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CASE STUDY: Alan Hutcheson CEO of Tracker gives an insight into how the
company’s disaster recovery plan was put to the test
VOLUME 4 Nº 1 FEBRUARY 2010
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2010 Challenges
and opportunities
EDI TOR’ S NOTE
The hot seat of this issue of En-
terprise Risk deals with a fascinating real
time case study entitled Rising from the
ashes. During the early hours of Saturday
17 January 2009, the Tracker head office in
Darrenwood, Johannesburg was gutted by
a fire that ripped through the building. Ac-
cording to Andre Ackerman, Tracker’s CFO,
the disaster recovery plan (DRP) was ex-
ecuted with military precision, enabling the
company to carry on with their business of
recovering vehicles. They took their first call
just five hours after the disaster. The entire
administrative staff was fully operational at
an off-site location by Monday morning.
The case study looks at the vital role that
each of the parties played in the implemen-
tation of the plan. The client was Tracker,
the disaster recovery site and service pro-
vider was IBM, the insurance broker was
Alexander Forbes Risk Management Serv-
ices, the insurer was Mutual & Federal and
the loss adjuster was Cunningham Lindsey
South Africa. The damage was estimated at
some R40 million, but the DRP ensured that
not even a fire could prevent Tracker cus-
tomers and staff from “taking back tomor-
row”. A story well worth reading.
Enterprise Risk starts the year 2010 with
two industry-insight articles that give the
views and opinions of the leaders in the
short- and long-term sectors. Each focuses
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
one word that just about every leader men-
tioned as being a key priority is “customer”.
As a result, the levels of customer service
will rise even further.
In the last quarter of 2009, I took over the
editorship of Enterprise Risk when Sandra
Jordaan left. This was intended to be for
the period while a replacement was being
found. I am pleased to let you know that
we have now appointed an editor for En-
terprise Risk. Bronwyn Barnard, who cur-
rently edits Emergency Services SA and
Occupational Risk for 3S Media, will be
taking over from me with effect from the
next issue, with Monique Terrazas continu-
ing as assistant editor. I wish the team all
the best for taking this growing magazine
to even greater heights in this remarkable
year of 2010. I would also like to thank the
industry for their support.
Editor
ENTERPRISE
PUBLISHER Elizabeth Shorten
EDITOR Debbie Besseling
ASSISTANT EDITOR Monique Terrazas
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ENTERPRISE RISK DEALS WITH A
FASCINATING REAL TIME CASE STUDY
ENTITLED RISING FROM THE ASHES
HOT SEAT
444
I n t he ear l y hour s of a
Saturday morning last year, the Track-
er building was engulfed in flames,
causing an estimated R40 million in
damages to the first floor of the build-
ing. Fortunately, no one was injured
and a comprehensive disaster recov-
ery plan was in place. A combination
of Tracker’s disaster recovery plan,
and its partnerships with the relevant
role players, ensured that what could
have been a business disaster turned
The chai n of event s f ol l owi ng t he fir e t hat raged at Tracker ’s bui l di ng
ear l y l ast year pr oved sober i ng and pr ovi ded f asci nat i ng i nsi ght i nt o
t he dynami cs of execut i ng such a pl an.
TRACKER FI RE – A CASE STUDY
Ri si ng f r om t he ashes
into one of the proudest moments in
Tracker’s history.
On the following pages, we look at
how the disaster recovery (DR) plan
was implemented by considering the
roles of the various players, what
they did right and the lessons that
can be learnt from this exceptional
experience.
The exceptional teamwork and pro-
fessionalism of all the relevant role
players have been identified by all in-
volved as one of the key success fac-
tors in implementing the DR plan.
THE ROLE PLAYERS
The client Tracker
The DR site and
service provider
IBM
The insurance broker Alexander Forbes risk
management services
The insurer Mutual & Federal
The loss adjuster Cunningham Lindsey
South Africa
The i mpl ement at i on of Tracker ’s DR pl an was i mpr essi ve, t ur ni ng a
pot ent i al busi ness cr i si s i nt o a pr oud moment f or t he company.
Di sast er r ecover y i n act i on
Fol l owi ng a devastating fire at
their building in the early hours of a Sat-
urday morning early last year, Tracker’s im-
plementation of a well-planned and thor-
oughly tested disaster recovery (DR) plan
was nothing short of impressive: critical
services were recovered within three hours
and the execution of the total recovery plan
was completed within six days.
Of course, behind the scenes lay months
of preparation, testing and capital expendi-
ture spend to ensure not even a fire could
prevent Tracker customers and staff from
“taking back tomorrow”.
THE DISASTER RECOVERY PLAN
“Business continuity is the number-one risk
on Tracker’s risk register,” says Alan Hutch-
eson, CEO of Tracker. “The first business
continuity plan was devised by an external
consultant as far back as 2004, and this plan
received a major overhaul in 2007. At the
time, a new DR contract was entered into
with IBM and the DR location was moved.
Following this overhaul, we maintained
Aftermath of the fire that ravaged the
Tracker building in 2009
the discipline of continuously updating the
business continuity plan.”
PLANNING
Hutcheson notes that several factors con-
tribute to successful planning of DR. “You
have to know your business, and never
assume that a disaster will not happen. Sce-
nario planning is crucial. But perhaps what
is most important is that business continu-
ity is taken seriously. The company must be
willing to invest time and money to facilitate
HOT SEAT
5
thorough planning and a DR plan owner
within top management must be tasked to
ensure that senior people are putting in the
time and effort required. Critical processes
and IT systems must be identified, and the
‘technology layout’ of the business must be
documented in such a way that non-IT peo-
ple can also understand it. The plan should
always cater for more, rather than less. It
must also be remembered that small things
do matter, for example in this case, recover-
ing our staff’s personal belongings as soon
as possible.”
Documenting the plan in full is another
key element identified Hutcheson. “If your
full business continuity plan is not docu-
mented, you better avoid the disaster. In
this specific instance, because there were
no casualties of key staff, we did not have
to implement the full plan. We had experi-
enced executives who had prepared the DR
plans to execute them.”
Choosing the right DR location and sup-
plier is part of the planning process. “Crucial
factors to consider include the proximity of
the DR site to the main business location
in terms of the risk versus the cost for both
natural and unnatural disasters, difference
in power and communication grids, as well
as operational practicalities such as staff
transport. The cost of a DR infrastructure, as
well as additional costs such as insurance,
must also be considered. The assistance of
a service provider with the right know-how
and facilities are invaluable to ensure the
right decisions are made, and for this rea-
son Tracker partnered with IBM.”
IMPLEMENTATION AND TESTING
“You can’t have a plan on paper only,”
says Hutcheson. “Long before we needed
our business continuity plan, we had im-
plemented crucial aspects thereof, for ex-
ample, signing the DR site contract, pre-
paring the DR site and putting the right
communication infrastructure in place, in-
cluding updating staff contact details on a
monthly basis.
“Successful testing was done in critical
areas. If possible, do a full test. Do not as-
sume that aspects of the DR plan do not
require testing. Develop testing plans and
record the results. Implement changes from
what you learn in the testing.”
EXECUTION
Execution requires military precision, says
Hutcheson. “The DR director must take
charge, maintain discipline and not allow
panic. Crucial to the execution is the right
person for the job, concise decision-making
and a skilled secretary who can document
all meetings and immediately distribute the
minutes with detailed action plans. Senior
staff need to be involved but only members
of the crisis management team should be
present at the meetings. It is also crucial as
top management trusts the appointed team,
and while holding people accountable, al-
lows reasonable freedom with regard to
decision-making.
“In terms of technology, the relationships
with vendors, customer-partners, data and
telecommunication partners are critical. The
perceived ‘rats and mice systems’ are im-
portant and companies should also consider
alternate technologies to make a change
over easier.”
PROTECTING THE BRAND
A comprehensive communication plan tar-
geting the media, customers and stakehold-
ers, as well as staff members, was immedi-
ately implemented to protect the brand.
The first step was to issue a holding state-
ment, conveying the following key mes-
sages:
• Only the top floor of one of Tracker’s ad-
min buildings was affected.
• A comprehensive Disaster Recovery Plan
is in place.
• Tracker was still able to track and recover
vehicles.
• There was no suspicion of a crime syndi-
cate attack.
• Nobody was hurt.
Effectively, it was business as usual.
Once the company had established a firm
handle on the crisis, a proactive media re-
lease highlighting all the ‘positive’ aspects
of the fire was disseminated. Constant con-
tact was maintained with key media to en-
sure that the facts accurately reported.
A general script was prepared for custom-
ers and other stakeholders, and the control
room staff were briefed to handle queries.
Key stakeholders and board members were
notified and a statement was posted on the
Tracker website. An emergency ‘Tim from
Tracker’ recording session was scheduled.
Online social media and blog sites were
monitored and addressed. An advertorial
CRITICAL FACTORS FOR A
SUCCESSFUL DR PLAN
• A strong and capable DR team to take control
of the situation.
• Senior staff should be allowed to make
decisions pertaining to their areas.
Main focuses:
• critical operations up and running ASAP
• vigorously defend the brand
• communicate with customers/partners
• be sensitive and supportive to staff
• thorough understanding of IT and
Ops systems.
• Strong vendor relationships.
• Loyal and committed staff acting
as ambassadors.
• Don’t underestimate the ‘softer issues’.
• Remain positive and maintain a sense
of humour.
• Provide continuous food and refreshments to
the DR team and those helping out.
IF YOUR FULL BUSINESS CONTINUITY PLAN IS NOT
DOCUMENTED, YOU BETTER AVOID THE DISASTER
KEY ELEMENTS OF SUCCESSFUL DR
Hutcheson identifies the following key
elements in a successful DR:
• Planning
– business continuity plan
– documenting the plan
– choosing the right DR location and
supplier
• Implementation
• Testing
• Execution
Alan Hutcheson, CEO, Tracker
6
HOT SEAT
branded DR site. Coloured Tracker shirts im-
proved coordination and stationery packs
were handed out. Hot snacks and drinks
were served and music played to lift morale.
All teams were fully briefed by their manag-
ers, before entering the state-of-the-art DR
site and logging onto all the normal Tracker
systems. A voice, fax and e-mail script was
prepared for all staff to help field queries on
the blaze.
TRIUMPH FOR TRACKER
R40 million of damages to the Tracker
building, a loss that in most other instanc-
es would have crippled a business, turned
into a triumph for Tracker. Perhaps more
importantly, the brand suffered no dam-
age because of a superbly executed
communications strategy.
Tracker staff, instead of being flustered
and disorganised, experienced some of their
proudest moments as they witnessed the
professionalism with which the recovery
was executed, a fact confirmed by the many
proud and congratulatory messages on the
Tracker website.
A cr uci al el ement of a DR pl an i s ensur i ng busi ness cont i nui t y and
r esi l i ency. Thi s was hi ghl i ght ed i n t hi s case st udy.
I BM – The DR si t e and ser vi ce pr ovi der
Busi ness cont i nui t y and r esi l i ency
Fol l owi ng t he f i r e at their
building during the early hours of a Sat-
urday morning, the Tracker team ran their
operations from the IBM BCRS site for
60 days, requiring in excess of 500 seats.
The Tracker operations were relocated
within hours of the fire and as a result of
the exceptional planning and profession-
alism of all the parties involved, it was
business as usual even before news of the
fire broke.
Cynthia Crose, vice-president, integrated
technology services at IBM sub-Saharan
Africa, explains just how quickly the re-
covery plan was implemented. “The IBM
BCRS team was summoned to the recovery
THE RIGHT BUSINESS RESILIENCY STRATEGY
Business resiliency can provide near-term cost efficiencies as well as strong, long-term ROI.
Mitigate risk – Avoid the costs of downtime, brand damage and market share lost to competitors,
and reduce the financial impact from business disruptions.
Protect brand and revenue – Properly assessing the threats to your IT infrastructure, their potential
business impact and your tolerance for risk can help you plan a realistic strategy.
Protect capital – Analysing cost trade-offs can help you avoid unnecessary investment.
Reduce costs – Resiliency solutions can help protect you from failed restores and lost data.
Improve service – You can align resilient infrastructure to the needs of your business to maintain
service-level agreements based on your tolerance for risk.
facility even before the fire fighters had left
the scene, and by 10am the technical team
had started rolling out the call centre, and
the emergency control room was relocated
to the IBM BCRS site. By 11am, car track-
ing was up and running again, and by 2pm,
the call centre seats for Tracker’s staff were
ready and office seats were being rolled out
and delivered. By 5am on Monday morn-
ing, an IBM team, along with Tracker’s cri-
sis management team, were on site ready to
welcome Tracker’s staff and assist them in
getting them settled in.”
Crose notes that there were several suc-
cess factors that contributed to the success-
ful implementation of the business conti-
nuity plan. These are graphically presented
in graph 1.
LESSONS LEARNED
“In this case, a number of critical success
factors implemented by IBM were again
highlighted as crucial to a successful busi-
ness continuity plan,” adds Crose. “Firstly,
the business continuity processes need to
be flexible, while adhering to IBM govern-
ance guidelines. Secondly, test, test and
test to ensure the team not only knows,
but also owns the client’s disaster recov-
ery plan. Thirdly, the value of having in-
frastructure 100% ready at all times was
also underscored again. And lastly, we
were reminded never to underestimate the
volumes of call records, people, etc., which
requires careful logistical planning in terms
of often-overlooked issues such as park-
ing, extra housekeeping requirements and
additional security.”
Crose also says that testing and exercis-
ing is vitally important to ensure effective
and efficient business continuity. “Apart
from making sure the business continuity
plan works, testing and exercising is an
important way to train the relevant people
and to maintain a high state of readiness.
It also allows a company to capture any
Cynthia Crose, vice-president,
Integrated Technology Services, IBM,
sub-Saharan Africa
was placed in several key newspapers within
a day to put stakeholders’ minds at ease.
To avoid rumours and panic, positive
e-mails and SMSs were sent to all staff
members within hours of the blaze, followed
by details concerning their return to work.
Senior managers were briefed by trauma
counsellors to deal with their staff. To keep
inquisitive staff away from the scene of the
fire, a variety of photographs of the burnt
building were posted on the intranet site.
On the Monday morning, staff were greeted
by a welcoming committee to an extensively
7
HOT SEAT
changes and to audit the plan, while creat-
ing awareness among staff at all levels, as
well as among stakeholders.”
BUSINESS RESILIENCY DOES MATTER
“Many different threats and opportunities
can arise that can threaten the stability of
a company’s business and IT operations,
from the obvious weather-related risks,
such as hurricanes or floods, to the unex-
pected, successful marketing or public rela-
tions campaigns that result in an overload
of a system and a subsequent crash,” ex-
plains Crose. “A business resiliency strat-
egy must centre on understanding all the
potential risks, which can be data driven,
business driven or event driven, across the
enterprise.”
IBM's successful business continuity
is illustrated in DIAGRAM 1
The br oker pl ays a pi vot al r ol e i n t he r el at i onshi p bet ween t he i nsur ed,
t he i nsur er and ext er nal speci al i st s such as t he l oss adj ust or.
ALEXANDER FORBES – The i nsur ance br oker
The r ol e of t he br oker
The r ecent Tr acker fire claim
clearly demonstrated how the right broker
can optimise the synergies between the vari-
ous role players in the insurance industry.
When the Tracker team arrived at their
premises on the morning of Saturday 17
January 2009 to discover an estimated
R40 million of fire damage, their first port
of call was their broker, Alexander Forbes
Risk Services.
Alexander Forbes risk services immedi-
ately appointed a loss adjuster, Cunning-
ham Lindsey South Africa, to visit Tracker’s
premises, assess the damage, investigate the
root cause and adjust the claim once it had
been formulated by the client and presented
by the broker to the insurer. On the Monday
following the fire, Mutual & Federal ratified
the loss adjuster’s appointment and within
48 hours after the devastating fire, the loss
adjustor’s preliminary report was received.
Since the loss was correctly covered by
the insurance policy arranged by Alexan-
der Forbes, Mutual & Federal could swiftly
process the claim and make interim pay-
ments to assist Tracker with the immediate
costs faced.
Arranging the right cover with the right
insurer, acting swiftly within the insurer’s
mandate and choosing the right loss ad-
juster were crucial to the prompt settling of
the claim. However, perhaps most important
was the broker’s role in arranging adequate
insurance and managing the client’s ex-
pectations and experience throughout the
claim process.
“The broker is the link between the in-
sured, the insurer and external specialists
such as the loss adjuster, managing expec-
tations and optimising synergies among
the various role players,” says Jaco Smit,
business unit manager at Alexander Forbes
risk services.
THE BROKER-CLIENT RELATIONSHIP
“In the relationship between the broker and
the client, it is crucial that the broker has a
thorough understanding of the client’s busi-
ness. In essence, the broker must understand
the client’s needs by having an in-depth
understanding of his client’s business and
then translate these into a comprehensive
risk management strategy to ensure that
all exposures to the client’s business are
properly addressed.
A broker must take a holistic view of the
client’s business, and provide the expertise
Jaco Smit, business unit manager,
Alexander Forbes risk services
HOT SEAT
8
and insight to ensure an enterprise-wide ap-
proach to risk management is implemented,”
says Smit.
THE BROKER-INSURER RELATIONSHIP
While the client’s needs must always come
first, the value of long-term relation-
ships between brokers and insurers cannot
be underestimated.
“It is crucial that both the broker and in-
surer clearly understand and operate within
the agreed mandate to ensure prompt settle-
ment of claims,”adds Smit.
THE BROKER-LOSS ADJUSTER
RELATIONSHIP
One of the most important characteristics of
a good broker is the ability to harness both
internal and external expertise and experi-
ence. “Usually, the insurer appoints an ad-
juster of its choice. However, an experienced
broker will liaise with the insurer prior to
the appointment of a loss adjuster to agree
on the latter’s availability, flexibility, skill
and integrity to ensure the client receives a
fair settlement,” says Smit.
Warren Buffet said, “It is only when the
tide goes out that you learn who has been
swimming naked."
"When facing a catastrophe of this
magnitude without the assistance of an
experienced broker, this bit of Buffet wis-
dom takes on a whole new meaning,” com-
ments Smit.
DIAGRAM 2 Interlinked relationships
The r agi ng f i r e at Tracker’s
head office in Randburg caused an esti-
mated R40 million of damage. “The chain
of events following the fire proved that a
trusting relationship between policyhold-
ers, short-term insurers and brokers can
result in swift action to solve a potentially
crippling problem,” explains Ken Law-
rence, general manager: claims technical
for Mutual & Federal.
CHAIN OF EVENTS
The first link in the chain was the swift
reporting of the loss to Tracker’s 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 adjuster’s
preliminary report was received within 48
hours, allowing the claim to be processed
without delay.
An internal special investigations unit
was appointed to establish the cause of
the fire, with the assistance of forensic in-
vestigators.
A loss management plan was presented
to Tracker, providing clarity regarding the
claims process. “To date, Tracker’s claims
experience had been exceptional, and
The fir e t hat occur r ed at Tracker ’s head of fice demonst rat ed t he val ue
and peace of mi nd t he r i ght i nsur er can pr ovi de.
MUTUAL & FEDERAL – The i nsur er
The r ol e of t he i nsur er
given the substantial loss and potential
lengthy period of business interruption, a
number of interim payments were made to
Tracker to assist in reinstating the busi-
ness,” says Lawrence.
KEY SUCCESS FACTORS
The claim was handled within the short-
est period and the business was reinstated
within hours. This can be attributed to a
number of key factors:
• Formidable teamwork between all par-
ties involved.
• Mutual & Federal’s senior manage-
ment team dealing with the claim had
DIAGRAM 3 Illustrating Mutual &
Federal's partnership approach
HOT SEAT
9
extensive underwriting and claims man-
agement experience, as well as the au-
thority to make immediate decisions.
• Alexander Forbes clearly understood
their mandate, duties and options
from the outset and coordinated the
entire process, while managing the
client’s experience.
• Mutual & Federal had a strong and posi-
tive relationship with the loss adjuster,
whose timely report was a crucial aspect
in the swift handling of the claim.
• Tracker had a comprehensive disaster re-
covery plan, which was well executed.
LESSONS LEARNT
A number of pertinent lessons can be
learned from the Tracker claims process:
• A partnership approach to good claims
management is required.
The l oss adj ust er ’ s role
is vital in the claims process and through
possible pre-loss nomination or knowledge,
a vital trust relationship can be established
with the insured’s relevant representatives.
According to Ken Maclean, branch man-
ager, Cunningham Lindsey South Africa,
“As students of insurance, we read about
the principles of utmost good faith and
the responsibility of the insured to dis-
close material facts. However, the need for
trust goes way beyond this. As far as the
insured is concerned, it is a two-way street
with the insured needing to trust and have
faith in all those involved in the insurance
arrangements both from a policy and claims
point of view.”
The test of any insurance is the claims
service. Unlike many things that are bought,
it is invisible at the time of purchase and
therefore effectively taken on trust from
both parties to the contracts point of view.
The insured needs the comfort of trusting
the service and understanding what will
occur when and how, in the event of a loss,
to protect assets and trading as well as,
most importantly, reputation and brand.
The broker can play a vital role in the
appointment of a loss adjuster, ensuring
that the appropriate firm with the requisite
technical expertise and capacity is selected.
A trust relationship must therefore also ex-
ist between the broker and adjuster.
The first day on any major incident is
crucial as critical decisions will need to be
taken to ensure trading continuity. While
business continuity plans such as Tracker’s
disaster recovery plan may be in place,
the adjuster is influential in the decision-
making process, and the insured must have
comfort that the adjuster’s commercial acu-
men will have been gained by involvement
in a range of industries and loss scenarios.
“Reputational risk runs far beyond any
coverage provided by the policy and this
is where the need for trust is the greatest.
Communication remains the key to reten-
tion of trust, an awareness of issues fac-
ing a business is vital and the broker again
has an important role to play in convey-
ing information not only to the insurer but
also to the adjuster in a claim scenario,"
says MacLean.
Ken Lawrence, general manager, claims
technical: Mutual & Federal
• Transparency and good communications
are essential.
• Insurance must be recognised as the
final mitigation for the unexpected and
as the client’s backstop.
• Giving the broker a clear mandate to act
in the event of loss, such as the appoint-
ment of a loss adjustor from an approved
panel, accelerates the claims process.
“For Mutual & Federal, this experience has
highlighted the importance of fostering
excellent business relationships with our
brokers and policyholders. When a short-
term insurer, broker and policyholder act
as a unified force, a large-scale disaster
can be resolved within hours and the
Tracker case study is proof of this,” says
Lawrence.
Alt hough being paid by t he insur er, t he loss adj ust er act s as a mediat or
bet ween t he insur ed and t he insur er t o achieve a f air set t lement .
CUNNI NGHAM LI NDSEY SA – The l oss adj ust er
Negot i at i ng cl ai m set t l ement s
Ken Maclean, branch manager,
Cunningham Lindsey SA
Trust is mutual and in the context of
claims is best demonstrated by early re-
lease of funds through interim payments at
a time where cash flow is most likely to
be stretched.
“With the nature and vast extent of the
damage, we have no reservations in plac-
ing on record that had it not been for the
Tracker’s disaster recovery plan, the loss
would have resulted in far serious implica-
tions from both a cost and business conti-
nuity point of view.”
10
COVER STORY COVER STORYYY GENERAL I NSURANCE
The cont ext of a problem consists
of the strategic context, the organisational
context and the risk management context.
A working knowledge of the FAIS Act and a
documented business plan will assist in map-
ping the context for the development of a risk
management plan.
STRATEGIC CONTEXT
The strategic context includes the na-
ture of the environment in which a fi-
nancial advisory business operates. Some
questions advisers should look at are:
• What relationships does the advisory busi-
ness have that are necessary for the busi-
ness to operate?
• What laws, regulations, rules or standards
apply to the advisory business?
ORGANISATIONAL CONTEXT
The organisational context includes the way
the advisory business is structured and how
it operates, including the extent of operative
knowledge advisers have of their relevant ar-
eas of responsibilities. This context may be
technical or non-technical. It includes the ad-
visory businesses' aims, activities, structure,
membership and method of operation. These
are some questions to ask:
• What are the aims and objectives of the ad-
visory business?
• What is the core activity? Who is involved
– both internally and externally?
• What equipment does the business have
and/or use?
RISK MANAGEMENT CONTEXT
The risk management context includes the
nature of operational, technical and regulato-
ry frameworks and what is being done. Some
questions to ask include:
• What is the advisory business currently do-
ing in terms of risk management, either for-
mally or informally?
• Is the advisory business insured?
• Is the advisory business a sole practitioner
or does it have a legal persona?
The goals, objectives, values, policies and
strategies of the business and how advisers
contribute to these are also important consid-
erations that help define the criteria by which
decisions are made about the acceptability of
risks, the form and basis of controls, and the
management options available.
Within this overall risk management con-
text, it is also important to identify the strate-
gic and organisational functions, such as:
• business management
• economic circumstances
• corporate governance
• commercial and legal
• financial management
• human resources
• technology and systems
• unnatural or natural events.
Once these functions have been identified,
risk management policies and strategies can
be considered.
RISK MANAGEMENT POLICY AND STRATEGY
To achieve an effective risk management sys-
tem, it is essential for advisers to develop a
clear policy statement, which should:
• outline the scope and process
Bef or e document ing a RM plan, adviser s should fir st place t he r isks
t hey f ace in cont ext , by under st anding t he obj ect ives of t heir business
wit hin t he st rat egic and or ganisat ional envir onment . BY JOHANN MAREE
BROKER’ S CORNER
Preparing t o document t he RM pl an
• reaffirm commitment to resources
• clarify roles and responsibilities
• define documentation and report-
ing requirements.
This policy sets the framework for the risk
management strategy and applies to all ar-
eas and entities within the business. Once
the context and policy framework is clearly
established, developing a risk management
plan becomes easier. The risk management
strategy should be integrated with other plan-
ning and management activities.
RISK MANAGEMENT RESPONSIBILITIES
All advisory business owners and staff are
responsible for:
• developing and implementing the risk
management plan
• reporting serious risk exposures and
all serious incidents to the advisory
business owner
• reporting annually on the status of risk
management actions to the owner and the
compliance practitioner
• assisting in identifying potential risk expo-
sures and for developing and implement-
ing risk mitigation plans for unacceptable
exposures, which may include:
– preventing potentially damaging events
through minimisation strategies
– providing decision makers with risk man-
agement information to assess acceptable
risks
• where appropriate, transferring risk to
third parties through insurance and
contractual arrangements.
Other stakeholders may be invited to assist
to identify potential risks and suggest any
proposed mitigation.
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.
Don’t miss the next article in our Broker’s
Corner series!
The next article will look at how to identify and
document the risks advisers face.
Succeedi ng i n a dr as t i cal l y
COVER STORY COVER STORYYY GENERAL I NSURANCE
The f i nanci al cr i si s has al-
ready proved to be a watershed for the insur-
ance industry in many parts of the world.
The expectations of customers, investors,
governments and regulators from the in-
surance industry are changing rapidly and
pervasively and as such, the environment
is expected to evolve at a rapid pace over
the next two to three years, ruling out any
return to the relative stability and certainty
that preceded the crisis.
This was revealed by the Pricewaterhouse-
Coopers (PwC) The Day After Tomorrow for
Insurance report, which gauged how the
global slump is reshaping the insurance in-
dustry and highlighted key developments
that are likely to affect particular segments
and geographical markets.
“While the response related to the market
downturn has varied from country to coun-
try, there is an overall feeling of uncertainty
that defines the industry,” says Victor Mu-
guto, Southern African insurance leader at
PwC.
“Even companies that did not re-
quire bailouts have responded to
government requests to cut costs and spend
more effectively.”
It is clear that all insurers across the world
will be required to transform their business
practices to suit the changing sector. This
shake-up will challenge the competitive rel-
evance of some insurers. However, it also
offers agile and farsighted firms a once-in-
a-generation opportunity to catapult them-
selves to the front of what will be a very
different racing order within many geo-
graphical markets and classes of business.
CHANGING CUSTOMERS
Customers’ faith in financial institutions has
waned, internationally. As capital disap-
peared from the markets, customers have be-
come more cautious, preferring to hold on to
their cash. Those who are prepared to invest
their money are starting to favour simpler
and less risky products.
What customers demand from savings
and investment products and how they
want to buy them will take a new direc-
tion within many territories, with compa-
nies that are slow to catch on, becoming
increasingly marginalised.
“Clearly, customers will eventually start
spending, but will search for more effec-
tive risk protection. The key question is,
on what terms will customers choose to re-
engage with insurers and how may product
and distribution strategies need to change
to encourage them back into the market?”
says Muguto.
What’s more, consumer demand profiles
are also changing in South Africa. Like their
counterparts in the developed world, the lo-
cal insurance industry must react to these
changing customer needs. Customers are be-
coming more discerning and better able to
make informed choices.
The cur r ent insurance landscape is drast ically dif f er ent compar ed t o t he
mar ket bef or e t he global financial cr isis, enabling some insur er s t o pull
ahead f r om t heir compet it or s and leaving ot her s behind.
I NDUSTRY I NSI GHT
In addition, local insurers must also ad-
dress the perceptions of the insurance indus-
try in the low-income market. The challenge
for the industry is perhaps greatest in those
market segments that have no awareness of
insurance or see no benefit in it. Interven-
tions to educate, inform and reach potential
consumers are important and may present
viable opportunities for local insurers.
IMPACT OF DISTRIBUTION CHANNELS
The disillusionment created by the crisis in
many of the more developed markets could
affect channel preferences. In Germany and
Switzerland, for example, there has been
strong unease about the charges and plum-
meting returns from many annuities. This
is leading to a growing switch from tied to
independent advisory channels, as custom-
ers seek more thorough and unbiased advice
about which products match their risk ap-
petite and demand profile. This echoes de-
velopments in the US in the1990s, and in
the UK in 2000 and after. In some countries,
Hong Kong, for example, buying insur-
ance through strong and trusted banks is
becoming increasingly popular once again.
Companies will naturally need to keep their
ears to the ground and adapt their chan-
nel strategies to what could be rapidly
changing preferences.
INCREASING REGULATORY INTENSITY
Under pressure from governments, supervi-
sion in financial services will be more intense
and regulations will be more subject to na-
tional priorities in their interpretation and
application. Some countries are going the
extra mile in developing tough regulatory
regimes with a focus on governance and risk
management. As a member of the Interna-
tional Association of Insurance Supervisors,
South Africa too
is expected to
follow its lead.
As such, we can
anticipate an
“GREATER TRANSPARENCY AND COMPARABILITY OF FINANCIAL AND RISK
DISCLOSURE WILL BE CRITICAL IN GAINING ACCESS TO THE LIMITED SUPPLY
OF AVAILABLE CAPITAL.” VICTOR MUGUTO, SOUTHERN AFRICAN INSURANCE LEADER, PWC
12
GENERAL I NSURANCE
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INVESTORS DEMAND RISK MANAGEMENT
A common thread is the emphasis on strong
ERM. he pursuit of innovation and capital ef-
ficiency has given way to focus on stability
and risk management.
Analysts and investors require a more sys-
tematic approach to effective risk manage-
ment. Greater transparency and comparabil-
ity of financial and risk disclosure will be
critical in gaining access to the limited sup-
ply of available capital.
Market confidence also continues to be un-
dermined by the absence of a relevant and
globally consistent insurance accounting
standard and lingering concerns related to
consistency of embedded value methodolo-
gies and assumptions.
GOVERNMENT INFLUENCE
Although those governments that have bailed
out insurers are eventually likely to divest
their direct holdings, their influence across
the sector will continue. Other governments
however may continue to offer substitutes to
insurance, such as trade and credit schemes
and being the insurer of last resort.
This could result in competitive distor-
tions and impede market development and
once in place could be difficult to with-
draw. On the other hand, governments
that have recapitalised parts of the insur-
ance sector may insist that taxpayers are
given a more favourable deal from the
insurance industry.
KEY DEVELOPMENTS AND THEIR STRATEGIC
IMPLICATIONS
Continued uncertainty involving de-
mand, inflation, stock market performance
and budget deficit scenarios will plague
the market.
The reshaped environment will present both
transformational opportunities and signifi-
cant threats for businesses that fail to antici-
pate and adapt to the changes ahead.
A number of short-term themes have also
been sparked by the financial crisis. Height-
ened risk concerns and the need to rebuild
balance sheets have forced many insurers to
follow more conservative investment paths.
Firms that have been leading the way in driv-
ing home effective risk management prior to
the crisis have already been implementing
this strategy.
Statistics show that the economic down-
turn has been tough on our local insurers.
The slowing economy has led to, among oth-
ers, rising claims. Local insurers should view
this time as a period of challenges and op-
portunities.
I NDUSTRY I NSI GHT
2010 chal l enges and oppor t uni t i es
Ent er pr i se Ri sk asked t he short - t erm insurance indust ry leaders t o share
t heir insight s regarding t he challenges and opport unit ies 2010 will bring.
Johnny Symmonds, MD,
Lombard Insurance
Single greatest challenge:
There are a number of significant
challenges facing the industry.
The first and probably the most
important is attracting and retaining
quality skills. Secondly, regulation
is becoming increasingly complex,
while regulatory authorities
are becoming more hands on.
In addition to industry-specific
regulation, there is an increasing
interrelationship between various
new acts, and future regulations
such as financial condition reporting
and the possible 'green' legislation
will add to the complexity. Global
warming, its impact on weather
patterns and the associated
increase in insurance losses, is
another great challenge facing the
industry. Lastly, the industry faces
constraints in terms of reinsurance
capacity, both in terms of capital
available at a catastrophe level and
in particular the capital available for
guarantee classes.
Greatest opportunities: The growth
in the middle class, traditionally a
major market for insurance products,
is growing, creating opportunities for
the industry. In addition, we have a
large untapped, uninsured market,
which holds great opportunities for
those insurers who can find the
right solutions to product pricing
and market access. The recent
credit crunch has also created
opportunities, particularly in the
credit risk sector, by highlighting the
vital importance of managing
credit risk. •
Barry Scott, chief executive,
SAIA
Single greatest challenge: The
biggest challenge for short-
term insurance generally, and
SAIA specifically, will be to
draft and implement a holistic
and comprehensive strategy to
address motor insurance. Such
a strategy will not only have to
address the risk, but also the cost
of motor insurance claims to keep
motor insurance affordable and
motor insurance as a business
class sustainable.
Greatest opportunities: The
market has yet to tap into the
low-income market although a
few of our members have started
exploring possibilities in this
market with low-key activities.
Companies which use the lessons
learnt from mistakes made in
the micro-insurance space, and
innovatively enter the untapped
market in the near future, will
reap unexpected benefits. The
SAIA financial literacy consumer
education initiatives planned for
implementation in 2010 should
enhance opportunities for short-
term insurance companies with
appropriate products. •
Jurie Erwee, Alexander Forbes
risk and insurance services
Single greatest challenge:
Those who attract and retain the
best talent will reap the benefits
as new opportunities present
themselves. Advancing technology,
environmental risks and corporate
governance will dominate
boardroom discussions in 2010,
presenting opportunities for risk
advisors and the insurance market
as institutions and individuals
seek enterprise-wide solutions to
emerging risks.
Greatest opportunities: More
companies will be adopting a
'high-risk, high-reward' approach
in seeking profits from emerging
markets, including Africa. This
provides exciting opportunities for
South African-based risk advisors
and carriers with representation
and experience of doing business in
Africa. South African insurers have
been slow to expand into Africa but
expect this to change as the focus
on investment opportunities in
emerging markets and particularly
opportunities in the financial services
arena will increase in 2010. •
Guy Scott, CEO, Aon Risk
Services
Single greatest challenge: Perhaps
the most difficult risk management
issue is ensuring that organisations
remain committed to established,
effective risk management
strategies. Risk control efforts
should not be ignored for the sake
of immediate expense cutting. A
comprehensive and successful
response to this global economic
downturn requires the consistent
application of excellence in all
facets of risk management.
Greatest opportunities: Those
organisations who have successfully
weathered the storm with
stringent expense management
and successful talent retention
strategies, coupled with continued
investment in innovation, will benefit
from the flight to quality in terms of
the consumer behavioural change.
Efforts should be focused on quality,
as there is a higher expectation of
value for money from consumers.
A constant investment in new ideas
and solutions is paramount in the
SHORT TERM
14
IN-HOUSE
COUNSEL
Understanding YOUR role and strengthening your
company’s protection against legal liability
Conference highlights and interactive sessions include:
Discussing the Sections of the Companies Act that will be afected by new drafting
Aligning legal policy with the business bottom-line
Discussing the future of risk and corporate governance compliance as a function of the In-
House Counsel
Highlighting the current corporate case law
Mastering your contract negotiation and drafting skills
Managing the use of your external advisor and controlling the cost to company
Defning the In-House Counsel role in accountability to ethical business practice
Pre and Post Practical Conference
Workshops:
Practical techniques for incorporating the
Companies Bill into your policies and procedures
Facilitated by: Jacques Peters, Director, Jacques Peters
Consulting CC
Date: 15 March, 2010
Mastering your contract negotiation
and drafting skills
Facilitated by: Gavin Weiman, Attorney,
Weiman Consulting
Date: 18 March, 2010
T
T
T
T
T
T
T
15, 16, 17 &
18 March 2010
The Wanderers Club,
Illovo, Johannesburg
Fax the below form to 011 880 6789 or for more information call 011 771 7000 or visit www.iir-conferences.co.za
Title: __________________ Name: ________________________________________________________________________________________________________
Company: _____________________________________________________________________________________________________________________________
Job title: ______________________________________________________________________________________________________________________________
Tel no: ____________________________________________________________ Fax no: ____________________________________________________________
Email address: _________________________________________________________________________________________________________________________
Please send me further information about In-House Counsel P3122 ER
IDG:<>HI:G86AACDL
t: 011 771-7000 | e: registrations@iir.co.za | w: www.iir.co.za/inhouse
Researched and Developed by: Strategic Partner: Media Partner:
creation of competitive advantage
– “same old, same old” is just not
enough anymore. •
Paolo Cavalieri, chairperson,
Etana Insurance
Single greatest challenge: Our
biggest challenges as an industry are
finding creative and effective ways of
contending with economic pressure
for ourselves and our clients; finding
ways to progress meaningfully in
areas such as people and leadership
development; and attracting top
talent, so we will have strong and
skilled people to move forward.
Greatest opportunities: There has
never been a more critical time for
brokers to demonstrate their value
to clients in ensuring all avenues
of risk are adequately covered,
without paying for insurance they
don’t need. The insurance industry
needs to be innovative in supporting
BBBEE goals and has opportunities
to use its personal connections with
millions of policyholders to make
meaningful contributions in the area
of consumer education. We also
all have opportunities to sensitise
government and consumers to risk
management. •
Michael Blain, CEO, Centriq
Insurance
Single greatest challenge: The
new binder regulations and medical
demarcation regulations will be the
most keenly watched development
in the first half of 2010. The second
half of 2010 will see South Africa
focusing on its many challenges,
especially how to capitalise on and
maintain the economic momentum
of the World Cup. The insurance
industry will continue focusing on
motor-loss ratios and the cost of
motor vehicle repairs to restore
profitability; risk management; risk
surveys and risk premium rates.
Another challenge is the ageing
public infrastructure and lack of
maintenance owing to the economic
environment and the consequent
impact on claims.
Greatest opportunities: Companies
that are flexible and entrepreneurial
with solid shareholders and the best
skills will survive the consolidation
among insurers and underwriting
agencies in the next 18 months. •
Brand Pretorius, CEO,
Momentum Short-Term
Insurance
Single greatest challenge: The
challenge for insurers will be to
manage the expected increase in
costs, without transferring all of the
cost pressures to the consumer.
The successful insurers in 2010
will be those who are the most
accurate in determining the risk
profile for each individual client and
charging the appropriate premium.
This requires a greater emphasis
on risk management and improved
harnessing of technology for greater
operational efficiency.
Greatest opportunities: Indications
are that a turnaround in the economy
can be expected during 2010. This
could result in growth opportunities
for the industry in general. •
Keith Kennedy, MD, Mutual &
Federal
Single greatest challenge: Growth
in the short-term insurance industry
will be challenged by the state of
the economy. The weather is also a
wild-card factor for the short-term
insurance industry, becoming more
unpredictable over the years, and
claims relating to such events are
more frequent and larger.
Greatest opportunities: We should
see some buoyancy in the economy
in the first half of the year leading
up to the 2010 World Cup. Many
businesses will require various forms
of cover during this period and we
should see an increase in policies
written. •
Pierre Geyer, head: broker
division, Hollard
Single greatest challenge: The
stressed economy will push clients
to seek more perceived cost-
effective or alternative insurance
solutions. The anticipated changes
in legislation, particularly related to
binder agreements, may negatively
affect client service and operating
costs for intermediaries. The
increasing supply-chain costs of
particularly motor-vehicle spare parts
and autobody repairs remain a cause
for concern in terms of claims costs.
Greatest opportunities: The Soccer
World Cup 2010 will have a hugely
positive impact on the economy,
which will spill over to the insurance
industry. Brokers need to examine
the needs of all their clients with
this in mind. With the new FAIS
requirements, a number of non-
compliant brokers will exit the market,
creating acquisition opportunities
for other brokers. With general
service levels deteriorating in certain
insurance channels, the broker will
also remain vital to their customers. •
Ian Kirk, CE, Santam
Single greatest challenge: The
domestic economy is starting to show
early signs of recovery, but such
recovery will be slow – a scenario
that requires focused attention
on the management of risk. The
impact of climate change must
feature prominently on the industry
agenda. 2010 will also see clients
making greater demands for quality,
innovation, service and appropriate
costs. Santam further expects to
see a continuation of mergers and
acquisitions in the intermediary space.
Greatest opportunities: As with
2009, 2010 will be challenging for
the industry. All players will need to
stay on top of their game, but these
challenges inevitably will create
opportunity. 2011 will likely be the
year of recovery for our industry.
ANOTHER CHALLENGE
IS THE AGEING PUBLIC
INFRASTRUCTURE
SHORT TERM
16
Compani es ar e wel l advised to take
up recall cover or increase their existing cover be-
cause the Consumer Protection Bill has been promul-
gated into law. “In more mature markets like the UK
which have similar laws in place, an increase in over-
all product recall of 125% between 2004 and 2007 has
been seen. With regard to non-food products, a mas-
sive 894% rise was recorded between 2004 and 2007,”
explains Keith Marshall, regional manager, liabilities
group, Africa region of Chartis South Africa.
“Certain sectors will be at higher risk because of
the implementation of the CPA than others, and the
controls required will differ accordingly.” These risk
ratings and controls are detailed in table 1.
Retailers will be more responsible for the products
PRODUCT RECALL
Bewar e t he CPA...
Wit h t he Consumer Prot ect ion Act coming int o force short ly, companies
need t o underst and t he impact it will have on t heir product recall
insurance. BY KEITH MARSHALL - CHARTIS
they sell following the implementation of the Con-
sumer Protection Act (CPA), as consumers will be in
a position to return unsatisfactory goods to the re-
tailer as opposed being restricted to seeking recourse
solely against the manufacturer, explains Marshall.
“This means retailers can be held as accountable as
a manufacturer – the middle man status has been re-
moved. Retailers should advisably seek to ensure that
their suppliers have recall plans in place along with
full-blown recall insurance. This is due to the fact that
consumers are now in a position to hold the retailer as
accountable as the manufacturer.”
GET THE COVER NOW
Marshall says that an increase in recall cover pre-
miums is likely since there are more rights of re-
course for the consumer as is intended by the leg-
islation. This is likely to translate into more claims,
increased legal action, and therefore higher premiums
and/or deductibles.
In terms of the underwriting criteria, the retailer
and a manufacturer will now be rated equally as the
exposure to claims increases with the consumer hav-
ing access to greater routes of recourse. There is a
potential for retailers to carry even greater exposure
than a single manufacturer, since the retailers will sell
multiple products from a variety of manufacturers.
“In a nutshell, buying cover now would be cheaper
for two reasons,” notes Marshall. “Firstly, if we con-
sider the trends evident in the more mature markets,
we know that a spike in claims is inevitable. Secondly,
forming a relationship with an insurer now enables
the insurer to have a better understanding of what
the insured’s activities are and what the specific risks
are. This translates into more favourable terms, as the
insured is not gauged against industry standards. For
instance, when dealing with a high-hazard industry
such as the tyre industry, an insured in such an indus-
try that has had a quantifiable claims history (prefer-
ably a good claims record) in say over five years, will
be in a more favourable position.”
ISSUES TO CONSIDER
There are a few factors that companies should be con-
sidering in light of the implementation of the CPA
renewing or taking out products recall insurance as
detailed in table 2.
SECTOR RISK RATING CONTROLS REQUIRED
Retail and
distribution
High Supply chain management including supplier
insurance
Contract certainty between suppliers and consumers
Complaints handling processes and procedures
Product recall plans, processes and procedures to be
set up by the insured with loss control’s assistance
where applicable.
Manufacturing Medium to
high
Supply chain management including supplier
insurance
Contract certainty between suppliers and distributors
Increased quality control on product functionality,
safety, education in the form of manuals and labelling
Complaints handling processes and procedures
Product recall plans, processes and procedures
Services Medium Contract certainty between suppliers and consumers
Complaints-handling processes and procedures
TABLE 1 Risk rating
and controls
TABLE 2 Liability
INSURED INSURER
Strict liability resulting in increased claims
and settlements.
Increased limit as per exposure to risk of
liability.
Increase costs in the form of:
quality control
supply chain management
vetting of suppliers
claim payments
counter claims against suppliers.
Increased information requirements:
loss control
processes, procedures, controls and
monitoring systems.
Insurance packaging:
warranty and inefficacy covers
increased limits for financial loss.
Review information provided and provide
efficacy and/or financial loss cover on a
selected basis subject to specific terms and
conditions.
20
SHORT TERM
COVER STORY
Featuring key presentations from
the following experts:
Examine these hot topics!
Prepare your organisation for the new
17 & 18 March 2010
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Examine these hot topics!
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How will the new bill afect your direct
marketing?
International trends and strategies: What can you
learn?
Managing data throughout the organisation:
Evaluation of processes and procedures
Featuring key presentations from
the following experts:
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Anneliese Rose, UNISA
Warren Wertman, Bowman Gilfllan
Tim Hanlon, Strategic Management Services
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22
Leon Campher, CEO,
Association for Savings and
Investment South Africa
(ASISA)
Lessons learnt from 2009: 2009,
although tough, proved to the
savings and investment industry,
its regulators and our policy maker,
that we are largely on the right track
with our approach to regulation
and the way we do business. We
can be proud of our resilience
during global financial market
crisis – the credit goes to a strong
regulatory framework overseen by
the Financial Services Board and the
largely prudential management of
businesses by the private sector. As
an industry, we were also surprised
by the faith displayed by our investors
as inflows into the savings and
investment industry remained largely
positive throughout the year.
Strategic priority for 2010: A key
strategic priority is to partner with
government and other stakeholders
At t he of 2009, Ent er pr i se Ri sk spoke t o t he
capt ains of t he lif e indust r y about lessons lear ned in
2009 and st rat egies f or 2010.
I NDUSTRY I NSI GHT
Lessons from t he past ,
pr i or i t i es f or t he f ut ur e
on the South African incorporated
strategy, promoting South Africa as
the economic gateway to Africa. The
savings and investment industry, as
represented by ASISA, must deliver in
terms of its continued relevance and
sustainability as the custodian of the
nation’s savings by growing a strong
public/private partnership based
on trust. •
Steven Braudo, MD,
Liberty Life
Lessons learnt from 2009: 2009
reemphasised the fact that without
a happy and satisfied customer,
the entire industry is at risk. Harsh
economic times often force one to
reflect and take stock, and that has
certainly been true for us. We have
always known that the customer is
at the core of everything we do, and
2009 reaffirmed the importance of
resilience and flexibility to assist our
clients in tough times.
Strategic priority for 2010:
Without a doubt, one of our greatest
strategic priorities involves keeping
the customer at the centre of every
business strategy and decision. This
will involve not only bringing new
customers into the Liberty family, but
also retaining our existing customers
by remaining relevant and adding
value to their lives. I speak for the
Liberty team when I confidently say
that we are ready, willing and able
to shake things up and exceed the
highest expectations that we have set
for ourselves. •
Phillip Matlakala, CEO,
Metropolitan Retail
Lessons learnt from 2009: Our
better-than-expected persistency
levels affirmed that our customers
are beginning to understand
the value of their investments –
perhaps a sign of a shift towards
a savings culture? Legislative
reform has changed the way we
do business – both operationally
and in principle – with huge cost
implications. Intermediaries were
also affected with stringent FAIS
regulations forcing out those who do
not comply. This, coupled with the
fear of new graduates pursuing a
‘dying profession’ has created a skills
dearth.
Strategic priority for 2010: The
focus for 2010 will be on further
optimising the way we do business,
leading towards sustainable practices
that place the customer at the core.
We will continue in our commitment
towards improving financial literacy
by upskilling our intermediaries.
We anticipate that implementing
legislative changes will continue
throughout 2010. Our focus will be
on the things within our control, such
as active management, competitive
and appropriate products and
improving the quantity and quality of
our human resources. •
Nicolaas Kruger, CEO,
Momentum group
Lessons learnt from 2009: Three
lessons deserve mention. The
value of effective and appropriate
risk management is the first
important lesson. It is critical for
KEEPING THE CUSTOMER
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24
life insurance companies to have
an in-depth understanding of
how their business will react to
different risks. Secondly, business
diversification provides protection,
as different business units
react differently to challenging
conditions. Finally, the past year
instilled a greater appreciation for
South Africa’s financial regulatory
landscape, where measures such
as exchange controls shielded
us from the worst of the global
financial crisis.

Strategic priority in 2010: I think
discussions around retirement
reform will accelerate in the next
year. Industry has a vital role to
play in shaping South Africa’s
future retirement landscape and
this will surely be a focus area
for life insurers during 2010.
As important is the debate and
consultation around the National
Health Insurance. Momentum
looks forward to working with
industry and government to
make meaningful contributions to
establishing a sound foundation
for an inclusive financial
services industry. •
Selwyn Kahlberg, MD,
Alexander Forbes Life
Lessons learnt in 2009: Get
the basics right! This means a
strong back office, sound claims
management processes and a
great team of people – three
factors that saw Alexander Forbes
navigate the recession with
success. A strong back office
ensures clients are happy and
that management can access
the numbers (sales volumes,
cash flow, solvency) quickly
and confidently. Sound claims
management processes protect
against the increases in both
fraudulent and disability claims. A
great team of people will carry a
company through almost
any situation.
Industry’s strategic priority for
2010: There are two priorities
for 2010 – firstly, maintaining
solvency and profitability, while
being prepared for the next shock
to the system and secondly,
achieving growth in a highly
competitive space. The challenge
will be to create meaningful
product differentiation while
providing a value-for-money
proposition. The quality of the
brand will play a large role in
achieving success. •
Herschel Mayers, Discovery
Life and Invest
Lessons learnt in 2009: It is
crucial to ensure that the business
is built on quality foundations.
The products offered have to
meet customers’ needs and
requirements in a dynamic, rapidly
changing environment. If the
right building blocks are in place,
growth, investment and positivity
is required, especially in tough
economic times. These are the
ingredients for ultimate success
when the economic cycle turns for
the better.
Strategic priority for 2010: Our
priority in 2010 will be to continue
to grow and invest in the business
in South Africa, and to ensure that
Discovery Life is at the forefront of
innovation, exhibiting leadership
in the life assurance industry. We
will also expand our operations
and success in the UK. •
Lizé Lambrechts, chief
executive, Sanlam Personal
Finance
Lessons learnt from 2009:
2009 clearly showed us how
important it is to have a visionary
long-term strategy for resilience
in good and bad times, and that
the courage to implement that
strategy, even in challenging
times, is crucial for survival.
Five years ago, the Sanlam
group embarked on a strategy to
diversify and place client centricity
at the heart of our business. This
strategy proved extremely resilient
and allowed us to perform well
this year.
Strategic priority for 2010:
Our greatest strategic priority
for 2010 is to reestablish the
trust of consumers and change
consumer behaviour. Consumers
are sceptical about both the
performance and the ethics of
our industry, and have a more
sophisticated understanding of
financial solutions. As such, they
now demand transparency, fair
treatment and better service.
The industry has gone some way
towards addressing such issues
but much remains be done in
2010 to raise the image of the
financial services industry and
position i t as genuinely
client centric. •
David Price, MD, Liberty
Corporate
Lessons learnt from 2009:
Liberty Corporate has had a
successful year, despite the tough
environment. As a business, we
have resolved to harness the
pressure of 2009 as a positive
catalyst for change. We have been
honoured to be recognised for our
efforts by winning two industry
awards: the 2009 FIA Employee
Benefits – Product Supplier of the
Year Award and the 2009 PMR
(Golden Arrow) Award for Large
pension fund administrators and
product providers– insurers.
Strategic priority for 2010: The
challenge in 2010 is to remain
focused on delivering on our
promises and building on a very
strong base in what is a constantly
changing environment. Top of
mind is making the customer
journey a seamless, pleasant
experience, and ensuring that we
are the first choice of advisers
across the field.
PRODUCTS OFFERED HAVE
TO MEET CUSTOMERS’
NEEDS AND REQUIREMENTS
COVER STORY COVER STORYYY LONG TERM
The Commi ssi on of Employment Eq-
uity Report 2008 — 2009 from the Department of
Labour indicated that the percentage of permanently
employed people with disabilities in the formal sec-
tor has reduced from 1% to 0.7% compared with the
previous year, despite targets set by the employment
equity regulations.
People with disabilities experience high unemploy-
ment levels and often remain in low-status jobs. Ig-
norance, fear and stereotyping contribute to possible
unfair discrimination against people with disabilities
in society and in employment. This unfair disability
discrimination is perpetuated in many ways. There
are many unfounded assumptions about the abilities
and performance of job applicants and employees
with disabilities. Workplaces are sometimes inacces-
sible and training is not always appropriate for peo-
ple with disabilities.
FAR-REACHING BENEFITS
People with disabilities can contribute their skills and
abilities to the economy and society if employers re-
move unfair discriminatory barriers and provide rea-
sonable accommodation. The cost of claims on public
social security and occupational benefit schemes can
be reduced if employees with disabilities are retained
at work.
In practice, there is actually a lot that companies
can do accommodate disabled employees and ben-
efit from their skills and abilities, while meeting
legislative targets.
INSURANCE SOLUTIONS
For example, it is prudent for any employer to pro-
vide insurance cover for unplanned events such as
employees becoming disabled due to illness or ac-
cident. This would make employees eligible for in-
sured benefits if they were not able to perform their
regular occupation because of a disability resulting
from illness or accidental injuries. Group disability
insurance policies provide benefits on an income re-
placement basis or payment of a lump sum benefits
I n pract ice, companies can do a gr eat deal t o accommodat e disabled
employees and benefit f r om t heir skills and abilit ies while meet ing
legislat ive t ar get s. BY ANTON ENGELBRECHT, ALEXANDER FORBES HEALTH
DI SABLED EMPLOYEES
Reas onabl e accommodat i on
i n t he wor kpl ace
in conjunction with retirement benefits from the re-
tirement fund.
As such, the provision of disability insurance by
employers should be viewed as a part of a disability
risk management strategy in the workplace.
REGULATORY ISSUES
Historically, employers accepted the insurer’s deci-
sion in terms of the validity of the disability claim
submitted without applying the provisions stipulated
in Schedule 8 of the Labour Relations Act (LRA).
These provide a clear procedure requiring the em-
ployer to investigate any medical incapacity of an
employee prior to termination of the employee-em-
ployer relationship – with an intention of retaining
the employee in his or her occupation or even a dif-
ferent occupation as far as reasonably possible.
Furthermore, the Code of Best Practice on Key
Aspects of Disability in the Workplace issued by
the Department of Labour provides a guideline for
employers, employees and their representatives to
develop, implement and refine disability equity
policies and programmes to suit the needs of their
respective workplaces.
A number of initiatives can be undertaken by em-
ployers not only to comply with the requirements of
the Code of Best Practice but also become the em-
ployer of choice for persons with disabilities.
Designing a strategy that would achieve compli-
ance with the Code of Best Practice as well as assist
companies become an employer of choice would in-
clude the following objectives:
• ensure all human resource policies comply with
relevant legislation, i.e. Employment Equity Act
and the abovementioned Code of Good Practice
• create an environment that is disabled-friendly,
physically accessible and socially accommodative
• actively drive to recruit and select suitable disabled
candidates for all vacancies and to rehabilitate and
train employees who become disabled
• provision of further training and career advance-
ment opportunities for persons with disabilities.
ANTON
ENGELBRECHT
Engelbrecht (BMedSci,
BSc (hons) Bio
Systems Cum Laude,
MBA) is a business
development and
strategic consultant
at Alexander Forbes
Health.
EMPLOYEE BENEFI TS
25
The mai n pur pose of an RA fund is to
provide a life annuity upon retirement of a member of
55 years or older, or annuities for the dependants or
nominees of deceased members.
“In order to encourage saving for retirement, the In-
come Tax Act allows for deductions from a taxpayer’s
income, up to certain limits, for contributions made to-
wards retirement savings,” explains Navin Ramparsad,
head: legal and compliance at Momentum Wealth. “Typ-
ically, clients can claim a deduction equal to a maximum
of 15% of non-retirement funding income; or R1 750; or
R3 500 less allowable pension fund contributions.
“In terms of current legislation, contributions in excess
of the allowable deduction will be taken into account
at retirement and potentially increase a client’s tax-free
amount. It is advisable to contribute as much as possible
towards retirement savings, but at the very least clients
should endeavour to contribute at least the maximum
allowable deduction towards retirement, as this will also
assist in minimising their tax liability.”
Erica Stuart of Liberty Group Advisory Services elabo-
rates: “If a client contributes a R100 000 lump sum
into his/her retirement annuity then he/she would
qualify for a deduction. SARS will apply the formula
to determine what the tax deductible amount would
be. It is important to note that if an employee
qualifies for a tax deduction now, these
amounts will be deducted from his/her
tax-free amount at retirement.
“Upon retirement, up to one-third
of the benefit may be taken as a lump
sum. Up to R300 000 of the total lump
sum received from pension, provident
and RA funds during a person’s life-
time is tax free and any balance is taxed
at incremental rates ranging from 18
The t ax season is upon us and many employees will be consider ing
lump sum RA cont r ibut ions t o r educe t heir t ax liabilit ies. Ent er pr i se
Ri sk asked t he exper t s about t he implicat ions f or st akeholder s.
RETI REMENT – RA SEASON
Lump s um RA cont r i but i ons
f or t ax benefit s
to 36 %,” explains Anton Swanepoel, legal advisor at
Sanlam law service. “The part of the retirement benefit
that is not taken as a lump sum must be used to provide
a pension to the member for life. The pension instal-
ments are taxed as income at marginal tax rates.”
TAX OR RETIREMENT SOLUTION?
Liberty group notes that retirement annuities were in-
troduced to allow self-employed individuals to save for
retirement and qualify for a tax deduction. “Retirement
annuities are long-term savings vehicles and are not
meant to be used merely as a means to reduce income
tax, but rather as a vehicle for saving for retirement.
They should form part of an individual’s overall retire-
ment saving strategy,” says Stuart. “If saving tax is the
primary goal then a retirement annuity and a lump sum
contribution into this vehicle allows for that but be care-
ful of the unintended consequence of market volatility,
in other words, losing capital over the short term if the
retirement annuity is invested heavily in equities.”
Ramparsad concurs, “Ideally the goal should be to
contribute towards retirement savings. It just so happens
that to encourage such savings the government provides
tax advantages both during the contribution stage and
at retirement”.
“Any decision to make contributions to an RA fund
should be taken as part of a person’s long-term retire-
ment funding plan. It is recommended that employees
consult a duly licensed financial advisor before taking
decisions in this regard,” says Karen de Kock, head of
annuities at Sanlam employee b.enefits.
IMPORTANT CONSIDERATIONS
“If a client decides to invest in a retirement annuity then
it is important to note that he/she cannot access his/her
money before age 55 and he/she can also not take loans
against the fund value,” cautions Stuart.
“There are exceptions to this rule, for exam-
ple, in the case of a divorce order, funds may
be transferred to a non-member spouse or
in terms of a maintenance agreement and if
you emigrate you can access these funds. In
addition, if the tax-deduction is taken now,
26
COVER STORY COVER STORYYY EMPLOYEE BENEFI TS
“TO ENCOURAGE SAVING FOR RETIREMENT, THE
INCOME TAX ACT ALLOWS FOR DEDUCTIONS FROM A
TAXPAYER’S INCOME, UP TO CERTAIN LIMITS.” NAVIN
RAMPARSAD, HEAD, LEGAL AND COMPLIANCE, MOMENTUM WEALTH
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then a person cannot qualify for it again at retirement
and the tax-free amount will be reduced by the amount
already taken.”
Ramparsad says the considerations should rather be
how much one needs for retirement purposes, there-
fore how much one needs to save per year – either on a
monthly, ad hoc or lump
sum basis – to achieve that
goal. “If the tax benefits
are reduced or elimi-
nated, it would not
take away the
need to save for
retirement.”
Swanepoel advises that any decision to
make a lump sum or regular contribution to
an RA fund should be taken after consulta-
tion with a financial advisor and should take
into account the total long-term retirement
funding plan. “Factors that could be con-
sidered will include, among others, age,
current retirement provision, income,
tax, risk tolerance with regard to in-
vestments, the investment choices
offered by a particular RA fund
and the costs charged by the fund.
The two most important factors
that will influence retirement
planning will be longevity and
investment returns before and
during retirement.”
De Kock adds that the impact
of both factors on retirement
planning should be discussed
with a financial advisor, and the retire-
ment fund products and all terms and
conditions should be well understood.
“The risk of investing a lump sum into
the market is always higher,” notes Stuart. “Those con-
cerned about investing a lump sum into a retirement
annuity could contribute monthly instead. This would
smooth the ‘buy-in price’ by using rand-cost averaging.
When investing a lump sum into a retirement annuity,
one ‘buys in’ at the price at that time and rand cost av-
eraging will not apply as it does with monthly contribu-
tions. Care should also be taken with the portfolios the
retirement annuity funds are invested in. Where an in-
vestor is nearing retirement, investments should be less
aggressive, and have a smaller equity component, as the
investor has less time to sit out market volatility.”
WHERE DOES THE BUCK STOP?
According to Stuart, during the financial planning proc-
ess when the discussion regarding retirement planning
and savings takes place between the client and the fi-
nancial advisor, and when a solution is recommended to
address the issue of saving for retirement, the financial
advisor should explain and disclose all the costs and
benefits of a product before concluding the business. “If
the advisor recommends a retirement annuity to the cli-
ent, the financial advisor needs to go through all the
benefits of a retirement annuity and not just highlight
the tax deductibility of the contributions and lump sum
payments into the retirement annuity. However, the
onus is also on the client to understand what he or she
is buying and what the benefits are and whether there is
going to be any tax deductions.”
“In my view, the industry is responsible for educating
clients on the benefits of saving towards retirement, both
from a tax point of view and post-retirement needs point
of view,” says Ramparsad. “In a personal interaction I
would consider the tax advisor and or financial planner
to be better suited to provide the client with information
and advice regarding the tax implications of contribut-
ing towards retirement and the benefits thereof.”
Swanepoel believes that it is a person’s duty to obtain
as much information as possible before becoming a
member of a particular RA fund. “It is strongly recom-
mended that employees consult their financial advisors
for advice in this regard."
The advisor should be able to also advise the client
on the tax implications, but a tax advisor could also
be consulted. The RA fund itself
will provide information on the
fund and its benefits, however,
the trustees of the fund may not
offer financial advice.”
“RETIREMENT ANNUITIES ARE LONG-TERM SAVINGS VEHICLES
AND ARE NOT MEANT TO BE USED MERELY AS A MEANS TO
REDUCE INCOME TAX” ERICA STUART, LIBERTY GROUP ADVISORY SERVICES
“THE RISK OF INVESTING A LUMP SUM INTO THE MARKET IS
ALWAYS HIGHER” KAREN DE KOCK, HEAD, ANNUITIES, SANLAM EMPLOYEE BENEFITS
SAVINGS IN SOUTH AFRICA
Statistics show that the average South African is not saving enough for retirement.
Estimates show that only six percent of people can afford to retire. People are struggling to
make ends meet and only survive from month to month by balancing the bills. Cashing in
on retirement savings can make retirement disastrous. People also tend to spend money
on tangible assets such as houses and cars instead of retirement. There is a tendency to
look short term at financial goals with not enough focus on retirement planning.
COVER STORY EMPLOYEE BENEFI TS
30
COVER STORY COVER STORYYY EMPLOYEE BENEFI TS
Recent f i nanci al t ur moi l has
put many companies under pressure where provi-
sion of good employee benefits is concerned. A
good employee benefits strategy can go a long way
towards keeping a workforce focused and engaged.
Most employees today, even employees that work
for minimum wage, expect some form of employ-
ee benefits. It is important that employers care-
fully consider the impact of putting an embargo
on salary increases, cancelling bonuses, reducing
employee benefits or laying off employees before
doing so. These approaches should be considered
as a last resort.
This is because such actions, which may be com-
pletely valid for the survival of the business, could
have long-term adverse effects on a company’s
most valuable assets - its employees.
EMOTIONAL REACTIONS TO CUT-BACKS
Bear in mind that employees can view their benefits
very personally – many have an emotional connec-
tion to them. Cancelling or cutting back on em-
ployee benefits can cause havoc internally. It is not
uncommon for employees to seek greener pastures
when benefits are cut or scaled back. The costs as-
sociated with the loss of accumulated institutional
knowledge, reputational damage and productivity
deficits resulting from outgoing and later, incoming
employees, may dwarf those savings from cutting
employee benefits.
EB BENEFITS
Some of the other benefits of offering or maintain-
ing employee benefits include certain tax advan-
tages that companies get through deducting plan
contributions.
Secondly, employees often accept better benefits
Ther e ar e some considerat ions t o t ake int o account when deciding if
pr oviding employee benefit s will also benefit your business and t he
bot t om line. BY TARYN MARCUS, LIBERTY CORPORATE
EB I N AN ECONOMI C DOWNTURN
The r i sk of not havi ng
empl oyee benef i t s
in lieu of a higher salary, which can be a savings
vehicle for the company.
Thirdly, offering benefits to employees also can
be advantageous to the business owner, who may
be able to get personal benefits for less money than
if he or she had purchased them privately.
Finally, offering health insurance has been shown
to decrease absenteeism and improve employee
health and morale.
RANGE OF OPTIONS
It is clear that there are many advantages to hav-
ing a good employee benefits offering in place.
Even though this may seem like a daunting task to
some, employers need to keep in mind that there
are many flexible options to choose from. Many
employers today are offering employee benefits in
more creative ways to satisfy the emerging, unique
interests of their employees. For example, many
businesses are now offering onsite childcare, re-
duced fees on cell phone contracts and other luxu-
ry items, reduced banking administration fees and
concierge desks.
Overall, in a time of economic downturn and
uncertainty, it is imperative that companies retain
their most productive and valuable employees. Even
when the economy is sluggish, companies still need
to continue operations, maintain business relation-
ships, provide good products and services, and find
new avenues of growing the business. These goals
cannot be accomplished unless companies have
their best people in place.
CHOOSING THE BEST STRATEGY
So what is the best strategy during down times?
Communicate to your employees the value (in
rands) of their total benefits package. Such commu-
nication will assist in generating awareness of just
how much the company values them. This should in
turn result in engaged and committed employees,
and lead to better performance and business results,
as well as an increase in the company’s ability to
“win the war for talent”.
TARYN MARCUS
Marcus is an HR
business partner:
Liberty Corporate
and specialises in
people development.
She has a BA human
resources (cum laude),
BA honours Industrial
Psychology (cum
laude), and an MA
industrial psychology.
IT IS NOT UNCOMMON FOR EMPLOYEES TO
SEEK GREENER PASTURES WHEN BENEFITS ARE
CUT OR SCALED BACK
31
RISK MANAGEMENT
As organisat ions move t owards more mat ure risk management ,
specialised risk management disciplines are implement ed t o manage t he
more significant risk areas. BY VANESSA PAYNE, IQ BUSINESS GROUP
I nt egr at i ng s peci al i s ed r i s ks
i n ERM
SPECI ALI SED RI SK MANAGEMENT DI SCI PLI NES
I n t he l ast
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.
FITTING THE PIECES TOGETHER
There are various specialised risk management disci-
plines, including several that form part of financial
risk management. In diagram 1, some of the most
important specialised risk management disciplines
are shown and these are briefly defined in to high-
light their importance to a company.
BUSINESS CONTINUITY MANAGEMENT
Every organisation can at any time experience a
serious incident that can prevent it from continuing
DIAGRAM 1 The most
important specialised
RM disciplines
RI SK MANAGEMENT
32
normal business operations. Business continuity is
defined in the British Standard 25999:2006 as a
holistic management process that identifies poten-
tial threats to an organisation and the impacts to
business operations if those threats are realised. It
also provides a framework to build resilience in the
organisation.
PROJECT RISK MANAGEMENT
Projects, particularly those with a significant capi-
tal investment, may pose a potential threat to an
organisation if not managed appropriately. Project
risk management assists in ensuring that project-
specific risks are identified and their causes deter-
mined to ensure that appropriate strategies could
be planned to manage such risks. Risk manage-
ment activities are applied at all stages within a
project life cycle.
SUSTAINABILITY RISK MANAGEMENT
This refers to the effective management of envi-
ronmental, social and economic priorities in an
organisation. Included in King III, sustainability is
referred to as one of the most important sources
of both opportunities and risks for businesses and
that nature, society and business are interconnect-
ed in complex ways that should be understood by
decision makers.
OPERATIONAL RISK MANAGEMENT
This is defined as the risk of loss resulting from
inadequate or failed internal processes, people and
systems or from external events. Typical compo-
nents of an operational risk framework include
loss data collection, risk and control self-assess-
ment, issues and action plans, key indicators and
key risk scenarios. Operational risk management is
particularly mature in the banking industry due to
Basel II requirements, but the tools and processes
used can assist any organisation in the manage-
ment of their risks.
CREDIT RISK MANAGEMENT
Credit risk management enables an organisation
to optimise measures to reduce and manage their
aggregated default risk and link measurement to
marketing strategies through methods like risk
adjusted pricing, all the while hedging positions
to the organisation’s broader ERM framework
and ensuring regulatory compliance requirements
are met. Certain key principles and factors must be
considered in managing credit risk and credit risk
tools are required for the practical implementation
and management of credit risk.
CREDIT RISK TOOLS
These include quantitative calculation engines,
qualitative scoring guides and credit-risk manage-
ment reporting systems. Such tools aid both the
measurement and the processes to manage credit
risk in an organisation. The time and monetary ef-
forts employed to create or implement a tool or
system must appropriately balance the magnitude
of the risks it is intended to measure.
CONSUMER CREDIT RISK MANAGEMENT
This involves understanding the risk a consumer
presents to an organisation before granting that
consumer any type of loan. Crucial issues in this
regard include how to determine the associated
risk and how to set appropriate strategies for risk
management and risk mitigation throughout the
lifetime of a loan.
It further involves aspects of targeting the right
customer with the right offer, selecting the cus-
tomers with acceptable risk profiles in the acqui-
sition phase, managing these customers and un-
derstanding their repayment behaviour; and lastly,
how to determine a collections strategy effectively
for each individual customer.
MARKET RISK MANAGEMENT
Market risk management is concerned with the
monitoring and management of an organisa-
tion’s potential exposure to its portfolio value as
a result of changes in market prices. The main
contributors to market risks are typically equity
prices, interest rates, foreign exchange levels and
commodity prices.
LIQUIDITY RISK MANAGEMENT
This involves the monitoring and measurement
of current and future cash flows, whether known,
expected or unexpected, to ensure an organisa-
tion will continually be able to meet its finan-
cial obligations. The management of liquidity is a
critical factor in ensuring the ongoing survival of
an organisation.
EXCITING NEW SERIES!
In the next 10 editions, the risk management experts from
IQ Business Group will be covering the specialised risk
management disciplines detailed above and their fit within
enterprise risk management in detail, including the five
disciplines that form part of financial risk management. In
each part in the series, an overview of the risk discipline,
available tools and practical necessities will be discussed.
Don’t miss the next edition in which the series will
kick off with an in-depth look at business continuity
management.
OPERATIONAL RISK MANAGEMENT IS
PARTICULARLY MATURE IN THE BANKING
INDUSTRY DUE TO BASEL II REQUIREMENTS
VANESSA PAYNE
Payne is part of The
IQ Risk Team at The
IQ Business Group
and has six years’
risk management
experience, specifically
in developing and
implementing
risk management
frameworks.
BUSINESS IS
MOVING
FORWARD
THE NEW COMPANIES ACT
KING III™ REPORT SEMINAR
The tide of business in South Africa
has changed once again
It would appear the tide of business has changed in
South Africa once again, with the implementation of
the New Companies Act early in 2010. This Act will
have far reaching implications for all business owners
alike.
Most of us have no idea how to react to something of this
magnitude with many laws being
changed and new ones being instated.
The whole conduct of business law is
being changed. Rooth Wessels Motla
Conradie has set up a one day seminar
in order to help you make sense and
receive some clarity on the matter.
The seminar will be presented by profes-
sors Piet Delport and Meryvn King who
will individually unpack the New Companies Act and King
lll™ Report in detail.
Professor Piet Delport will guide us through the impor-
tance of understanding the New Companies Act by focus-
ing on Corporate Governance and the rights and duties of
shareholders and directors under the New Act as well as
the interaction between the new system and the Common
Law and Codes of Conduct.
Professor Mervyn King recaps the background to King I,
II and III ™ Reports on Corporate Governance. He will
also unpack the concept of “Gover-
nance” in the context of South African
business as well as the relationship
between King III™ and the New Compa-
nies Act.
Both of our presenters will also focus on
application of The Business Rescue
game-plan for the future as well as the
fndings of the Business Rescue Task
force of the King III™ commission.
Don’t leave your business behind attend this one day
seminar and know what is coming around the corner
in 2010.
Rooth Wessels Motla Conradie presents
AND
ROOTH WESSELS MOTLA
CONRADIE HAS SET UP A
ONE DAY SEMINAR IN
ORDER TO HELP YOU
MAKE SENSE AND
RECEIVE SOME CLARITY
ON THE MATTER.
3RD MARCH JOHANNESBURG SANDTON CONVENTION CENTRE
14TH APRIL CAPE TOWN CAPE TOWN INTERNATIONAL CONFERENCE CENTRE
R1 450.00 excl VAT per delegate
BOOK 3 OR MORE DELEGATES AND QUALIFY FOR A 10% DISCOUNT
Visit www.frontfoot.co.za for more information or contact James Harvey on 011 880 4808
PROFESSOR PIET DELPORT
PROFESSOR MERVYN KING
34
EXECUTI VE SECTI ON
The SAI CA Conference brought to-
gether delegates from across the financial
services industry to discuss issues and chal-
lenges common to the industry against
the background of the economic down-
turn as well as the short- and medium-
term outlook.
In particular, important risk aspects were
highlighted, together with sustainable de-
velopment strategies and processes. The
solutions that emerged from the conference
will assist businesses as they strive to steer
clear of the challenges that lie ahead.
A number of high-profile speakers high-
lighted some of the most pressing issues in
the industry.
RISK MANAGEMENT MODELS
Risk management models have to be simple,
enterprise wide and integrated if they were
to succeed, Johan van Graan, Vodacom’s
chief risk officer told delegates. In addition,
Van Graan recommended that future risk
management approaches and practices be
owned by the business.
“Perceptions in the boardroom must
change. Key to any fresh approach designed
to prevent future crises is a strategy to re-
spond to global failures, complying with
King III and policies designed to ensure
long-term sustainability.”
He maintained that risk management
models of the past had been too compli-
cated. “They were not integrated into a
business’s day-to-day activities. Nor were
they sufficiently focused, attempting as
they did to cover too diverse a number of
issues, among them enterprise resource
management, credit, health and safety, and
business continuity.”
REPORTING ON RISK MANAGEMENT
Prof. Wiseman Nkuhlu, former economic
advisor to the State President, told dele-
gates that risk reporting had assumed much
importance in corporate life because risk
The Sout h African I nst it ut e of Chart ered Account ant s ( SAI CA) recent ly
host ed t he SAI CA Annual Financial Services Conference – a landmark
conference t hemed Shaping t he Fut ure Beyond t he Global Financial Crisis.
I NDUSTRY EVENTS
SAI CA Annual Fi nanci al Ser vi ces
management is integral to value creation.
The financial crisis had revealed that there
is over-reliance on statistical or mathemati-
cal risk valuation models that used historic
data. There had been too little involvement
of senior of senior executives and directors
in exercising judgement.
Nkuhlu emphasised how crucial it was for
business entities to report on how risks were
managed when they reported on economic
performance. “Failure to do so is failure to
provide vital information to investors and
others who have an interest in evaluating
the performance and future prospects of the
business entity.”
He pointed out that the increased com-
plexity of business processes and products,
consumer activism, regulatory requirements
and globalisation had all increased the need
for effective risk management and risk re-
porting. “As a consequence, reporting on
risk management has become a require-
ment in most corporate governance regu-
lations and codes. However, the financial
crisis has revealed that boards of directors,
including audit and risk committees, have
an inadequate appreciation of the nature
of risks and risk management processes of
their companies.”
Nkuhlu said that the evidence of published
financial statements gave little insight into
the comprehensiveness and quality of risk
management processes. “Most companies
only report that they have adopted com-
pany-wide enterprise risk management and
that they have well-functioning board risk
management committees.”
He referred to the G20’s description of the
root causes of the financial crisis. “During
a period of strong global growth, growing
capital flows and prolonged stability ear-
lier this decade, market participants sought
higher yields without an adequate appre-
ciation of the risks and failed to exercise
proper due diligence. At the same time,
weak underwriting standards, unsound risk
management practices, increasingly com-
plex and opaque financial products and
consequent excessive leverage combined to
create vulnerabilities in the system.
“Policymakers, regulators and supervi-
sors in some advanced countries did not
adequately appreciate and address the risks
building up in financial markets, keep pace
with financial innovations or take into ac-
count the systemic ramifications of domes-
tic regulatory actions.”
The conclusion was that risk had not been
adequately appreciated by boards of direc-
tors and investors.
“Why?” asked Nkuhlu. “Because of de-
ficient risk reporting.” He said the most
important lesson was that directors had to
take increased responsibility for risk man-
agement and reporting. “They must make
sure that they understand the products of
their companies and the risks involved.
They should not over-rely on credit rating
agencies.”
He also stressed that risk management
should not only be a corporate governance
compliance issue but a business imperative
that had to be taken seriously by every di-
rector committed to fulfilling his fiduciary
duties to the company and society. Nkuhlu
urged stock exchanges, accounting standard
setters and other regulators to review guid-
ance on risk management and reporting.
“There should be a serious review of risk
management practices. There should be
guidance regarding where risk management
information should be disclosed in the com-
pany’s integrated reports.”
REGULATION COMPLIANCE
Sandy van Esch, director: standards at the
Independent Regulatory Board for Auditors
(IRBA), told delegates that companies often
spent more time on compliance than on run-
ning their business. She said the regulation
was a significant disincentive for SMEs and
SMMEs for several reasons, among them:
35
EXECUTI VE SECTI ON
• they suffered a larger cost burden
• penalties for non-compliance can add dispropor-
tionately to costs
• they did not have the scale of operations to offset
regulatory costs
• there was a limited capacity to appoint compliance
staff.
“Many regulators have an infallible belief that more
regulation will prevent corporate failures, corruption
and fraudulent financial reporting, and that more
regulation would ensure compliance, limit excessive
greed and enhance performance and accountability.”
Van Esch recommended that a regulatory impact
assessment, performed by independent assessors,
should be required for all legislation before promul-
gation. “At the same time, legislation and regulation
creates stability – in particular in lessening the im-
pact of the global financial crisis. The impact of the
financial crisis is not as severe in South Africa as in
other countries.
“A factor in this phenomenon was South Africa
having been ranked second out of 133 countries by
the Global Economic Forum 2009/2010 survey for its
auditing and accounting standards.”
DEVELOPING AND INSPIRING EMPLOYEES
South African corporations should develop and in-
spire their employees as a core strategy to emerge ro-
bustly from the economic recession, said Matsobane
Matlwa, executive president of the South African In-
stitute of Chartered Accountants (SAICA).
“We cannot succeed without appropriately equip-
ping the people in our organisations to deliver on
the missions and visions of their respective compa-
nies,” commented Matla. “Business leaders have to
ask themselves how they can involve or enable the
thousands of unemployed people to participate again
in the recovery of the South African economy. We
cannot claim to be in a state of recovery if thousands
of people are still without jobs or merely because fi-
nancial markets are showing signs of reviving.”
Matlwa also said that SAICA would maintain stand-
ards with a view to upholding the the reputation of
the accountancy profession in the marketplace.
NHI NOT FOR SA
Gavin Came, CEO of Sasfin Financial Services told
delegates that the National Health Insurance (NHI)
was not suitable for
South Africa. “NHI is a
health-care financing
system, not a health-care
provision system.”
He noted that countries that had NHI systems were
generally highly developed economies, with large
taxpayer bases and high levels of personal income,
low levels of unemployment and income inequality,
and could afford to subsidise the minority of those
who were unemployed and unable to contribute.
Came said that in 2007, 15.6% of the population
had been beneficiaries of medical schemes, a statistic
that should be viewed against the background of a
taxpayer base comprising:
• 5.2 million individuals
• 1.6 million companies
• 379 675 registered employers
• 384 747 trusts
• 745 487 registered to pay VAT
• taxpayers comprising some 10% of the
total population.
Addressing the issue of whether or not the country
had sufficient money to administer NHI, Came high-
lighted a 2009 estimate of R5.6 billion for current ad-
ministration and managed-care fees. “An additional
41 million beneficiaries at current costs would add
R28.2 billion per year. This cannot happen.”
Rather, he suggested a solution whereby there was
an acceptance that health-care finance needed to be
extended and that provision of health care for the
unemployed be funded by income tax. “We need to
consider employer-mandated cover for all workers
seriously.
This will grow the cur-
rent market penetration from
around 16% to 28% of the
population with no new in-
frastructure. We also need to
reconsider prescribed mini-
mum benefits (PMBs) and ba-
sic benefits packages to make
a lower cost option more af-
fordable.
The quality of public health
facilities must be improved
so that they compete with
the private sector in the pro-
vision of PMBs. We need to
make health care a South
African global competitive
advantage which will benefit
residents.”
“WE CAN'T SUCCEED WITHOUT APPROPRIATELY EQUIPPING THE PEOPLE
IN OUR ORGANISATIONS TO DELIVER ON THE MISSIONS AND VISIONS OF
THEIR RESPECTIVE COMPANIES” MATSOBANE MATLWA, EXECUTIVE PRESIDENT, SAICA
Conf er ence
ASSOCI ATI ON PAGES
36
The Inst i t ut e of Retirement
Funds (IRF) represents retirement funds in
South Africa. Membership is voluntary, al-
though its value cannot be overemphasised
given the dynamic nature and increas-
ing complexities of the current retirement
landscape.
Essentially, the IRF provides individual re-
tirement funds with a collective voice in in-
teractions with statutory bodies such as the
FSB, SARS, the Department of Social Devel-
opment (DSD) and the National Treasury.
FAR-REACHING IMPACT
The IRF currently has around 900 members,
including retirement funds, trustees, legal
and technical experts from various service
providers, pension lawyers, asset managers,
risk managers, asset consultants and more.
Members enjoy significant benefits includ-
ing a voice in discussions around legal and
regulatory reforms, quick access to industry
expertise and up-to-date information. The
annual IRF conference is the biggest event in
the industry, while popular practical work-
shops are presented during the year.
Despite its important role, the IRF is self-
funded. There have been suggestions that
the FSB should make membership compul-
sory, since the entire industry benefits from
the IRF’s activities. Indeed, even the gov-
ernment bodies such as the FSB and SARS,
which simply do not have sufficient resourc-
es and are removed from the industry issues,
are dependent on the IRF for expertise and
guidance. The IRF’s legal and technical com-
mittee plays an important role in assisting
these statutory bodies to understand the
implications and ramifications of various
legislative initiatives and regulatory inter-
ventions. In essence, they help government
create solutions.
The legal and technical committee also
has a proactive approach – meeting with the
various regulatory bodies quarterly to dis-
cuss issues and proposals for amendments to
existing legislation and regulations are sub-
mitted to address identified problems.
GLANCING BACK
The IRF has not featured strongly in the
public eye, as a result of the FSB’s decision
to split the IRF into two bodies representing
trustees and service providers, and to trans-
form the board to be more representative.
“The funding for this transformation ini-
tiative did not materialise, leaving the IRF
in limbo, so to speak, from a public relations
perspective,” explains Padayachee. “Never-
theless, during this time the IRF continued to
fulfil its crucial role in the industry and now
we are ready to proceed with renewed focus
into the future.”
HARNESSING INDUSTRY EXPERTISE
One of the reasons behind the proposed re-
structuring was a misperception that the IRF
is biased towards service providers. Howev-
er, service providers are included in the IRF
membership for a very valid reason.
Padayachee explains that service provid-
ers are the employers of choice for the very
best legal and technical experts in the small
local retirement fund industry. “These retire-
ment fund specialists have their fingers on
the pulse of local developments and are able
to fund research on international trends and
access experts from overseas jurisdictions.
They also have many years of experience
dealing with the real practical issues, and
with the regulators. Their experience and
expertise are an invaluable resource which
benefits the entire industry.”
The IRF is served by 18 non-remunerated
board members. The secretariat features just
five permanent members to represent of
interests of an estimated 8 000 retirement
funds.
“For this reason, the expertise and indus-
try resources brought by the legal and tech-
nical experts at the service providers on a
voluntary basis are crucial. Likewise the IRF
provides a crucial platform for coordinated
interaction with the regulators.”
LOOKING AHEAD
“Although we continued to play a crucial role
behind the scenes over the last few years,
our new, more representative board can now
assume a more public role in the industry,
to ensure that the interests of our members,
and ultimately the beneficiaries of the retire-
ment funds, are protected and served in the
best way possible,” says Padayachee.
Ent er pr i se Ri sk spoke t o Shant ha Padayachee, president of t he
I nst it ut e of Ret irement Funds, about t he organisat ion’s role in t he fut ure
of t he indust ry.
I RF
Taki ng t he r et i r ement i ndust r y
i nt o t he f ut ur e
Shantha Padayachee has served the
retirement fund industry as an attorney
for a number of years and became
president of the Institute of Retirement
Funds in 2009
ASSOCI ATI ON PAGES
“ The FIA received many applications
from senior executives for the CEO position
but was particularly impressed with Manie’s
prior experience and success with manag-
ing another national industry association –
the South African Meat Industry Company
(SAMIC),” says FIA president, Arnold van
der Linde.
Booysen is credited with transforming
South Africa’s meat industry, which was
faced with a number of transitional chal-
lenges some time back. “During his tenure
with SAMIC, among other achievements,
Manie was awarded a certificate of apprecia-
tion from the director general for the Depart-
ment of Agriculture for achievement in BEE
projects,” says Van der Linde. Booysen, who
holds a BCom degree, also spent a number
of years with Armscor, Renwick, subsidiaries
within Malbak and other firms. He has been
responsible for the turnaround of companies
and has worked extensively in both local and
global markets – a factor which will serve
both the FIA and its members well.
“The FIA board recognised that in the rap-
idly changing world of financial services, it
was important to appoint an individual who
is unhindered by stereotypical industry ap-
proaches and is therefore able to bring fresh
perspective and insights,” says Van der Linde.
“Solutions to our current challenges lie in
creative thinking and not in fixed historical
perspectives.”
Booysen is respected for his strong man-
agement, leadership and relational skills and
will take the FIA into a new era. “Manie will
be supported by an excellent team at the FIA
and together, they will reshape the associa-
tion and ensure it meets members’ needs and
makes a positive contribution to remodelling
the insurance and assurance landscapes in
our country,” says Van der Linde.
FI A
FI A wel comes new CEO
Newly appointed FIA CEO,
Manie Booysen
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d i r e c t o r y
CONFERENCE SA
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ccupational
RiSK Health, Safety & Environment
S u b s c r i b e
SUBSCRIPTION SALES SUPERVISOR
CINDY CLOETE
Tel:+ 27 (0)11 258 6200 Fax:+ 27 (0)86 565 0978
cindy@3smedia. co. za
MARKET NEWS
Property owners and managers
who want to green their current
buildings will find that the
challenge is not as enormous
at it may seem if the process is
planned according to the six main
While existing buildings
are valuable assets fundamental
to a successful operation, they
consume significant energy,
resources and investment. In fact,
buildings use around 40% of energy
worldwide and with over 90% of the
building stock already existing, it is
imperative that the current building
stock becomes more efficient
and reduces carbon emissions to
combat global warming.
Getting more from existing
buildings will benefit users, the
community, the environment,
business and the bottom line.
Conversely, inaction means that
With uncertainty in the economy,as well as increasing environmental pressures and changing legislation, making the
most of existing buildings is an important priority for both public and private owners and occupiers.
GREEN BUI LDI NGS
Re- ener gi si ng t i r ed asset s t o r educe oper at i ng cost s
running costs will increase further,
buildings will be penalised for
poor performance, competitive
advantage will decline and users
will look elsewhere. According
to international engineering and
consulting group, Arup, greener
buildings also hold exciting
prospects for urban areas.
Increasing the useful lifespan, as
well as the commercial and visual
value of existing buildings will not
only benefit owners and users; but
will act as a catalyst to rejuvenate
decaying and unsafe urban
environments to the benefit of all
community stakeholders.
SIX STAGES OF RETROFIT
Determine your baseline.
Review your building
maintenance and operational
issues.
Establish your targets and goals.
Decide on an appropriate level of
refurbishment.
Select your optimal upgrade
initiatives.
Implement the strategy.
stages of a retrofit. For those who
realise the benefits of maximising
value by refreshing building stock
which is no longer performing in
line with market expectations, the
Green Building Council of South
Africa (GBCSA), together with Arup,
has published Existing Buildings
Survival Strategies. The publication
details the process of retrofitting
existing buildings to become
greener and more efficient. The
publication has been supported
by Eskom and has a major focus
on energy efficiency, while also
addressing issues such as water,
management and waste.
The annual Top Women
Awards are an opportunity
to celebrate companies and
individuals who contribute to the
empowerment of women, who
inspire transformation and who
strive to effect change through
their business practices and within
communities.
AND THE WINNER IS…
Sechaba Medical Solutions, one of
the leading South African health
administrators and the first 100%
black-owned administrator in the
country was announced as the
overall winner of the prestigious
Top Gender Empowered Company
award. In addition, Sechaba also
scoped the award in the Top
Gender Empowered Company:
Science, Pharmaceuticals and
Health Category.
Sechaba has a total female staff
complement of 78% with 69% in
management and 20% of their
board of directors and shareholders
are female.
The sixth annual Top Women Awards recently honoured South Africa’s corporate pioneers, government employees
and entrepreneurial heroes at the forefront of gender equality.
MEET THE WI NNERS
Si xt h annual Top Women Empower ment Awar ds
TOP GENDER EMPOWERED ORGANISATIONS
Top Gender Empowered Company: Mining, Engineering and Construction SEW Eurodrive
Top Gender Empowered Company: Science, Pharmaceuticals and Health Sechaba Medical Solutions
Top Gender Empowered Company: Transport Hauliers Consortium
Top Gender Empowered Company: Financial Services PricewaterhouseCoopers
Top Gender Empowered Company: ICT Nashua Mobile
Top Gender Empowered Company: Business Support Services Adams & Adams
Top Gender Empowered Company: Emergent Companies and SMMEs Three City Events
National, Provincial or Local Government Department Department of Public Works
Government Agency or Parastatal Gender Links
Top Women Owned Company – Voltsing Electrical
INDIVIDUAL AWARDS
The Honorary Lifetime Achievement Award Joyce Piliso-Seroke
Top Woman of the Year in Business Johanna Mukoki, Travel with Flair
Top Woman Entrepreneur Jacqueline Carrol, Media Works
Top Young Woman Entrepreneur Johanna Mukoki, Travel with Flair
Top Woman Executive Judy Van Es, Murray & Roberts
Top Woman in the Public Sector Hendrietta Ipeleng Bogopane-Zulu, Department of Public Works
INDEX TO ADVERTISERS
Chartis Insurance 2
CQS IFC
Credit Guarantee 11
Cura Software 1
Directors Forum 2010 27
Frontfoot ( New Company
Act & King III 33
IDI Technologies 41
In-House Council 15
Liberty Corporate OBC
Lombard Insurance 17
Lombard Insurance 18/19
New Companies Act 23
Miningne.ws 37
Protection of Personal
Information Bill 21
Sechaba Medical 13
40
Corporate Governance Framework
C G F
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CGF Honorary Patrons : Dr Mathews Phosa | Prof. Shirley Zinn
CGF Patrons: ContinuitySA (Platinum) | Spescom DataVoice (Silver) CGF is a Strategic Partner of ProudlySA


For addit ional informat ion please visit our websit es at www.cgf.co.za | www.corporat e-
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G o v e r n a n c e B e y o n d B o a r d s
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LIFE HEALTH INVESTMENT BUSINESS
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