. This unfair disability These provide a clear procedure requiring the em-
discrimination is perpetuated in many ways. There ployer to investigate any medical incapacity of an
are many unfounded assumptions about the abilities employee prior to termination of the employee-em-
and performance of job applicants and employees ployer relationship with an intention of retaining
with disabilities. Workplaces are sometimes inacces- the employee in his or her occupation or even a dif-
sible and training is not always appropriate for peo- ferent occupation as far as reasonably possible.
ple with disabilities. Furthermore, the Code of Best Practice on Key
Aspects of Disability in the Workplace issued by
FAR-REACHING BENEFITS the Department of Labour provides a guideline for
People with disabilities can contribute their skills and employers, employees and their representatives to
abilities to the economy and society if employers re- develop, implement and refine disability equity
move unfair discriminatory barriers and provide rea- policies and programmes to suit the needs of their
sonable accommodation. The cost of claims on public respective workplaces.
social security and occupational benefit schemes can A number of initiatives can be undertaken by em-
be reduced if employees with disabilities are retained ployers not only to comply with the requirements of
at work. the Code of Best Practice but also become the em-
In practice, there is actually a lot that companies ployer of choice for persons with disabilities.
can do accommodate disabled employees and ben- Designing a strategy that would achieve compli-
efit from their skills and abilities, while meeting ance with the Code of Best Practice as well as assist
legislative targets. companies become an employer of choice would in-
clude the following objectives:
INSURANCE SOLUTIONS ensure all human resource policies comply with
For example, it is prudent for any employer to pro- relevant legislation, i.e. Employment Equity Act ANTON
vide insurance cover for unplanned events such as and the abovementioned Code of Good Practice ENGELBRECHT
employees becoming disabled due to illness or ac- create an environment that is disabled-friendly, Engelbrecht (BMedSci,
cident. This would make employees eligible for in- physically accessible and socially accommodative BSc (hons) Bio
Systems Cum Laude,
sured benefits if they were not able to perform their actively drive to recruit and select suitable disabled
MBA) is a business
regular occupation because of a disability resulting candidates for all vacancies and to rehabilitate and
development and
from illness or accidental injuries. Group disability train employees who become disabled strategic consultant
insurance policies provide benefits on an income re- provision of further training and career advance- at Alexander Forbes
placement basis or payment of a lump sum benefits ment opportunities for persons with disabilities. Health.
25
EMPLOYEE
COVER STORY
BENEFITS
Y ENTERPRISE RISK Feb 10
RETIREMENT RA SEASON
26
Gain essential insights into Personal Liability changes as
set out in newly implemented corporate legislations
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Board composition,
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appraisal
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(Pty) Ltd.
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9^gZXidghXji/ 7::gVi^c\hVcY Elise Waldeck, Corporate
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28
EMPLOYEE
COVER STORY
BENEFITS
Y ENTERPRISE RISK Feb 10
EB IN AN ECONOMIC DOWNTURN
Recent financial turmoil has in lieu of a higher salary, which can be a savings
put many companies under pressure where provi- vehicle for the company.
sion of good employee benefits is concerned. A Thirdly, offering benefits to employees also can
good employee benefits strategy can go a long way be advantageous to the business owner, who may
towards keeping a workforce focused and engaged. be able to get personal benefits for less money than
Most employees today, even employees that work if he or she had purchased them privately.
for minimum wage, expect some form of employ- Finally, offering health insurance has been shown
ee benefits. It is important that employers care- to decrease absenteeism and improve employee
fully consider the impact of putting an embargo health and morale.
on salary increases, cancelling bonuses, reducing
RANGE OF OPTIONS
IT IS NOT UNCOMMON FOR EMPLOYEES TO It is clear that there are many advantages to hav-
ing a good employee benefits offering in place.
SEEK GREENER PASTURES WHEN BENEFITS ARE Even though this may seem like a daunting task to
CUT OR SCALED BACK some, employers need to keep in mind that there
are many flexible options to choose from. Many
employee benefits or laying off employees before employers today are offering employee benefits in
doing so. These approaches should be considered more creative ways to satisfy the emerging, unique
as a last resort. interests of their employees. For example, many
This is because such actions, which may be com- businesses are now offering onsite childcare, re-
pletely valid for the survival of the business, could duced fees on cell phone contracts and other luxu-
have long-term adverse effects on a companys ry items, reduced banking administration fees and
most valuable assets - its employees. concierge desks.
Overall, in a time of economic downturn and
EMOTIONAL REACTIONS TO CUT-BACKS uncertainty, it is imperative that companies retain
Bear in mind that employees can view their benefits their most productive and valuable employees. Even
very personally many have an emotional connec- when the economy is sluggish, companies still need
tion to them. Cancelling or cutting back on em- to continue operations, maintain business relation-
ployee benefits can cause havoc internally. It is not ships, provide good products and services, and find
uncommon for employees to seek greener pastures new avenues of growing the business. These goals
when benefits are cut or scaled back. The costs as- cannot be accomplished unless companies have
sociated with the loss of accumulated institutional their best people in place.
TARYN MARCUS knowledge, reputational damage and productivity
Marcus is an HR deficits resulting from outgoing and later, incoming CHOOSING THE BEST STRATEGY
business partner: employees, may dwarf those savings from cutting So what is the best strategy during down times?
Liberty Corporate employee benefits. Communicate to your employees the value (in
and specialises in rands) of their total benefits package. Such commu-
people development. EB BENEFITS nication will assist in generating awareness of just
She has a BA human
Some of the other benefits of offering or maintain- how much the company values them. This should in
resources (cum laude),
BA honours Industrial ing employee benefits include certain tax advan- turn result in engaged and committed employees,
Psychology (cum tages that companies get through deducting plan and lead to better performance and business results,
laude), and an MA contributions. as well as an increase in the companys ability to
industrial psychology. Secondly, employees often accept better benefits win the war for talent.
30
ENTERPRISE RISK Feb 10 RISK MANAGEMENT
In the last
few years, risk manage-
ment has moved from a
silo-based approach to
a more enterprise-wide
approach, which is in-
tegrated throughout an
organisation at all levels
and addresses all types of
risk, including special-
ised risks.
In many organisations,
the implementation of
these specialised risk
management disciplines
is in response to various
codes and regulations,
such as Basel II, King
III, the National Credit
Act and other new and
draft legislation. In a
typical chicken and egg
scenario, the success of
specialised risk manage-
ment and the maturity
of enterprise risk man-
agement are dependent
on each other. Without a
culture of risk manage-
ment in an organisation,
advanced risk manage-
ment processes may not
be appreciated; however,
the use of such processes
and tools may increase
the awareness and matu-
rity of risk management.
are shown and these are briefly defined in to high- DIAGRAM 1 The most
FITTING THE PIECES TOGETHER light their importance to a company. important specialised
There are various specialised risk management disci- RM disciplines
plines, including several that form part of financial BUSINESS CONTINUITY MANAGEMENT
risk management. In diagram 1, some of the most Every organisation can at any time experience a
important specialised risk management disciplines serious incident that can prevent it from continuing
31
RISK MANAGEMENT ENTERPRISE RISK Feb 10
ENTE 0
normal business operations. Business continuity is tools are required for the practical implementation
defined in the British Standard 25999:2006 as a and management of credit risk.
holistic management process that identifies poten-
tial threats to an organisation and the impacts to CREDIT RISK TOOLS
business operations if those threats are realised. It These include quantitative calculation engines,
also provides a framework to build resilience in the qualitative scoring guides and credit-risk manage-
organisation. ment reporting systems. Such tools aid both the
measurement and the processes to manage credit
PROJECT RISK MANAGEMENT risk in an organisation. The time and monetary ef-
Projects, particularly those with a significant capi- forts employed to create or implement a tool or
tal investment, may pose a potential threat to an system must appropriately balance the magnitude
organisation if not managed appropriately. Project of the risks it is intended to measure.
risk management assists in ensuring that project-
specific risks are identified and their causes deter- CONSUMER CREDIT RISK MANAGEMENT
mined to ensure that appropriate strategies could This involves understanding the risk a consumer
be planned to manage such risks. Risk manage- presents to an organisation before granting that
ment activities are applied at all stages within a consumer any type of loan. Crucial issues in this
project life cycle. regard include how to determine the associated
risk and how to set appropriate strategies for risk
SUSTAINABILITY RISK MANAGEMENT management and risk mitigation throughout the
This refers to the effective management of envi- lifetime of a loan.
ronmental, social and economic priorities in an It further involves aspects of targeting the right
organisation. Included in King III, sustainability is customer with the right offer, selecting the cus-
tomers with acceptable risk profiles in the acqui-
OPERATIONAL RISK MANAGEMENT IS sition phase, managing these customers and un-
PARTICULARLY MATURE IN THE BANKING derstanding their repayment behaviour; and lastly,
how to determine a collections strategy effectively
INDUSTRY DUE TO BASEL II REQUIREMENTS for each individual customer.
referred to as one of the most important sources
of both opportunities and risks for businesses and MARKET RISK MANAGEMENT
that nature, society and business are interconnect- Market risk management is concerned with the
ed in complex ways that should be understood by monitoring and management of an organisa-
decision makers. tions potential exposure to its portfolio value as
a result of changes in market prices. The main
OPERATIONAL RISK MANAGEMENT contributors to market risks are typically equity
This is defined as the risk of loss resulting from prices, interest rates, foreign exchange levels and
inadequate or failed internal processes, people and commodity prices.
systems or from external events. Typical compo-
nents of an operational risk framework include LIQUIDITY RISK MANAGEMENT
loss data collection, risk and control self-assess- This involves the monitoring and measurement
ment, issues and action plans, key indicators and of current and future cash flows, whether known,
key risk scenarios. Operational risk management is expected or unexpected, to ensure an organisa-
particularly mature in the banking industry due to tion will continually be able to meet its finan-
Basel II requirements, but the tools and processes cial obligations. The management of liquidity is a
used can assist any organisation in the manage- critical factor in ensuring the ongoing survival of
ment of their risks. an organisation.
32
Rooth Wessels Motla Conradie presents
INDUSTRY EVENTS
The SAICA Conference brought to- management is integral to value creation. management practices, increasingly com-
gether delegates from across the financial The financial crisis had revealed that there plex and opaque financial products and
services industry to discuss issues and chal- is over-reliance on statistical or mathemati- consequent excessive leverage combined to
lenges common to the industry against cal risk valuation models that used historic create vulnerabilities in the system.
the background of the economic down- data. There had been too little involvement Policymakers, regulators and supervi-
turn as well as the short- and medium- of senior of senior executives and directors sors in some advanced countries did not
term outlook. in exercising judgement. adequately appreciate and address the risks
In particular, important risk aspects were Nkuhlu emphasised how crucial it was for building up in financial markets, keep pace
highlighted, together with sustainable de- business entities to report on how risks were with financial innovations or take into ac-
velopment strategies and processes. The managed when they reported on economic count the systemic ramifications of domes-
solutions that emerged from the conference performance. Failure to do so is failure to tic regulatory actions.
will assist businesses as they strive to steer provide vital information to investors and The conclusion was that risk had not been
clear of the challenges that lie ahead. others who have an interest in evaluating adequately appreciated by boards of direc-
A number of high-profile speakers high- the performance and future prospects of the tors and investors.
lighted some of the most pressing issues in business entity. Why? asked Nkuhlu. Because of de-
the industry. He pointed out that the increased com- ficient risk reporting. He said the most
plexity of business processes and products, important lesson was that directors had to
RISK MANAGEMENT MODELS consumer activism, regulatory requirements take increased responsibility for risk man-
Risk management models have to be simple, and globalisation had all increased the need agement and reporting. They must make
enterprise wide and integrated if they were for effective risk management and risk re- sure that they understand the products of
to succeed, Johan van Graan, Vodacoms porting. As a consequence, reporting on their companies and the risks involved.
chief risk officer told delegates. In addition, risk management has become a require- They should not over-rely on credit rating
Van Graan recommended that future risk ment in most corporate governance regu- agencies.
management approaches and practices be lations and codes. However, the financial He also stressed that risk management
owned by the business. crisis has revealed that boards of directors, should not only be a corporate governance
Perceptions in the boardroom must including audit and risk committees, have compliance issue but a business imperative
change. Key to any fresh approach designed an inadequate appreciation of the nature that had to be taken seriously by every di-
to prevent future crises is a strategy to re- of risks and risk management processes of rector committed to fulfilling his fiduciary
spond to global failures, complying with their companies. duties to the company and society. Nkuhlu
King III and policies designed to ensure Nkuhlu said that the evidence of published urged stock exchanges, accounting standard
long-term sustainability. financial statements gave little insight into setters and other regulators to review guid-
He maintained that risk management the comprehensiveness and quality of risk ance on risk management and reporting.
models of the past had been too compli- management processes. Most companies There should be a serious review of risk
cated. They were not integrated into a only report that they have adopted com- management practices. There should be
businesss day-to-day activities. Nor were pany-wide enterprise risk management and guidance regarding where risk management
they sufficiently focused, attempting as that they have well-functioning board risk information should be disclosed in the com-
they did to cover too diverse a number of management committees. panys integrated reports.
issues, among them enterprise resource He referred to the G20s description of the
management, credit, health and safety, and root causes of the financial crisis. During REGULATION COMPLIANCE
business continuity. a period of strong global growth, growing Sandy van Esch, director: standards at the
capital flows and prolonged stability ear- Independent Regulatory Board for Auditors
REPORTING ON RISK MANAGEMENT lier this decade, market participants sought (IRBA), told delegates that companies often
Prof. Wiseman Nkuhlu, former economic higher yields without an adequate appre- spent more time on compliance than on run-
advisor to the State President, told dele- ciation of the risks and failed to exercise ning their business. She said the regulation
gates that risk reporting had assumed much proper due diligence. At the same time, was a significant disincentive for SMEs and
importance in corporate life because risk weak underwriting standards, unsound risk SMMEs for several reasons, among them:
34
ENTERPRISE RISK Feb 10 EXECUTIVE SECTION
Conference
they suffered a larger cost burden He noted that countries that had NHI systems were
penalties for non-compliance can add dispropor- generally highly developed economies, with large
tionately to costs taxpayer bases and high levels of personal income,
they did not have the scale of operations to offset low levels of unemployment and income inequality,
regulatory costs and could afford to subsidise the minority of those
there was a limited capacity to appoint compliance who were unemployed and unable to contribute.
staff. Came said that in 2007, 15.6% of the population
Many regulators have an infallible belief that more had been beneficiaries of medical schemes, a statistic
regulation will prevent corporate failures, corruption that should be viewed against the background of a
and fraudulent financial reporting, and that more taxpayer base comprising:
regulation would ensure compliance, limit excessive 5.2 million individuals
greed and enhance performance and accountability. 1.6 million companies
Van Esch recommended that a regulatory impact 379 675 registered employers
assessment, performed by independent assessors, 384 747 trusts
should be required for all legislation before promul- 745 487 registered to pay VAT
gation. At the same time, legislation and regulation taxpayers comprising some 10% of the
creates stability in particular in lessening the im- total population.
pact of the global financial crisis. The impact of the Addressing the issue of whether or not the country
financial crisis is not as severe in South Africa as in had sufficient money to administer NHI, Came high-
other countries. lighted a 2009 estimate of R5.6 billion for current ad-
A factor in this phenomenon was South Africa ministration and managed-care fees. An additional
having been ranked second out of 133 countries by 41 million beneficiaries at current costs would add
the Global Economic Forum 2009/2010 survey for its R28.2 billion per year. This cannot happen.
auditing and accounting standards. Rather, he suggested a solution whereby there was
an acceptance that health-care finance needed to be
DEVELOPING AND INSPIRING EMPLOYEES extended and that provision of health care for the
South African corporations should develop and in- unemployed be funded by income tax. We need to
spire their employees as a core strategy to emerge ro- consider employer-mandated cover for all workers
bustly from the economic recession, said Matsobane seriously.
Matlwa, executive president of the South African In- This will grow the cur-
stitute of Chartered Accountants (SAICA). rent market penetration from
We cannot succeed without appropriately equip- around 16% to 28% of the
ping the people in our organisations to deliver on population with no new in-
the missions and visions of their respective compa- frastructure. We also need to
nies, commented Matla. Business leaders have to reconsider prescribed mini-
ask themselves how they can involve or enable the mum benefits (PMBs) and ba-
thousands of unemployed people to participate again sic benefits packages to make
in the recovery of the South African economy. We a lower cost option more af-
cannot claim to be in a state of recovery if thousands fordable.
of people are still without jobs or merely because fi- The quality of public health
nancial markets are showing signs of reviving. facilities must be improved
Matlwa also said that SAICA would maintain stand- so that they compete with
ards with a view to upholding the the reputation of the private sector in the pro-
the accountancy profession in the marketplace. vision of PMBs. We need to
make health care a South
NHI NOT FOR SA African global competitive
Gavin Came, CEO of Sasfin Financial Services told advantage which will benefit
delegates that the National Health Insurance (NHI) residents.
was not suitable for
South Africa. NHI is a W '
E CAN T SUCCEED WITHOUT APPROPRIATELY EQUIPPING THE PEOPLE
health-care financing
system, not a health-care
IN OUR ORGANISATIONS TO DELIVER ON THE MISSIONS AND VISIONS OF
provision system.
THEIR RESPECTIVE COMPANIES MATSOBANE MATLWA, EXECUTIVE PRESIDENT, SAICA
35
ASSOCIATION PAGES ENTERPRISE RISK Feb 10
IRF
The Institute of Retirement annual IRF conference is the biggest event in we are ready to proceed with renewed focus
Funds (IRF) represents retirement funds in the industry, while popular practical work- into the future.
South Africa. Membership is voluntary, al- shops are presented during the year.
though its value cannot be overemphasised Despite its important role, the IRF is self- HARNESSING INDUSTRY EXPERTISE
given the dynamic nature and increas- funded. There have been suggestions that One of the reasons behind the proposed re-
ing complexities of the current retirement the FSB should make membership compul- structuring was a misperception that the IRF
landscape. sory, since the entire industry benefits from is biased towards service providers. Howev-
Essentially, the IRF provides individual re- the IRFs activities. Indeed, even the gov- er, service providers are included in the IRF
tirement funds with a collective voice in in- ernment bodies such as the FSB and SARS, membership for a very valid reason.
teractions with statutory bodies such as the which simply do not have sufficient resourc- Padayachee explains that service provid-
FSB, SARS, the Department of Social Devel- es and are removed from the industry issues, ers are the employers of choice for the very
opment (DSD) and the National Treasury. are dependent on the IRF for expertise and best legal and technical experts in the small
guidance. The IRFs legal and technical com- local retirement fund industry. These retire-
FAR-REACHING IMPACT mittee plays an important role in assisting ment fund specialists have their fingers on
The IRF currently has around 900 members, these statutory bodies to understand the the pulse of local developments and are able
including retirement funds, trustees, legal implications and ramifications of various to fund research on international trends and
and technical experts from various service legislative initiatives and regulatory inter- access experts from overseas jurisdictions.
providers, pension lawyers, asset managers, ventions. In essence, they help government They also have many years of experience
risk managers, asset consultants and more. create solutions. dealing with the real practical issues, and
Members enjoy significant benefits includ- The legal and technical committee also with the regulators. Their experience and
ing a voice in discussions around legal and has a proactive approach meeting with the expertise are an invaluable resource which
regulatory reforms, quick access to industry various regulatory bodies quarterly to dis- benefits the entire industry.
expertise and up-to-date information. The cuss issues and proposals for amendments to The IRF is served by 18 non-remunerated
existing legislation and regulations are sub- board members. The secretariat features just
mitted to address identified problems. five permanent members to represent of
interests of an estimated 8 000 retirement
GLANCING BACK funds.
The IRF has not featured strongly in the For this reason, the expertise and indus-
public eye, as a result of the FSBs decision try resources brought by the legal and tech-
to split the IRF into two bodies representing nical experts at the service providers on a
trustees and service providers, and to trans- voluntary basis are crucial. Likewise the IRF
form the board to be more representative. provides a crucial platform for coordinated
The funding for this transformation ini- interaction with the regulators.
tiative did not materialise, leaving the IRF
in limbo, so to speak, from a public relations LOOKING AHEAD
perspective, explains Padayachee. Never- Although we continued to play a crucial role
theless, during this time the IRF continued to behind the scenes over the last few years,
fulfil its crucial role in the industry and now our new, more representative board can now
assume a more public role in the industry,
Shantha Padayachee has served the
retirement fund industry as an attorney to ensure that the interests of our members,
for a number of years and became and ultimately the beneficiaries of the retire-
president of the Institute of Retirement ment funds, are protected and served in the
Funds in 2009 best way possible, says Padayachee.
36
ENTERPRISE RISK Feb 10 ASSOCIATION PAGES
FIA
FIA welcomes new CEO
The FIA received many applications and has worked extensively in both local and
from senior executives for the CEO position global markets a factor which will serve
but was particularly impressed with Manies both the FIA and its members well.
About management
prior experience and success with manag- The FIA board recognised that in the rap-
ing another national industry association idly changing world of financial services, it
the South African Meat Industry Company was important to appoint an individual who
(SAMIC), says FIA president, Arnold van is unhindered by stereotypical industry ap-
der Linde. proaches and is therefore able to bring fresh
Booysen is credited with transforming perspective and insights, says Van der Linde.
South Africas meat industry, which was Solutions to our current challenges lie in
faced with a number of transitional chal- creative thinking and not in fixed historical
lenges some time back. During his tenure perspectives.
with SAMIC, among other achievements, Booysen is respected for his strong man-
Manie was awarded a certificate of apprecia- agement, leadership and relational skills and
tion from the director general for the Depart- will take the FIA into a new era. Manie will
ment of Agriculture for achievement in BEE be supported by an excellent team at the FIA
projects, says Van der Linde. Booysen, who and together, they will reshape the associa-
holds a BCom degree, also spent a number tion and ensure it meets members needs and
of years with Armscor, Renwick, subsidiaries makes a positive contribution to remodelling
within Malbak and other firms. He has been the insurance and assurance landscapes in Newly appointed FIA CEO,
responsible for the turnaround of companies our country, says Van der Linde. Manie Booysen
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